<PAGE>   1

      AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 2, 2001
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                      ------------------------------------
                                   FORM 20-F

<TABLE>
<S>  <C>                                                  <C>
[ ]  REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR
        12(g) OF THE SECURITIES EXCHANGE ACT OF 1934
                             OR
[X]     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
           OF THE SECURITIES EXCHANGE ACT OF 1934
         FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
                             OR
[ ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
           OF THE SECURITIES EXCHANGE ACT OF 1934
               Commission File Number: 0-30340
</TABLE>

                               SONERA CORPORATION
             (Exact name of Registrant as specified in its charter)

                                 NOT APPLICABLE
                (Translation of Registrant's name into English)

                            THE REPUBLIC OF FINLAND
                (Jurisdiction of incorporation or organization)

                               TEOLLISUUSKATU 15
                                  P.O. BOX 154
                               FIN-00051 HELSINKI
                                    FINLAND
                    (Address of principal executive offices)

     Securities registered or to be registered pursuant to Section 12(b) of the
Act:
                                      None

     Securities registered or to be registered pursuant to Section 12(g) of the
Act:

<TABLE>
<CAPTION>
                TITLE OF EACH CLASS:                   NAME OF EACH EXCHANGE ON WHICH REGISTERED:
                --------------------                   ------------------------------------------
<S>                                                    <C>
  Shares, no nominal value, represented by American              Nasdaq National Market
                  Depositary Shares
</TABLE>

     Securities for which there is a reporting obligation pursuant to Section
15(d) of the Act:
                                      None

     Number of ordinary shares outstanding on December 31, 2000:
                                  742,984,486

     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
                        Yes [X]                      No [ ]
     Indicate by check mark which financial statement item the registrant has
elected to follow.
                    Item 17 [ ]                  Item 18 [X]
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>   2

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                        PAGE
                                                                        ----
<S>       <C>                                                           <C>
Introduction..........................................................   iv
Forward-Looking Statements............................................  vii
Glossary..............................................................  viii
                                PART I
Item 1.   Identity of Directors, Senior Management and Advisers.......    1
Item 2.   Offer Statistics and Expected Timetable.....................    1
Item 3.   Key Information.............................................    1
          Selected Financial Data.....................................    1
          Risk Factors................................................    5
Item 4.   Information on the Company..................................   15
          Organization................................................   15
          History.....................................................   15
          Business Overview...........................................   16
          Strategy....................................................   17
          Description of Group Operations.............................   19
          Regulation..................................................   78
          Property and Equipment......................................   97
Item 5.   Operating and Financial Review and Prospects................   97
          Overview....................................................   97
          Recent Developments.........................................  104
          Operating Results...........................................  113
          Liquidity...................................................  134
          Capital Resources...........................................  135
          Capital Expenditures and Investments........................  138
          Research and Development....................................  139
          Inflation...................................................  141
          Results of Year 2000 Program................................  141
          Introduction of the Euro....................................  142
Item 6.   Directors, Senior Management and Employees..................  143
          Board of Directors..........................................  143
          Corporate Management Group..................................  145
          Auditors....................................................  146
          Employment Agreements.......................................  146
          Compensation of Directors and Officers......................  147
          Board Practices.............................................  147
          Employees...................................................  148
Item 7.   Major Shareholders and Related Party Transactions...........  150
          Major Shareholders..........................................  150
          Related Party Transactions..................................  153
</TABLE>

                                        ii
<PAGE>   3

<TABLE>
<CAPTION>
                                                                        PAGE
                                                                        ----
<S>       <C>                                                           <C>
Item 8.   Financial Information.......................................  154
          Consolidated Financial Statements...........................  154
          Legal and Regulatory Proceedings............................  154
          Dividend Policy.............................................  158
          Significant Changes.........................................  159
Item 9.   The Offer and Listing.......................................  159
          Nature of Trading Market....................................  159
          Trading Markets.............................................  161
Item 10.  Additional Information......................................  163
          Memorandum and Articles of Association......................  163
          Material Contracts..........................................  166
          Exchange Controls...........................................  169
          Taxation....................................................  170
          Documents on Display........................................  175
Item 11.  Quantitative and Qualitative Disclosures About Market         175
          Risk........................................................
Item 12.  Description of Securities Other Than Equity Securities......  179
                                  PART II
Item 13.  Defaults, Dividend Arrearages and Delinquencies.............  180
Item 14.  Material Modifications to the Rights of Security Holders and  180
          Use of Proceeds.............................................
Item 15.  Reserved....................................................  180
Item 16.  Reserved....................................................  180
                                  PART III
Item 17.  Financial Statements........................................  180
Item 18.  Financial Statements........................................  180
Item 19.  Exhibits....................................................  180
</TABLE>

                                       iii
<PAGE>   4

                                  INTRODUCTION

     Unless the context otherwise requires, as used in this annual report, the
terms "Sonera," "Group," "Company," "we," "our" and "us" refer to Sonera
Corporation or to Sonera Corporation together with its subsidiaries depending
upon the context. As used herein, the term "Finnish State" refers to the
Republic of Finland.

     References in this annual report to "Sonera" relating to periods prior to
the demerger (as described in the paragraph below) may refer to PT Finland Ltd.
or Telecom Finland Ltd. depending upon the context.

     Our consolidated financial statements as of and for the years ended
December 31, 1998, 1999 and 2000 are contained in this annual report. We have
also included our unaudited condensed consolidated interim financial statements
as of and for the three months ended March 31, 2000 and 2001 in this annual
report.

     Our consolidated financial statements and our unaudited condensed
consolidated interim financial statements have been prepared in accordance with
Finnish generally accepted accounting principles ("Finnish GAAP"). For a
detailed discussion of the principal differences between Finnish GAAP and U.S.
generally accepted accounting principles ("U.S. GAAP"), together with a
reconciliation of net income and shareholders' equity recorded under Finnish
GAAP to net income and shareholders' equity under U.S. GAAP, see Note 21 to our
consolidated financial statements.

     Until July 1, 1998, our business operations constituted a part of the
operations of PT Finland, a company incorporated under the laws of the Republic
of Finland. Prior to July 1, 1998, all current subsidiaries of Sonera
Corporation were direct or indirect subsidiaries of PT Finland with the
exception of subsidiaries established or acquired after July 1, 1998. Effective
July 1, 1998, PT Finland's postal services and telecommunications operations
were separated from each other in a demerger carried out in accordance with
Finnish law. Although prior to the demerger Sonera did not form a separately
reporting consolidated group, our consolidated financial statements have been
prepared by separating out the telecommunications related businesses from the
consolidated financial statements of PT Finland, and presenting the results of
operations, financial position and cash flows of these businesses as if they had
formed a separately reporting consolidated group with the same structure as that
of Sonera subsequent to the demerger for the six months ended June 30, 1998. For
a discussion of the basis for, and adjustments made in relation to, our
financial statements, see Note 1 to our consolidated financial statements.

     On February 22, 1999, the board of directors of Sonera Group plc, a
predecessor of Sonera Corporation, approved a merger between Sonera Group plc,
the stock exchange listed parent company of the consolidated group, and its
principal operating subsidiary Sonera Ltd. The merger took effect on September
30, 1999, and upon the effectiveness of the merger the name of the merged entity
was changed to Sonera Corporation.

     On January 1, 1999, the 11 member states of the European Union (the "EU")
initially participating in the Economic and Monetary Union (known as the EMU)
introduced a single European currency known as the euro. Following the adoption
by Greece of the euro as its national currency, the following 12 member states
participate in the EMU and have adopted the euro as their national currency:
Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg,
The Netherlands, Portugal and Spain. Currently, the euro is only an accounting
currency and the national currencies of the EMU member states continue to be
legal tender and are considered to be sub-units of the euro. During a
transitional period that will last from January 1, 2002 until February 28, 2002,
euro banknotes and coins will enter circulation and the national currencies of
the EMU member states will be phased out. In this document, we have presented
our consolidated financial statements in euros. Our consolidated financial
statements for the year ended December 31, 1998 were prepared in Finnish
markkas, and have been restated into euros using the irrevocable conversion rate
of E1.00 = FIM 5.94573. The consolidated financial statements depict the same
trends as would have been presented if we had continued to present our
consolidated financial statements in Finnish markkas. However, the consolidated
financial statements for periods prior to January 1, 1999 are not comparable to
the financial statements of other companies that currently report in euros and
that have restated their financial statements from a currency other than Finnish
markkas.

                                        iv
<PAGE>   5

     As used in this annual report:

     -  "Finnish markka" or "FIM," when used with respect to any time or period
        before January 1, 1999, means the lawful currency of the Republic of
        Finland and, when used with respect to any time or period after January
        1, 1999, means the sub-unit of the euro designated as such under the
        applicable regulations of the European Community;

     -  "euro," or "E" means the new single unified currency that was introduced
        in connection with the EMU in Finland and ten other initially
        participating member states of the EU on January 1, 1999; and

     -  "U.S. dollar," or "U.S.$" means the lawful currency of the United States
        of America.

     For your convenience, this annual report contains translations of certain
amounts denominated in one currency into another currency. You should not
assume, however, that amounts could have been exchanged at any particular rate
or at all.

     This annual report contains translations of certain euro amounts into U.S.
dollars. Unless otherwise stated, euro amounts have been translated into U.S.
dollars at the noon buying rate in New York City for cable transfer in foreign
currencies as certified for customs purposes by the Federal Reserve Bank of New
York (the "Noon Buying Rate") on December 29, 2000 which was E1.00 = U.S.$0.9388
(U.S.$1.00 = E1.0652).

     On June 29, 2001, the Noon Buying Rate for the euro was E1.00 = U.S.$0.8474
(U.S.$1.00 = E1.1801).

     The financial information and certain other information presented in a
number of tables in this annual report has been rounded to the nearest whole
number or the nearest decimal. Therefore, the sum of the number in a column may
not conform exactly to the total figure given for that column. In addition,
certain percentages presented in the tables in this annual report reflect
calculations based upon the underlying information prior to rounding, and
accordingly may not conform exactly to the percentages that would be derived if
the relevant calculations were based upon the rounded numbers.

     Some of the financial, operating and country-specific data contained in
this annual report under "Item 4. Information on the Company" relating to our
associated companies and other companies in which we have an equity interest are
based on financial and other information received from these companies. We
assume no responsibility for the accuracy of such data.

     Unless otherwise indicated in this annual report, (1) macroeconomic
statistics relating to the Republic of Finland as set forth herein are based on
data provided by Statistics Finland, a Finnish governmental statistics service;
(2) data relating to the Finnish telecommunications market, including market
share data and penetration rates, are based on data provided by (A) the Finnish
Ministry of Transport and Communications, in particular, in the Ministry's
publication "Telecommunications Statistics 2000;" (B) EMC World Cellular
Database, a commercial statistics organization, and (C) Taloustutkimus Oy, a
private Finnish research company; (3) data relating to the telecommunications
industry in the European Union and in certain European Union member states are
based upon data provided by the Finnish Ministry of Transport and
Communications; and (4) data relating to the telecommunications industry in the
member states of the Organization for Economic Cooperation and Development are
based on data provided by Teligen Ltd. (formerly, Eurodata Foundation), an
independent telecommunications research, consultancy and information company. We
have not independently verified the data published by these entities.

     This annual report also contains the audited consolidated financial
statements for:

     -  Turkcell Iletisim Hizmetleri A.S. as of December 31, 1999 and 2000 and
        for the years ended December 31, 1998, 1999 and 2000; and

     -  Orla Siebzehnte Vermogensverwaltung GmbH ("Orla" or "Gruppe 3G") as of
        December 31, 2000 and for the period from the date of inception (August
        2, 2000) to December 31, 2000.

     Turkcell is a provider of mobile communications services in Turkey in which
we currently hold a 37.3 percent interest. Turkcell's consolidated financial
statements have been prepared in accordance with U.S. GAAP. Orla, which was
formed in August 2000, successfully bid for one of the nationwide UMTS licenses

                                        v
<PAGE>   6

in Germany. We currently hold a 42.8 percent interest in Orla. The board of
directors of Orla has decided to change the name of the company to Gruppe 3G
UMTS Holding GmbH and the company is currently taking the necessary steps to
have the name change registered in Germany. Accordingly, we refer to Orla as
"Gruppe 3G" throughout this annual report. Gruppe 3G's consolidated financial
statements have been prepared in accordance with U.S. GAAP.

     References in this annual report to "Nordic Countries" are to Denmark,
Finland, Iceland, Norway and Sweden. References to the "Baltic States" are to
Estonia, Latvia and Lithuania.

                                        vi
<PAGE>   7

                           FORWARD-LOOKING STATEMENTS

     This annual report contains forward-looking statements. Statements that are
not historical facts, including statements about our beliefs and expectations,
are forward-looking statements and can be identified by the use of
forward-looking terminology such as the words "believe," "expect," "seek,"
"plan," "intend," "anticipate," "estimate," or "predict." These statements are
based on current plans, estimates and projections, and therefore the reader
should not place too much reliance on them. Forward-looking statements speak
only as of the date they are made, and, other than as required by applicable law
or the applicable rules of any exchange on which our securities may be listed,
we undertake no obligation to update any of them in light of new information or
future events. Forward-looking statements involve inherent risks and
uncertainties. A number of important factors could cause actual results or
outcomes to differ materially from those expressed in any forward-looking
statement. These factors include, but are not limited to, the following:

     -  the success of our UMTS roll out and the acceptance of UMTS in the
        marketplace and as an industry standard in the telecommunications
        industry;

     -  the level of demand for telecommunications services, particularly with
        regard to mobile services and new higher value-added products;

     -  regulatory developments and changes, including with respect to the
        levels of tariffs, the terms of interconnection, customer access and
        issues related to national roaming;

     -  the outcome of legal and regulatory proceedings in which we are involved
        or may become involved;

     -  the success of new businesses, many of which involve start-up costs and
        capital commitments and have generated little or no revenue to date,
        particularly with regard to the products and services of our Media
        Communications and New Services business area, including our Sonera
        SmartTrust wireless transaction security applications and our Sonera zed
        value added mobile content services;

     -  the effects of mergers and consolidations within the telecommunications
        industry and our ability to complete acquisitions or divestitures and
        integrate acquired businesses;

     -  the availability, terms and deployment of capital, particularly in view
        of our debt refinancing needs and the impact of regulatory and
        competitive developments on our capital outlays;

     -  changes in interest rates, which may affect us more than in the past due
        to our high degree of leverage;

     -  potential further downgrades in our debt ratings by credit rating
        agencies;

     -  the success of our international investments including our third
        generation joint ventures; and

     -  other factors that are described under "Item 3. Key Information -- Risk
        Factors."

                                       vii
<PAGE>   8

                                    GLOSSARY

     The following explanations are not intended as technical definitions, but
to assist the general reader to understand certain terms as used in this annual
report.

Access line:                 The system used to connect a subscriber to the
                             nearest switch or concentrator. An access line
                             generally takes the form of a closed circuit and
                             consists of a pair of copper wires, but may also
                             employ fiber optic cables, microwave links or other
                             technologies.

ADSL (Asymmetric Digital
Subscriber Line):            A technology for transferring data that uses
                             existing copper wires to provide faster network
                             access to the Internet and other popular multimedia
                             and data services at speeds of up to two to six
                             Mbps, a transfer speed 50 times faster than
                             ordinary transfer technology.

AMPS (Advanced Mobile Phone
System):                     An analog mobile telecommunications system used in
                             the United States.

Analog:                      A transmission mode in which the initial signal
                             (i.e., voice) is converted into and transmitted as
                             an electrical signal.

ARP (autoradiopuhelin):      Sonera's mobile vehicle radio telephone system
                             operating in the 150 MHz frequency band. ARP, which
                             was introduced in 1971 and which is still in
                             operation, was Sonera's first mobile communications
                             network.

ATM (Asynchronous Transfer
Mode):                       A multiplexing and routing technology for
                             high-speed digital communications that permits
                             data, text, voice, video and multimedia signals to
                             be transmitted simultaneously between network
                             access points at speeds of up to 155 Mbps or more.
                             ATM allows for better local area network
                             interconnections, PBX interconnection, data
                             transmission and flexible bandwidth delivery.

Bandwidth:                   The measure of the capacity of a communications
                             channel. Analog telephone lines measure capacity in
                             hertz, the difference in the highest and lowest
                             frequency of the channel. Digital channels measure
                             bandwidth in bits per second.

Base station:                Fixed transceiver equipment in each cell of a GSM
                             mobile telecommunications network that communicates
                             by radio signal with mobile handsets in that cell.

Base station controller:     Equipment used in a GSM mobile telecommunications
                             network for controlling call set-up, signaling and
                             maintenance functions as well as the use of radio
                             channels of one or more base stations.

Basic data services:         Digital transmission of packet-switched data
                             through wired networks to provide services such as
                             the transfer of text, numeric data and graphics in
                             digital format.

Bit:                         The smallest unit of binary information.

Bps (Bits per second):       A data transmission rate. Bps is the number of bits
                             sent per second.

Broadband network:           A network where data is transmitted through
                             multiple channels over a transmission medium. A
                             broadband network is also used to describe a
                             network where data is transmitted at high
                             bandwidth, typically exceeding two Mbps.

                                       viii
<PAGE>   9

Broadband service:           A communications service for content requiring
                             high-speed transmission rates such as video
                             transmission.

CDMA (Code Division
Multiple Access):            Transmission technology utilized in the upcoming
                             third generation UMTS mobile communications system,
                             where each transmission is sent over multiple
                             frequencies and a unique code is assigned to each
                             data or voice transmission, allowing multiple users
                             to share the same frequency spectrum.

Cell:                        The geographic area covered by a single base
                             station in a mobile communications network.

Channel:                     A link between one point in a network to another
                             point in that network, over which traffic can be
                             conveyed.

Concentrator:                A communications device that subdivides a channel
                             into a larger number of channels.

Data packet:                 A data transmission technique whereby information
                             is segmented and routed in discrete data envelopes
                             called "packets," each with its own appended
                             control information for routing, sequencing and
                             error checking.

Digital:                     A method of storing, processing and transmitting
                             information through the use of distinct electronic
                             or optical pulses that represent the binary digits
                             0 and 1. Digital transmission and switching
                             technologies employ a sequence of these pulses to
                             represent information as opposed to the
                             continuously variable analog signal. Compared to
                             analog networks, digital networks allow for greater
                             capacity, lower interference, protection against
                             eavesdropping and automatic error correction.

Dual band handsets:          Handsets that operate on two bands within the same
                             systems, for example, both GSM 900 and GSM 1800.

EDI (Electronic Document
Interchange):                A standardized format for the inter-company
                             exchange of legally binding trade documents, such
                             as invoices and shipping and purchase orders, over
                             an electronic network.

ETSI (European
Telecommunications
Standards Institute):        An organization made up of national representatives
                             from member countries of the CEPT, the European
                             post and telecommunications organization. ETSI
                             representatives can include public and private
                             telecommunications providers, research institutions
                             and equipment manufacturers and users, subject to
                             national determination.

EutElsat (European
Telecommunications
Satellite Organization):     The European Telecommunications Satellite
                             Organization headquartered in Paris.

Exchange:                    See "Switch."

Extranet:                    An intranet that is extended to include certain
                             outside businesses, organizations or individuals.
                             Extranets are typically established to enable the
                             sharing of documents and information between an
                             enterprise and its suppliers, vendors and/or
                             trading partners.

                                        ix
<PAGE>   10

Fiber optic cable:           A transmission medium constructed from extremely
                             pure and consistent glass through which digital
                             signals are transmitted as pulses of light. Fiber
                             optic cables offer greater transmission capacity
                             and lower signal distortion than traditional copper
                             cables.

Frequency band:              A specified range of frequencies. Frequency refers
                             to the number of times per second that a wave (e.g.
                             electromagnetic wave) oscillates or swings back and
                             forth in a complete cycle from its starting point
                             to its end point.

Gbps (Gigabits per second):  A data transmission rate. One Gbps equals 2(30)
                             bps.

GPRS (General Packet Radio
Service):                    A GSM-based packet-switched data transmission
                             technology standard, established by ETSI, in which
                             base stations can be directly connected to the
                             Internet, thus bypassing the switching systems
                             typically used to connect mobile traffic to fixed
                             networks. GPRS is expected to provide users of
                             mobile communications services better data access
                             capability.

GSM (Global System for
Mobile Communications):      A digital mobile telecommunications system
                             standardized by ETSI based on digital transmission
                             and cellular network architecture with roaming in
                             use throughout Europe, in Japan and in various
                             other countries. GSM systems operate in the 900 MHz
                             (GSM 900) and 1800 MHz (GSM 1800) frequency bands.

Inmarsat (International
Maritime Satellite):         A worldwide satellite telecommunications service
                             that provides mobile telecommunications to ships at
                             sea, aircraft in flight and vehicles on the road.

Intelligent network:         A network architecture concept focusing on the
                             efficiency, automation and functionality of
                             telecommunication networks. Intelligent networks
                             are typically equipped with sophisticated
                             computerized routing systems, allow for advanced
                             features such as caller identification and voice
                             mail and can be readily expanded and upgraded.

IntElsat (International
Telecommunications
Satellite):                  A worldwide satellite telecommunications
                             organization founded in 1964 and headquartered in
                             Washington, D.C., which owns and runs the world's
                             largest satellite-based communications network.

Interconnection:             Practice of allowing a competing telephone operator
                             to connect its network to the network or network
                             elements of certain other telephone operators to
                             enable the termination of phone calls made by
                             subscribers of the competing telephone operator's
                             network to the subscribers of the other telephone
                             operator's network.

Internet telephony:          Voice traffic routed through the Internet via
                             packet-switched technology. Because a
                             packet-switched transmission does not require
                             engagement of an end-to-end connection for the
                             entire duration of the call, Internet voice
                             telephony is typically less expensive than ordinary
                             voice telephony.

Intranet:                    An internal network of an enterprise or
                             organization based on Internet technologies (Web
                             sites, e-mail, etc.) and the Internet Protocol, and
                             typically equipped with electronic security
                             barriers that prevent external access to internal
                             systems.

IP (Internet Protocol):      Protocol used in the Internet for communication
                             among multiple networks.

                                        x
<PAGE>   11

ISDN (Integrated Services
Digital Network):            A transmission system with the capacity to transmit
                             two streams of information (voice, text, data or
                             graphics) simultaneously on a single telephone
                             line, based upon end-to-end digitalization and
                             standardized out-of-band signaling.

ISP (Internet Service
Provider):                   A company providing access to Internet and other
                             computer based information networks through their
                             servers.

IT (Information
Technology):                 A general term covering telecommunications,
                             computing and media technologies.

Kbps (kilobits per second):  A data transmission rate. One kbps equals 2(10)
                             bps.

LAN (Local Area Network):    A short distance data transmission network designed
                             to interconnect personal computers, workstations,
                             minicomputers, file servers and other computing
                             devices within a localized environment, for the
                             purpose of sharing files, programs and various
                             devices such as printers and high-speed modems.
                             LANs may have a decentralized communications
                             management, or include dedicated computers or file
                             servers that provide a centralized source of shared
                             files and programs.

Leased line:                 Voice or data circuits leased to connect two or
                             more locations for the exclusive use of the
                             subscriber.

LMDS (Local Multipoint
Distribution Service):       A broadband radio system used as part of a fixed
                             network that allows for the wireless transmission
                             of multimedia data and information.

Local loop:                  See "Access line."

Mbps (Megabits per second):  A data transmission rate. One Mbps equals 2(20)
                             bps.

MHz (Megahertz):             A measure of frequency. One MHz equals 1,000,000
                             cycles per second.

Mobile portal:               A commercial entry point for Internet designed for
                             users of mobile terminals. Provides subscribers
                             access to information and various services and
                             allows them to personalize the immediate content
                             and the structures of the site providing easier
                             accessibility.

Multiplexing:                A technique used to send multiple signals over the
                             same channel simultaneously.

National roaming:            Provision of roaming services in the domestic
                             market to subscribers of a competing operators'
                             network. See "Roaming."

NMT (Nordic Mobile
Telephone):                  An analog mobile communications system that
                             originally operated only in the Nordic Countries
                             but at present also operates in many other
                             countries.

Node:                        A network element that provides a point at which
                             key telecommunications equipment or computers can
                             access the network. In circuit networks, nodes are
                             switching systems. In packet-switched networks they
                             are often computers.

Number portability:          The ability of an end-user to change local exchange
                             carriers or mobile carriers while retaining the
                             same telephone number.

Packet-switched services:    Data transmission services based on parceling or
                             breaking the data stream into packets and
                             thereafter switching the individual packets.
                             Transmitted information (whether voice or data) is
                             segmented into cells of a standardized length,
                             which are then transmitted independently of one
                             another,
                                        xi
<PAGE>   12

                             allowing maximization of available capacity and
                             usage of a single transmission path for multiple
                             communications. The cells are then reassembled upon
                             reaching their destination.

PBX (Private Branch
Exchange):                   A private computerized telephone switching system
                             of a business or organization.

PCS (Personal
Communications Service):     A second generation comprehensive wireless
                             communications service that was first introduced in
                             the United Kingdom in 1993. In Europe, the
                             underlying digital technology for PCS is GSM. PCS
                             systems in the United States operate under one of
                             four principal digital signal transmission
                             technologies, or standards, that have been proposed
                             by various operators and vendors in PCS: one based
                             on GSM (known as PCS 1900 in the United States),
                             one that is GSM compatible, one based on CDMA and
                             one based on TDMA. GSM and TDMA are both
                             "time-division" based standards but are
                             incompatible with each other and with CDMA. PCS
                             1900 is a slightly modified version of the European
                             GSM 1800 standard that has been adapted to work at
                             1900 MHz frequency band.

PDH (Plesiochronous Digital
Hierarchy):                  A transmission standard predating SDH technology.

PKI (Public Key
Infrastructure):             A cryptographic system that uses an asymmetrical,
                             two-key encryption algorithm that encrypts data
                             with one key that is made public and decrypts data
                             with a different key that remains secret.

Roaming:                     The mobile telecommunications feature that permits
                             subscribers of one network to use their mobile
                             handsets and telephone numbers when in a region
                             covered by another operator's network.

Router:                      An inter-network device that relays data packets to
                             networks connected to the router based upon the
                             destination address contained in those data packets
                             being routed.

SDH (Synchronous Digital
Hierarchy):                  The European standard for high-speed digital
                             transmission using fiber optic cables.

SIM (Subscriber Identity
Module):                     An electronic card inserted into a mobile handset
                             that identifies the subscriber to the network. The
                             SIM card contains the personal identification
                             number of the subscriber and identifies the
                             subscriber's network.

SMS (Short Message
Service):                    A mobile communications system which allows users
                             to send alpha-numeric messages from one mobile
                             handset to another either directly or via a message
                             center operator.

SMTP:                        One of the worldwide protocols for electronic mail.
                             SMTP is the standard used for transmitting
                             electronic mail through the Internet.

Switch:                      A device used to set up and route telephone calls
                             either to the number called or to the next switch
                             along the path. They may also record information
                             for billing and control purposes.

TDMA (Time Division
Multiple Access):            Transmission technology underlying the GSM mobile
                             communications system, where transmissions for
                             multiple users are sent over a selected frequency
                             but at different time intervals.

                                       xii
<PAGE>   13

Telnet:                      An Internet service that enables a user to log into
                             and access a computer on a different network.

TETRA (Terrestrial Trunked
Radio System):               A digital radio system standardized by ETSI for use
                             by public authorities.

Trunk network:               A centralized national or regional high-speed
                             network utilizing mainly fiber optic cables and
                             which interconnects smaller, primarily local and
                             independent networks.

UMTS (Universal Mobile
Telecommunications System):  The third-generation broadband mobile
                             communications standard. UMTS utilizes CDMA
                             technology and has the speed and capacity to handle
                             multimedia transmissions.

WAP (Wireless Application
Protocol):                   A global open standard protocol for service
                             applications provided over wireless networks. It
                             allows delivery of basic Internet-based services
                             through use of directories to mobile phones and
                             other wireless devices.

WDM (Wavelength Division
Multiplexing):               A method of multiplying the capacity of fiber optic
                             transmission lines by combining wavelengths at the
                             sending end and separating them at the receiving
                             end.

WLAN:                        A wireless local area network (LAN).

X.25:                        A worldwide protocol for communications services
                             using packet-switched networks.

X.400:                       One of the worldwide protocols for electronic
                             mailing systems. X.400 is used only in the
                             international and domestic X.400 networks of which
                             the Internet is not a part.

                                       xiii
<PAGE>   14

                                     PART I

ITEM 1.  IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS.

     Not applicable.

ITEM 2.  OFFER STATISTICS AND EXPECTED TIMETABLE.

     Not applicable.

ITEM 3.  KEY INFORMATION.

                            SELECTED FINANCIAL DATA

     The selected consolidated financial data presented below has been derived
from our consolidated financial statements for the relevant periods.

     Our consolidated financial statements have been prepared in accordance with
Finnish GAAP. For a detailed discussion of the principal differences between
Finnish GAAP and U.S. GAAP, together with a reconciliation of net income and
shareholders' equity recorded under Finnish GAAP to net income and shareholders'
equity under U.S. GAAP, see Note 21 to our consolidated financial statements.

     You should read the following selected consolidated financial data together
with "Item 5. Operating and Financial Review and Prospects," our consolidated
financial statements and our unaudited condensed interim financial statements
included in this annual report, including the notes to those financial
statements.

     Our consolidated financial statements for all periods prior to January 1,
1999 were prepared in Finnish markkas, and have been restated into euros using
the irrevocable conversion rate of E1.00 = FIM 5.94573 between the euro and the
Finnish markka, which conversion rate was set on January 1, 1999. Our
consolidated financial statements for such periods depict the same trends as
would have been presented if we had continued to present consolidated financial
statements in Finnish markkas. However, our consolidated financial statements
for periods prior to January 1, 1999 are not comparable to the financial
statements of other companies that currently report in euros and that have
restated their financial statements from a currency other than Finnish markkas.

                                        1
<PAGE>   15

     Solely for the convenience of the reader, euro amounts have been translated
into U.S. dollars at the rate of E1.00 = U.S.$0.9388 (U.S.$1.00 = E1.0652), the
Noon Buying Rate for the euro on December 29, 2000.

<TABLE>
<CAPTION>
                                                AS OF OR FOR THE YEAR ENDED DECEMBER 31,
                                     ---------------------------------------------------------------
                                       1996       1997       1998       1999       2000       2000
                                     --------   --------   --------   --------   --------   --------
                                        E          E          E          E          E        U.S. $
                                       (IN MILLIONS, EXCEPT FOR SHARES, PERCENTAGES, PER SHARE AND
                                                     ADS DATA AND FINANCIAL RATIOS)
<S>                                  <C>        <C>        <C>        <C>        <C>        <C>      <C>
INCOME STATEMENT DATA
Amounts in accordance with Finnish
  GAAP
Revenues...........................    1,125      1,352      1,623      1,849      2,057      1,931
Other operating income.............       15         18         24         45      1,589      1,492
Operating expenses.................     (720)      (881)    (1,060)    (1,226)    (1,599)    (1,501)
Depreciation and amortization......     (242)      (204)      (261)      (281)      (299)      (281)
Write-downs on fixed assets........       (8)        --        (37)        --         --         --
                                     -------    -------    -------    -------    -------    -------
Operating profit...................      170        285        289        387      1,748      1,641
Equity income in associated
  companies........................        6         19         59        110        121        113
Financial income and expenses......        7          5         (2)        --         (9)        (8)
                                     -------    -------    -------    -------    -------    -------
Profit before income taxes and
  minority interest................      183        309        346        497      1,860      1,746
Income taxes.......................      (54)       (89)       (94)      (126)      (318)      (298)
Minority interest in income........       (1)        --          1         (1)        (1)        (1)
Extraordinary items, net of income
  taxes(1).........................       --         --         --         --        (35)       (33)
                                     -------    -------    -------    -------    -------    -------
Net income.........................      128        220        251        370      1,506      1,414
                                     =======    =======    =======    =======    =======    =======
Net income per share and ADS.......     0.18       0.31       0.35       0.51       2.05       1.92
Cash dividends per share and
  ADS(2)...........................     0.04       0.05       0.18       0.08       0.12       0.11
Amounts in accordance with U.S.
  GAAP
Net income.........................       --        203        237        338        704        661
Net income per share and ADS
  (non-diluted)....................       --       0.28       0.33       0.47       0.96       0.90
Net income per share and ADS on a
  fully diluted basis..............       --       0.28       0.33       0.47       0.95       0.89
Weighted average number of shares
  outstanding (in thousands)
Non-diluted........................  720,000    720,000    720,247    722,000    735,917         --
Diluted............................  720,000    720,000    720,247    723,506    741,743         --
OTHER INCOME STATEMENT DATA
Operating profit margin (%)(3).....     15.1       21.1       17.8       20.9       85.0       85.0
Net income margin (%)(4)...........     11.4       16.2       15.5       20.0       73.2       73.2
CASH FLOW INFORMATION
Cash provided by operating
  activities.......................      374        455        508        442        227        213
Cash used in investing
  activities.......................     (340)      (531)    (1,126)      (771)    (4,572)    (4,292)
Capital expenditures...............     (379)      (373)      (351)      (338)      (430)      (404)
Investments in shares..............     (133)       (22)      (898)      (410)    (2,117)    (1,987)
Cash (used in) provided by
  financing activities.............      (40)        93        632        309      4,394      4,125
OTHER RATIOS
EBITDA(5)..........................      420        489        587        668      2,047      1,922
EBITDA margin (%)(6)...............     37.3       36.1       36.2       36.1       99.5       99.5
</TABLE>

                                        2
<PAGE>   16

<TABLE>
<CAPTION>
                                                  AS OF OR FOR THE YEAR ENDED DECEMBER 31,
                                               -----------------------------------------------
                                               1996    1997    1998    1999     2000     2000
                                               -----   -----   -----   -----   ------   ------
                                                 E       E       E       E       E      U.S. $
                                               (IN MILLIONS, EXCEPT PERCENTAGES AND FINANCIAL
                                                                   RATIOS)
<S>                                            <C>     <C>     <C>     <C>     <C>      <C>    <C>
BALANCE SHEET DATA
Amounts in accordance with Finnish GAAP
Fixed assets and other long-term investments
  Intangible assets.........................      24      42      53      69      116      109
  Property, plant and equipment.............     950   1,090   1,123   1,159    1,265    1,188
  Long-term investments and receivables.....     229     293   1,231   1,826    4,779    4,486
Current assets
  Inventories...............................      18      15      22      36       40       38
  Receivables...............................     200     281     292     404    3,418    3,209
  Cash and short-term investments...........      30     145      93     115      156      146
                                               -----   -----   -----   -----   ------   ------
Total assets................................   1,451   1,866   2,814   3,609    9,774    9,176
                                               =====   =====   =====   =====   ======   ======
Shareholders' equity........................   1,123   1,312   1,424   1,801    3,233    3,035
Minority interest...........................       2      --      12      14       16       15
Non-current liabilities
  Long-term debt............................       1     171     788   1,124    1,842    1,729
  Other long-term liabilities...............      69      86      91     115      171      161
Current liabilities
  Current debt..............................      41       2     135     172    3,955    3,713
  Other current liabilities.................     215     295     364     383      557      523
                                               -----   -----   -----   -----   ------   ------
Total shareholders' equity and
  liabilities...............................   1,451   1,866   2,814   3,609    9,774    9,176
                                               =====   =====   =====   =====   ======   ======
Net debt/book capitalization (%)(7).........     1.0     1.9    35.2    38.0     62.4     62.4
Equity-to-assets (%)(8).....................    78.0    70.9    51.5    50.6     33.4     33.4
Amounts in accordance with U.S. GAAP
Shareholders' equity........................      --   1,341   1,446   1,896    4,432    4,161
Total assets................................      --   1,898   2,848   3,757   11,181   10,497
</TABLE>

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

(1) Extraordinary items reported for the year ended December 31, 2000 consist of
    the cumulative effect of accounting changes related to (a) equity accounting
    for Turkcell, and (b) capitalization of borrowing costs. See Note 7 to our
    consolidated financial statements.

(2) Dividends for each year were declared and paid on the basis of profits and
    retained earnings as of the end of the previous year.

(3) Operating profit margin is the ratio of operating profit to revenues
    expressed as a percentage.

(4) Net income margin is the ratio of net income to revenues expressed as a
    percentage.

(5) EBITDA equals operating profit before depreciation and amortization and
    write-downs on fixed assets. EBITDA is not intended to represent cash flow
    from operations and should not be considered as an alternative to net income
    as an indicator of our operating performance or to cash flows as a measure
    of liquidity. Management believes that EBITDA is a standard measure commonly
    reported and widely used by analysts, investors and other interested parties
    in the telecommunications industry. Accordingly, this information has been
    disclosed to permit a more complete comparative analysis of our operating
    performance relative to other companies in our industry. However, our
    definition of EBITDA does not show significant trends related to the
    following items: depreciation and amortization; write-downs on fixed assets;
    equity income in associated companies; financial income and expense; and
    income taxes.

(6) EBITDA margin is the ratio of EBITDA to revenues expressed as a percentage.

(7) Net debt as a percentage of book capitalization. Net debt means total debt
    (which includes current and long-term interest-bearing debt) less cash and
    short-term investments. Book capitalization means total debt plus
    shareholders' equity and minority interest.

(8) Equity-to-assets ratio is the ratio of shareholders' equity and minority
    interest to total assets less advances received.

                                        3
<PAGE>   17

EXCHANGE RATE INFORMATION

     We began using the euro as our reporting currency on January 1, 1999.
Prices for our ordinary shares listed on the Helsinki Securities and Derivatives
Exchange, Clearing House Ltd. (the "Helsinki Exchanges") are also quoted in
euros. Fluctuations in the exchange rate between the euro and U.S. dollar will
affect:

     -  the U.S. dollar equivalent of the euro price of our ordinary shares
        listed on the Helsinki Exchanges and, as a likely result, the market
        price of our ADSs listed on the Nasdaq National Market;

     -  the U.S. dollar conversion of any cash dividends paid in euros on our
        ordinary shares represented by ADSs; and

     -  the presentation of our operating results and financial condition.

     The tables below set forth, for the periods and dates indicated, the noon
buying rates for the euro expressed in euros per U.S. dollar. For any time or
period before January 1, 1999, the noon buying rates have been derived from the
noon buying rates for the Finnish markka converted into euros at the irrevocable
conversion rate between the Finnish markka and the euro. These rates are
provided solely for the convenience of the reader and are not necessarily the
rates we used in the preparation of our financial statements. We make no
representation that Finnish markkas or euros could have been converted into
dollars at the rates shown or at any other rate for such periods or at such
dates.

     The following table sets forth the average noon buying rate for the euro
for each of the previous five years and for the first and second quarters of
2001 (expressed in euros per one U.S. dollar).

<TABLE>
<CAPTION>
YEAR                                                          AVERAGE(1)
----                                                          ----------
<S>                                                           <C>
1996........................................................    0.7738
1997........................................................    0.8774
1998........................................................    0.8989
1999........................................................    0.9455
2000........................................................    1.0042
First Quarter 2001..........................................    1.0990
Second Quarter 2001.........................................    1.1627
</TABLE>

     The following table sets forth the high and low noon buying rate for the
euro for each of the monthly periods indicated (expressed in euros per one U.S.
dollar).

<TABLE>
<CAPTION>
                                                                 HIGH      LOW
                                                                ------    ------
<S>                                                             <C>       <C>
2001
  January...................................................    1.0892    1.0488
  February..................................................    1.1041    1.0644
  March.....................................................    1.1371    1.0707
  April.....................................................    1.1346    1.1072
  May.......................................................    1.1827    1.1189
  June......................................................    1.1869    1.1590
</TABLE>

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

(1) The average of the noon buying rates on the last business day of each month
    during the relevant period.

     On June 29, 2001, the noon buying rate for the euro was E1 = 0.8474 ($1 =
E1.1801).

                                        4
<PAGE>   18

                                  RISK FACTORS

WE HAVE INCURRED AND WILL CONTINUE TO INCUR SIGNIFICANT COSTS IN PURSUING OUR
STRATEGY OF LAUNCHING UMTS NETWORK SERVICES THROUGH OUR INTERNATIONAL JOINT
VENTURES. WE CAN GIVE INVESTORS NO ASSURANCE THAT WE WILL BE ABLE TO GENERATE
ACCEPTABLE RETURNS ON OUR INVESTMENTS IN UMTS LICENSES AND NETWORKS.

     We paid a total of approximately E4 billion for UMTS licenses in 2000. In
certain countries, such as Spain and Italy, we also have ongoing investment or
payment obligations under our licenses. We further expect that the cost of
rolling out UMTS networks in the markets where our third generation joint
ventures operate will be high. We may have to take on further debt or issue
additional shares in the future to finance our UMTS strategy. We may not be able
to raise the financing we need to realize our UMTS strategy, either on terms
acceptable to us or at all, and this could harm our ability to compete and our
ability to grow.

     In addition, there can be no assurance that future levels of customer
acceptance of third generation services will be sufficient to generate an
acceptable return on investments we have made to obtain UMTS licenses, or will
in the future make to roll out networks for third generation services. Due to a
variety of technical problems facing the development of third generation
networks and handsets, we do not expect to launch third generation services on a
commercial basis until the second half of 2002, at the earliest, which is
significantly later than we believed we would be prepared to launch third
generation services when we initially bid for the UMTS licenses. These delays
mean that it will take longer than expected for us to realize profits, if any,
from offering third generation services. In addition, operators may be forced to
pass on the high costs of obtaining UMTS licenses and rolling out the networks
to users of third generation services, which may slow down market acceptance of
third generation services.

     Each of our international joint ventures that has received a UMTS license
is a new entrant on its market. Our third generation joint ventures will have to
gain customers either by attracting them away from other operators or by
attracting people who do not currently use mobile communications services. Even
though each of our third generation joint ventures has plans, through GSM/GPRS
roaming agreements or otherwise, to lower their future costs and to build up
their customer base before launching UMTS services, there can be no assurance
that our third generation joint ventures will be successful in attracting
customers.

     Moreover, a variety of new entrants in the third generation market could
heighten competition and reduce the potential profitability of providing third
generation services. Possible new entrants include mobile virtual network
operators (MVNOs) which typically do not have their own network infrastructure
and thus would not have the fixed cost burdens facing our third generation joint
ventures. Competition from companies providing WLAN services, which can deliver
wireless data services more cheaply than UMTS in concentrated areas, may also
affect the market and pricing for third generation services.

OUR SIGNIFICANT DEBT MAY LIMIT OUR FINANCIAL FLEXIBILITY AND OUR ABILITY TO GROW
AND COMPETE. IF WE ARE NOT ABLE TO SECURE ALTERNATE FINANCING ON SATISFACTORY
TERMS, WE MAY HAVE TO REVISE OUR STRATEGY AND TAKE OTHER LESS DESIRABLE ACTIONS.

     Primarily as a result of our acquisition of UMTS licenses through our third
generation joint ventures, we are a highly leveraged company. Our outstanding
net debt totaled E5,661 million as of March 31, 2001 as compared to E1,181
million at December 31, 1999. In addition, at March 31, 2001, our current
liabilities, which totaled E4,037 million, exceeded our current assets, which
totaled E3,666 million. Our high level of indebtedness may have important
consequences to you for the following reasons:

     -  it limits our ability to use operating cash flow in other areas of our
        business because we must dedicate a substantial portion of these funds
        to make principal payments and fund debt service;

     -  it limits our ability to obtain additional financing to fund our growth
        strategy, working capital requirements, capital expenditures, debt
        service requirements and other needs;

     -  our interest expense will be substantially higher in 2001 than in 2000
        since most of our debt was incurred during 2000 and since we paid higher
        interest rates for borrowings made in 2000 than previously;
                                        5
<PAGE>   19

     -  we will have to refinance much of our debt in the near-term because much
        of the debt we incurred in 2000 was short-term debt; and

     -  it limits our ability to compete with others who are not as highly
        leveraged.

     To reduce debt, we have, since the beginning of 2001, sold some of our
non-core investments and we plan to sell additional non-core assets. In 2001, we
sold all of our interests in TietoEnator Corporation and disposed of a portion
of our interests in VoiceStream Wireless Corporation and Powertel, Inc.,
generating net proceeds of over E1.1 billion, all of which has been or will be
used to reduce our short-term indebtedness. In addition, depending on market and
other conditions, we plan to sell the shares we currently hold in Deutsche
Telekom AG to further reduce our short-term indebtedness. Our plan to generate
cash from the disposal of non-core assets may not, however, be successful. We
may not be able to dispose of these assets, may not be able to secure
satisfactory terms and the proceeds we receive may be significantly less than
anticipated. The current depressed conditions of the telecommunications markets
may make sales of assets or our equity investments difficult to complete. We are
also investigating the possibility of selling a portion of our interest in our
subsidiaries Sonera SmartTrust and Sonera zed through public offerings or
otherwise, of reducing our interest in our third generation joint venture in
Germany, Gruppe 3G, and of obtaining non-recourse financing for Gruppe 3G and
our other third generation joint ventures for which lenders could not look to
Sonera for payment. These proposed transactions may not be completed, may be
delayed, or even if completed or delayed may not be successful, especially given
the current difficult market conditions.

     If we do not receive sufficient cash from disposals of non-core assets to
service our debt payments and fund our strategic initiatives, we may be required
to revise our strategic focus. We may also be forced to sell additional or
different assets from those we have designated for sale or may be forced to sell
equity at depressed prices. We may also be required to raise additional debt
financing to refinance our existing short-term indebtedness on terms less
favorable than in the past, which could increase our interest obligations
significantly. These risks could adversely affect our business and our financial
condition in a material way.

S&P AND MOODY'S HAVE DOWNGRADED OUR CREDIT RATINGS AND OUR CREDIT RATINGS MAY BE
DOWNGRADED FURTHER. THESE DOWNGRADES MAY MAKE IT MORE DIFFICULT AND EXPENSIVE
FOR US TO FINANCE OUR OPERATIONS.

     On February 20, 2001, Standard & Poor's, or S&P, lowered our long-term
corporate credit and senior unsecured ratings from A to A- and lowered our
short-term corporate credit and commercial paper rating from A-1 to A-2. Our
debt ratings were also placed on CreditWatch with negative implications. In its
comments, S&P stated that the downgrade reflects its expectation that we will be
unable to raise sufficient cash through asset sales or equity offerings to
reduce our debt to a level consistent with our previous ratings. S&P also stated
that it had placed our rating on CreditWatch both because of concerns that we
would not realize as much cash as expected from the sale of our holdings in
VoiceStream due to the decline in Deutsche Telekom's share price and because of
uncertainty about our UMTS strategy and our future exposure to international
UMTS investments. S&P indicated it would likely lower our credit rating further
in the following circumstances:

     -  if the expected proceeds from the sale of our interest in VoiceStream
        (which we now hold largely in the form of Deutsche Telekom shares as a
        result of the Deutsche Telekom-VoiceStream-Powertel merger) are
        significantly reduced;

     -  if we do not raise enough cash through asset sales or equity offerings
        to ensure that our ratio of net debt to EBITDA is reduced to less than
        three by year-end 2001; and

     -  in the event our EBITDA does not exceed our net interest burden by more
        than four times (for these purposes, treating our UMTS investments as
        being proportionately consolidated) by year-end 2001.

     On May 3, 2001, Moody's Investor Services, or Moody's, downgraded our
senior unsecured long-term debt ratings from A2 to Baa2 and our short-term debt
rating from Prime-1 to Prime-2. Moody's also kept our debt ratings on review for
possible further downgrade. In its comments, Moody's stated that it is
continuing to review our debt ratings for possible downgrade based on concerns
that we are overexposed to the German market through our investment in Gruppe
3G. Moody's also noted that our EBITDA has been negatively affected by our
investments in new services and that it might downgrade our ratings further if
our operating performance does not
                                        6
<PAGE>   20

improve. Moody's also stated that that there is a risk that we will not realize
the amount of proceeds we expect from non-core asset disposals in 2001. In part,
we believe our ratings downgrades reflect the general concerns of rating
agencies about the financial positions and prospects of European
telecommunications operators, many of which have been similarly downgraded,
following the UMTS license tenders in the largest markets in Western Europe in
2000.

     These downgrades by S&P and Moody's may make it more costly for us to
obtain future financing or to refinance our existing debt by increasing the
interest rates at which we are able to borrow money. We may also be subject to
further downgrades in the future, particularly if the steps we are taking to
reduce our substantial outstanding debt, such as non-core asset sales, are not
successful, which could further harm our ability to obtain future financing or
refinance our existing debt. In addition, these downgrades could further
increase our financing costs by increasing the rates at which we are able to
refinance existing debt and incur new debt.

OUR REVENUES, PROFITABILITY AND GROWTH COULD DECLINE IF THE GROWTH IN THE
FINNISH TELECOMMUNICATIONS MARKET SLOWS.

     The telecommunications industry in Finland is currently well developed
relative to most other European countries. In particular, Finland has among the
highest mobile penetration rates and lowest mobile calling tariffs in the world.
The high penetration rate may make it difficult for us to gain new mobile
customers in the future. This may result in slower growth in the revenues we
derive from our Domestic Mobile Communications business area, a significant area
of our recent growth, than we have achieved in the past.

     Although the mobile penetration rate in Finland increased in 1999 from 57
percent to 67 percent, the rate of growth slowed during 2000, such that the
penetration rate slightly exceeded 70 percent by the end of 2000. We believe
that this growth will continue to slow in the future. A significant slowdown in
the rate of mobile penetration growth in Finland could have a negative effect on
our future revenue and profit growth in our Domestic Mobile Communications
business area.

INCREASED COMPETITION IN THE FINNISH MOBILE AND FIXED NETWORK COMMUNICATIONS
MARKETS MAY RESULT IN DECREASED TARIFFS AND LOSS OF MARKET SHARE.

     We operate in the highly competitive Finnish telecommunications market. As
competition continues to intensify, our mobile and fixed-line voice services
business and our media communications services business may lose market share
and we expect to reduce our tariffs for these services further.

     We believe that our principal competitor in the Finnish mobile
communications market, Oy Radiolinja Ab, a subsidiary of Elisa Communications
Corporation, will continue to market its services aggressively and that we will
face additional competition in the GSM market as a result of the new GSM network
operator Suomen 2G Oy having commenced commercial activities through its
affiliate, DNA Finland Ltd., in February 2001. In addition, the commercial
introduction in Finland of third generation mobile services, which we expect
will take place in the second half of 2002, will open the Finnish mobile
communications market for an additional mobile operator, Finnish 3G Ltd., and
may strengthen the position of an existing operator, Telia Mobile Finland. We
also expect to experience increased competition from non-traditional operators
such as Jippii Group and RSL COM, which are known as virtual network operators
because they do not own their own mobile networks.

     In the Finnish fixed-line market, we expect that competition from
international telecommunications operators and alliances such as RSL COM,
Facilicom, Uniworld and Tele Nordia will increase, resulting in further
reductions of tariffs. Moreover, new forms of telecommunications that do not use
conventional tariff structures, such as Internet telephony, an application in
which voice traffic is routed through the Internet, are also expected to
increase the sources of competition we will face.

     In the media communications market, we expect to face increased competition
from large Scandinavian Internet service providers as well as Finnish Internet
service providers. We also expect to experience increased

                                        7
<PAGE>   21

pressure to lower prices for our Internet access services due to industry
trends, such as the growth in the provision of free Internet connections.

THE FAILURE TO DEVELOP AND IMPLEMENT NEW TECHNOLOGIES AND SERVICES ON A TIMELY
BASIS COULD CAUSE US TO LOSE CUSTOMERS.

     Our growth strategy depends on the successful introduction of new
telecommunications services, including third generation mobile services. We also
plan to further invest in the speed and capacity of our wireless networks by
enhancing or introducing new broadband services based on technologies such as
GPRS and UMTS. We will also have to continually enhance our network independent
solutions, including Sonera SmartTrust and Sonera zed, to keep pace with
technological developments and changing customer requirements. Delays or
failures in developing, implementing or upgrading these new technologies and
other new services and solutions could result in a loss of customers or a
failure to attract new customers.

OUR DEVELOPMENT OF NEW ADVANCED SERVICES COULD REQUIRE SUBSTANTIAL EXPENDITURES
AND RESOURCES AND MAY NOT BE SUCCESSFUL.

     As part of our growth strategy, we are developing and commercializing a
wide variety of technologically advanced services. These services include new
mobile transaction security applications, such as Sonera SmartTrust; value-added
mobile content services, such as Sonera zed; and ASP (Application Service
Provision) services, such as Sonera Juxto. We expect that these strategic
initiatives will require substantial expenditures and commitment of our human
resources. We cannot, however, assure you that we will be able to successfully
market these new services or that the new services will gain widespread market
acceptance.

     We have incurred significant expenses to develop these new service
businesses, which has had a material impact on our results of operations. For
instance, the EBITDA loss of our Media Communications and New Services business
area increased from E47 million in 1999 to E303 million in 2000. Our Media
Communications and New Services business area also recorded capital expenditures
of E104 million in 2000 as compared to E15 million in 1999. We plan to continue
to make significant outlays and capital expenditures to further develop and
market our advanced mobile communications services and technologies, which is
expected to have a negative effect on our consolidated results of operations and
cash flows for at least the next two years.

     In addition, we have recently lowered our future cash flow expectations of
our Sonera SmartTrust business. In particular, our future cash flow expectations
of Sonera SmartTrust are lower than then they were in 2000 at the time we
concluded our acquisitions of Across Holding and iD2 Holding. As a result of
these and other findings, we have recorded an impairment loss of E704 million
under U.S. GAAP for the year ended December 31, 2000 to reduce the carrying
value of the goodwill and identified intangible assets related to the
acquisitions of Across and iD2. We currently estimate that the market value of
Sonera SmartTrust is approximately E250 million, more than 80 percent lower than
at the time of the acquisitions of Across and iD2.

OUR MARKET POSITION MAY SUBJECT US TO LEGAL CONSTRAINTS THAT MAY NEGATIVELY
IMPACT OUR REVENUES.

     We are deemed by the Finnish Ministry of Transport and Communications to be
an operator with significant market power in local, long distance, international
and mobile telecommunications throughout Finland. We are therefore obligated
under the Finnish Telecommunications Market Act to charge other operators
cost-related tariffs for mobile network services, public fixed network services,
leased lines and interconnection. This means that the amounts we charge for
these services must be related to the costs of providing the services. We are
also obligated not to discriminate among customers. These obligations may hamper
our future pricing flexibility. In particular, in the event that the Finnish
Telecommunications Administration Center (the "TAC") were to determine that our
interconnection tariffs were not cost-related or that they differ significantly
from those offered by other operators in the European Union, it would have the
authority to modify the terms and conditions of existing interconnection
agreements we have with other operators.

     In 2000, the European Commission proposed a new regulatory framework for
electronic communications networks and services that, among other things, would
give national regulatory authorities the right to impose a variety of
obligations on operators with significant market power. While the European
Commission's proposals
                                        8
<PAGE>   22

have yet to become law, the proposals, if adopted and implemented, could have a
material adverse effect upon our business to the extent that mobile operators
may be subject to all the obligations, such as cost-oriented tariffs and access
obligations, to which fixed network operators with significant market power are
subject.

     We are currently a party to a Finnish administrative proceeding in which
one of our competitors has sought to require us to lower our mobile
interconnection termination fees. In April 2000, the TAC ruled that our
interconnection fees violate the Telecommunications Market Act and ordered us to
revise our interconnection rates. We have appealed the TAC's decision. If we
were required to modify our interconnection tariffs, whether as a result of an
adverse ruling in this proceeding or otherwise, it could reduce our
interconnection revenues and could have an adverse effect on our results of
operations or financial condition.

     We are also subject to Finnish and European Union competition law which is
applied by the Finnish Competition Authority (the "FCA"), the European
Commission, and national and European courts. Our dominant market position in
the market for mobile services in Finland could impact our flexibility in
marketing and pricing our services, including our SMS services. For example, the
FCA has stated that the pricing of our mobile services must be cost-based,
non-discriminatory and transparent and we are currently a party to several
Finnish administrative proceedings that may have an adverse effect on our
results of operations or financial condition.

     In addition, any future strategic alliances or other forms of business
combinations may be subject to detailed scrutiny by the competition authorities
and such transactions may be blocked or be made conditional upon divestitures or
changes to our business practices.

ADDITIONAL REGULATORY REQUIREMENTS REGARDING THE PROVISION OF NATIONAL ROAMING
SERVICES THROUGHOUT FINLAND OR THE FEES WE CHARGE FOR ROAMING SERVICES MAY
ADVERSELY AFFECT OUR BUSINESS.

     The introduction of national roaming in Finland could have a negative
impact on our results of operations or financial condition. Roaming allows
subscribers to other operators' services to use our networks when they are
outside the reach of their own operators' network service areas. National
roaming is an issue in Finland because several Finnish mobile operators,
including those that operate local GSM networks in the 1800 MHz frequency bands,
have networks with limited geographic reach. Although the Finnish Ministry of
Transport and Communications announced in September 1998 that it has no plans to
require existing operators to give other GSM operators and service providers
mandatory national roaming rights, Finnish or European Union authorities could
require telecommunications operators in Finland to offer national roaming. In
addition, recent amendments to the Finnish Telecommunications Market Act grant
holders of UMTS licenses a right to roam on the GSM networks of significant
operators, such as us, under certain conditions.

     We are currently a party to administrative proceedings at both the national
and the European Union level in which one of our competitors has claimed that we
have an obligation to provide national roaming and has sought to require us to
offer national roaming services at prices which, in our opinion, do not provide
an adequate return on our investment in our GSM network. If we are required to
provide national roaming services, whether as a result of an adverse ruling in
the currently pending proceedings or otherwise, other telecommunications
providers, including our competitors, could gain access to our GSM network. If
this were to take place on terms and conditions which do not provide an adequate
return on our investment in our GSM network, it could have an adverse effect on
our results of operations or financial condition.

THE VALUE OF OUR INTERNATIONAL INVESTMENTS IN TELECOMMUNICATIONS COMPANIES
OUTSIDE OF FINLAND, ESPECIALLY TURKCELL, MAY BE ADVERSELY AFFECTED BY POLITICAL,
ECONOMIC AND LEGAL DEVELOPMENTS IN THESE COUNTRIES.

     We have made a number of significant equity investments in
telecommunications operators in countries outside of Western Europe, such as
Turkey, the Baltic States, Hungary and Russia. The political, economic and legal
systems in these countries are less predictable than in countries with more
developed institutional structures. Political or economic upheaval, changes in
laws and other factors, such as legal or regulatory proceedings brought against
such companies, may have a material effect upon the operations of the companies
in which we have invested and, in turn, the amount of income from, and the value
of, these investments. The more significant risks
                                        9
<PAGE>   23

of operating in emerging market countries arise from the establishment or
enforcement of foreign exchange restrictions, which could effectively prevent us
from receiving profits from, or from selling our investments in, these
countries. While none of the countries in which our associated companies are
located currently has foreign exchange controls that affect us significantly,
all of these countries have had such controls in the recent past and we cannot
assure you that they will not reinstitute such controls in the future.

     Over the past five years, the Turkish economy has experienced
hyperinflation. To combat the persistently high levels of inflation in Turkey,
the Turkish government has implemented policies, including austerity measures,
which could have a negative impact on the Turkish economy and on the
profitability of Turkcell, our most significant associated company. In February
2001, in the face of a potential financial and political crisis, Turkey
abandoned its exchange rate controls which were a key part of Turkey's economic
stabilization program. As a result of this action, the Turkish lira has
depreciated significantly against the U.S. dollar and the euro. We expect that
the devaluation of the lira will have a material adverse effect on the operating
profit and cash flow of Turkcell in 2001. In May 2001, the International
Monetary Fund (IMF) pledged an aggregate of $15.7 billion to help Turkey
overhaul its crisis-ridden economy. There can be no assurance, however, that
Turkey will satisfy the conditions for the release of the pledged IMF funds.

     Turkey is currently headed by a coalition government that has shown signs
of instability. In February 2001, a political crisis arose as a result of a
dispute between the President of Turkey and the Prime Minister. The crisis had a
major impact on investor confidence in Turkey and precipitated an economic
crisis. Any negative changes in government, including additional conflicts
between senior politicians in Turkey, or the breakdown of the ruling coalition
may create instability and may adversely affect the Turkish economy. In
addition, the failure of the Turkish government to devise or implement
appropriate economic programs may also adversely affect the Turkish economy.

     In the aftermath of the major earthquakes which occurred in the Marmara
Region of Turkey in August and November of 1999, the Turkish Parliament imposed
a temporary earthquake relief tax on mobile telephone subscriptions representing
25 percent of a subscriber's monthly mobile telephone charges. The tax,
initially in effect from December 1999 through the end of 2000 and recently
extended up to the end of 2002, has negatively impacted mobile usage in Turkey
and Turkcell's net profit. Turkcell's management believes that Turkcell will
continue to be negatively impacted by this tax but is currently not in a
position to estimate the future magnitude of the impact.

WE EXPECT TO RECORD A SIGNIFICANT EQUITY LOSS FROM OUR ASSOCIATED COMPANIES IN
2001 WHICH WILL HAVE A NEGATIVE IMPACT ON OUR NET INCOME.

     While our equity income from associated companies has shown strong growth
in prior years, increasing from E59 million in 1998 to E121 million in 2000, we
expect to record an equity loss of approximately E350 million in 2001. Two of
our principal associated companies, Turkcell and Fintur, are expected to report
losses in 2001 due, among other things, to the slowdown in the Turkish
telecommunications market, the continuation of a temporary tax on mobile phone
subscriptions in Turkey, the devaluation of the Turkish lira and increased
expenses for the development of new services. We also expect to incur
significant equity losses from our associated company Gruppe 3G, which holds a
UMTS license in Germany, due to start-up costs. The equity loss we expect to
record in 2001 will have a material adverse effect on our 2001 net income.

TURKCELL IS IN BREACH OF CERTAIN OF ITS LOAN COVENANTS, WHICH COULD HAVE A
MATERIAL ADVERSE EFFECT ON TURKCELL AND ON OUR HOLDINGS IN TURKCELL.

     Based on Turkcell's interim financial statements as of March 31, 2001,
Turkcell was in breach of certain of its covenants attached to its bank loans.
If the lenders were to demand immediate repayment of these loans, it would
trigger a cross-default to Turkcell's other indebtedness, which could have a
material adverse effect on Turkcell's financial condition. Turkcell has stated
that it does not expect the lenders to accelerate repayments under the bank loan
facilities, and that it is currently not aware of plans by the lenders to
require such accelerated payments. Turkcell also expects to begin negotiating
the covenants with the lenders shortly. Turkcell Holdings A.S., in which we hold
a 47.1 percent interest, has pledged one-fourth of the shares it holds in
Turkcell, or

                                        10
<PAGE>   24

approximately one-sixth of our total interest in Turkcell, to secure Turkcell's
bank loan facilities. As of March 31, 2001, we also had guarantees outstanding
in the amount of E32 million in relation to Turkcell's debt. In the event
Turkcell were to default on its bank loans, we may be required to forfeit a
portion of our holdings in Turkcell and satisfy our obligations under the
guarantees.

WE HAVE ONLY LIMITED CONTROL OF OUR THIRD GENERATION JOINT VENTURES AND OTHER
INTERNATIONAL ASSOCIATED COMPANIES.

     Substantially all of our business activities as a telecommunications
operator outside of the Nordic area are conducted through joint ventures or
associated companies in which we have less than a majority holding. As a result,
we have limited control over the conduct of our international operator
businesses. With respect to our third generation joint ventures and associated
GSM operating companies, we cannot assure you that our joint venture partners or
strategic co-investors will wish to continue their partnerships with us or
continue to be a co-investor with us in the future or that we will be able to
pursue our stated strategies with respect to these joint ventures and associated
GSM operating companies. For example, we may have disputes with our joint
venture partners or co-investors over business decisions relating to the subject
companies. In addition, the third generation joint ventures or the associated
GSM operating companies may themselves undergo a change of control. Any of these
factors could harm our financial condition and results of operations.

THE INCOME WE RECEIVE FROM OUR INVESTMENTS IN TELECOMMUNICATIONS COMPANIES
OUTSIDE OF FINLAND MAY BE ADVERSELY AFFECTED BY INCREASES IN COMPETITION.

     Most of our associated companies and other non-Finnish companies in which
we hold an equity interest face significant competition in the markets in which
they operate. Our most significant GSM associated companies operate in Turkey,
the Baltic States and Hungary. The competition in these markets is expected to
increase as additional GSM licenses are granted. For instance, our associated
companies Turkcell, which operates in Turkey, and Pannon, which operates in
Hungary, are beginning to experience increased competition. In Turkey, one new
GSM operator started to offer services in March 2001, and another is expected to
do so in the second half of 2001. In Hungary, a new competing GSM provider,
Vodafone Hungary, a subsidiary of Vodafone Airtouch, commenced commercial
activities in 1999.

     In addition, we expect that the fixed-line telecommunications markets in
each of the Baltic States will be opened to competition within the next several
years as part of these countries' measures to comply with the European Union's
membership requirements. As a result, we expect that our associated companies
which offer fixed-line services in the Baltic States (AS Eesti Telefon in
Estonia, Lattelekom SIA in Latvia and AB Lietuvos Telekomas in Lithuania) may
lose market share and be forced to reduce some of their tariffs in response to
increased competition.

     We currently cannot assess what specific effects increased competition will
have on the results of operations or financial condition of our associated
companies and other international investments and, in turn, the amount of income
we will derive from our associated companies and other international
investments.

THE VALUE OF OUR INVESTMENTS IN OUR ASSOCIATED GSM OPERATING COMPANIES, AND THE
INCOME WE DERIVE FROM OUR ASSOCIATED GSM OPERATING COMPANIES, COULD DECREASE DUE
TO UMTS LICENSE COSTS AND CONDITIONS IMPOSED BY THOSE COUNTRIES IN WHICH THESE
COMPANIES OPERATE.

     Most, if not all, of the countries where our associated GSM operating
companies do business are planning or are expected to plan UMTS license tenders.
The prices of and conditions imposed by UMTS licenses in those countries are not
known yet. It is possible that UMTS license tenders may have a negative impact
on the valuations of our associated companies, their ability to pay dividends
and their need for external financing. The impact on our associated GSM
operating companies will depend upon a number of factors, including the prices
of the licenses, the conditions imposed by the licenses and whether our
associated companies are successful in

                                        11
<PAGE>   25

bidding for the licenses. In addition, UMTS license tenders give new operators a
chance to enter the market which may increase the overall level of competition
for mobile telecommunications services in those markets.

THE VALUE OF OUR INVESTMENTS IN OUR ASSOCIATED COMPANIES, AND THE INCOME WE
DERIVE FROM OUR ASSOCIATED COMPANIES, COULD DECREASE IF THE EXCHANGE RATES
BETWEEN THE EURO AND THE OPERATING AND ACCOUNTING CURRENCIES OF OUR ASSOCIATED
COMPANIES CHANGE SIGNIFICANTLY.

     Most of our associated companies conduct their operations, prepare their
financial statements and pay dividends in currencies other than the euro.
Moreover, some of our associated companies, including Turkcell, operate under
currencies that are relatively volatile and may therefore fluctuate greatly
against the euro. In particular, the Turkish government effectively devalued the
lira in February 2001 causing the lira to decline significantly against the
euro. Any loss in value of any such currencies against the euro will have a
negative impact on the value of our investments in the relevant associated
company and the amount of income we derive from the relevant associated company,
in each case as reflected in our euro-denominated financial statements.

AS PART OF OUR STRATEGY TO ENHANCE THE VALUE OF OUR ASSETS, WE MAY DIVEST A
PORTION OR ALL OF OUR INTERESTS IN SOME OF OUR GROWTH BUSINESSES, SUCH AS SONERA
SMARTTRUST AND SONERA ZED, AS WELL AS OUR ASSOCIATED COMPANIES. IF WE WERE TO
PARTIALLY OR FULLY DIVEST SUCH ASSETS, WE COULD RISK LOSING CONTROL OF
TECHNOLOGIES AND SERVICES OR ACCESS TO MARKETS THAT ARE IMPORTANT FOR THE FUTURE
GROWTH OF OUR COMPANY.

     To enhance the value of our assets, we plan, depending on market
conditions, to divest a portion or all of our interests in some of our growth
businesses, such as Sonera SmartTrust and Sonera zed. In the event we dispose of
our interests in such growth businesses, we would risk reducing the level of
control we may exercise over and the amount of income we may receive from such
companies. In addition, we could risk losing control over important technology
and intellectual property rights that had been transferred to such businesses as
well as losing our customers to such businesses. Such dispositions might also
give rise to the perception in the financial markets that Sonera itself is
abandoning its innovative past and strategic goals, which could negatively
affect our share price. We may also decide to dispose of certain of our
investments in our international associated companies, either in part or in
whole, in light of market conditions or otherwise in an effort to maximize the
return on our investments. For instance, in 2000, we disposed of approximately
one-tenth of our holding in Turkcell. We are also investigating the possibility
of divesting a portion of our interest in our third generation joint venture
Gruppe 3G. In the event we sell a portion of our interests in our associated GSM
operating companies or third generation joint ventures, we risk reducing the
level of influence we may exercise over such companies and the amount of equity
income we receive from such companies.

WE MAY BE SUED BY THIRD PARTIES FOR INFRINGEMENT OF THEIR PROPRIETARY RIGHTS.

     The telecommunications and security software industries are characterized
by the existence of a large number of patents and litigation based on
allegations of patent infringement or other violations of intellectual property
rights. As the number of entrants into the market grows and the overlap of
product functionalities increases, the possibility of an intellectual property
claim against us increases. In particular with respect to some of our SmartTrust
products, we have received, and may receive in the future, notices of claims of
infringement of other parties' proprietary rights. We are currently involved in
a lawsuit with the former CEO of Sonera SmartTrust, Harri Vatanen, over a
technology agreement we entered into with him in 1998. Any such claims or
lawsuits, whether with or without merit, could be time-consuming, result in
costly litigation and diversion of technical and management personnel, cause
product shipment delays or require us to develop non-infringing technology or to
enter into royalty or licensing agreements. Such royalty or licensing
agreements, if required, may not be available on commercially reasonable terms
or at all. If a successful claim of product infringement were made against us
and we could not develop non-infringing technology or license the infringed or
similar technology on a timely and cost-effective basis, our business could be
harmed.

                                        12
<PAGE>   26

AS PART OF OUR GROWTH STRATEGY, WE MAY SEEK TO PARTICIPATE IN THE ONGOING
CONSOLIDATION OF THE TELECOMMUNICATIONS INDUSTRY THROUGH A STRATEGIC ALLIANCE OR
OTHER FORM OF BUSINESS COMBINATION. OUR FAILURE TO PARTICIPATE SUCCESSFULLY IN
THE CONSOLIDATION OF THE INDUSTRY COULD HARM OUR BUSINESS AND OUR SHAREHOLDERS.

     As part of our growth strategy, we may seek to participate in the ongoing
consolidation of the telecommunications industry in Europe. This strategy
entails a variety of risks that could negatively impact our business. On the one
hand, there is the risk that due to competition in the identification of
strategic partners, we enter into a strategic alliance or partnership on
unattractive terms. There is also the risk that we will not be able to
successfully integrate and profitably manage any potential business combination.
We also face substantial risks if we fail to participate in the consolidation of
the industry. Among other things, failing to participate in the consolidation of
the industry could make us more susceptible to competition from global
competitors, could hamper our ability to grow our subscriber base and could make
it more difficult for us to market our enhanced mobile services and applications
on an international basis.

IF WE LOSE OR ARE UNABLE TO RENEW LICENSES NECESSARY FOR CONDUCTING OUR
OPERATIONS IN FINLAND AND INTERNATIONALLY, WE MAY NOT BE ABLE TO CARRY ON PARTS
OF OUR CURRENT OR PLANNED BUSINESS.

     We are in many cases only permitted to provide telecommunications services
and operate networks under licenses granted by competent authorities in each
country. All of these licenses are issued for a limited period of time and may
not be renewed or, if they are renewed, their terms may be changed.

     These licenses contain a number of requirements regarding the way we
conduct our business, as well as regarding network quality and coverage. Failure
to meet these requirements could result in fines or other sanctions, including,
ultimately, revocation of the licenses.

WE DEPEND ON OUR RELATIONSHIPS WITH VARIOUS PARTNERS AND SUPPLIERS AND THE
DISRUPTION OF THESE RELATIONSHIPS MAY ADVERSELY AFFECT OUR BUSINESS.

     Our businesses depend on our ability to obtain adequate supplies of
telecommunications equipment (and related software), our contractors' ability to
build and roll out telecommunications networks on schedule, and our suppliers'
ability to deliver dependable technical support. Our dependence on our suppliers
is now particularly important because of our strategy to build and roll out
third generation networks and launch third generation services. We cannot be
certain that we will be able to obtain telecommunications equipment from our
alternative suppliers on a timely basis if our existing suppliers are unable to
satisfy our requirements. This could lead to an interruption to the operation
and build out of our networks and the networks of our joint ventures, which
could harm our results of operations and financial condition.

WE MAY NOT BE ABLE TO REMAIN COMPETITIVE AND IMPLEMENT OUR GROWTH STRATEGIES IF
WE CANNOT RETAIN SKILLED PERSONNEL.

     In order to remain competitive and implement our growth strategies, we need
to retain our high quality employees. Competition for qualified
telecommunications and information technology personnel in Finland and
internationally is intense. To a considerable extent, our ability to retain
skilled personnel in our growth businesses, such as Sonera SmartTrust, Sonera
zed and Sonera Juxto, and for our international operations will depend on our
continuing ability to offer stock options and other similar incentives to our
personnel. The adoption of such incentive programs may require the support of
the Finnish State as a majority shareholder. We have already experienced
difficulties in retaining various categories of employees, including product
managers and information technology specialists, and have lost competent
personnel to our competitors. We cannot assure you that we will be able to
retain qualified personnel in the future. In particular, we cannot assure you
that we will continue to be able to make sufficient incentive programs available
to our personnel. If we cannot retain skilled employees, we may not be able to
continue to develop new business areas or make advances or retain our
competitive positions in our traditional business areas.

                                        13
<PAGE>   27

SENIOR MANAGEMENT HAS RECENTLY UNDERGONE SIGNIFICANT CHANGE.

     At our annual general meeting of shareholder held in March 2001, all but
one of the members of our Board of Directors were replaced. In addition, in June
2001, Kaj-Erik Relander, our President and CEO, announced that he would resign
effective August 1, 2001. We have also lost certain other members of our
executive and senior management in the recent past. Such significant changes in
management present a number of risks, including the difficulty of predicting the
performance of the new directors and officers and the potential for disruption
of our previous policies and strategies, which could cause our results of
operations and financial condition to suffer.

ACTUAL OR PERCEIVED HEALTH RISKS OR OTHER PROBLEMS RELATING TO MOBILE HANDSETS
OR TRANSMISSION MASTS COULD LEAD TO DECREASED MOBILE COMMUNICATIONS USAGE.

     Concern has been expressed that the electromagnetic signals from mobile
handsets and transmission masts, which serve as antennae for transmitting radio
signals, may pose health risks and interfere with the operation of electronic
equipment, including automobile braking and steering systems. Actual or
perceived risks of mobile handsets or transmission masts and related publicity
or litigation could reduce our growth rate, customer base or average usage per
customer and could therefore have a negative impact on our results of operations
or financial condition.

WE COULD BE INFLUENCED BY THE FINNISH STATE WHOSE INTERESTS MAY NOT ALWAYS BE
ALIGNED WITH YOURS.

     The Finnish State holds approximately 52.8 percent of our share capital and
voting rights. Accordingly, the Finnish State has the power to determine matters
submitted for a vote of shareholders, including the approval of the annual
financial statements, declarations of dividends, capital increases in connection
with acquisitions, investments or otherwise, and the election and removal of
members of our board of directors. The Finnish State also has the power to
prevent a change of control in Sonera. The interests of the Finnish State in
approving or rejecting these matters could be different from the interests of
our other shareholders.

FUTURE SALES OF SHARES COULD ADVERSELY AFFECT THE MARKET PRICE OF OUR SHARES.

     The Finnish Parliament has authorized the Finnish Government to reduce the
Finnish State's shareholding in our company to zero. We do not know the timing
and manner of any further sale of shares by the Finnish State, or the effect of
any such sale on our other shareholders. However, the sale of a substantial
number of additional shares by the Finnish State in the future could cause the
market price for our shares or ADSs to drop.

                                        14
<PAGE>   28

ITEM 4.  INFORMATION ON THE COMPANY.

                                  ORGANIZATION

     Sonera Corporation is a stock corporation organized under the laws of the
Republic of Finland. The Company was incorporated in the Republic of Finland on
September 30, 1999 as a result of the merger of Sonera Ltd. into Sonera Group
plc and renamed Sonera Corporation on October 1, 1999. Sonera Corporation's
registered office is located at Teollisuuskatu 15, FIN-00051 SONERA, Helsinki,
Finland. Our telephone number is 358-20401. Our agent for U.S. federal
securities law purposes is Sonera Corporation U.S., 890 Winter Street, Waltham,
MA 02451.

                                    HISTORY

OVERVIEW

     We originated as part of a state organization, the Telegraph Office of
Finland, which was created shortly after the founding of the independent state
of Finland in 1917 and was responsible for state telegraph operations. The
Telegraph Office initially operated a fixed long distance network and a number
of local fixed networks and was merged with another state organization, Post of
Finland, in 1928 to form Posts and Telegraphs of Finland, subsequently renamed
Posts and Telecommunications of Finland. As an administrative entity, Posts and
Telegraphs of Finland had a dual role as a telecommunications operator and as a
regulator of the telecommunications market. In 1935, Posts and Telegraphs of
Finland became the only Finnish long distance and international call operator.
The monopoly in long distance and international telephone services continued
until 1992, at which time the Finnish Council of State began granting licenses
to competing telephone operators. Practically all forms of national
telecommunications services in Finland were opened to competition in 1994 when
the market for the provision of domestic long distance and international
telecommunications services was fully liberalized.

     As a first step towards making the structure of Posts and
Telecommunications of Finland more market-orientated, its regulatory functions
were transferred to the Ministry of Transport and Communications in 1987. On
January 1, 1990, Posts and Telecommunications of Finland became an
unincorporated state-owned enterprise and its operations were separated from the
state budget. On January 1, 1994, Posts and Telecommunications of Finland was
converted into a limited liability company, PT Finland, and its business
operations and assets were divided into two principal business areas; postal
services and telecommunications. PT Finland's postal service operations and
telecommunications operations were then transferred into newly-created
corporations, Finland Post Ltd. and Telecom Finland, while certain non-core
operations were transferred to other subsidiaries within PT Finland. After
incorporation, the group started operating entirely on commercial terms.

     In December 1997, the Finnish Parliament approved a gradual and partial
privatization of Telecom Finland. As part of the privatization program, PT
Finland's postal services and telecommunications operations were separated from
each other by dividing PT Finland into separate telecommunications and postal
services groups and placing Telecom Finland and some other subsidiary and
associated companies of PT Finland under the telecommunications group. The
demerger took effect on July 1, 1998.

THE DEMERGER

     The demerger was effected principally to allow us access to the
international capital markets and thus to implement a capital structure better
suited to our needs and prospects. The demerger was also prompted by the
expectation that, as a separate company, we would be better able to focus on our
distinctive strategic objectives, operational needs and philosophies, capital
requirements, personnel needs and resources, product development and marketing
policies.

     Upon the effectiveness of the demerger, the shares of Telecom Finland,
Tieto Corporation (currently TietoEnator) and PT Credit Ltd. (currently, Sonera
Gateway) and other assets and liabilities were transferred by operation of law
to Telecom Finland Group plc, and the shares of Finland Post Ltd. and other
assets and liabilities were transferred to Finland Post Group Ltd. After the
completion of the demerger, PT Finland ceased to exist,

                                        15
<PAGE>   29

and the Finnish State, as the former sole shareholder of PT Finland, received
all of the outstanding shares of Telecom Finland Group and of Finland Post
Group.

SHARE SPLIT AND NAME CHANGE

     After the demerger, in a series of meetings of the shareholders of Telecom
Finland Group plc, the articles of association of Telecom Finland Group plc were
amended to provide for an increase in the number of shares as well as a change
to the name Sonera Group plc. In addition, the share capital of Telecom Finland
Group plc was resolved to be changed into euro denomination and the nominal
value of the ordinary shares to be dropped on the basis of a legislative
amendment promulgated in connection with the introduction of the euro. These
changes took effect on January 25, 1999. The name change was motivated primarily
by the anticipated change in our status from a state-owned company to a publicly
owned corporation in connection with our initial public offering. In particular,
our management believed that our previous name gave the impression of the
company as a Finnish telecommunications monopoly, which is neither
representative of our position in the Finnish telecommunications market nor
reflective of our ongoing business strategy. In connection with the demerger,
Sonera's principal operating subsidiary, Telecom Finland, assumed the name
Sonera Corporation on April 15, 1998, which was subsequently changed to Sonera
Ltd. in July 1998.

MERGER OF SONERA GROUP PLC AND SONERA LTD.

     In February 1999, the board of directors of each of Sonera Group plc
(presently, Sonera Corporation) and Sonera Ltd., a wholly-owned subsidiary of
Sonera Group plc, resolved to merge Sonera Ltd. into Sonera Group plc, the stock
exchange listed parent company of the consolidated group. The name of the
combined entity was decided to be changed to Sonera Corporation upon completion
of the merger. The merger was completed on September 30, 1999 while the name
change took effect on October 1, 1999.

INITIAL PUBLIC OFFERING

     Prior to November 1998, all of our shares were owned by the Finnish State.
In November 1998, the Finnish State sold 158,000,000 shares at the price of FIM
45 (E7.57) per share in an institutional offering in reliance on Rule 144A and
Regulation S under the Securities Act of 1933 and in a retail offering in
Finland. At the same time, we issued 2,000,000 shares at the price of FIM 40.5
(E6.81) per share in an employee offering. In connection with the November 1998
offering, our shares were listed on the Helsinki Securities and Derivative
Exchange, Clearing House Ltd. (the "Helsinki Exchanges").

FOLLOW-ON OFFERINGS OF OUR SHARES

     In October 1999, the Finnish State sold an additional 143,950,000 shares at
the price of E23.75 per share, the sale of which reduced the Finnish State's
holding in our shares to 57.9 percent. Approximately 50,000 investors
participated in the retail offering in Finland, and more than 44,000 of them
purchased shares with bonus rights. In November 2000, investors who participated
in the bonus offering received, for no additional cost, an aggregate of
approximately one million shares from the Finnish State. On March 7, 2000, the
Finnish State sold an additional 22 million shares at the price of E92 per share
to institutional investors on a private placement basis. The Finnish State
currently holds 52.8 percent of our outstanding shares. In June 2000, the
Finnish Parliament authorized the Finnish Government to lower the Finnish
State's holding to zero. See "Item 7. Major Shareholders and Related Party
Transactions."

     In connection with the 1999 offering, we applied for the quotation of our
shares on the Nasdaq National Market in the United States. Trading in our shares
on the Nasdaq National Market commenced on October 13, 1999. See "Item 9. The
Offer and Listing."

                               BUSINESS OVERVIEW

     We are the leading provider of telecommunications services in Finland, one
of the most sophisticated telecommunications markets in the world. Mobile
communications, which accounted for approximately 54 per-

                                        16
<PAGE>   30

cent of our total revenues in 2000, is our principal area of focus. In addition
to being the leading mobile telecommunications provider in Finland, we also have
strategic investments in mobile operators in a number of other countries
including Turkey, Hungary, the Baltic States, Russia and Lebanon. We have
committed substantial resources to the development of new services and
applications for mobile communications as well as for data and media services.
In addition, we have a UMTS license in Finland and joint ventures of which we
are a member have been granted UMTS licenses in Germany, Italy, Spain and
Norway.

     We are also one of the leading providers of domestic long distance and
international voice services in Finland. In addition, we provide local voice
services primarily in the more sparsely populated areas of eastern and northern
Finland. We also have significant investments in fixed-line communications
operators in the Baltic States.

     In 2000, we recorded revenues of E2,057 million, and an operating profit of
E1,748 million (including non-recurring capital gains and other such items of
E1,546 million). At December 31, 2000, we had total assets of E9,774 million.

                                    STRATEGY

     Our objective is to increase shareholder value by becoming a leading
provider of enhanced mobile telecommunications services in Finland and
internationally. To achieve our objectives, we have adopted the following
strategies:

DEVELOP OUR INTERNATIONAL MOBILE OPERATOR BUSINESS THROUGH OUR THIRD GENERATION
JOINT VENTURES AND ASSOCIATED GSM OPERATING COMPANIES

     In 2000, we achieved our objective of obtaining, together with strategic
partners, UMTS licenses in several of Europe's leading mobile markets, including
Germany, Italy and Spain. We are now focusing on launching commercial third
generation network services through our joint ventures. To accomplish this, we
plan to provide our joint venture companies both technical and financial
assistance in the build out of their third generation mobile networks in an
efficient and timely way. Using the know-how and experience we have gained as a
network operator and service provider in our advanced home market in Finland, we
also plan to cooperate with our joint venture companies in building third
generation service platforms. We believe that our third generation joint
ventures will be able to generate revenues from a variety of new sources, such
as the provision of content and high speed data services, and will be an
important source of income for Sonera. We believe that the third generation
joint ventures will also provide us with a means of increasing the penetration
of our enhanced mobile technologies and services, such as our Sonera SmartTrust
applications and Sonera zed services, in these large European markets. To
acquire subscribers and strengthen the brands of our third generation joint
ventures prior to the commercial introduction of third generation network
services, we may also assist our joint ventures in entering into strategic
arrangements such as the agreement Gruppe 3G recently entered into with the
German mobile operator E-Plus MobilFunk GmbH & Co. KG, which will allow Gruppe
3G to begin offering a GPRS/GSM service in Germany in the second half of 2001.
Depending on regulatory, legal and other developments, we may also seek to
reduce the cost of the build-out of the networks of the third generation
networks of our joint ventures by cooperating with other operators in the build
out of the networks.

     In addition, we plan to continue to participate actively in an effort to
enhance the value of our associated GSM operating companies, such as Turkcell,
Pannon and EMT, by providing such operators with strategic and technological
assistance to upgrade their networks and to enable them to offer their customers
a greater variety of value-added services. We also plan to continue to export
our marketing and customer service expertise to our associated GSM operating
companies and to help such companies bid for UMTS licenses where practicable.

EXPAND OUR WIRELESS AND INTERNET BASED VALUE-ADDED CONTENT SERVICE BUSINESS

     We currently offer a mobile portal service, Sonera zed, which is one of the
leading operator independent mobile portals with a potential customer base of
over 100 million based on the contracts we have entered into with
telecommunications operators. Sonera zed aims to offer relevant and easy to use
content and applications to

                                        17
<PAGE>   31

mobile subscribers. Zed currently operates in nine countries and offers both SMS
and WAP services depending on the market. The major challenge for zed is now to
leverage its extensive international distribution to generate revenues. Among
other initiatives, we expect to upgrade the technological capabilities of our
zed services to function in a GPRS and, in the future, a UMTS environment. We
have also begun to segment our customer base, establishing a package of advanced
services called "Zed for Business" targeted at business customers. We believe
that through these and other initiatives we can significantly increase the
revenues we derive from our Sonera zed services.

     We are also planning to sharpen the focus of our Sonera Plaza Internet
portal, the leading Internet portal in Finland, concentrating on financial,
entertainment and information services to enhance its appeal and to increase the
potential of deriving significant transaction based revenue from the service.
Through our subsidiary, Sonera Juxto, we are investing in the expansion of our
ASP service business, which we began to offer commercially in 2000. Sonera Juxto
will concentrate on offering wireless ASP services to corporate customers. We
have also focused on expanding our directory service business, Sonera Info
Communications, through cooperation with partners in Europe and the United
States. In particular, we plan to expand the advanced Internet and mobile
directory assistance services of Sonera Info Communications together with our
partners. As a means of enhancing the value of our content service businesses,
we are currently evaluating whether to sell a portion of our interests in Sonera
zed and certain of our other content service business through public offerings
or strategic sales or to enter into strategic alliances relating to such
businesses.

FOCUS ON THE DEVELOPMENT AND COMMERCIALIZATION OF INNOVATIVE MOBILE AND INTERNET
TRANSACTION TECHNOLOGIES

     Transaction volumes over the Internet and mobile telephones are expected to
grow dramatically in the next several years. Through our Sonera SmartTrust
wireless security solution, we are actively developing technologies intended to
facilitate the growth of Internet and mobile handset transactions. We offer
these technologies independently from our mobile telecommunications network,
allowing us to sell them on a global basis. Sonera SmartTrust provides PKI-based
solutions for mobile network operators and service providers, such as banks and
brokers, that enable highly secure mobile e-commerce services. As of the end of
2000, over 60 mobile operators and 160 service providers had deployed the
SmartTrust solution to manage the security of their e-services and through
continued technological development and marketing we aim to make Sonera
SmartTrust one of the world's leading providers of wireless security solutions.
To increase the functionality of the SmartTrust solution, we also seek to
acquire companies that have core technologies that complement SmartTrust's
technology. In this regard, we have integrated the businesses of Across Holding
AB, a leading provider of wireless Internet based service platforms that we
acquired in April 2000, and iD2 Holding AB, a leading provider of
smartcard-based security solutions for Internet transactions that we acquired in
June 2000, so that Sonera SmartTrust now offers a complete range of open
standard solutions for both mobile network operators and service providers. As a
result of these initiatives, we aim to significantly increase the revenues we
derive from our Sonera SmartTrust business. Moreover, as a means of enhancing
the value of our SmartTrust business, we are currently evaluating whether to
sell a portion of our interest in Sonera SmartTrust through a public offering or
strategic sale or to enter into a strategic alliance relating to our Sonera
SmartTrust business.

MAINTAIN OUR STRONG AND PROFITABLE POSITION IN THE FINNISH MOBILE AND FIXED
TELECOMMUNICATIONS MARKET

     In the Finnish telecommunications market, we seek to maintain our position
as a leading provider of mobile and fixed network services both to ensure
revenue growth and to generate cash to fund our other strategic initiatives. We
also aim to improve productivity and efficiency in our mobile and fixed network
businesses to enhance our overall cash flow and to improve our EBITDA. We seek
to maintain our position as the leading mobile communications operator in
Finland by expanding our subscriber base and stimulating usage through, among
other initiatives: (1) customer segmentation, (2) customer service, (3)
introduction of new products and services, and (4) continued emphasis on strong
retail distribution and high quality customer service.

     We seek to gain new subscribers and stimulate usage across our customer
segments by providing a broad range of customized products and services aimed at
attracting high usage customers and maintaining customer
                                        18
<PAGE>   32

loyalty. Examples include the introduction of GSM tariff plans tailored to the
usage patterns of different business and residential customers. We also seek to
maintain our market leadership by being a forerunner in the development of
innovative mobile telecommunications products and services, including a wide
variety of SMS applications, for commercial application. We continue to focus on
maintaining the breadth and quality of our mobile retail distribution network,
which has been integral to the growth of our mobile communications business. We
also intend to continue to provide high quality customer service, largely
through our customer call centers, which provide 24-hour-a-day, seven-day-a-week
service.

     We seek to maintain our strong position in the domestic fixed network
telecommunications market in the face of increasing competition through, among
other actions, offering customers more cost efficient and higher capacity fixed
network access. We are devoting substantial resources to the installation of
fiber local loops in the major cities in Finland so that we can market direct
local access to business customers in those areas. We have and may continue to
make strategic investments in local telephone operators in selected cities in
Finland to broaden our base of fixed network corporate customers. We are also
concentrating on expanding our LAN interconnection and management data services.
In the highly competitive domestic long distance and international voice
markets, we are continuing to develop new ways of delivering our services. For
example, we are now in the process of testing a new service that uses IP
technology to carry voice transmissions over data networks.

DIVESTMENT OF NON-CORE ASSETS TO FUND STRATEGIC INITIATIVES

     To reduce our debt and finance our outlays on new services and the roll out
of the third generation networks of our joint ventures, we plan, among other
things, to divest non-core assets. Potential dispositions may take a variety of
forms, including asset sales, stock sales or sale-leaseback transactions, and
will be made subject to market conditions in an attempt to maximize the return
on our investments. In March 2001, we divested all of our interest in
TietoEnator, for which we received net proceeds of E424 million. In May 2001, we
agreed to sell a part of our fixed network business that targets Swedish
corporate customers to Song Networks Holding AB (previously Tele 1 Europe). We
received aggregate cash proceeds of approximately E720 million as a result of
(1) our sale of VoiceStream and Powertel shares in May 2001 and (2) our receipt
of cash from our tender of shares in connection with the Deutsche
Telekom-Powertel-VoiceStream merger which closed on May 31, 2001. We will use
this cash to reduce our short-term debt. We also received approximately 72
million shares of Deutsche Telekom in connection with the Deutsche
Telekom-Powertel-VoiceStream merger. We plan to dispose of our shareholdings in
Deutsche Telekom, taking into consideration market conditions and our lock-up
obligations, in an effort to maximize our return on the shares. We may also
decide to dispose of certain of our investments in our associated companies
either in part or in whole.

CONTINUE TO INVESTIGATE THE STRATEGIC POTENTIAL OF PARTICIPATING IN THE ONGOING
CONSOLIDATION OF THE TELECOMMUNICATIONS INDUSTRY

     As part of our growth strategy, we seek to participate in the ongoing
consolidation of the telecommunications industry in Europe. Management believes
that we are well positioned to participate in this consolidation because of our
role as a leader in telecommunications services in the sophisticated Finnish
market. Any acquisition, investment, business combination or strategic alliance
undertaken in connection with the ongoing consolidation of the industry could
increase our subscriber base substantially, improve our ability to serve
international corporate customers, improve our ability to market our enhanced
network independent services and allow us to pursue growth in markets which are
significantly larger and less penetrated than Finland.

                        DESCRIPTION OF GROUP OPERATIONS

OVERVIEW OF OPERATIONS

     We are organized into five business segments:

     -  Domestic Mobile Communications;

     -  International Mobile Communications;

                                        19
<PAGE>   33

     -  Media Communications and New Services;

     -  Sonera Telecom, which includes our fixed-network voice and data services
        and our equipment sales and construction and maintenance businesses; and

     -  Other Operations, which consists principally of intra-Group operations.

     In addition, we have significant interests in mobile and fixed-line
telecommunications operators outside of Finland from which we derive equity
income. See "-- International and Other Significant Investments." The following
chart sets forth our external revenues broken down by business area as a
percentage of our total external revenues for the year ended December 31, 2000:

                        [PIE CHART OF EXTERNAL REVENUES]

     International Mobile Communications and Other Operations each generated
less than one percent of our external revenues in 2000.

     We are primarily active in Europe and hold minority interests in companies
in the United States and Asia. In 2000, substantially all of our revenues were
derived from activities in Europe.

SIGNIFICANT SUBSIDIARIES

     Sonera Corporation is the ultimate parent company of the Group. The
following table sets forth the significant subsidiaries owned, directly or
indirectly, by Sonera Corporation:

<TABLE>
<CAPTION>
                                                                                      NUMBER OF
                                                                     PERCENTAGE    PERSONNEL AS OF
NAME OF COMPANY                                      DOMICILE          OWNED      DECEMBER 31, 2000
---------------                                      --------        ----------   -----------------
<S>                                              <C>                 <C>          <C>
Intra Call Center S.A.........................   Amiens, France         51.1              283
Primatel Ltd..................................   Kuopio, Finland       100.0            1,837
Sonera Carrier Networks Ltd...................   Helsinki, Finland     100.0              774
Sonera Entrum Ltd.............................   Helsinki, Finland     100.0              892
Sonera Info Communications Ltd................   Helsinki, Finland     100.0              606
Sonera Juxto Ltd..............................   Helsinki, Finland     100.0              601
Sonera Plaza Ltd..............................   Helsinki, Finland     100.0              223
Sonera Plaza Nederland B.V....................   Capelle a/d           100.0              178
                                                 Ijssel,
                                                 the Netherlands
Sonera SmartTrust AB..........................   Stockholm, Sweden     100.0              241
Sonera SmartTrust Ltd.........................   Helsinki, Finland     100.0              193
Sonera Solutions Ltd..........................   Helsinki, Finland     100.0              827
Sonera Sverige AB.............................   Stockholm, Sweden     100.0              149
Sonera zed Ltd................................   Helsinki, Finland     100.0              134
Telering Ltd..................................   Helsinki, Finland     100.0              114
</TABLE>

                                        20
<PAGE>   34

DOMESTIC MOBILE COMMUNICATIONS

     We are the leading mobile telecommunications operator in Finland. In 2000,
Domestic Mobile Communications generated revenues of E1,134 million, or
approximately 54 percent of our total revenues. We offer digital mobile services
through our GSM 900 and GSM 1800 networks and analog mobile services through our
NMT 450 network. Additionally, we began offering a GPRS service as a part of our
GSM service in December 2000. Our market share of GSM subscriptions in Finland
at the end of 2000 was greater than 60 percent. The aggregate penetration rate
of digital and analog mobile communications services in Finland is estimated to
be one of the highest in the world, exceeding 70 percent at the end of 2000.

     We are one of three licensed providers of GSM 900 services in Finland. At
year end, our GSM 900 network covered approximately 97 percent of Finland's
geographical area and 99 percent of its population. We also hold one of four
nationwide GSM 1800 licenses. We use our GSM 1800 network as a cost-effective
means of increasing the capacity of our GSM 900 network, predominantly in urban
areas with significant amounts of mobile traffic. We offer a dual band service
that can utilize both our GSM 900 and GSM 1800 networks through the use of dual
band handsets. Our dual band zones cover over 70 percent of the Finnish
population. At the end of 2000, approximately 35 percent of all our
subscriptions were dual band (36 percent of our GSM subscriptions were dual
band). Most of our new subscriptions since the beginning of 2000 have been dual
band. As of December 31, 2000, we had approximately 2.28 million GSM
subscriptions, representing more than a 60 percent share of the total GSM market
in Finland. Of these, approximately 2.2 percent were pre-paid subscriptions. We
began offering a GPRS service as a supplementary feature to the majority of our
GSM subscribers in December 2000. GPRS operates at a higher transmission rate
than GSM, and allows for simultaneous voice and data transmission connections.
Use of GPRS requires a GPRS terminal.

     We are the leading provider of analog mobile services in Finland through
our NMT 450 network. Our NMT 450 network covers approximately 99 percent of
Finland's geographic area and its population. Provision of our NMT 900 mobile
services was discontinued on December 31, 2000 due to the decrease in the number
of NMT 900 subscribers and the decreased average monthly usage of our NMT 900
subscriptions.

SUBSCRIPTIONS

     The table below sets forth selected subscription data for our GSM and NMT
services as of the dates specified:

<TABLE>
<CAPTION>
                                                                    AS OF DECEMBER 31,
                                                            -----------------------------------
                                                              1998         1999         2000
                                                            ---------    ---------    ---------
<S>                                                         <C>          <C>          <C>
Subscriptions at end of period:
  By type of service:
  GSM(1)................................................    1,596,897    1,938,644    2,281,916
  NMT...................................................      334,987      197,597       55,863
                                                            ---------    ---------    ---------
Total subscriptions.....................................    1,931,884    2,136,241    2,337,779
                                                            =========    =========    =========
  By type of subscription:
  Business(2)...........................................      431,739      453,615      480,191
  Residential(2)........................................    1,500,145    1,682,626    1,857,588
                                                            ---------    ---------    ---------
Total subscriptions.....................................    1,931,884    2,136,241    2,337,779
                                                            =========    =========    =========
</TABLE>

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

(1) Includes combined data with respect to our GSM 900 and GSM dual band
    services.

(2) Business and residential subscriptions have been divided according to tax
    identification number.

     The growth in our total mobile subscription base is due to the increase in
the number of GSM subscriptions. The rapid increase in the number of our GSM
subscriptions since 1995 is attributable to a number of factors, including the
quality and innovative nature of our services, our active marketing, our
introduction of targeted tariff packages and the increasing number of
subscribers who have switched from NMT services to GSM services. We expect GSM
subscriber growth to slow in the future due to the high penetration levels in
Finland of

                                        21
<PAGE>   35

above 70 percent. We believe, however, that we have new means to grow revenue
and profitability through initiatives such as new data services and cost-control
programs, as well as through the continuing evolution of Finland as a wireless
telecommunications environment in which subscribers may have more than one
mobile connection. However, we expect that the growth of our mobile subscriber
base will continue to slow down in the future.

     We also believe that we have one of the lowest churn rates for GSM services
in Europe. "Churn" refers to customer deactivations that occur either
voluntarily, due, for example, to customers switching to a competing network or
terminating mobile service altogether, or involuntarily, due, for example, to
bill non-payment. Our GSM churn rate, which reflects the total number of GSM
subscriber deactivations during the period as a percentage of the average number
of our GSM subscribers for the period, was 14.0, 14.6 and 12.4 percent for 1998,
1999 and 2000, respectively. Moreover, customer churn, which excludes cases in
which the registered owner of the subscription changes but the user remains the
same (as in the case where a person has his or her individual subscription
transferred to a company subscription), was significantly lower at 9.7 percent
in 2000, as compared to 12.1 percent in 1999. We attribute our low GSM churn
rate to a number of factors including the general prohibition against handset
subsidies in the Finnish market, the existence of only one nationwide GSM 900
competitor operating in the market until the beginning of 2001 (there are
currently two licensed competitors), the high quality of our customer service,
our computerized credit checking procedures and the innovative services we
offer. Because of the general prohibition against handset subsidies in the
Finnish GSM market, a subscriber has little incentive to terminate his or her
subscription and enter into a new subscription to obtain a more modern handset
at a subsidized rate, as is the practice in most other European countries.

     In recent years, we have experienced a high migration rate in our NMT
services. Increased migration of NMT customers has resulted principally from
analog subscribers switching to digital services. The majority of our
disconnecting NMT subscribers have gone on to subscribe to our GSM services. As
a result of these developments, we discontinued our NMT 900 service at the end
of 2000. The Finnish telecommunications authorities have released the spectrum
previously allocated to our NMT 900 operations to our GSM operations and to the
GSM operations of Radiolinja, our main competitor in nationwide GSM 900
services, in proportion to our respective market shares, and have reserved
spectrum for the GSM 900 operations of DNA Finland.

TRAFFIC

     The table below sets forth selected traffic data for our GSM and NMT
services for the periods indicated:

<TABLE>
<CAPTION>
                                                                YEAR ENDED DECEMBER 31,
                                                                -----------------------
                                                                1998     1999     2000
                                                                -----    -----    -----
<S>                                                             <C>      <C>      <C>
Total traffic (in millions of minutes)(1)...................    2,452    3,173    3,724
Average monthly minutes of use per subscription(2)..........      116      130      139
</TABLE>

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

(1) Includes outgoing mobile to mobile and mobile to fixed-line calls.

(2) Average monthly minutes of use per subscription is calculated by dividing
    total outgoing traffic for our GSM and NMT services by the average number of
    subscriptions for the period for both types of service divided by the number
    of months in the period.

     Growth in total traffic on our GSM network since 1997 is principally due to
the growth in our GSM subscriber base. Continued traffic volume growth on our
GSM network will depend on a number of factors, including pricing and the
availability of new services, general economic conditions, the overall mix of
our subscriptions and the level of competition for obtaining new subscriptions.
In addition, we believe that the growth of usage per subscription has partly
offset increases in the number of lower volume residential subscribers to our
GSM services.

     Our NMT networks have experienced a continued decline in total traffic
since 1995, attributable primarily to the steady decrease in the number of
subscribers for these services. Because of the rapid decline in recent years in
average traffic per NMT 900 subscriber, as most higher volume NMT 900
subscribers switched to GSM services, we discontinued providing NMT 900 services
at the end of 2000. Average traffic per NMT 450 subscriber has

                                        22
<PAGE>   36

remained largely stable in recent years as the core users of the NMT 450
service, including certain niche groups such as freight transport operators and
seasonal users, maintain steady usage.

TARIFFS

     We charge subscribers an initial connection fee, monthly subscription
charges and traffic charges for outgoing calls based on minutes of use and for
outgoing SMS messages based on the number of messages sent. Subscribers are not
charged for incoming calls (other than calls received while roaming) although
Sonera receives interconnection fees from other telecommunications service
providers for these calls. See "Item 5. Operating and Financial Review and
Prospects -- Overview -- Interconnection Arrangements." In 2000, traffic
revenues, including interconnection and roaming revenues, accounted for
approximately 84.5 percent of Domestic Mobile Communications' revenues, while
monthly subscription charges, initial connection fees and complementary service
charges accounted for approximately 11 percent. While charges for the provision
of mobile communications services are not subject to direct regulation in
Finland, Finnish telecommunications regulation and competition law subject
operators with dominant market positions or a significant market power,
including us, to cost-based and non-discriminatory pricing requirements. See "--
Regulation."

     Airtime is billed in per-second intervals under all of our pricing plans.
We provide a number of value-added services to our subscribers at no additional
monthly service fee, including voice mail and SMS messaging services.
Subscribers are charged monthly service fees for other value-added services,
such as smart phone back-up service, and are charged per-minute or
per-transaction fees for other services such as value-added SMS messaging
services and GSM data. In general, international tariff rates vary depending
upon the country called rather than the tariff plan selected. Roaming rates vary
depending upon the terms contained in the individual roaming agreements and the
relevant foreign mobile network operator.

GSM

     We currently offer seven different pricing plans for our GSM 900 mobile
communications service and three for our GSM dual band mobile communications
service. The initial connection fee for each pricing plan is E6.73, while
monthly service fees range from E2.50 to E8.41, in each case excluding
value-added tax ("VAT").

     Our current GSM pricing plans include: Business, Company, Classic, Privat,
Easy, Control and Control Plus. In addition, there are three plans for dual
frequency phones: Business Duo, Company Duo and Privat Duo. The Control and
Control Plus plans, which were launched in April 2001, are geared for machine
applications that are based on data transfer or SMS messaging.

     The Business and Company pricing plans are designed for business users with
heavy usage rates during peak hours. The Classic pricing plan has a lower
monthly service charge than the Business pricing plan and standard tariff rates
to suit the needs of average and moderate usage subscribers. The Privat pricing
plan is designed for callers with more moderate calling volumes and who use
their mobile phones primarily in the evenings, on weekends and during summer
months. The Duo pricing plans offer lower per minute rates when a customer using
a dual band phone calls from an area where Sonera offers GSM 1800 coverage while
calls made from sole GSM 900 coverage areas are charged at slightly higher rates
than in most other GSM 900 pricing plans. Additionally, in September 1998, we
launched the Easy pricing plan, which is based on a pre-activated and pre-paid
SIM card containing E50.46 (including VAT) of airtime. An Easy SIM card costs
E63.91 but has no activation charge and no monthly subscription fee. On December
31, 2000, there were approximately 51,000 activated Easy SIM cards outstanding.

     In February 2001, we introduced the Sonera Recharging Card, a scratch card
by which customers may pay in advance for the outgoing traffic of their mobile
phone subscription. The card is scratched to reveal a 12-digit number which is
needed to activate the card. The card may then be activated either through
placing a call, sending an SMS text message, or through the Internet.

     We began offering a GPRS service in December 2000. The Sonera GPRS service,
which can be added as a supplementary feature to the majority of Sonera GSM
subscriptions, has a fixed monthly payment of E16.65, which covers unrestricted
GPRS data transmission, as well as the monthly payment of mobile e-mail.
However,

                                        23
<PAGE>   37

we plan to announce a more complete pricing structure during 2001 when a more
wide ranging marketing of the service is expected to start.

NMT

     We currently offer four pricing plans for our NMT 450 mobile telephone
service. New NMT subscriptions have not been marketed since April 1999. We
discontinued offering NMT 900 services on December 31, 2000.

INTERCONNECTION

     Under Finnish telecommunications regulations, we are required to provide
interconnection to our mobile communications network for calls to and from
competing domestic operators. See "-- Regulation -- Interconnection." Pursuant
to interconnection agreements with other operators with which our mobile network
interconnects, we receive fees for terminating incoming calls that originate
from other mobile telecommunications operators.

VALUE-ADDED SERVICES

     We offer a variety of value-added services to our mobile customers. The
importance of such non-voice services to our mobile operations has increased in
recent years as customers have become familiar with SMS messaging, the means by
which many of our value-added services are provided. The use of non-voice
services increased by 36 percent in 2000 as compared to 1999, accounting for
E114 million, or approximately 11 percent of revenues from Domestic Mobile
Communications in 2000, as compared to E84 million or eight percent of revenues
in 1999. We expect that the share of non-voice services as a percentage of total
Domestic Mobile Communications revenues will grow in the future.

SMS communication services

     In May 1995, we introduced SMS, which allows users to send text messages
with up to 160 characters from one mobile handset to another as well as to other
communications devices. In 2000, our GSM subscribers sent 618 million SMS
messages, an increase of 41 percent from 1999. SMS messages are billed on a per
message basis, with a charge of E0.17 per message, including VAT, as of December
31, 2000 (other than the Easy pricing plan, under which SMS messages are charged
at E0.33 per message, including VAT). We also offer a number of services that
utilize SMS messaging technology, including transmission of an SMS message to a
fax machine or a GSM e-mail address. A subscriber to our e-mail notification
service can have e-mail messages received by his personal computer automatically
forwarded as an SMS message to his mobile handset.

SMS and WAP-based content services

     We also offer a wide variety of SMS-based content services. Among the most
popular services are (1) Zed Finder SMS directory service, which enables a
subscriber to look up a person's telephone number or to identify the holder of a
telephone number using SMS messaging, (2) Doris ringing tone and icon service,
which enables a subscriber to order a new ringing tone for a mobile handset or a
new icon (wallpaper) to the subscriber's mobile handset screen using SMS
messaging, and (3) an account query service, which enables the subscriber to
obtain the current balance of his or her mobile bill. Using our mobile
information services, a subscriber can send an SMS message to a special service
number and receive an SMS reply with information such as weather, share prices,
public transportation schedules or news reports. A subscriber can also receive
information regularly by subscribing to an SMS mailing list service. While
SMS-based content services are delivered through a technological platform which
is built into our network and operated by us, the content of the services is in
most cases provided by third parties.

     In August 1999, we became the first operator in the world to launch
information services intended for WAP compliant mobile handsets. WAP is an
industry standard protocol which allows delivery of Internet-based services
through use of selection menus to mobile phones. We are developing WAP services
together with a number of our corporate partners and customers. While our
current services offered through a WAP platform

                                        24
<PAGE>   38

include, among other things, our Doris ringing tone and icon service, our
account query service and Zed Finder directory assistance service, we plan to
make most of our existing SMS content services WAP compliant.

     Other value-added services that we have launched since the beginning of
2000 include:

     -  M-mail, a service that allows our GSM customers to send or receive
        e-mail messages to or from a mobile handset. The service can be used
        through both SMS or WAP-based communications; and

     -  The Pointer Guide service: one of the first applications to utilize
        positioning technology. The Pointer Guide offers information on
        services, events and sites in the locality where the customer is located
        and transmits the information directly to the customer's handset. In
        January 2001, we expanded our Sonera Pointer location based services
        with Petrol Pointer which automatically compares gasoline prices of
        petrol stations in the locality of the subscriber's mobile handset, and
        can then suggest which are the nearest and cheapest gas stations
        subscribing to the service which are in the vicinity. Sonera Pointer
        services can pinpoint the location of a customer's mobile handset to an
        accuracy of one base station.

Transaction services

     Our customers can use their mobile handsets for executing various
transactions, such as wireless telebanking, storing of back-up files for
smartphones, modifying mobile subscriptions on-line, purchasing goods from
vending machines and sending GSM postcards.

     Our wireless telebanking services allow subscribers to use their mobile
handsets as an automated teller machine, through which subscribers can access
account information and pay bills using SMS messaging, WAP or voice response
technology. The service is provided in cooperation with two large Finnish banks.
Our Mobile Pay application allows mobile subscribers to, for example, purchase
goods or services from selected vending machines and other automated service
machines such as car wash stations. The subscriber places a call on the number
shown at the machine authenticating the transaction and the product or the
service is billed via the subscriber's mobile bill. We entered into an agreement
with Oyj Hartwall Abp in February 2000 to equip some Hartwall softdrink vending
machines with GSM technology, allowing consumers to order and pay for softdrinks
by mobile phone. In February 2001, we began testing Mobile Pay in three Pizza
Hut restaurants in the Helsinki city area, offering customers the possibility to
pay for meals through their mobile handsets.

Additional subscription options

     We also offer additional mobile services, including voice mail, call
forwarding, home call and family agreement. These services are based on
additional elements that we have installed in our network. Our home call service
provides a low-cost connection service between two to four pre-selected mobile
numbers or with two to three pre-selected Sonera mobile numbers and one
pre-selected fixed-line number. Our Family subscription agreement allows
subscribers to make low-cost calls and send reduced rate SMS messages between
subscriptions numbers under the same family agreement.

     Through GSM data service, subscribers can access their corporate LANs or
e-mail through a laptop computer. Sonera smartphone back-up is a service for
subscribers who have mobile handsets with data storage and Internet browsing
capabilities. It enables subscribers to save data, including faxes and e-mail,
on our network servers by dialing a service number. In September 1999, we
launched a GSM HiSpeed Data service, which provides its subscribers data
transmission at speeds of 14.4 Kbps, 4.8 Kbps higher than the transmission speed
of standard GSM networks. In late 1999, we further increased the transmission
speed provided through GSM HiSpeed Data to 43.2 Kbps through the launch of a
HSCSD feature, which allows a single subscriber to use up to four time slots at
the same time. GSM HiSpeed Data enhances remote working possibilities as it
supports a greater number of mobile applications including enhanced Internet
browsing and e-mail transmission, more advanced graphics and transmission of
moving images. The service is available throughout our GSM network, provided
that the host network supports high speed transmission and the host operator has
a data traffic interconnection agreement with Sonera. Currently, GSM HiSpeed
Data service can be used only with certain more advanced GSM handset models. In
December 2000, we became the first operator in the Nordic countries to launch a
mobile phone service based on GPRS. Our GPRS service is able to reach
transmission rates of up to

                                        25
<PAGE>   39

100 kbits per second, although the first GPRS terminals can only utilize a speed
of approximately 20 kbits per second.

     In addition to basic voice services and non-voice value-added services, we
provide our mobile subscribers with complimentary voice traffic related services
such as caller identification, blocking of caller identification, call waiting
and blocking of pay-per-call services. We also offer services with no
subscription fee but which are charged on a transaction basis such as basic call
forwarding, conference calling and voicemail. We also offer subscription fee
based services such as call forwarding with certain special features. These
services are available for both analog and digital mobile networks.

INTERNATIONAL ROAMING

     Roaming agreements with mobile telecommunications operators in foreign
countries allow our mobile telephone subscribers to make and receive calls
outside of Finland and for subscribers of foreign networks to make and receive
calls through our mobile network in Finland. At the end of 2000, we had roaming
agreements with 200 operators, an increase of almost 21 percent from 166 at the
end of 1999. Our GSM roaming currently covers 108 countries including nearly all
continents. It covers all of Europe and the developed industrial countries of
Southeast Asia -- with the exception of Japan -- as well as several areas in the
United States, Canada, Africa and South America.

     These roaming agreements allow our GSM subscribers to access these
telecommunications operators' respective networks by using their own SIM cards
in a GSM or PCS handset. Our analog NMT 450 systems offer subscribers only
limited international roaming in countries that have adopted the NMT 450
standard, including the Nordic Countries and the Baltic States.

     In general, when a Sonera subscriber uses the services of a GSM network
operator in another country, we are responsible for the payment of charges for
those services in accordance with the corresponding GSM network operator's
roaming tariffs. We pass these charges on to the relevant subscriber, together
with a surcharge of five percent. Similarly, when a customer of a GSM network
operator in another country uses our GSM network, we charge that GSM network
operator for the call at our roaming tariff rate.

OTHER MOBILE COMMUNICATIONS OPERATIONS

     We also provide a range of other mobile communications services, including
mobile satellite, mobile logistic, wireless automation, closed network radio and
mobile consulting services. Some of these, such as mobile satellite services and
mobile consulting services, complement our main GSM and NMT mobile services. In
general, these services target specific customer groups and generate relatively
modest revenues. However, we consider these services important insofar as they
enable us to provide a broad spectrum of mobile communications services to our
customers.

Mobile Satellite Services

     We provide global satellite services for inbound and outbound
communications to and from areas outside of conventional mobile
telecommunications coverage areas by means of satellite transmission through the
Inmarsat Commercial Organization (ICO-Europe and ICO-Global), the European
Telecommunications Satellite organization (EutElsat), the International
Telecommunications Satellite Service (IntElsat) and the International Maritime
Satellite Service (Inmarsat). We own minor equity interests in both ICO
organizations and in Inmarsat. Within Finland, our satellite services complement
our conventional terrestrial wireless services by extending the coverage of our
services to the most remote areas in northern Finland and open sea areas along
the Finnish coast. Through our satellite services, we are able to offer mobile
communications to airlines and ships as well as customers with overseas working
sites that might otherwise be beyond the reach of terrestrial voice or data
connections. In April 2000, we launched a new global area network (GAN)
satellite service, which is implemented by means of the Inmarsat satellite
system, in the Finnish market. The GAN service makes it possible for customers
who are in remote areas outside the coverage of other communications systems to
access the Internet. In addition, we are actively taking part in the development
of the Global Mobile Personal

                                        26
<PAGE>   40

Communications Satellite, which is expected to introduce more efficient and
economical satellite communications solutions and extend the use of such
satellite services solutions to larger customer groups.

Mobile Logistic Services

     Mobile logistic control services involve the installation of terminals in
trucks and other vehicles which allow for the monitoring of transportation and
delivery of goods using our wireless network. We provide logistic control
services primarily to the freight transportation industry. Other mobile logistic
services we offer include data information and dispatch systems used by taxi and
limousine services as well as Mobitex fleet management and logistic data
services, which are primarily used by the forest industry and field maintenance
service providers. We currently provide several companies, including UPM-Kymmene
Corporation, with the Sonera FleetWare(TM) service, a wireless vehicle data
exchange system.

Closed Network Radio Services

     As part of our closed network radio services, we operate a Global Maritime
Distress and Safety Service System, which is a hybrid communications solution
utilizing both satellite technology and medium and very high frequency radio
technology.

Telemetry Services

     Our SafeNet telemetry services consist of an intelligent network
independent alarm number, information transmission and remote control services.
The product range includes access terminals for mobile and fixed networks. Our
services are targeted mainly at businesses in the fields of security, safety,
building management and remote metering. Typical telemetry service customers in
Finland include governmental security and safety organizations and private
service producer companies. New advanced network independent services for
security and information management are generally focused on the customer
sector. Most of our telemetry service system customers outside of Finland are
telecommunications operators.

Paging Services

     We offer two paging services. The market for pagers has declined in recent
years due to the increased use of GSM services and, in particular, increased use
of SMS messaging. We plan to discontinue the operation of our paging services in
their current form on December 31, 2001, at the latest. However, we expect to
continue using certain advanced paging solutions applications in the context of
wireless automation services.

Mobile Consulting

     We provide consulting services relating to network planning, construction
and operation to other mobile telecommunications operators. The principal
customers of our mobile consulting services are our associated companies and our
business partners.

DISTRIBUTION

     We market our mobile telecommunications services to residential subscribers
primarily through independent distributors and to corporate subscribers
primarily through our direct sales force.

     Our principal distributor is the independent Sonera GSM dealer network,
which accounted for approximately 95 percent of our new residential
subscriptions in 2000. The Sonera GSM dealer network, which has acted as the
non-exclusive distributor of our mobile telephone subscriptions since 1990, is
currently comprised of approximately 1,700 outlets in Finland, including
specialty stores for mobile telecommunications equipment, home electronics
stores and department stores. While Sonera GSM dealers principally offer Sonera
mobile subscriptions, they may also sell other operators' subscriptions.
However, our major partners have devoted themselves to selling our subscriptions
and services, and offer other alternatives merely upon request of customers.
Major distribution chains providing our services and subscriptions are Telering,
Paamies-Kauppiat Oy, Expert, Tekniset and Data-Info. Telering, a retailing unit
operated by us, forms a part of the Sonera GSM

                                        27
<PAGE>   41

dealer network. Other distribution chains in which we have an ownership interest
are Paamies-Kauppiat Oy, Kasteam Oy, Helsingin GSM Palvelu Oy and Data-Info. Our
distribution network was further strengthened during the first quarter of 2000
with the commencement of a cooperation arrangement with Musta Porssi, a home
electronics chain with over seventy outlets in Finland, and through a
distribution arrangement with the R-Kioski chain, which has over 700 convenience
stores located throughout Finland, under which R-Kioski stores began selling
Sonera pre-paid subscriptions.

     We pay our distributors a fixed sign-up commission per subscription, which
is the same for all distributors, and fees for other services and provide
marketing support, principally through common advertising campaigns. Unlike in
many other countries, mobile operators in Finland are restricted from
subsidizing the price of a mobile handset in connection with the sale of a
mobile subscription. The commission received by the distributor under our
commission scheme is divided into four allotments, each of which becomes payable
after the sale of the subscription, provided that, among other things, the
subscriber is accumulating traffic and is current in the payment of his monthly
subscription charges. The final portion of the commission is paid to the
distributor 18 months after the subscription sale. The new commission structure
is intended to give the distributors an incentive to develop closer
relationships with their customers, and to enhance the dealers' role in customer
care and customer retention and thereby reduce churn. We also provide some
additional incentives to dealers classified as "authorized" or "expert" based on
subscription volume, service quality and other factors as provided in our
distributor guidelines. Authorized dealers have been authorized to use our
software systems for on-line subscription activation, and they receive
additional compensation for performing tasks which otherwise would be the
responsibility of our own customer service department.

SUBSCRIBER MANAGEMENT AND BILLING

     Before activating a mobile subscription, we verify information that the
subscriber provides in its subscription application and perform a credit check
on the subscriber. Authorized and expert dealers generally have an on-line
connection with our mobile activation system through which we can verify
information contained in the application, as well as perform the credit check
using our newly-installed intelligent credit evaluation systems. If the
subscriber information is verified and the credit check is satisfactory, we can
activate the mobile connection within approximately five minutes. If the
subscription application is rejected by our automated system, the application is
then forwarded to our customer service department for handling. Mobile
connections for customers submitting applications to non-authorized dealers are
generally activated within two business days. Deposits are generally required
for foreign subscribers and higher credit risk customers.

     Our mobile subscribers are billed monthly. To reduce costs, we generally do
not bill subscribers with balances below certain net thresholds but, instead,
transfer the balance to the next month's billing cycle. Subscribers may choose
from a number of billing options, including traditional paper bills, direct
withdrawal from the subscriber's bank account, some deferred payment options for
which the subscriber is charged a fee, and aggregated bills for subscribers with
families who maintain more than one subscription. In conjunction with Merita
Bank and Sampo Bank (formerly, Leonia Bank), two major Finnish commercial banks,
we have also introduced a new billing service through which subscribers can
receive and pay bills via the Internet. Customers of Sonera Solutions and of our
Business and Residential Services unit can receive bills showing integrated
charges for mobile telecommunications, fixed-line voice services and data and
media services on one bill. We can also provide, at the customer's request,
detailed calling information in the bill, including, subject to some exceptions,
numbers called and time and length of calls. In addition, subscribers can verify
their balances with our balance inquiry services or receive notification from a
balance reminder service in the event that their pre-defined balance level is
exceeded.

     Our mobile communications customer care and billing system is responsible
for all customer information required for customer management and billing. In
early 1999, Sonera introduced an SMS-based mobile billing service, which allows
subscribers to receive their mobile bills directly to their mobile handsets.
Customers are also able to manage their subscriptions and settle their bills
on-line via the internet.

     We have established a uniform policy for dealing with delinquent subscriber
accounts. Written reminders are sent to subscribers who fail to pay their bills
within seven days after the due date and, if payment is not received

                                        28
<PAGE>   42

within 14 days after the first reminder is sent, the subscriber connection is
barred. If payment is not received within 13 days after the disconnection, we
will send a second reminder. If payment is still not received within 65 days of
the original bill, we will terminate the subscription. In 2000, approximately 60
percent of our mobile bills were paid in full within the due date, 85 percent
before the first reminder was sent, which is 21 days after the sending of the
invoice, and 98 percent of our mobile bills were paid within 14 days after the
first reminder was sent.

     Our customer service department actively monitors our exposure to credit
loss and subscriber fraud. We utilize advanced software that, in addition to
processing current credit information on subscribers from third-party sources,
tracks subscribers' bills on a daily basis and identifies unusual activity. Our
credit control managers monitor data regarding subscribers' account activity and
credit history and carry out our credit control policy guidelines. In the event
of unusual activity, our credit controllers may take a variety of actions
including selectively barring some functions, such as entertainment services,
sending invoices ahead of the billing schedule or terminating the subscription.
As a result of our credit evaluation system, active monitoring program and
strictly enforced program regarding accounts receivable, losses due to credit
loss and subscriber fraud were approximately 0.3 percent of our 2000 revenues.

CUSTOMER SERVICE

     Our Domestic Mobile Communications business area has a separate customer
service department serving both our mobile subscribers and dealers. The mobile
customer service department is principally responsible for maintaining our
subscriber database, answering billing inquiries, answering subscriber
complaints, checking subscriber credit, opening new subscriptions for non-expert
dealers and selling additional, value-added mobile services to existing
subscribers. The customer service department operates call centers at different
locations in Finland which operate 24-hours-a-day, seven-days-a-week and which
are linked together by a common database and an automated call delivery system.
Call center services are segmented into a number of different categories,
including fault reporting, billing, major accounts and general subscriber and
dealer support. In 2000, our mobile telecommunications call centers handled over
60 million calls. Our call centers are largely automated, offering subscribers
access to product and price information and enabling a subscriber to order a
number of value-added services without the assistance of a call center
representative. In addition, other customer services we offer, such as an
SMS-based account inquiry service and Internet price and product listings, allow
our subscribers to access information regarding their mobile accounts and order
new products and services without the need to contact our call centers.

TECHNOLOGY AND INFRASTRUCTURE

     As of December 31, 2000, our GSM 900 network covered approximately 97
percent of Finland's geographic area, and 99 percent of the Finnish population.
Our NMT 450 network covered approximately 99 percent of Finland's geographic
area and population. Our GSM 900 network has been designed for handheld
terminals while our NMT 450 network was initially built as a network for
vehicle-installed terminals. In February 1998, we launched a GSM dual band
service, which allows our subscribers to use both the 900 MHz and 1800 MHz
frequency bands for making mobile calls.

Network Infrastructure

     The infrastructure of a mobile communications network, whether analog or
digital, consists of (1) a radio network comprising base stations, which
communicate by radio signal with mobile handsets in their cells, as well as
antenna systems and masts, (2) a switching network comprising base station
controllers, which control call set-up, signaling and maintenance functions, as
well as the use of radio channels in one or more base stations, and other
network management systems, (3) mobile switching centers, which control the
switching network, (4) home location registers, which not only contain
information regarding subscribers and roaming users utilizing the network but
also authorize their network usage, and (5) cabling and other transmission of
devices to connect different components of the network. To save costs, we have
utilized components of our existing networks as part of our build-out of new
networks. For example, our base station sites typically contain both NMT and GSM
base stations. Similarly, our mobile network uses our fixed-line network to
connect mobile switching centers to
                                        29
<PAGE>   43

interconnection sites and for trunk transmission of all mobile traffic that
terminates beyond the mobile caller's local cell (i.e., the geographic area
covered by a single base station in a mobile communications network). In
addition, our GSM 1800 switching network has been entirely integrated with our
GSM 900 network.

     In addition to standard infrastructure, mobile networks commonly contain
several service platform elements. All of our networks contain platforms for
basic services such as voice mail, call waiting and call forwarding. Our GSM
networks have also been equipped to provide a platform for higher level
value-added services such as home call, SMS-based content services, Privatel
services and Mobicentrex services. We have also installed network elements which
enable the use of WAP handsets. In addition, our mobile infrastructure provides
a platform for wireless data applications including e-mail and access to
corporate LANs. To increase the data capacity of our mobile networks, we have
completed the installation of multislot HSCSD software in our network. HSCSD
increases the transmission speed of a single slot from 9.6 Kbps to 14.4 Kbps and
allows a single user to utilize up to four timeslots at the same time and with
data transmission speeds of up to 43.2 Kbps. As a result, HSCSD supports a
greater number of mobile applications.

     We were the first operator in the Nordic Countries to launch a mobile phone
service based on packet-switched data transmission. We have updated our existing
GSM network through the installation of packet switched GPRS network elements
provided by our existing component suppliers, Nokia Corporation and LM Ericsson.
GPRS allows transmission speeds high enough to support effective running of
Internet applications and requires use of a GPRS terminal. Our GPRS service,
which was launched commercially in December 2000, is able to reach transmission
rates of up to 100 kbits/s, although the first terminals can only utilize a
speed of approximately 20 kbits/s. The GPRS network has functioned throughout
Finland since March 2001.

     In 1999, we received a license to operate a third generation mobile
communications network in Finland. We aim to be in a position to launch a pilot
UMTS service during 2002 and a commercial service in 2003 depending, among other
things, on the availability of UMTS network elements and handsets. In December
2000, we began building our UMTS network in cooperation with Nokia and signed a
three year agreement with Nokia Networks under which Nokia will deliver
equipment such as core network and radio network equipment and maintenance
services for the Finnish UMTS network. Additionally, we entered into a three
year agreement with Ericsson in December 2000 under which Ericsson will supply
us with the base station system for our UMTS network in Finland. The
implementation of GPRS technology and the anticipated implementation of UMTS
technology is expected to enable mobile networks to transfer data at sufficient
speeds to support a wide range of data and media applications. We are
participating in the standardization process for these new technologies and are
actively evaluating the possible applications and services that such
technologies will provide. See "Item 5. Operating and Financial Review and
Prospects -- Research and Development."

     To guard against various technology related risks, we are using components
manufactured by two different suppliers in our networks and have installed
central elements of our network in a number of different geographical locations.
We have also secured the system's transmission lines by building alternative
backup routing.

Network Capacity and Quality

     Using our network management system, we regularly monitor capacity,
congestion and utility of our network elements. The capacity of mobile
telecommunications systems is dependent upon, among other things, the amount of
spectrum available for transmission within the frequency band allocated to the
network operator.

     Our primary challenge in meeting the market's capacity demand is in the
Helsinki metropolitan area, which has approximately 25 percent of Finland's
population. However, the introduction of dual band service and its strong
acceptance by subscribers has enabled us to more economically meet capacity
demand through the build-out of new 1800 Mhz band based network capacity in the
high density areas. In addition, we secure the availability of capacity by
installing micro- and pico-cells in high density areas and integrating
intelligent features into our network. In addition, with the termination of our
NMT 900 services, 900 MHz frequencies allocated to our NMT 900 service have been
reallocated by the Finnish regulatory authorities to our GSM 900 operations as
well as to those of Radiolinja and Suomen 2G. The reallocation of NMT
frequencies has further improved our

                                        30
<PAGE>   44

ability to handle our constantly growing GSM traffic volume. Currently, we are
not facing significant capacity restraints in any of our service areas.

Development Plan

     We view the further development of our networks as an ongoing process. We
intend to continue building new base stations, adding cells to existing base
stations and updating the technology of our existing networks. Recently, as a
result of changing customer behavior and expected growth of cellular data
traffic, the focus of our network development activities, especially in densely
populated areas, has shifted to improving the indoor coverage of our networks,
in particular in areas such as shopping malls, underground parking garages and
subway tunnels. In addition, we have installed a number of base stations to
improve the quality of our network within the offices and production facilities
of some of our major corporate customers. The new mobile communication
technologies that we have or are in the process of implementing, including
HSCSD, GPRS and UMTS, has or can be placed on top of our existing GSM
infrastructure through selected installation of new network elements.

     Our capital expenditures relating to our mobile communications operations
totaled approximately E124 million in 2000. An increasing proportion of our
capital expenditures relating to mobile communications will be allocated to
value-added service platforms and, pursuant to growth expectations, wireless
data applications. We have not invested in the expansion of our NMT network
since 1997. See "Item 5. Operating and Financial Review and Prospects -- Capital
Expenditures and Investments."

INTERNATIONAL MOBILE COMMUNICATIONS

     Beginning January 1, 2001, we divided the mobile communications business
area into two separate business areas: Domestic Mobile Communications and
International Mobile Communications. International Mobile Communications focuses
principally on administering our holdings in international GSM operators and
third generation joint ventures. Earnings in these associated companies continue
to be included in our consolidated accounts in accordance with the equity method
of accounting. The International Mobile Communications area derives revenues and
incurs expenses from ongoing business conducted with our associated GSM
operating companies and our third generation joint ventures. For example, the
International Mobile Communications business area derives substantially all of
its revenues from the provision of technical, management and other services by
us to our associated GSM operating companies and our third generation joint
ventures, including the temporary transfer of Sonera employees to such
companies. International Mobile Communications' expenses consist mainly of
personnel expenses related to employees that have been temporarily transferred
to our associated GSM operating companies and our third generation joint
ventures, travel expenses and consultant service fees. International Mobile
Communications generated revenues of E5 million in 2000.

MEDIA COMMUNICATIONS AND NEW SERVICES

     In 2000, our Media Communications and New Services business area generated
revenues of E254 million, or approximately ten percent of our total revenues for
the period. The following table sets forth the revenues of the Media
Communications and New Services business area for the periods specified:

<TABLE>
<CAPTION>
                                                                   YEAR ENDED DECEMBER 31,
                                                                -----------------------------
                                                                 1998       1999       2000
                                                                -------    -------    -------
                                                                       (IN E MILLIONS)
<S>                                                             <C>        <C>        <C>
Media Communications and New Services.......................      127        175        254
</TABLE>

MEDIA COMMUNICATIONS

     Media communications consist of our new media, business media and directory
services operations. Our new media services include consumer and corporate
Internet services, cable TV and special calling services, such as pay-per-call
numbers. Our business media operations offer a variety of communications,
marketing and customer care solutions for business customers, such as toll-free
numbers and local access charge corporate

                                        31
<PAGE>   45

numbers, multifax services, telephone and video conference calling and remote
working, as well as e-commerce solutions.

New Media

     We are the leading provider of Internet access in Finland and provide a
variety of other Internet-related services such as Internet hosting and Internet
data transfer. We are also one of the leading cable TV service providers in
Finland and offer a variety of innovative cable TV services including
interactive services and cable TV Internet access. We believe that we are well
positioned to take advantage of the convergence of PC, television, cable TV,
Internet and mobile communications technologies.

     We are one of the market leaders in consumer Internet subscriptions in
Finland with a market share of nearly 40 percent as of December 31, 2000.
Overall, we had approximately 239,000 Internet subscribers in Finland at the end
of 2000 as compared to 216,000 at the end of 1999. We also offer Internet access
in the Netherlands, where Internet connections are offered to more than 20,000
consumer and corporate customers via the fixed network and cable TV.

     In February 2000, we launched a new Internet access product, Sonera
Internet PC. Available through authorized dealers, the Sonera Internet PC
product includes Internet access, a PC, required software, maintenance,
insurance and user support. In January 2001, we introduced a version of the
Sonera Internet PC service package that includes a portable computer. In May
2000, we began offering customers high speed ADSL Internet access.

Other New Media Services

     We were the first company to offer high speed data cable TV services in
Finland. As of December 31, 2000, we provided cable TV access to approximately
140,000 households through our own broadband cable network, giving us a 15
percent share of the Finnish cable TV market. In addition to traditional cable
TV, we offer more innovative media products, including two-way cable TV Internet
access (QuickNet service). It allows high speed access (2 Mbps) to the Internet
through either personal computer or TV interface. QuickNet's TV interface
service was launched in October 1998 and had 38,000 subscribers at the end of
2000. QuickNet service is available in the Netherlands and limited areas in
Finland.

     In 1995, we became the first telecommunications operator in the world to
deliver audio and video material through the Internet by means of our Live
service. Live is targeted at companies delivering multimedia material through
the Internet or through intranets or extranets. Through our Live service,
business and residential customers can integrate multimedia material onto their
Internet sites.

     We offer corporate customers, including independent Internet access and
online service providers, access services to the Internet, making available such
services as e-mail, the World Wide Web, Telnet (an Internet service that enables
users to log into and access a computer in a different network), Usenet news and
file transfer protocol (a service for transferring files from one system to
another via Internet). We offer a variety of Internet connections, ranging from
lower capacity ISDN to high capacity ATM line connections. Other value-added
services include MailNet, which offers business customers global messaging
through X.400 and SMTP standard compliant systems, enabling users to send and
receive messages among diverse e-mail systems, and other messaging services.

     We also provide Internet hosting services, which enable subscribers to
establish a World Wide Web site on one of our servers. Our Sonera Forum hosting
service is principally devoted to creating and maintaining basic home pages for
small- to medium-sized enterprises. Sonera Palace is an enhanced hosting service
for larger companies or organizations which conduct essential parts of their
business through the Internet. Additional features offered through Sonera Palace
include closed user groups, through which the customer can restrict access to
its World Wide Web site, database connectivity tools and data encryption.

     Our new media services also include the provision of service call numbers,
such as charged entertainment calls.

                                        32
<PAGE>   46

Business Media

     Our business media services include a variety of communications solutions
targeted at business customers for their customer service, marketing and
e-commerce needs. While e-commerce is the main focus of our business media unit,
it is still in the early stages of development. The unit's aim is to offer
services that will enable our business customers to conduct e-commerce on the
Internet and to provide easy and secure utilization of such services to
end-users. Present offerings range from pure software products, such as Sonera
TradeXpress, to a complete Internet shopping mall, Sonera Shopping World. Sonera
TradeXpress is a software platform enabling efficient and reliable message
delivery and routing between companies' legacy systems, between a Web store and
different databases or companies' ERP systems. Sonera TradeXpress customers
include a number of multinational companies based both in Finland and elsewhere.

     Sonera Shopping World offers a complete delivery channel for merchants
selling goods to consumers. Shopping World offers customers Web catalogue
features, universal shopping basket, a variety of payment methods and
interconnectivity to logistics systems and companies, ERP-systems. In May 1999,
we launched Ostella, the Finnish version of Sonera Shopping World, which has
been bundled with the Sonera Plaza portal site.

     Ostella is currently still at an early stage of development but we expect
that it will generate revenue both in the form of fees charged from merchants
which place their products for sale on the site as well as transaction
commissions. We are also developing an IP based business to business e-commerce
application.

     Our e-commerce product portfolio also includes Electronic Trading services
which we host. These hosted services vary from generic message handling and
routing to turn-key solutions like fully featured Web stores or special
applications for electronic communication.

     For customer service and marketing purposes, the traditional offerings of
our business media unit include intelligent network services such as toll-free
800 numbers and reduced tariff service numbers, fax services such as mass
distribution of facsimile messages and prepaid/charge card telephone services.
Similar applications are also utilized for remote working and access to
corporate intranets. Intelligent network services are completed with a selection
of pre-designed mass customized applications or with tailor-made applications on
customers request. We also offer call center services which enable outsourcing
of customer service functions. In April 1999, we introduced a new product called
Sonera On Line Contact Center. It enables Internet originated contacts (chat,
voice or e-mail) to be handled in a call center which uses traditional
fixed-line phones.

TECHNOLOGY AND INFRASTRUCTURE

     The Media Communications and New Service business area operates its own
infrastructure primarily in connection with its Internet operations.

     Customers connect to our Internet access service via personal computer, TV
or mobile handset by calling a single nationwide access number. These
connections are established locally through Internet dial-in ports or, in places
where local access is unavailable, through our national trunk network.
Currently, we provide local access nationwide in Finland, with the exception of
the province of Aland. When a subscriber places a call to our dial-in port, the
call connects to an access router, which transforms the signal into
packet-switched format and relays the data packages through our frame relay or
ATM backbone to our servers, giving the subscriber access to the Internet.
Server computers also store data from frequently accessed Internet pages which
accelerates the downloading of such pages to the user's computer. Our Internet
access network consists of dial-in ports, routers (used for both Internet and
intranet services) and servers, which maintain, in total, approximately 3,000 Gb
of storage. We continually monitor our network throughput and make necessary
hardware and software adjustments to maximize network throughput. Our network
elements are supplied by commercial power as well as diesel generators to
provide emergency back-up power.

NEW SERVICES

     Our New Services businesses consists of businesses that focus on the
development of innovative communications, content and e-commerce applications
and services that can be delivered through mobile, fixed

                                        33
<PAGE>   47

or cable TV networks. To date, New Services has focused principally on bringing
the full benefits of the Internet to mobile communications.

     Our New Services businesses include:

     -  Sonera SmartTrust,

     -  Sonera zed,

     -  Sonera Plaza,

     -  Sonera Info Communications,

     -  Sonera Juxto, and

     -  New Communications Services.

     We anticipate making significant investments in the future to further
develop the products and service concepts of New Services and that we will incur
increased operating expenses in connection with such development work.

Sonera SmartTrust

     Sonera SmartTrust Ltd., our wholly-owned subsidiary, is one of the leading
providers in wireless e-commerce and security solutions. Sonera SmartTrust first
began offering its secure wireless transaction service based on public-key
infrastructure on a commercial basis in February 1999. The SmartTrust Solution,
targeted principally at wireless operators and service providers, such as banks
and financial institutions, offers its customers a convenient and secure method
of transacting business using wireless devices. As of December 2000, 160 service
providers and 60 operator customers had deployed SmartTrust's products to manage
and ensure the security of their e-services. Mobile operators which employ
Sonera SmartTrust secure wireless electronic commerce solutions, include Cable &
Wireless HKT, the Swiss GSM operator diAx, Digi Telecom, Virgin Mobile
Australia, MTN (a division of Prism Wireless) and New World Telephone Group.

     SmartTrust is designed to enable financial institutions and other service
providers to offer services such as access to account statements, bill payment,
fund transfers, stock trading, insurance purchasing and other payment services
through a mobile handset in a secure manner. The SmartTrust solution is based on
our technology that uses public-key infrastructure, or PKI, and 1,024 bit
encryption which is embedded in a SIM card and which provides for secure user
identification and message encryption. The technology allows service providers
and users to authenticate each other's identity and to ensure that information
exchanged between them remains confidential. The service is designed to be easy
to operate: all the subscriber needs is a PIN number to authorize his or her
transactions. Our aim is to promote SmartTrust as the premier secure mobile
transaction solution and, on that basis, develop SmartTrust into a global
product with universal acceptance.

     The SmartTrust solution involves a number of different participants,
including mobile network operators, service providers, such as banks and
brokers, SIM card manufacturers that incorporate our SmartTrust technology on
the SIM card, "certification authorities" that are central to the verification
of users, and software firms that integrate existing service providers' systems
with SmartTrust. In establishing Sonera SmartTrust, we entered into a
cooperation agreement with TietoEnator, the leading systems integrator in the
Nordic Countries. We have also entered into an agreement with SIM card
manufacturer Gemplus SA to have SmartTrust features and application codes
embedded into SIM cards.

     SmartTrust enables mobile phones operating on existing and future digital
mobile communication networks to be used as a tool for a wide range of secure
e-commerce applications. We believe that the SmartTrust solution is one of the
first commercial services for the emerging market of mobile commerce. It is part
of our strategy of using mobile devices to bring the Internet into a person's
pocket. In 2000, SmartTrust began generating revenues for us in the form of both
license fees for our secure mobile commerce transaction platform and annual
usage and transaction-based fees. We also expect to benefit from additional
traffic generated by mobile e-commerce applications. However, in the course of
the updating of the strategy and business plan for Sonera SmartTrust, it has
become evident that the future cash flow expectations of Sonera SmartTrust are
lower than at the time we
                                        34
<PAGE>   48

completed the acquisitions of Across and iD2 in April and June of 2000. As a
result of these and other findings, we have recorded an impairment loss of E704
million under U.S. GAAP for the year ended December 31, 2000 to reduce the
carrying value of the goodwill and identified intangible assets related to the
acquisitions of Across and iD2. See "Item 5. Operating and Financial Review and
Prospects -- Acquisitions of Across Holding and iD2 Holding; Impairment Loss
Relating to Acquisitions under U.S. GAAP."

     Sonera SmartTrust offers products such as the SmartTrust Delivery Platform,
which enables the provision and management of wireless services and devices, and
SmartTrust Certificate Management software, which allows companies to manage
their digital certificates in multiple access environments. The SmartTrust
Delivery Platform allows for the delivery of Internet based services to handsets
which are not equipped with WAP technology through the use of technologies such
as SMS.

     In January 2000, we created a wholly-owned subsidiary, Sonera SmartTrust
Ltd., and transferred the assets related to the SmartTrust business to that
subsidiary. While we have announced our intention to sell a portion of our
interest in Sonera SmartTrust in 2000, unfavorable market conditions have led us
to delay any potential sale of Sonera SmartTrust. We are investigating the
possible sale of Sonera SmartTrust as well as other strategic alternatives for
the subsidiary.

     In April 2000, Sonera acquired Across, which provides a large selection of
wireless Internet based service platforms, such as over-the-air service and
device management and SIM-based WAP browsers. Management believes that Sonera
SmartTrust and Across will be able to provide a complete range of open standard
solutions for both mobile operators and service providers, such as banks and
brokers.

     In June 2000, Sonera acquired iD2, a leading provider of smartcard-based
security solutions for Internet transactions, offering software for secure
digital identification on the Internet based on PKI and smart card technology.
Management believes that the acquisition of iD2 will enable SmartTrust to pursue
new revenue generating opportunities by adding the iD2 product range of secure
identification software to its offerings, including a certification management
platform.

     We believe that through the acquisitions SmartTrust made in 2000,
SmartTrust is now in possession of a unique competence base and product range to
create a comprehensive platform for managing wireless services as well as
issuing, managing and using digital certificates and signatures in the
converging e-services market.

     Set forth below are certain important developments regarding the business
operations of Sonera SmartTrust:

     -  Sonera SmartTrust announced a joint development and marketing agreement
        with MasterCard International to enable mobile devices equipped with
        SmartTrust's secure wireless technology to support the family of payment
        products of MasterCard and its European strategic partner, Europay
        International.

     -  In January 2000, we, together with eQ Online Corporation, an advanced
        online brokerage firm in Finland, announced a secure, SMS-based stock
        exchange transaction service. The service uses SmartTrust digital
        signature technology and 1,024 bit RSA data encryption to allow the
        customers of eQ Online's service to buy and sell stocks using their
        mobile handsets in a highly secure manner.

     -  In 2000, Evli Securities, a Finnish brokerage firm, began using
        SmartTrust's wireless security solution to authenticate the identity of
        all of its customers using its financial Internet portals.

     -  In September 2000, Sonera SmartTrust entered into a non-exclusive
        reseller agreement with Nokia Networks. Under the agreement, Nokia
        Networks may offer its operator and services provider customers
        SmartTrust's wireless PKI solutions as part of its mobile Internet
        solutions.

     -  In November 2000, the Swedish banking group, ForeningsSparbanken and
        Telia Mobile AB, one of Sweden's largest telecommunications companies,
        chose Sonera SmartTrust to co-operate in the development of secure
        mobile payment and e-commerce solutions. Users of their services will be
        given the opportunity to remotely access their credit card accounts
        using digital signatures within a WPKI (Wireless Public Key
        Infrastructure). SmartTrust is to provide ForeningsSparbanken and Telia
        with consulting and development services to ensure the delivery of these
        applications to both WAP and advanced GSM handsets.

                                        35
<PAGE>   49

     -  We entered into an agreement with Graphium Card in November 2000, which
        will allow customers of SmartTrust's Certification Management solutions
        to outsource the production of PKI-enabled smart cards to the Nordic
        card system specialist Graphium. As a result of this agreement, Graphium
        will offer its services to certification authorities using SmartTrust
        Certificate Manager for the management of certificates and cryptographic
        key pairs.

Sonera zed

     Zed is an international mobile services business that we launched in
Finland in October 1999. Zed services are provided through Sonera zed Ltd., one
of our wholly-owned subsidiaries, that was incorporated in February 2000. Zed
provides entertainment and information services to mobile handsets. These
services are delivered principally through text messaging (SMS), but also via
WAP. Subscribers can receive zed either (1) on a "pull" basis -- that is,
subscribers can access the services by sending a key word or command via SMS, or
via WAP to a zed access number or (2) on a "push" basis, by which zed services
are sent to subscribers based on the subscriber's pre-arranged specifications.
Zed services are available to subscribers in Finland, Germany, the Netherlands,
the Philippines, Singapore, Turkey, the United Kingdom and the United States.
Management anticipates that zed will be launched in Italy later in 2001. Zed is
currently available to an estimated 77 million mobile phone users through eleven
operators in eight countries. Operator partners that offer zed services include:

     -  Finland -- Radiolinja,

     -  Germany -- T-D1, D2 Vodafone,

     -  the Netherlands -- KPN Mobile, Libertel,

     -  the Philippines -- Smart Communications,

     -  Singapore -- Mobile One,

     -  Turkey -- Turkcell,

     -  the United Kingdom -- Vodafone, and

     -  the United States -- Deutsche Telekom (formerly, VoiceStream and
        Powertel).

     In addition, zed has entered into agreements with the operators E-Plus and
Viag Interkom in Germany and TIM in Italy to provide zed services in the near
future.

     Zed is aimed at selected international markets. The business concept relies
on active cooperation with local mobile operators. Zed services are important
for us because they provide a means for expanding our mobile communications
service offerings to areas where we do not have our own mobile communications
network.

     During 2000, revenue was generated mainly from SMS-based services used by
individual mobile phone users. Zed generated revenues from both per-transaction
fees and subscription-based fees. Some additional revenue was derived from WAP
services and from mobile marketing solutions (where zed works with corporate
customers to provide sponsorship style services). In the first quarter of 2001,
an average of approximately 352,000 customers used zed services on a monthly
basis and approximately 800,000 customers used zed services on a monthly basis
worldwide.

     Zed's competitive strength lies in developing and providing targeted
entertainment and information services that are best suited for delivery through
mobile handsets and that can be personalized to fit the profiles of its
subscribers. Zed works with more than 160 content providers globally and locally
to develop content based services and offers operators the know-how to convert
content and context to meet local specifications. We believe that mobile
operators have chosen to work with zed in order to offer their subscribers a
broader choice of mobile services and thereby gain additional revenue and reduce
subscriber churn.

     Zed's most popular services include ringtones, icons, horoscopes, zed
finder and traffic information. Popular new services launched in 2000 include
Tarot cards, healthcare and Fisu, an interactive fishing game. In 2001, zed
launched, among other things, a prank service with anonymous SMSs and a dating
service.

                                        36
<PAGE>   50

     In October 1999, we purchased the business activities of ByeDesk, a U.S.
company that specializes in wireless communications services, from the TeamWARE
Group. As a result of this transaction, ByeDesk was made a part of our zed
business. Founded in 1998, ByeDesk has approximately 20,000 customers, and it
was the first provider of value-added services for mobile phones in the United
States.

     The mobile services business is facing increasing competition worldwide,
particularly in the WAP-based market. Zed's competitors include mobile phone
operators, Internet portals, equipment manufacturers and software companies. We
believe, however, that zed is well placed to be successful in the mobile portal
business because of our strong experience in the mobile communications and
Internet businesses, value-added mobile communications services for mobile
handsets and content packaging. In addition, one of zed's main strengths is its
ability to track customers' buying habits, both with respect to which services
are used and how they are offered. In addition, zed provides localized services
which are geared to the requirements of each country or region and provides
services in the subscriber's local language. Thus, customers who have global
roaming agreements with their operators can receive zed services abroad in their
own language.

     To further develop zed's services, we plan to launch new products and
services that are increasingly market-specific, particularly in the field of
entertainment. We also expect to introduce services with location-based
capabilities in highly developed markets such as Finland in the near future. As
its technical platform is specifically designed for the mobile environment, we
believe zed is well placed to exploit application and service developments such
as location-based services and radio network technology developments such as
GPRS and UMTS.

Sonera Plaza

     Sonera Plaza Ltd., our wholly-owned subsidiary, provides content services
through its Internet access portal site Sonera Plaza (www.soneraplaza.com). The
site is the most frequently visited in Finland, recording approximately 1.5
million visitors in February 2001. The Sonera Plaza portal offers clients
navigation and search services, entertainment services including chat sites and
on-line computer games, news and information services and links to our corporate
customer's sites and various other sites. Through Sonera Plaza and our Internet
access service, we offer tailored content service packages for targeted user
groups, such as young people, women and sports fans. We also sell banner-type
advertisement space on the site to a variety of businesses.

     Set forth below are certain important developments regarding the business
operations of Sonera Plaza:

     -  In 2000, we formed a 50-50 joint venture together with SOK corporation,
        a Finnish retail group, called Netista, to offer retail e-commerce
        services through which people can buy consumer products such as books,
        CDs, clothing and domestic appliances.

     -  In December 2000, Sonera Plaza purchased various consumer services
        businesses from WOW-verkkobrandit Oy. These consumer services will
        supplement Sonera Plaza's own search service and content packages.

     -  In January 2001, Sonera Plaza Ltd. signed a letter of intent with eQ
        Online Corporation under which eQ Online will provide online brokerage
        services as part of Sonera Plaza's online financial services. eQ
        Online's brokerage services are scheduled to be available to Sonera
        Plaza's customers by the end of 2001 and are designed to provide
        customers with real-time trading, custody and clearing services for
        Finnish equities. The service will also include eQ Online's information
        services.

     -  In January 2001, Sonera Plaza began offering its Rahastokanava service,
        which is essentially an electronic market place for funds. In February
        2001, we announced the combination of Rahastokanava with Rahastot.net,
        an online marketplace for fund shares backed by a number of Finnish
        companies. The combined fund services will be brought onto the market
        during 2001.

Sonera Info Communications

     Our directory services business was incorporated as of December 1, 2000 as
Sonera Info Communications Ltd. Sonera Info Communications operations comprise
electronic and operator-assisted directory services and

                                        37
<PAGE>   51

printed telephone directories. Sonera Info Communications, which is the leading
provider of electronic and operator assisted directory services in Finland, is
also a forerunner in developing directory services that can be accessed via a
mobile handset. Sonera Info Communications, for example, provides Sonera zed
with an electronic directory service called zed finder(TM) which can be utilized
either via the Internet or GSM- or WAP-based handsets. Zed finder(TM) and Sonera
Info Communications' other directory services, such as Sonera Finder, provide
customers with a variety of information including mobile and fixed-line
telephone numbers and addresses as well as Web-sites and e-mail addresses.
Sonera Info Communications' operator-assisted directory services provide
customers access to directory information in more than 200 countries.
Operator-assisted directory services also include call completion services.
Sonera Info Communications has begun to offer its services in a number of
European countries other than Finland through a variety of subsidiaries and
joint ventures.

     Sonera Info Communications also publishes printed directories in all areas
of Finland where Sonera provides fixed-line services. Sonera Info Communications
is involved in the production of yellow pages through Suomen Keltaiset Sivut Oy,
a joint venture in which we hold a 30.2 percent interest. Under the agreement
among the owners of Suomen Keltaiset Sivut, revenues from advertisers are
credited to that telephone company which is the principal provider of fixed-line
services to such advertiser.

     To facilitate the centralized collection of information on Finnish
telephone subscribers, we, together with the Finnet Group and other
telecommunications providers in Finland, established Suomen Numeropalvelu Oy
(Directory Assistance Services Finland), which maintains a joint subscriber
database. Directory Assistance Services Finland, of which we hold a 40 percent
interest, provides a common database to the publishers of telephone directories,
including our Company and other telephone companies operating in a particular
directory area, and to those service operators that provide directory assistance
services or Internet directory services.

     Set forth below are certain important recent developments regarding the
business operations of Sonera Info Communications:

     -  In December 1999, we established a telephone directory service named
        Gilla in Italy together with the Italian telecommunications operator
        Tiscali S.p.A. Sonera Info Communications and Tiscali each own half of
        the Gilla joint venture.

     -  In May 2000, we established 118 Ltd in the United Kingdom together with
        the Irish directory services company Conduit PLC. 118 Ltd began
        operations in February 2001, and offers national directory services to
        Telewest Communications Group in the United Kingdom. We hold a 45
        percent interest in 118 Ltd. We also acquired a ten percent holding in
        Conduit PLC through an equity investment. Conduit is a Neuer Markt
        (Germany) listed company.

     -  In May 2000, we acquired a controlling interest in Intra Call Center
        S.A., a French company providing directory assistance services. In the
        initial stage, we acquired a 51.1 percent holding in Intra Call Center
        of France, and expect to acquire a 100 percent interest in Intra Call
        Center within two years. Our goal is to make Intra Call Center one of
        the leading directory service providers in France. Intra Call Center
        offers both national and international directory services.

     -  In October 2000, we and the Israeli company Phonetic Systems agreed to
        cooperate in developing automated directory and information services. We
        also acquired an initial 12.7 percent interest in Phonetic Systems which
        has subsequently been diluted to 8.7 percent.

     -  In December 2000, Sonera Info Communications and the Spanish
        telecommunications operator Euskaltel agreed on establishing a new
        directory services company named Digame Servicios de Directorio in
        Bizkaia, Spain. We have a 51 percent holding in the company.

     -  In February 2001, we acquired a 25.5 percent interest in Metro One
        Telecommunications Inc. Metro One Telecommunications is the leading
        company in the United States offering directory services to mobile
        users. Sonera Info Communications and Metro One have also agreed to
        further develop and enhance directory services for customers worldwide.
        Metro One is a Nasdaq listed company.

                                        38
<PAGE>   52

Sonera Juxto

     Sonera Juxto provides wireless and secure ASP services to customers in
Finland. We offer these services through Sonera Juxto Ltd., a wholly-owned
subsidiary, which began operations in June 2000.

     ASP is a mode of business interaction in which a corporate customer leases
the user rights to applications together with related services, such as updates
and maintenance, in package form directly from the application service provider.
In addition, Sonera Juxto offers infrastructure management services encompassing
workstations, mobile handsets and other wireless terminals, LANs, remote
networks, servers, data processing platforms as well as, to a limited extent,
customer applications.

     Set forth below are certain important recent developments regarding the
business operations of Sonera Juxto:

     -  In April 2000, we began offering Microsoft software and Lotus
        applications to our customers via the Internet. We are the first Finnish
        company to partner with Microsoft in the provision of Microsoft products
        on-line. Our agreement with Microsoft covers both Microsoft Office 2000
        and Microsoft BackOffice. Our customers can also rent Lotus applications
        via the Internet. In May 2000, we entered into an agreement with SAP
        Aktiengesellschaft to assist SAP in delivering SAP's management services
        applications to corporate customers in Finland.

     -  In February 2001, Sonera Juxto began providing towns and municipalities
        in Finland with a financial management system adapted from the mySAP.com
        solution as an ASP service. The mySAP.com financial management system,
        which is tailored to the needs of towns and municipalities, helps to
        free local governments from the costly maintenance of IT systems.

     -  During 2000, one of Sonera Juxto's most important customers in Finland
        was Valtra Oy Ab, which manufactures and markets tractors. Sonera Juxto
        built an e-commerce site for Valtra, on which Valtra's customers can
        purchase maintenance supplies and accessories, among other things. The
        service can be used by means of a fixed connection or a WAP handset.

     -  In December 2000, we acquired a 100 percent holding in the Swedish
        application service provider Frontec Support and Operations AB from its
        parent company, Frontec AB. Frontec Support and Operations was
        incorporated to form Sonera Juxto AB. Sonera Juxto AB began offering our
        ASP services in Sweden on January 1, 2001.

     -  In January 2001, Sonera Juxto deployed Citrix application server
        software as an integral part of its ASP initiative. In addition, Sonera
        Juxto joined the Citrix iBusiness Application Service Provider program
        which gives Sonera Juxto access to Citrix application server software on
        a "pay-as-you-go" license basis.

     -  In February 2001, Sonera Juxto announced that it expects ASP
        applications will be accessible from mobile handsets in Finland in the
        first half of 2001 in Finland, and in Sweden in the second half of 2001.
        Traditionally, office and business applications have been provided as an
        ASP service for fixed terminals only.

New Communications Services

     New Communications Services is a newly-formed business unit which focuses
on developing new mobile Internet services and on assisting us in making the
transition from second generation to third generation mobile products and
services. In pursuing its objectives, New Communications Services analyzes
promising ideas and concepts, employing both business development and technology
experts, and, if it deems the idea to be viable from a business and technology
standpoint, establishes a business vehicle through which the idea or concept can
be developed. New Communications Services also aims to support new ventures in
becoming global businesses.

     One innovative service that has been developed by New Communications
Services is Sonera Positioning Services (SPS). Through SPS, we have become the
world's first mobile communications operator to offer positioning services that
can be deployed by all GSM mobile phones via voice, WAP data call and text
message

                                        39
<PAGE>   53

connections. We believe that positioning will be the basis for most mobile
communications' value-added services in the future.

     Our SPS solution is designed to work with all existing mobile handsets
having SMS, voice call or WAP capabilities. The SPS service allows the cell
position of a mobile subscriber to be located, which information enables the
delivery of a wide variety of wireless value added applications and services. In
addition, other positioning technologies such as GPS (Global Positioning
System), TOA (Time of Arrival) and E-OTD (Enhanced Observed Time Difference) can
be integrated into our positioning services. Since the fall of 2000, we have
offered SPS services to all of our GSM subscribers in Finland.

SONERA TELECOM

     Our Sonera Telecom business area is comprised of several distinct lines of
business, each of which occupy leading positions in the Finnish
telecommunications market. The principal lines of business of our Sonera Telecom
business area include fixed network voice services, data services, leased lines,
equipment sales and construction and maintenance. In total, our Sonera Telecom
business area generated revenue of E1,020 million in 2000, or approximately 36
percent of our total revenues for the period.

     The following table sets forth the revenues of our Sonera Telecom business
area by principal lines of business for the periods specified:

<TABLE>
<CAPTION>
                                                                YEAR ENDED DECEMBER 31,
                                                                ------------------------
                                                                1998     1999      2000
                                                                -----    -----    ------
                                                                    (IN E MILLIONS)
<S>                                                             <C>      <C>      <C>
Fixed network services:
  Domestic voice............................................     258      250       247
  International voice.......................................     128      120       109
Data services...............................................     149      168       165
Leased lines................................................      25       32        52
Equipment sales.............................................      96      114       125
Construction and maintenance................................      31       24        34
Other services..............................................     260      272       288
                                                                 ---      ---     -----
  Total.....................................................     947      980     1,020
                                                                 ===      ===     =====
</TABLE>

FIXED NETWORK VOICE SERVICES

     We provide a full range of fixed network telecommunications services for
both residential and business customers. Our fixed network voice services
provide access to local calling, domestic long distance calling and
international calling. Despite increased competition since the liberalization of
fixed network services in Finland in 1994, our fixed network voice services have
continued to be a generally stable source of revenue, generating E386 million,
E370 million and E356 million in revenues in 1998, 1999, and 2000, respectively.

Domestic voice services

     Domestic voice services comprises local voice services and long distance
voice services.

     Local Voice Services.  In 2000, our local voice services generated net
sales of E247 million. We had a market share of 98 percent in our traditional
service areas, located principally in the more sparsely populated areas of
eastern and northern Finland. In addition to us, 46 local telephone companies
provide local telephone services in Finland and have maintained, to a large
extent, monopolies in their traditional local service areas, which cover most of
the larger towns and urban areas of Finland. We have a share of approximately
four percent of the market in the traditional service areas of the local
telephone companies based on subscriber connections.

                                        40
<PAGE>   54

     The following table sets forth information regarding our total access lines
in Finland as of the dates indicated:

<TABLE>
<CAPTION>
                                                                   YEAR ENDED DECEMBER 31,
                                                                -----------------------------
                                                                 1998       1999       2000
                                                                -------    -------    -------
<S>                                                             <C>        <C>        <C>
Standard lines:(1)
Residential.................................................    541,368    497,466    466,826
Business....................................................    115,156     94,871     74,786
                                                                -------    -------    -------
  Total.....................................................    656,524    592,337    541,612
                                                                =======    =======    =======
ISDN lines:(1)
Residential.................................................      5,013      9,057     13,328
Business....................................................     19,759     27,356     32,603
                                                                -------    -------    -------
  Total.....................................................     24,772     36,413     45,931
                                                                =======    =======    =======
2 Mbps lines(1)(2)..........................................      2,820      3,509      3,612
Equivalent lines:
Residential.................................................    551,394    515,580    493,482
Business....................................................    239,274    254,853    248,352
                                                                -------    -------    -------
  Total.....................................................    790,668    770,433    741,384
                                                                =======    =======    =======
Total lines by location:
  in our traditional service areas..........................    699,570    663,294    636,629
  outside of our traditional service areas..................     91,098    107,139    105,205
Line growth (% per period):
  in our traditional service areas..........................       (2.2)      (5.2)      (4.0)
  outside of our traditional service areas..................       23.5       17.6       (1.8)
</TABLE>

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

(1) Principles for keeping access line statistics were changed in the beginning
    of 1999. Prior to the change, residential ISDN lines were registered both as
    standard and ISDN lines. Certain 2 Mbps lines were also registered both as
    standard and 2 Mbps lines. Information for periods prior to 1999 has not
    been restated.

(2) Subscribers for 2 Mbps lines are exclusively business users.

     The number of total equivalent lines we install annually has decreased
slightly over the past few years. Despite liberalization of the local calling
market in 1994, there has been little competition in the Finnish local call
market because charges for leasing existing local operators' networks remain
high principally because potential new entrants would have to build out their
own network infrastructure to offer local service. We are installing fiber optic
loops in the largest cities in Finland and are marketing direct local access to
business customers in those areas. We believe that the usage of our fixed
network will shift from voice services to data, Internet and media applications
and that competition for local customers in the heavily populated areas of
Finland will increase as charges for leasing existing operators' networks fall
and customers choose service providers based on the quality of customer service
and their range of service offerings which are, to an increasing extent, going
to be based on ADSL and other broadband technologies as well as the Internet
Protocol. We further believe that, while local access competition in our
sparsely populated service areas will remain more limited than in urban regions,
the number of local access customers in such regions will decline as customers
move to urban areas and the use of mobile phones increases.

     In May 2000, we began offering consumers the ability to subscribe for a
broadband service based on ADSL technology. The service known as Sonera Home
ADSL uses existing telephone cables and has a transfer rate of up to two
megabits per second. This service provides a quicker connection to the Internet
via the Sonera Internet ADSL service improving consumer's ability to, for
example, download web pages, play games and transfer files. In addition, the
transmission capacity of the ADSL technology will enable the provision of other
services which require the transmission of large amounts of data including video
calls and conferences as well as other e-commerce applications. By the end of
2000, we offered ADSL on a nationwide basis. Subscribers to our ADSL

                                        41
<PAGE>   55

broadband service receive an always-on Internet connection at a fixed monthly
price without separate usage or call charges.

     Local Access GSM.  The population decrease in our traditional operating
areas in Eastern and Northern Finland, together with the growing shift in voice
traffic toward mobile communications has led us to explore the possibility of
providing local access to these regions using GSM technology. In September 2000,
we launched a pilot project in Northern Karelia involving the replacement of the
fixed network telephone connections of approximately 100 consumer customers with
GSM technology. Using the GSM technology, the quality of the voice connections
was maintained, and in some cases improved. In addition, the new technology did
not represent an increase in cost to the customer as the price of the calls and
the telephone itself remained unchanged. However, the maintenance costs per
connection are expected to be significantly lower than the cost of repairing a
conventional telephone line connection.

     In May 2000, we founded a joint venture, Sonera Living Ltd, together with
construction firm YIT Corporation. We hold a 51 percent interest in the joint
venture. Sonera Living develops and builds broadband connections for homes and
solutions that improve maintenance, functional features and value of properties.
In April 2001, we began offering broadband subscriptions to customers in the
Helsinki metropolitan area.

     We also introduced a number of new services to the market in 2000 including
eTools and voice over IP (VoIP). eTools is a development platform that enables
corporations to build their own network services rapidly and cost-effectively.
In October 2000, we became the first operator in Finland to begin test traffic
with VoIP calls.

     The following table sets forth information regarding local call traffic
generated by our fixed-line subscribers for the periods indicated:

<TABLE>
<CAPTION>
                                                                YEAR ENDED DECEMBER 31,
                                                                -----------------------
                                                                1998     1999     2000
                                                                -----    -----    -----
<S>                                                             <C>      <C>      <C>
Traffic (in millions of minutes)(1).........................    1,994    1,869    1,834
</TABLE>

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

(1) Minutes accrued from calls originating on our fixed network and terminated
    within the same telecommunications area.

     Long Distance Voice Services.  We provide domestic long distance voice
services for both residential and business customers. In 2000, our domestic long
distance voice services generated net sales of E25 million, which accounted for
approximately 37 percent of the estimated E75 million domestic long distance
call market in Finland. Since the beginning of 1995, our market share in the
domestic long distance market has been stable at or near 40 percent. Overall
long distance traffic volumes, however, have declined in recent years
principally due to increased mobile phone usage.

     The following table sets forth information regarding domestic long distance
voice traffic generated by our subscribers for the periods indicated, in terms
of minutes accrued from calls utilizing our trunk network, including long
distance calls placed by subscribers of other service operators which are routed
through our trunk network:

<TABLE>
<CAPTION>
                                                                YEAR ENDED DECEMBER 31,
                                                                -----------------------
                                                                1998     1999     2000
                                                                -----    -----    -----
<S>                                                             <C>      <C>      <C>
Traffic (in millions of minutes)(1).........................      749      667      588
</TABLE>

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

(1) Minutes accrued from calls utilizing our trunk network including long
    distance calls placed by subscribers of other service operators which are
    routed through our trunk network.

International Voice Services

     We are the leading provider of international voice services in Finland. In
2000, our international voice services generated revenues of E109 million, which
accounted for approximately 51 percent of the estimated E200 million
international call market in Finland. Prior to 1994, we had an exclusive right
to provide international calling services in Finland. The international call
market was opened to competition in 1994 and customers

                                        42
<PAGE>   56

typically choose international long distance carriers on a call-by-call basis by
dialing a prefix associated with that providers' service. Recent revisions to
the Finnish Telecommunications Market Act require fixed network operators with
significant market power to offer their customers pre-selection, whereby a
customer can choose their local, long distance or international operator by
dialing a prefix or by entering into a special contract. Pre-selection may
affect our market share of in the local, long distance and international call
market. See "-- Regulation -- Numbering and Carrier Selection."

     The following table sets forth information regarding our outgoing
international call traffic by geographic region and incoming international call
traffic plus transit traffic for the periods indicated:

<TABLE>
<CAPTION>
                                                                   YEAR ENDED DECEMBER 31,
                                                                -----------------------------
                                                                 1998       1999       2000
                                                                -------    -------    -------
                                                                (MILLIONS OF MINUTES, EXCEPT
                                                                 FOR PERCENTAGES AND RATIOS)
<S>                                                             <C>        <C>        <C>
Outgoing traffic:(1)
Sweden......................................................      72.0       75.1       74.7
Germany.....................................................      18.5       18.8       18.9
Russia......................................................      15.1       13.4       12.5
United Kingdom..............................................      15.4       15.6       15.7
Estonia.....................................................      14.1       14.1       15.3
United States...............................................       9.5        9.1       10.0
All other countries.........................................      80.3       82.8       83.7
                                                                 -----      -----      -----
Total outgoing traffic......................................     224.9      228.9      230.8
                                                                 =====      =====      =====
Growth in total outgoing traffic (% per period).............      (0.5)       1.8        0.8
Total incoming traffic plus transit traffic(2)..............       278        277(3)     274
Growth in total incoming traffic plus transit traffic (% per
  period)...................................................      (7.6)      (0.4)      (1.1)
Ratio of incoming traffic plus transit traffic to outgoing
  traffic...................................................       1.2        1.2        1.2
</TABLE>

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

(1) Outgoing international traffic includes all Finland-originated traffic,
    including calls placed by subscribers of other service operators which are
    routed through our international network.

(2) Incoming international traffic includes all Finland-terminated international
    calls, including calls terminating with subscribers of other service
    operators which are routed through our international network, as well as
    international transit traffic utilizing our international network.

(3) Principles for keeping international incoming and transit traffic statistics
    changed in 1999. Prior to 1999, the calculation was based on payments from
    foreign operators instead of directly from the network. Information for
    periods prior to 1999 has not been restated.

TARIFFS

     We charge our fixed-line customers an initial connection fee, monthly
subscription charges and local, domestic long distance and international traffic
charges for outgoing calls. We have higher connection fees and monthly
subscription charges for ISDN and 2 Mbps lines than for standard connections. In
general, the prices of local and long distance telephone services in Finland are
relatively low by international standards.

Fixed Network Interconnection

     Under Finnish telecommunications regulations, we are required to provide
interconnection to our public switched telephone network for calls to and from
competing domestic operators. In 2000, we received interconnection fees of E24
million, principally from competing Finnish local telephone operators.

     The current interconnection regime between Sonera, Elisa Communications
Corporation (formerly Helsinki Telephone Corporation), Radiolinja, Kaukoverkko
Ysi and Finnet International became effective as of May 1, 1999. During 1999,
Sonera entered into similar interconnection agreements with the majority of
other Finnish operators. See "-- Regulation -- Interconnection."

                                        43
<PAGE>   57

Settlement Arrangements

     We pay other carriers for the use of their networks for outgoing
international calls and receive payments from other carriers for the use of our
network for incoming international calls pursuant to bilateral settlement
arrangements. Our incoming international traffic has generally exceeded our
outgoing international traffic, with the result that we are a net importer of
international minutes. We settle our traffic balance payments with other
carriers through bilaterally determined accounting rates under the general
auspices of the International Telecommunications Union. In recent years,
international accounting rates have declined significantly due to initiatives by
the FCC and increased competition among international carriers. As a result, our
net revenues from international settlements have declined.

DATA SERVICES

     Data services consist primarily of data communications and network and
systems management services for business customers. We generated E165 million in
revenues from the provision of data services in 2000, as compared to E168
million in 1999 and E149 million in 1998.

     Our data services include two product areas, basic data services, and LAN
interconnection and management services and systems for servers and
workstations. Our basic data transfer services include DataPak X.25
packet-switching services, and our FastNet managed leased line services. Our LAN
interconnection and management services include DataNet, which provides managed
communications packages that utilize a number of underlying technologies
including frame relay and ATM. In recent years, our strategic focus has shifted
from standardized data transmission to the development of higher value-added
services, such as LAN interconnection and management services, which offer
customers comprehensive communications solutions. Our data communications
service customers include the largest corporations in Finland, small- to
medium-sized enterprises and public organizations. The following table sets
forth the total number of customer connections for each of our DataPak, FastNet
and DataNet services as of the dates indicated:

<TABLE>
<CAPTION>
                                                                 YEAR ENDED DECEMBER 31,
                                                                --------------------------
                                                                 1998      1999      2000
                                                                ------    ------    ------
<S>                                                             <C>       <C>       <C>
DataPak(1)..................................................     9,182     8,456     7,219
FastNet(2)..................................................    10,929    10,329    11,092
DataNet(3)..................................................     9,205     8,792     9,256
</TABLE>

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

(1) DataPak is our X.25 packet-switching service.

(2) FastNet is our managed leased line service. Historical total connections for
    FastNet are estimated as of each of the dates indicated.

(3) DataNet is our LAN interconnection and management service. We revised our
    principles for keeping DataNet statistics in 2000. DataNet Remote Access
    connections are no longer included in our 2000 figures. Comparable figures
    for the years 1998 and 1999 would have been 7,515 and 8,482, respectively.

     Since 1997, the number of subscribers to our DataPak service has declined
while the growth of DataNet and FastNet has continued as business customers in
Finland increasingly opt to utilize managed communications solutions. DataPak
services enable the transfer of smaller volumes of data through our X.25
packet-switched network from a customer's location to other locations connected
to the network. Our FastNet leased line services offer fixed "point-to-point"
connections between separate locations, which may be used by the subscriber to
handle high volume voice, data or video transmission between selected locations.
Our leased lines utilize a proprietary intelligent network management system
that facilitates the monitoring and maintenance of such lines and permits them
to be used as a platform for our DataNet services. DataPak offers customers
world-wide coverage and FastNet offers leased line connections in Finland,
Sweden, the Baltic States, the Benelux countries, Germany, the United Kingdom
and some areas within Russia.

     Our DataNet services are a rapidly growing segment of our data services
that provide customers with a comprehensive communications package tailored to
such customer's needs. Since 1996, business customers have increasingly opted to
utilize comprehensive communications solutions such as DataNet rather than
standardized basic data transfer services. We were one of the first
telecommunications operators to provide LAN inter-

                                        44
<PAGE>   58

connections to our customers, and are among the leading providers of intranets
in Finland. We have developed intranets with a variety of features, including
intranets with different security options, mobile and remote access, e-commerce
applications and other extranet applications and directory services, as well as
intranets with various e-mail, GSM, fax and pager services. We also offer
customers a variety of bandwidths (i.e., services with different transmission
capacities) for their intranet connections, including ISDN, ADSL, frame relay or
ATM connections. Our intranets use open communications, browsing and programming
standards, thus allowing for seamless communication within the network. As an
extension of our intranet services, we also offer extranets to our corporate
customers, a variation of the corporate intranet that is connected to external
parties such as suppliers, distributors and customers. Through both our own
network and through agreements under which we lease capacity from other
operators, we can provide DataNet connections in most of Europe, North America,
South America, Japan, South Africa and several countries in the Asia Pacific
region.

LEASED LINES

     We are a provider of leased lines, which are fixed point-to-point
connections for the transmission of voice and data traffic between two
geographically separate points. Our leased line service does not include the
provision of managed leased lines, which are offered as part of our data
communication services. Customers lease lines from us both for their own use and
for use in providing telecommunications services to third parties. Although the
total number of lines we lease has decreased since 1996, total transmission
capacity of our leased lines has increased significantly due principally to the
increase in the number of higher capacity digital lines leased. Our leased line
customers pay an initial connection fee based upon the type of line leased
(analog or digital) and monthly rental charges based on the type of line leased,
the length of the line and the duration of the lease.

TECHNOLOGY AND INFRASTRUCTURE

     We believe that we have one of the most technologically advanced fixed-line
networks in the world. Our network features fully digital local, trunk and
international switching, fully digital transmission, with regional and trunk
transmission based mostly on fiber optic cable infrastructure, wide access to
ISDN, a new switching platform capable of providing ADSL service from most of
its nodes, which are network elements that provide access to the network for
other telecommunications equipment and computers, and a national trunk network
that is mainly equipped with SDH (Synchronous Digital Hierarchy) transmission
systems, which facilitate high-speed digital transmission through fiber optic
cables. Our nationwide fixed network functions as the backbone for our
operations, supporting not only our local, long distance and international
traffic, but also mobile and data communications trunk traffic.

     Due in large part to our advanced network technology, we have been able to
rationalize our network, thereby increasing the productivity and cost
effectiveness of our network as well as reducing the number of switches we
maintain and the number of employees engaged in network development and
operation.

     The reliability of our fixed network has resulted largely from our digital
restoration system, which permits rapid rerouting of transmission in the event
of cable or switch malfunction. The reliability of our network is further
enhanced by highly efficient maintenance services. The accessibility and
reliability of our network is shown in the following table:

<TABLE>
<CAPTION>
                                                                YEAR ENDED DECEMBER 31,
                                                                -----------------------
                                                                1998     1999     2000
                                                                -----    -----    -----
<S>                                                             <C>      <C>      <C>
Transmission network availability (%).......................    99.99    99.99    99.99
Call success rate (%).......................................    99.00    98.90    99.10
</TABLE>

Local Network

     Our local network is one of the most highly digitalized in the world.
Digitalization of the network began in 1979, and was completed in 1996. In the
future, fixed network services will concentrate increasingly on ISDN and ADSL
technology, on other broadband technologies as well as on the Internet protocol.
During 2000, ISDN

                                        45
<PAGE>   59

basic subscriptions accounted for 7.2 percent of our fixed-line-access lines as
compared to 5.8 percent in 1999. At the beginning of June 2000, we began
offering a broadband-based ADSL connection which is intended for small-and
medium-sized companies as well as certain consumers and offers a fixed Internet
connection at a fixed monthly rate. The transfer speed of the ADSL connection is
up to two megabits a second. At present, we are offering ADSL services in 142
locations in Finland. By the end of 2000, ADSL coverage in our traditional local
service areas was approximately 73 percent. In the area where competitors
dominate the local network, our objective is to be the high capacity service
provider for 90 percent of companies and 40 percent of consumers in these areas.

     At December 31, 2000, our domestic network consisted of 541,612 standard
telephone access lines, 45,931 ISDN lines and 3,612 2 Mbps lines. Our new
switching platform for our local network features a standardized interface
between our switches and concentrators, making it easier to add network elements
designed by different manufacturers, and facilitating the offering of new
services, including ISDN. Our local network covers approximately 80 percent of
Finland's geographic area and 28 percent of the population.

     Outside of our traditional service areas, we have approximately 3,500
kilometers of fiber optic cable loops in place in the largest cities in Finland
primarily to provide corporate customers with data transfer and voice services.
In the aggregate, we have built fiber optic links to approximately 7,500 office
buildings, production facilities, industrial parks and business centers located
throughout Finland. The installation of fiber optic cable loop slowed down in
the Helsinki city area in the latter part of 1999 and during 2000 due to
limitations placed on earthworks by the Helsinki city council.

Regional and National Trunk Network

     Our regional and trunk networks are fully digitalized and mainly utilize
fiber optic cable capable of operating at transmission speeds of up to 2.5 Gbps.
As of December 31, 2000, a total of approximately 7,000 kilometers of fiber
optic cable had been installed for use in our trunk network. The installation of
fiber optic cable in regional and trunk networks continues at a rate of
approximately 800 kilometers per year.

     We continue to modernize the transmission system in our trunk networks by
installing uniform SDH technology. SDH, which is a relatively inexpensive
technology, allows for enhanced reliability. Through the use of a stand-by
national network and self-healing local rings, the SDH optical network is
protected against single cable failures. The SDH modernization project will be
continued as part of our ongoing investment in our infrastructure. The SDH
modernization is expected to reduce the operation and capital cost of our fixed
network and we expect that the modernization will be completed by the end of
2003. Our current transmission and rerouting system also utilizes PDH
(Plesiochronous Digital Hierarchy) technology, which predates SDH technology. We
are continuing to replace PDH with SDH as part of our SDH modernization project.
In the future, we will develop our national network solely on the basis of fiber
optic cables and SDH technology while the regional network will utilize digital
radiolinks as well.

     We have also implemented WDM (Wave-length Division Multiplexing) technology
on some of our national and regional trunk network fibers which have relatively
low capacity. WDM, which multiplies the capacity of fiber optic cables using
laser beam amplification, has allowed us to increase the capacity of some of our
existing fiber optic cables rather than having to lay down new fiber optic
cables.

     We also operate a number of switched digital networks used principally for
the provision of X.25, frame relay and ATM data services. We were one of the
first telecommunications providers in the world to develop and offer commercial
ATM service. ATM permits data, text, voice and multimedia signals to be
transmitted simultaneously between network access points at speeds of up to 155
Mbps or more. By utilizing ATM technology, we can provide superior LAN
interconnections, data transmission and flexible bandwidth delivery. We believe
that our ATM trunk network is one of the most efficient transmission networks in
the world. See "-- Sonera Telecom -- Data Services."

                                        46
<PAGE>   60

International Network

     For international switched traffic, we use two state-of-the-art SS7
international switches located in Helsinki and the Finnish city of Hameenlinna.
These switches handled approximately 599.1 million minutes of international
traffic in 2000 comprising 230.9 million minutes of outbound traffic and 368.2
million minutes of inbound and transit traffic. In addition, we have
international switches in Stockholm and in London.

     We have invested E36 million in submarine cable systems since 1990 and
maintain capacity in several European and trans-Atlantic submarine cables. We
also have a 50 percent interest in two 2.5 Gbps capacity fiber optic cables
connecting Finland and Estonia. We own and operate a high capacity gateway
network based on fiber optic cable which connects Stockholm, Helsinki and St.
Petersburg. We also own a fiber optic cable between St. Petersburg and Moscow,
the building of which was completed in 1999. The cable was first put into
commercial use in February 2000. The new fiber optic cable is expected to
strengthen our position in international transit traffic and enable us to offer
ATM-based broadband services and Internet-based services in Moscow. The total
cost of the fiber optic cable project was approximately E37 million. See "--
International and Other Significant Investments -- Other Investments -- Foreign
Subsidiaries -- Russian Operations." The investment in the fiber optic cable
made possible the Ivan leased line service, a link from Moscow to New York
maintained by Sonera Carrier Networks. We have implemented WDM technology, which
significantly enhances the data transfer capabilities of fiber optic cable, on
that portion of the Ivan service link from Moscow to Hamburg, and plan to
implement WDM technology on additional portions of the link during 2001. In
February 2001, Sonera Carrier Networks, ZAO Sonera Rus and Cable & Wireless
concluded an agreement for ten years whereby Sonera Carrier Networks is to
supply Cable & Wireless with capacity between Moscow and Stockholm as a part of
Sonera Ivan.

EQUIPMENT SALES

     During 2000, our subsidiary Sonera Solutions sold, installed and maintained
switchboard and telephone systems, payment terminals, computers as well as other
data processing and telecommunications equipment. Sonera Solutions also
supervised the Telering and Datainfo retail chains. Revenues from equipment
sales amounted to E125 million in 2000, an increase of approximately 9.6 percent
as compared to 1999.

     The Telering chain, which markets mobile phones and information technology
to consumers and companies, comprises 20 Sonera-owned stores and 60 franchising
outlets. In 2000, mobile phone sales were Telering's largest single sales
segment, as in previous years. Beginning in 2001, the Telering operations were
transferred to the Domestic Mobile Communications business area.

     The Datainfo chain is one of Finland's leading distributors of personal
computers and software, and it is also a supplier of maintenance and network
services for computers. The chain has 44 independent franchising stores.

     We have a 50-50 joint venture with ICL, a Finnish IT firm, called Isoworks
Oy. Isoworks, which specializes in the repair and maintenance of customer
equipment as well as help desk support for customers, began operations in early
October 1999.

     In 1996, we established a wholly-owned subsidiary, Sonera Gateway (formerly
Sonera Credit), primarily to support our core sales operations by providing
equipment and other financing services to our customers. Sonera Gateway's
services are also available to customers of Finland Post Group and TietoEnator.
Sonera Gateway operates as a separate entity, making its own credit
determinations and bearing its own credit risk. For the year ended December 31,
2000, Sonera Gateway recorded leasing sales of E58 million. We plan to change
the focus of Sonera Gateway gradually from financing services for customers
toward broader management of the procurement process in the future.

CONSTRUCTION AND MAINTENANCE

     We provide a full range of network installation and maintenance services
through our wholly-owned subsidiary, Primatel. Primatel provides network
installation and maintenance services for both Sonera and outside customers
including other telephone companies and end-users of telecommunication services
such as public utilities, corporations and residential customers.
                                        47
<PAGE>   61

     Primatel's operations are conducted under three business units: (1)
Engineering, which constructs, tests and maintains fixed-line and mobile network
technical elements, including switching and transmission systems as well as base
station technical elements; (2) Networks, which installs and maintains optical
and copper cable networks; and (3) Real Estate Networks, which installs,
maintains and repairs safety networks at customer premises. At December 31,
2000, our construction and maintenance operations had 1,837 employees, as
compared to 1,918 employees at December 31, 1999. In 2000, revenues from
construction and maintenance services to external customers amounted to E34
million. Primatel's share of customers outside the Sonera Group grew during
2000, with revenues derived from outside customers amounting to approximately 20
percent of its total revenues.

OTHER SERVICES

     Other Services consists of various non-core fixed-line related businesses,
including network consulting services and public phones as well as intra-Group
operations such as network capacity sales to other business areas, reselling of
products of other business areas to corporate customers of Sonera Telecom and
the provision of construction and maintenance services to Domestic Mobile
Communications. Our wholly-owned telecommunications consulting subsidiary,
Telecon Oy, provides consulting services relating to network planning,
construction, development and operation to other providers of fixed network
voice communications and data and media services. Telecon's primary customers
are our associated companies. In 2000, we operated approximately 4,100 public
phones. The strong growth in the mobile phone penetration rate has led to a
gradual decline in the use of public phones.

OTHER OPERATIONS

     Other Operations include other non-core businesses such as ticket sales
services, as well as Sonera's administrative functions and centralized services,
which generate primarily intra-Group revenues. Through our subsidiary,
Lippupalvelu Oy, we provide ticket reservations and sales services. Lippupalvelu
operates through a premium rate national service number and retail outlets in
selected major Finnish cities. In 2000, external revenues from these other
businesses amounted to E10 million.

INTERNATIONAL AND OTHER SIGNIFICANT INVESTMENTS

     We have made significant investments in telecommunications companies
outside of Finland that we believe have substantial growth potential and in
which we can apply technical and commercial know-how developed in our Finnish
home market and in other markets. Our principal investments have been
substantial minority positions in providers of mobile telecommunications
services in which we can leverage our expertise in building and operating
advanced GSM networks as well as our strengths in sales, marketing and customer
service. We have made our investments in mobile telecommunications providers in
growth markets such as Turkey, the Baltic States and Hungary. In the United
States, starting in 1998, we made significant investments in PCS operators
Aerial and Powertel and, subsequently, VoiceStream. In light of the acquisition
of Aerial by VoiceStream in May 2000 and of VoiceStream and Powertel by the
German telecommunications company Deutsche Telekom in May 2001, as of June 2001,
we have divested most of our interests in U.S. telecommunications companies. See
"-- Deutsche Telekom." Beginning in 2000, we also began investing, together with
partners, in UMTS licenses in a number of European markets. Joint ventures of
which we are a member have been granted UMTS licenses in Germany, Italy, Spain
and Norway. We have also made substantial investments in providers of fixed-line
services in the Baltic States, which have historically had strong economic ties
to the Nordic Countries.

                                        48
<PAGE>   62

     The following table sets forth our principal international investments, our
percentage ownership interest in these companies and total actual cost of shares
in these companies:

<TABLE>
<CAPTION>
                                                                    AS OF DECEMBER 31, 2000
                                                           ------------------------------------------
                                                                         PERCENT OF   ACTUAL COST OF
COMPANY NAME                                                 COUNTRY     OWNERSHIP       SHARES(1)
------------                                                 -------     ----------   ---------------
                                                                           (%)        (IN E MILLIONS)
<S>                                                        <C>           <C>          <C>
GSM MOBILE OPERATORS:
Turkcell Iletisim Hizmetleri A.S........................   Turkey           37.3            230
Fintur Holdings B.V.....................................   Netherlands      35.3            136
Pannon GSM Rt...........................................   Hungary          23.0             72
AS EMT..................................................   Estonia          24.5             --(2)
Latvijas Mobilais Telefons SIA..........................   Latvia           24.5             --(2)
UAB Omnitel.............................................   Lithuania        27.5             83
ZAO North-West GSM......................................   Russia           23.5              4
LibanCell S.A.L.........................................   Lebanon          14.0              4
UMTS MOBILE OPERATORS:
Orla Siebzehnte Vermogensverwaltung GmbH(3).............   Germany          42.8            913
Ipse 2000 S.p.A.........................................   Italy            12.6            270
Xfera Moviles S.A.......................................   Spain            14.3             43
Broadband Mobile ASA....................................   Norway           50.0             --(2)
FIXED NETWORK OPERATORS:
AS Eesti Telefon........................................   Estonia          24.5             20(4)
Lattelekom SIA..........................................   Latvia           44.1            209
AB Lietuvos Telekomas...................................   Lithuania        30.0            238
</TABLE>

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

(1) Includes our total actual cost of shares resulting from the investment in
    the share capital of the company in question.

(2) As of December 31, 2000, we had invested less than E500,000 in the share
    capital of each of AS EMT, Latvijas Mobilais Telefons and Broadband Mobile.

(3) Also referred to as Gruppe 3G in this annual report.

(4) Includes E9 million paid in February 1999 for additional shares in Eesti
    Telekom, the parent company of AS EMT and Eesti Telefon.

MOBILE TELECOMMUNICATIONS OPERATIONS

Turkcell and Fintur

     We have a 37.3 percent holding in Turkcell, the leading GSM cellular
provider in Turkey. The Turkish mobile telecommunications market continued to
grow significantly during 2000 and the country's mobile phone penetration almost
doubled, from 12.5 percent in 1999 to 23 percent in 2000. At the end of 2000,
Turkcell had approximately 10.1 million subscribers or approximately 68 percent
of the Turkish mobile market. Of these, approximately 44 percent were pre-paid
subscribers. Turkcell's contribution to our equity income was E130 million in
2000 compared to E154 million in 1999. Turkcell currently provides
comprehensive, high-density coverage to an area that includes approximately 64
percent of the total population of Turkey, as well as all of the 81 largest
Turkish cities.

                                        49
<PAGE>   63

     The following table sets forth some information regarding Turkcell and the
Turkish mobile telecommunications market:

<TABLE>
<CAPTION>
                                                                  AS OF OR FOR THE
                                                               YEAR ENDED DECEMBER 31,
                                                              -------------------------
                                                               1998     1999     2000
                                                              ------   ------   -------
                                                              (IN E MILLIONS,(1) EXCEPT
                                                               PERCENTAGES AND MARKET
                                                                        DATA)
<S>                                                           <C>      <C>      <C>
Revenues(2).................................................    649    1,484     2,415
Operating profit............................................    266      539       462
Net income..................................................    191      346       225
Sonera's share of net income(3) (%).........................   41.0     41.0      37.3
Equity income consolidated to Sonera(4).....................     82      154       130
Total assets................................................  1,339    2,838     4,175
Shareholders' equity........................................    386      816     1,370
Net debt(5).................................................    677    1,408     1,849
Number of subscribers at end of period (in thousands).......  2,330    5,466    10,069
Penetration rate of mobile telephone services in Turkey
  (%).......................................................    5.0     13.0      23.0
</TABLE>

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

(1) U.S. dollar amounts have been translated into Finnish markkas (i) with
    respect to income statement items at the Bank of Finland average exchange
    rate for the relevant accounting period and (ii) with respect to the balance
    sheet items at the Bank of Finland middle rate as of the relevant balance
    sheet date, which FIM amounts have been converted into euros at the
    irrevocable conversion rate between the Finnish markka and the euro of E1.00
    = FIM 5.94573.

(2) Until April 30, 1998, the figures given represent net revenues of Turkcell,
    after taking into account fees calculated on Turkcell's gross revenues paid
    by Turkcell under the 1993 revenue sharing agreement with Turk Telekom. As
    from May 1, 1998, the figures given represent Turkcell's gross revenue.

(3) In connection with Turkcell's initial public offering in July 2000, we sold
    a portion of our interest in Turkcell, reducing our interest to 37.3
    percent.

(4) Before any amortization of goodwill. In 1998, 1999 and 2000 we recorded
    amortization of goodwill with respect to Turkcell of E3 million, E4 million
    and E4 million, respectively.

(5) Net debt consists of interest-bearing debt less cash and short-term
    investments.

     Turkcell was formed in 1993 as a joint venture whose principal owners
included the Cukurova Group, the third largest industrial conglomerate in
Turkey. In 1993, Turkcell was awarded a 15-year revenue sharing agreement with
Turk Telekom, Turkey's state-owned monopoly fixed-line operator, giving it the
right to operate a GSM network. Under the terms of the agreement, Turkcell built
and operated the GSM network and marketed GSM services to subscribers while Turk
Telekom set tariffs for Turkcell's services, performed subscriber billing and
collection and permitted Turkcell access to Turk Telekom's network. Turkcell's
original revenue sharing agreement with Turk Telekom provided that Turkcell
receive 32.9 percent of revenues billed for connection fees, monthly fees and
outgoing calls and ten percent of revenues billed for incoming calls, an
arrangement which resulted in Turkcell receiving between 25 percent and 26
percent of the gross revenues generated by subscribers to its GSM system.

     In April 1998, Turkcell was granted a 25-year GSM license (the "Turkcell
License") upon payment of an up-front license fee of U.S. $500 million. The
payment of the license fee was initially financed through a U.S.$575 million
bridge loan facility, which was refinanced in July 1998 with an issuance of
U.S.$300 million of high-yield debt and a borrowing under a U.S.$575 million
credit facility from a consortium of international banks. The Turkcell License
eliminated certain of the operating constraints of the 1993 revenue sharing
agreement with Turk Telekom. Under the terms of the Turkcell License, Turkcell
is entitled to collect the revenues generated from the operation of its GSM
system and is obligated to pay a fee equal to 15 percent of the monthly gross
revenues to the Treasury of Turkey, as well as certain interconnection and other
service fees to Turk Telekom. The Turkcell License also gives the Turkish
Ministry of Communications certain powers to set and approve charges for GSM
services provided by Turkcell. The Ministry of Communications in Turkey may
terminate the Turkcell License under certain circumstances, including Turkcell's
failure to perform its obligations

                                        50
<PAGE>   64

under the Turkcell License, in which event Turkcell could be required to deliver
its GSM system to the Ministry of Communications.

     As of December 31, 2000, Turkcell provided service to its subscribers in 90
countries through roaming agreements with 189 operators. In 2000, Turkcell
introduced a number of new services, including a mobile positioning service.

     In addition, Turkcell has a 25 percent interest in Fintur Holding B.V., a
Dutch holding company which has, among other things, (1) a 51.3 percent interest
in Azercell Telecom B.M., which operates a GSM network in Azerbaijan, (2) an
80.7 percent interest in Geocell Ltd., which operates a GSM network in Georgia,
(3) a 51 percent interest in GSM Kazakhstan, which operates a GSM network in
Kazakhstan and (4) a 77 percent interest in Moldcell S.A., which operates a GSM
network in Moldova. Turkcell, Sonera and the Cukorova Group jointly established
Fintur in 2000 with Turkcell contributing most of its interests in GSM operators
outside of Turkey and certain additional interests and with Sonera and Cukorova
contributing cash. Through an investment of U.S.$127 million, we acquired a 35.3
percent equity holding in Fintur. As of December 31, 2000, Azercell had
approximately 380,000 subscribers to its GSM network, Geocell had approximately
69,000 subscribers, GSM Kazakhstan had approximately 141,000 subscribers and
Moldcell had approximately 43,000 subscribers. In connection with the
acquisition of the GSM Kazakhstan license, we, together with the other principal
shareholders of Turkcell, have committed to enter into guarantees in respect of
GSM Kazakhstan's bank debt in the aggregate amount of U.S.$34 million. Fintur's
other holdings include (1) a 75 percent interest in Novacell CJSC, which applied
for a frequency license in February 2001 to become a GSM operator in the Ukraine
and (2) a 60 percent holding in European Telecommunication Holding AG, which
focuses on providing long distance services principally to the ethnic Turkish
population in Germany. Fintur also has investments in Turkey in Digital
Platform, which is a provider of television program services; Superonline, an
internet service provider; and Topaz, a cable TV infrastructure provider.

     Turkcell has a direct ownership interest in one GSM operator outside of
Turkey: Kibris Mobil Telekomunikasyon Limited Sirketi (Cyprus Mobile
Telecommunications, Inc.), in which it holds a 99.9 percent interest. Cyprus
Mobile commenced operations in July 1999 and as of the end of 2000 had
approximately 59,000 subscribers.

     Turkcell currently faces competition from Telsim, Turk Telekom and IsTim, a
consortium formed by Telecom Italia and Isbank, one of the largest private banks
in Turkey. Telsim operates a GSM 900 network, IsTim operates a GSM 1800 network,
and Turk Telekom, which currently operates an analog network, received its GSM
1800 license in September 2000 and expects to launch GSM services through its
wholly-owned subsidiary Aycell in the second half of 2001. Telsim, which is
Turkcell's principal competitor, began offering mobile services in 1994. Telsim
had approximately five million subscribers as of December 31, 2000, representing
approximately 32 percent of the total Turkish GSM market. IsTim received its GSM
1800 license in September 2000 and began offering services in March 2001. It is
also possible that a new GSM 1800 license will be offered by the Turkish
government in the future.

     Pursuant to the terms of a shareholders' agreement entered into with the
other original shareholders of Turkcell, we are entitled to nominate three
individuals to serve on Turkcell's seven member board of directors. The
shareholders' agreement also provides for certain rights of refusal with respect
to transfers of Turkcell shares. We have also entered into a technical
assistance agreement with Turkcell pursuant to which we provide assistance
relating to planning and construction services and site management of Turkcell's
network, as well as assistance relating to the planning and training of
Turkcell's business and technical departments; the technical assistance
agreement was valid up until the end of 2000. As of December 31, 2000, we had
outstanding guarantees to various lenders with respect to E66 million of debt
incurred by Turkcell and Fintur in connection with the purchase of network
equipment and draw-downs of bank facilities. As of December 31, 2000, Turkcell
Holding A.S., our associated company which holds a portion of our interest in
Turkcell, had pledged 25 percent of its Turkcell shares as security for
Turkcell's loan financing.

     We are the only principal shareholder of Turkcell that operates its own
mobile telecommunications network. The other significant shareholders of
Turkcell include the Cukurova Group, with an aggregate 45.9 percent ownership
interest, and MV Holding A.S., with a 7.0 percent equity interest.
                                        51
<PAGE>   65

     In October 1999, we entered into a shareholders agreement with the Cukurova
Group providing for the establishment of a new holding company in Turkey,
Turkcell Holding A.S. Under the terms of the agreement, we contributed Turkcell
shares representing 24.02 percent of the share capital of Turkcell to the
Turkish holding company. We own 47.09 percent of the shares of the holding
company with the balance being owned by the Cukurova Group. Turkcell Holding
holds 51 percent of the share capital of Turkcell.

     In July 2000, Turkcell completed the initial public offering of its shares.
We sold a total of approximately 10.2 billion shares in the offering and
received total net proceeds of U.S.$704 million from the offering. As part of
the offering, Turkcell's shares were listed on the Istanbul Stock Exchange and
the New York Stock Exchange. We currently hold 37.3 percent of Turkcell's
outstanding shares.

     In late November 1999, the Turkish Parliament confirmed the introduction of
a temporary tax on mobile subscriptions. This tax, in effect from December 1,
1999 up to the end of 2002, amounts to 25 percent of a subscriber's total
monthly telephone bill net of VAT and is being collected by mobile operators.
Turkcell's net profit in 2000 was reduced significantly by the mobile phone tax,
which has also had a negative impact on mobile phone usage in Turkey. In
addition, in an attempt to avert a potential financial and political crisis, the
Turkish government allowed the Turkish lira to float freely in February 2001.
This has resulted in a significant devaluation of the Turkish lira against the
U.S. dollar and other major foreign currencies. The effects of the mobile phone
tax and the devaluation of the lira in early 2001 are expected to have a
negative impact on Turkcell's net profit and cash flow in 2001 and 2002.

     Turkcell is involved in a number of ongoing legal proceedings and disputes
which, if determined against Turkcell, could individually or in the aggregate
have a material adverse effect on its financial condition or results of
operation. These include the following:

     -  Turkcell has been named as a defendant in a consolidated purported class
        action lawsuit pending in the United States. The complaint alleges that
        the prospectus issued in connection with Turkcell's public offering in
        July 2000 contained false and misleading statements about its churn rate
        and omitted material financial information. The plaintiffs seek to
        recover damages pursuant to the U.S. Securities Act of 1933. In a recent
        related claim, the directors of Turkcell, including our nominees, were
        named as co-defendants with Turkcell. Turkcell management believes it is
        premature to estimate its potential liability, if any, from the class
        action lawsuit.

     -  Turkcell is involved in a dispute with the Turkish Ministry of
        Transportation and the Treasury of Turkey in connection with the method
        of calculating the monthly license fee owed to the Treasury of Turkey
        under the Turkcell License. In the view of the Ministry of
        Transportation and the Treasury, the 15 percent monthly license fee
        should be calculated on a gross basis before deduction for VAT,
        Turkcell's required contribution to the education fund and frequency
        usage and transmission fees. Turkcell has calculated the ongoing license
        fee on a net basis after deducting for these items. Turkcell commenced
        legal proceedings against the Ministry of Transportation and the
        Treasury at the Danistay, Turkey's highest administrative court, in the
        matter. After the Danistay lifted an injunction preventing the Treasury
        from collecting the license fee amounts payable on account of
        collections of VAT, Turkcell paid the Treasury U.S.$57.2 million in
        March 2000 for license fees on account of VAT and late interest payments
        (which sum does not include license fees on account of the education
        fund and frequency usage and transmission fees). Turkcell has stated
        that it will continue to pay license fees in respect of VAT collections,
        subject to a final decision to be rendered by the Danistay. The suit is
        currently pending before the Danistay. In the event that the Ministry
        and the Treasury prevail in these matters, Turkcell may be required to
        pay higher license fees in the future and may have to pay supplemental
        fees for prior periods together with overdue interest.

     -  Turkcell is involved in a dispute with the Turkish Ministry of Finance
        in connection with the payment of VAT on the upfront fee for the
        Turkcell License. Should the matter, which is before the Danistay, be
        decided in favor of the Turkish Ministry of Finance, Turkcell could be
        required to pay significant fees to the Turkish tax authorities,
        together with interest and penalty charges.

                                        52
<PAGE>   66

     -  Several thousand Turkcell customers have initiated lawsuits against
        Turkcell demanding that Turkcell stop charging fixed monthly fees (not
        based on usage) and reimburse them for such fixed fees already paid by
        them. While a large majority of such cases have been dismissed or
        referred to consumer courts, customers have prevailed in a number of
        these suits. If a significant number of these suits are instituted and
        Turkcell is unsuccessful in defending against them, it could have a
        material adverse effect on Turkcell's financial condition or results of
        operations.

     -  The Turkish Ministry of Transportation has claimed that certain value
        added services, transaction fees, roaming revenues and interest charges
        for late collections should be included in the calculation of the
        monthly license fee owed to the Treasury of Turkey under the Turkcell
        License. Turkcell has initiated a lawsuit relating to the matter, and
        the case is currently pending before the Danistay. If the case is
        resolved in favor of the Treasury, Turkcell will be liable for
        significant additional license fee payments as well as interest charges.

     -  Turkcell is involved in a dispute with Turk Telekom in connection with
        recent modifications in the way that Turk Telekom calculates the
        interconnection fees that Turk Telekom pays to Turkcell. Beginning in
        early 2000, Turk Telekom, in determining the interconnection fees that
        it pays to Turkcell, began deducting from the revenues it receives
        certain payments that it makes to the Turkish Treasury and other Turkish
        authorities. Turkcell commenced a lawsuit to prevent Turk Telekom from
        calculating the fee in this matter, which it lost at the lower court
        level and has appealed. While the appeal is pending, Turkcell agreed to
        pay U.S.$35.3 million out of the total additional interconnection fee
        requested of U.S.$91.1 million. Turkcell also recorded a liability of
        the unpaid portion of U.S.$55.8 million for 2000.

     -  Turkcell is also involved in a dispute with Turk Telekom currently
        pending at the Turkish commercial court involving the way in which
        Turkcell and Turk Telekom share interconnection revenue. Turk Telekom
        has claimed that Turkcell should make a payment to Turk Telekom based on
        the cancellation of certain provisions of Turkcell's interconnection
        agreement with Turk Telekom in a separate lawsuit.

     -  In July 2000, Turk Telekom, which has an effective monopoly on providing
        transmission lines to mobile operators, reduced the discount on leased
        transmission lines that it had provided for a number of years from 60
        percent to 25 percent. Turkcell brought suit seeking to enjoin Turk
        Telekom from implementing the reduction, lost in the trial court, and
        has appealed the decision. Turkcell has also sought relief from the
        Competition Board of Turkey. Turkcell estimates that it will be required
        to pay approximately U.S.$48 million to Turk Telekom if the case is
        decided in Turk Telekom's favor.

     -  In addition, in March 2001, Turk Telekom unilaterally, and without the
        approval of the Ministry of Transportation, increased the fees it
        charges Turkcell for access to Turk Telekom's transmission lines by 100
        percent, effective April 1, 2001, and refused to lease Turkcell any
        further transmission lines. In May 2001, Turkcell obtained an injunction
        to compel Turk Telekom to lease additional lines to Turkcell and to
        prevent Turk Telekom from collecting any amounts relating to its
        increase in the transmission line fee. In June 2001, Turkcell initiated
        a lawsuit to rule on the legality of Turk Telekom's actions. If Turkcell
        is unsuccessful in this lawsuit, Turkcell's fees for leasing
        transmission lines will double.

     In June 2001, we announced that we would participate in a rights offering
of shares by Turkcell to its existing shareholders. Our pro rata participation
in the offering would amount to approximately U.S.$75 million.

     Based on Turkcell's interim financial statements as of March 31, 2001,
Turkcell was in breach of certain of its covenants attached to its bank loans.
If the lenders were to demand immediate repayment of these loans, it would
trigger a cross-default to Turkcell's other indebtedness, which could have a
material adverse effect on Turkcell's financial condition. Turkcell has informed
the lenders of the default and is working with them to prepare a waiver letter.
Turkcell does not expect the lenders to accelerate repayments under the bank
loan facilities, and is currently not aware of plans by the lenders to require
such accelerated payments. Turkcell also expects to begin negotiating the
covenants with the lenders shortly. Turkcell Holding, in which we hold a 47.1
percent interest, has pledged one-fourth of the shares it holds in Turkcell, or
approximately one-sixth of our

                                        53
<PAGE>   67

total interest in Turkcell, to secure Turkcell's bank loan facilities. As of
March 31, 2001, we also had guarantees outstanding in the amount of E32 million
in relation to Turkcell's debt.

     Turkcell's consolidated financial statements as of and for the years ended
December 31, 1998, 1999 and 2000 are included in this annual report. The report
of the independent auditors report of Turkcell, which is unqualified, contains
an explanatory paragraph that states that Turkcell's current liabilities at
December 31, 2000 exceeded current assets by approximately U.S.$55.8 million and
that as of the three month period ended March 31, 2001, Turkcell was in breach
of the covenants contained in certain of its bank facilities, which may raise
substantial doubt about Turkcell's ability to continue as a going concern. In
addition, the Turkcell independent auditors' report contains an explanatory
paragraph that states that an uncertainty exists relating to the significant
economic difficulties that have emerged in Turkey during 2000 and subsequent to
December 31, 2000.

Pannon

     We have a 23 percent shareholding in Pannon GSM, the second largest mobile
telephone operator in Hungary. Hungary's mobile phone penetration rate grew to
30 percent at the end of 2000. As of December 31, 2000, Pannon had approximately
1.2 million subscribers, an increase from 668,000 subscribers at the end of
1999, giving it approximately 41 percent of the Hungarian mobile telephone
market. Pannon's network covers approximately 99 percent of Hungary's population
and approximately 95 percent of its geographic area. For the year ended December
31, 2000, Pannon's revenues amounted to E375 million, as compared to revenues of
E313 million in 1999.

     The following table sets forth certain information regarding Pannon and the
Hungarian mobile telecommunications market:

<TABLE>
<CAPTION>
                                                                      AS OF OR FOR THE
                                                                 YEAR ENDED DECEMBER 31,(1)
                                                                -----------------------------
                                                                 1998       1999       2000
                                                                -------    -------    -------
                                                                  (IN E MILLIONS,(2) EXCEPT
                                                                PERCENTAGES AND MARKET DATA)
<S>                                                             <C>        <C>        <C>
Revenues....................................................       266        313        375
Operating profit............................................        41         87         73
Net (loss) income...........................................        (4)        51         36
Sonera's share of net income(3)(%)..........................      23.0       23.0       23.0
Equity (loss) income consolidated to Sonera(4)..............      (0.4)        10          8
Total assets................................................       302        465        446
Shareholders' equity........................................        35         78        117
Net debt(5).................................................       200        168        214
Number of subscribers at end of period (in thousands).......       432        668      1,221
Penetration rate of mobile services in Hungary (%)..........      10.7       16.0         30
</TABLE>

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

(1) The selected financial data set forth above is based on financial reports
    received from Pannon in the preparation of our consolidated financial
    statements and the data presented may therefore differ from the data
    included in the financial statements published by Pannon for the relevant
    years.

(2) For 1998, 1999 and 2000, Hungarian forint amounts in income statement items
    have been translated into Finnish markkas using the Bank of Finland average
    exchange rate for the period and in balance sheet items using the Bank of
    Finland middle rate in effect on December 31, 1998, 1999 and 2000,
    respectively, which Finnish markka amounts have then been converted into
    euros at the irrevocable conversion rate between the Finnish markka and the
    euro of E1.00 = FIM 5.94573.

(3) Until August 1998, we had an 18.1 percent equity interest in Pannon. In
    August 1998, we acquired an additional 4.9 percent interest increasing our
    shareholding to 23.0 percent.

(4) Before any amortization of goodwill. In 1998, 1999 and 2000, we recorded
    amortization of goodwill with respect to Pannon of E2 million, E6 million
    and E6 million, respectively.

(5) Net debt consists of interest-bearing debt less cash and short-term
    investments.

     Pannon launched its GSM service commercially in March 1994 pursuant to a
license awarded in September 1993 by the Hungarian Ministry for Transport,
Telecommunications and Water Management (the "Hungarian

                                        54
<PAGE>   68

Ministry"). Under the terms of the license, Pannon has the right, for 15 years
from the date of the license, to provide public GSM 900 services and may, with
the agreement of the Hungarian Ministry, extend the term of the license for an
additional period of seven and one-half years. In June 1999, Pannon was granted
a 15-year GSM 1800 license from the Ministry. The other providers of mobile
telecommunications in Hungary are Westel 900 GSM Mobil Tavkozlesi Rt., a
provider of GSM 900 and 1800 services; Westel Radiotelefon Kft., a provider of
analog mobile telecommunications services; and Vodafone Hungaria, a subsidiary
of Vodafone Airtouch that provides GSM 1800 services.

     The granting of GSM 1800 licenses in Hungary was part of an arrangement
between the Hungarian Ministry and the current operators in which the current
operators agreed to waive their rights for additional GSM 900 frequencies
against the receipt of GSM 1800 licenses. Additionally, Pannon and Westel agreed
to provide Vodafone Hungaria an opportunity to roam in their networks for a
maximum of three years ending on June 30, 2004, at the latest. Pannon began
using its GSM 1800 frequencies in Budapest in November 2000, and outside
Budapest in March 2001. Under the terms of the agreement between Pannon and
Vodafone Hungaria, Pannon can terminate the agreement fifteen months from its
execution and Vodafone Hungaria can terminate it after twelve months. Each party
is required to give the other party three months' notice of its intention to
terminate the agreement.

     Pannon offers its subscribers a wide range of value-added features,
including the ability to send SMS messages to e-mail addresses and receive
e-mail messages in SMS format, voice mail and conference call services. Pre-paid
services started in 1997, and, in 1998, Pannon introduced a pre-paid service
with rechargeable SIM cards. In 1999, Pannon started to offer voice over IP for
international calls. In 2000, Pannon introduced pre-paid roaming. Pannon is also
preparing to launch GPRS services in 2001. While Pannon's network has been fully
built out and covers essentially the entire geographical area of Hungary, Pannon
continues to make additional investments in its network to increase quality,
improve indoor coverage and expand the overall capacity of its network. By the
end of 2000, Pannon had entered into roaming agreements with 160 operators in 71
countries.

     We provide business and technical expertise to assist the operation of
Pannon's GSM network. We currently have two nominees including the Chairman
serving on Pannon's seven member board of directors and one nominee on Pannon's
five member supervisory board. Pannon's other principal shareholders include
Royal KPN N.V. and Telenor AS. We and the other shareholders of Pannon have
entered into a shareholders' agreement which provides for certain rights of
first refusal with respect to transfers of Pannon shares.

AS EMT

     Through our shareholding in Eesti Telekom, a publicly listed Estonian
corporation, we have an indirect 24.5 percent ownership interest in AS EMT,
formerly known as Eesti Mobiiltelefon. AS EMT, a wholly-owned subsidiary of
Eesti Telekom, is the largest of three GSM operators in Estonia. As of December
31, 2000, AS EMT had approximately 327,000 subscribers using its GSM network,
giving it approximately 60 percent of the total Estonian mobile telephone
market. AS EMT's GSM network covers approximately 99 percent and 98 percent of
Estonia's population and geographic area, respectively. For the year ended
December 31, 2000, AS EMT's revenues amounted to E116 million, as compared to
revenues of E103 million in 1999.

                                        55
<PAGE>   69

     The following table sets forth certain information regarding AS EMT and the
Estonian mobile telecommunications market:

<TABLE>
<CAPTION>
                                                                      AS OF OR FOR THE
                                                                 YEAR ENDED DECEMBER 31,(1)
                                                                -----------------------------
                                                                 1998       1999       2000
                                                                -------    -------    -------
                                                                  (IN E MILLIONS(2), EXCEPT
                                                                PERCENTAGES AND MARKET DATA)
<S>                                                             <C>        <C>        <C>
Revenues....................................................        84        103        116
Operating profit............................................        29         38         43
Net income..................................................      20.1       34.1       43.4
Sonera's share of net income (%)............................      24.5       24.5       24.5
Equity income consolidated to Sonera........................       4.9        8.4       10.6
Total assets................................................        66         85        101
Shareholders' equity........................................        54         73         87
Net debt(3).................................................      (5.1)       (15)       (22)
Number of subscribers at period end (in thousands)..........       152        244        327
Penetration rate of mobile telephone services in Estonia
  (%).......................................................      16.8       27.5         39
</TABLE>

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

(1) The selected financial data set forth above is based on financial reports
    received from AS EMT in the preparation of our consolidated financial
    statements and the data presented may therefore differ from the data
    included in the financial statements published by AS EMT for the relevant
    periods.

(2) For income statement items, Estonian kroon amounts have been translated into
    Finnish markkas using the Bank of Finland average exchange rate for the
    applicable period and for balance sheet items using the Bank of Finland
    middle rate in effect on December 31 of the applicable year, which Finnish
    markka amounts have then been converted into euros at the irrevocable
    conversion rate between the Finnish markka and the euro of E1.00 = FIM
    5.94573. The financial information in the table is sensitive to exchange
    rate fluctuations.

(3) Net debt consists of interest-bearing debt less cash and short-term
    investments.

     AS EMT commercially launched its NMT service in 1991 and its GSM service in
1995. AS EMT terminated its NMT services at the end of 2000. AS EMT has a GSM
license granted by the Estonian Ministry of Transport and Communications (the
"Estonian Ministry") that is valid until August 31, 2006. AS EMT also has a
license granted by the Estonian Ministry to provide GSM 1800 services that is
valid until August 31, 2006. Competing providers of mobile telecommunications
services in Estonia include Radiolinja Eesti AS, a subsidiary of the Finnish GSM
operator Radiolinja, and Tele 2 Eesti AS, which together have a 40 percent share
of the Estonian mobile telecommunications market.

     AS EMT offers its subscribers a wide range of value-added features,
including the ability to send SMS messages to other mobile phones and to e-mail
addresses and to receive e-mail messages in the form of SMS messages. AS EMT had
roaming agreements with mobile communications operators in approximately 77
countries as of March 31, 2001.

     We provided both GSM operating and technical expertise to AS EMT. Our
ownership interest in AS EMT is held through Eesti Telekom, a publicly listed
Estonian corporation. Other shareholders of Eesti Telekom are Telia, which holds
an indirect 24.5 percent equity interest, and the Republic of Estonia, which
holds a 27.3 percent equity interest. The remaining 23.7 percent is owned by the
public. Prior to the initial public offering of Eesti Telekom, both its group
structure and ownership structure were restructured. The restructuring was
effected on the basis of an agreement entered into between the Republic of
Estonia and the minority shareholders of Eesti Telekom's subsidiaries. Pursuant
to the restructuring agreement, the shareholders of AS EMT and Eesti Telefon,
including our Company, exchanged their shares in such subsidiaries for
publicly-traded shares of Eesti Telekom. Together with Telia, we currently have
four nominees and the Republic of Estonia has two nominees serving on Eesti
Telekom's ten member supervisory council. The remaining four members have been
elected by the annual general meeting of shareholders of Eesti Telekom. AS EMT
has its own four member supervisory council in which Sonera and Telia together
have two nominees.

     Estonian telecommunications legislation was revised in preparation for
Estonia's expected membership in the European Union and came into effect on
March 19, 2000. The implementing legislation is still under

                                        56
<PAGE>   70

development. There can be no assurance that the interpretation and
implementation of new telecommunications legislation in Estonia will not have an
adverse effect upon AS EMT. A number of lawsuits regarding Eesti Telekom's
recent initial public offering and the restructuring process have been brought
against Eesti Telekom, the Republic of Estonia and several other parties
including Telia. These claims attempt to, among other things, invalidate the
restructuring and the subsequent sale of shares in the initial public offering.
While Eesti Telekom has successfully defended itself in a number of the suits,
management is currently not in a position to estimate the outcome of the
remaining lawsuits but it believes that the defendants have good defenses
against the claims presented.

Latvijas Mobilais Telefons

     We have a 24.5 percent shareholding in Latvijas Mobilais Telefons, the
largest GSM operator in Latvia. As of December 31, 2000, Latvijas Mobilais
Telefons had approximately 267,000 subscribers for its GSM and NMT 450 networks
combined, giving it approximately 67 percent of the total Latvian mobile phone
market. For the year ended December 31, 2000, Latvijas Mobilais Telefons'
revenues amounted to E154 million, as compared to revenues of E103 million in
the prior year.

     The following table sets forth certain information regarding Latvijas
Mobilais Telefons and the Latvian mobile telecommunications market:

<TABLE>
<CAPTION>
                                                                      AS OF OR FOR THE
                                                                 YEAR ENDED DECEMBER 31,(1)
                                                                -----------------------------
                                                                 1998         1999       2000
                                                                -------    -------    -------
                                                                  (IN E MILLIONS(2), EXCEPT
                                                                PERCENTAGES AND MARKET DATA)
<S>                                                             <C>        <C>        <C>
Revenues....................................................        69        103        154
Operating profit............................................        25         44         63
Net income..................................................      12.9         31         46
Sonera's share of net income (%)............................      24.5       24.5       24.5
Equity income consolidated to Sonera........................       3.1        7.7       11.3
Total assets................................................        78         99        135
Shareholders' equity........................................        40         72        107
Net debt(3).................................................         7          2         (6)
Number of subscribers at period end (in thousands)..........       125        201        267
Penetration rate of mobile telephone services in Latvia
  (%).......................................................       6.8       11.5         17
</TABLE>

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

(1) The selected financial data set forth above is based on financial reports
    received from Latvijas Mobilais Telefons in the preparation of our
    consolidated financial statements and the data presented may therefore
    differ from the data included in the financial statements published by
    Latvijas Mobilais Telefons for the relevant years.

(2) For income statement items, Latvian lat amounts have been translated into
    Finnish markkas using the Bank of Finland average exchange rate for the
    applicable period and for balance sheet items using the Bank of Finland
    middle rate in effect on December 31 of the applicable year, which Finnish
    markka amounts have then been converted into euros at the irrevocable
    conversion rate between the Finnish markka and the euro of E1.00 = FIM
    5.94573. The financial information in the table is sensitive to exchange
    rate fluctuations.

(3) Net debt consists of interest-bearing debt less cash and short-term
    investments.

     Latvijas Mobilais Telefons commercially launched its NMT service in 1992
and its GSM service in 1996. Latvijas Mobilais Telefons' GSM and NMT licenses
were each renewed in January 2000 for terms of five years. Pursuant to the
license, Latvijas Mobilais Telefons has the right to develop and operate an NMT
450 and a GSM network in Latvia. The only competing provider of mobile
telecommunications services in Latvia is SIA Tele2, a wholly-owned subsidiary of
the Swedish telecommunications company Tele2 AB, which has approximately 33
percent of the total Latvian mobile communications market. Latvijas Mobilais
Telefons offers its subscribers a wide range of value-added features, including
voice mail, call forwarding, caller identification, SMS messaging and forwarding
of SMS messages to e-mail addresses as well as fax and data capability. In July
1999, Latvijas Mobilais Telefons and SIA Tele2 were granted GSM 1800 licenses.
Latvijas Mobilais Telefons began using the new frequency at the end of 1999 and
SIA Tele2 in early 2000. Latvijas Mobilais Telefons has roaming agreements with
approximately 189 mobile telecommunications operators in 83 countries.

                                        57
<PAGE>   71

     We provide both GSM operating and technical expertise to Latvijas Mobilais
Telefons. We currently have two nominees serving on Latvijas Mobilais Telefons'
seven member board of directors. Latvijas Mobilais Telefons' other shareholders
include Telia, with a 24.5 percent interest, Digital Latvia Radio and TV Centre,
which is a wholly-owned mobile operator of the Latvia Radio and Television
Centre, with a 23 percent interest, Lattelekom, with a 23 percent interest, and
an entity controlled by the Ministry of Transport of the Republic of Latvia,
which has a five percent interest.

     Latvian telecommunications legislation is currently being revised in
preparation for Latvia's expected membership in the European Union. Management
is currently not in a position to assess the impact on Latvijas Mobilais
Telefons of the anticipated passage of new telecommunications legislation in
Latvia.

Omnitel

     In September 1998, we purchased a 27.5 percent indirect holding in Omnitel,
the largest of three GSM operators in Lithuania. As of December 31, 2000,
Omnitel had approximately 307,000 subscribers using its GSM network, giving it
approximately 60 percent of the total Lithuanian mobile telephone market.
Omnitel's GSM network covers approximately 99 percent and 98 percent of
Lithuania's population and geographic area, respectively. For the year ended
December 31, 2000, Omnitel's revenues amounted to E92 million, as compared to
E83 million in 1999.

     The following table sets forth certain information regarding Omnitel and
the Lithuanian mobile telecommunications market:

<TABLE>
<CAPTION>
                                                                      AS OF OR FOR THE
                                                                 YEAR ENDED DECEMBER 31,(1)
                                                                -----------------------------
                                                                 1998       1999       2000
                                                                -------    -------    -------
                                                                  (IN E MILLIONS(2), EXCEPT
                                                                PERCENTAGES AND MARKET DATA)
<S>                                                             <C>        <C>        <C>
Revenues....................................................        79         83         92
Operating profit............................................      18.4         35         27
Net income..................................................      15.8       30.6       20.5
Sonera's share of net income (%)............................      27.5       27.5       27.5
Equity income consolidated to Sonera(3).....................       2.0        8.4        5.6
Total assets................................................        84        106        123
Shareholders' equity........................................        31         67         93
Net debt(4).................................................        42         10         (1)
Number of GSM subscribers at period end (in thousands)......       146        196        307
Penetration rate of mobile telephone services in Lithuania
  (%).......................................................       6.3        8.7         11
</TABLE>

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

(1) The selected financial data set forth above is based on financial reports
    received from Omnitel in the preparation of our consolidated financial
    statements and the data presented may therefore differ from the data
    included in the financial statements published by Omnitel for the relevant
    years.

(2) For income statement items, Lithuanian lita amounts have been translated
    into Finnish markkas using Bank of Finland average exchange rate for the
    applicable period and for balance sheet items using the Bank of Finland
    middle rate in effect on December 31 of the applicable year, which Finnish
    markka amounts have then been converted into euros at the irrevocable
    conversion rate between the Finnish markka and the euro of E1.00 = FIM
    5.94573. The financial information in the table is sensitive to exchange
    rate fluctuations.

(3) Before any amortization of goodwill. In 1998, 1999 and 2000, we recorded
    amortization of goodwill with respect to Omnitel of E2 million, E7 million
    and E8 million, respectively. We acquired our shareholding in Omnitel on
    September 2, 1998. Accordingly, our equity income from Omnitel in 1998 only
    includes the last four months of 1998.

(4) Net debt consists of interest-bearing debt less cash and short-term
    investments.

     Omnitel commercially launched its GSM 900 service in March 1995. Omnitel's
current GSM 900 license was granted in October 1997 by the Lithuanian Ministry
of Communications and Information and is valid until October 2007, subject to
renewal thereafter. Omnitel competes principally with UAB Bite GSM and UAB
Tele2, providers of GSM 900 and GSM 1800 services. Omnitel was granted a GSM
1800 license in 1998. Omnitel offers its subscribers a wide range of value-added
features, including voice mail, call forwarding, call waiting,

                                        58
<PAGE>   72

caller identification, three-way conferencing and SMS messaging. Omnitel also
provides commercial Internet services, data transmission services, using X.25
and X.28 protocol, and nationwide paging services. Omnitel had roaming
agreements with 132 mobile telecommunications operators in 62 countries as of
December 31, 2000.

     Omnitel's other shareholders are Telia, also with a 27.5 percent
shareholding, Motorola Lithuania Telecom, a Lithuanian subsidiary of Motorola
Corporation, with a 35 percent shareholding, and the Kazickas family, with a ten
percent shareholding. Sonera and Telia may each nominate two of the seven
members of the Omnitel board of directors. Subject to certain conditions, each
shareholder may require Omnitel to repurchase its Omnitel shares. The
shareholders may be required to make additional capital contributions to Omnitel
provided that any proposal for capital contributions must be approved by a
supermajority of the shareholders.

North-West GSM

     We have a 23.5 percent shareholding in North-West GSM ZAO, a GSM service
provider in the northwestern part of Russia, including the St. Petersburg,
Archangelsk, Murmansk, Karelia and Vologda regions. As of December 31, 2000,
North-West GSM had approximately 253,000 subscribers using its GSM network.
North-West GSM's network covers approximately 93 percent of the population in
St. Petersburg and Leningrad oblast and 40 percent of its geographic area,
respectively, and between 30 to 50 percent of the population in its other
service areas. For the year ended December 31, 2000, North-West GSM's revenues
amounted to E132 million, as compared to revenues of E80 million in 1999.

     The following table sets forth certain information regarding North-West GSM
and the Russian mobile telecommunications market:

<TABLE>
<CAPTION>
                                                                      AS OF OR FOR THE
                                                                 YEAR ENDED DECEMBER 31,(1)
                                                                -----------------------------
                                                                 1998       1999       2000
                                                                -------    -------    -------
                                                                  (IN E MILLIONS(2), EXCEPT
                                                                PERCENTAGES AND MARKET DATA)
<S>                                                             <C>        <C>        <C>
Revenues....................................................        88         80        132
Operating profit............................................      29.4       19.7         42
Net income..................................................      16.3        5.9       22.7
Sonera's share of net income (%)............................      23.5       23.5       23.5
Equity income consolidated to Sonera........................       3.8        1.2        5.3
Total assets................................................        84        108        122
Shareholders' equity........................................        32         43         67
Net debt(3).................................................        10        0.3         17
Number of subscribers at period end (in thousands)..........        92        133        253
Penetration rate of mobile telephone services in Russia
  (%).......................................................       0.3        0.9          2
</TABLE>

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

(1) The selected financial data set forth above is based on financial reports
    received from North-West GSM in the preparation of our consolidated
    financial statements and the data presented may therefore differ from the
    data included in the financial statements published by North-West GSM for
    the relevant years.

(2) For income statement items, U.S. dollar amounts have been translated into
    Finnish markkas using the Bank of Finland average exchange rate for the
    applicable period and for balance sheet items using the Bank of Finland
    middle rate in effect on December 31 of the applicable year, which Finnish
    markka amounts have then been converted into euros at the irrevocable
    conversion rate between the Finnish markka and the euro of E1.00 = FIM
    5.94573. The financial information in the table is sensitive to exchange
    rate fluctuations.

(3) Net debt consists of interest-bearing debt less cash and short-term
    investments.

     North-West GSM commercially launched its GSM service in the St. Petersburg
area in December 1994 and in most of its other service areas in 1997. North-West
GSM's licenses in its five principal service areas are valid until 2008. In
December 1999, North-West GSM acquired 100 percent of the equity of North-West
DCS ZAO, a holder of a GSM 1800 license, and, in March 2000, by decision of the
Russian Ministry of Telecommunications, the North-West DCS ZAO license was
transferred to North-West GSM. This acquisition permits North-West GSM to
provide dual band service and adds Kaliningrad, Novgorod and Pskov to the
regions in which it is licensed. North-West GSM expects to launch commercial
services in these new regions by the end of 2001. As of

                                        59
<PAGE>   73

December 31, 2000, North-West GSM had a 70 percent share of the market for
mobile telecommunications services in the city of St. Petersburg and Leningrad
oblast and approximately 20 percent in its other service areas. The two
principal competitors of North-West GSM are Delta Telecom, which operates an NMT
based service, and Fora Communications, which operates an AMPS based service.
North-West GSM's management believes that North-West GSM operates the most
advanced mobile network in Russia, giving it a competitive advantage over other
providers of primarily analog based services.

     North-West GSM offers its subscribers a wide range of value-added features,
including voice mail, call forwarding, caller identification and SMS messaging,
data and fax capabilities as well as WAP and electronic payment services.
North-West GSM has roaming agreements with approximately 243 mobile
communications operators in approximately 112 countries. North-West GSM also
provides national roaming pursuant to agreements with 15 other GSM operators
operating in many densely populated areas in Russia, including the cities of
Moscow, Nizhni-Novgorod, Samara and Krasnodar.

     We provide operating, financial and technical expertise to North-West GSM.
North-West GSM's other shareholders include a group of Russian
telecommunications companies and financial institutions, which hold, in the
aggregate, 51 percent of North-West GSM, and Telia and Telenor, which each hold
12.7 percent interests in North-West GSM. Of the ten members of the North-West
GSM board of directors, five are nominated by the Russian shareholders. Of the
remaining five directors, we have the right to nominate two directors, Telia and
Telenor have the right to nominate one director each, and we, together with
Telia and Telenor, have the right to nominate one director. The transfer of
shares in North-West GSM is subject to certain restrictions, including rights of
refusal and consent rights of other North-West GSM shareholders.

     The European Bank for Reconstruction and Development (EBRD) agreed in 1996
to lend North-West GSM up to U.S.$40 million to finance development of the GSM
network. To secure North-West GSM's obligations thereunder, each shareholder
agreed to pledge up to 50 percent of its respective shares to the EBRD. The loan
agreement also restricts North-West GSM's ability to pay dividends, incur
additional indebtedness and make certain expenditures without the permission of
the EBRD. In accordance with the EBRD loan agreement, we have pledged 50 percent
of our North-West GSM shares in favor of the EBRD, including dividends or
distributions that may be paid thereon. North-West GSM repaid all amounts under
the EBRD loan agreement in January 2001, but the pledge remains in effect.

     In August 1998, Russia experienced a severe economic and political crisis
which negatively affected North-West GSM's results of operations in 1998 and
1999. In 2000, North-West GSM experienced a sharp increase in revenues and
returned to profitability in part due to improvements in the Russian economy.
Russia, however, remains an emerging market and does not possess the
well-developed business and regulatory infrastructure that generally exist in
more mature market economies. Furthermore, the Russian Government has not fully
implemented the reforms necessary to create banking, judicial, tax and
regulatory systems that usually exist in more developed markets. In the event a
new economic or political crisis should occur in Russia, it could have a
material adverse effect upon the value and prospects of North-West GSM.

Sonic Duo

     In May 2000, Sonic Duo, a company in which we hold a 35 percent interest,
acquired a license to provide GSM services in the greater Moscow area, which has
a population of approximately 15 million inhabitants. Sonic Duo has started
construction of its GSM network and management expects that Sonic Duo will begin
to offer GSM services on a commercial basis to its own subscribers as well as to
visitors by the final quarter of 2001.

LibanCell

     We have a 14 percent holding in LibanCell, one of two GSM operators in
Lebanon. As of December 31, 2000 LibanCell had approximately 346,000
subscribers, giving it approximately 47 percent of the Lebanese mobile telephone
market in 2000. LibanCell's network covers approximately 95 percent of Lebanon's
population and approximately 90 percent of its geographic area. For the year
ended December 31, 2000, LibanCell's net revenues amounted to E180 million, as
compared to net revenues of E150 million in 1999.
                                        60
<PAGE>   74

     The following table sets forth certain information regarding LibanCell and
the Lebanese mobile telecommunications market:

<TABLE>
<CAPTION>
                                                                     AS OF OR FOR THE
                                                                YEAR ENDED DECEMBER 31,(1)
                                                               -----------------------------
                                                                1998       1999       2000
                                                               -------    -------    -------
                                                                 (IN E MILLIONS(2), EXCEPT
                                                               PERCENTAGES AND MARKET DATA)
<S>                                                            <C>        <C>        <C>
Net revenues................................................      120        150        180
Operating profit............................................       54         61         81
Net income..................................................       41         46         58
Sonera's shareholding (%)...................................     14.0       14.0       14.0
Dividends received..........................................        3          3          3
Total assets................................................      226        247        215
Shareholders' equity........................................       73         96        149
Net debt(3).................................................       25         10        (85)
Number of subscribers at period end (in thousands)..........      248        318        346
Penetration rate of mobile telephone services in Lebanon
  (%).......................................................     12.0       15.7         18
</TABLE>

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

(1) Except as noted in the immediately following sentence, the selected
    financial data set forth above is based on financial reports received from
    LibanCell in the preparation of our consolidated financial statements and
    the data presented may therefore differ from the data included in the
    financial statements published by LibanCell for the relevant years. We,
    however, treated bad debt write-offs recorded by Libancell as a part of
    operating expenses rather than non-recurring items that are not taken into
    account in calculating operating profit due to our belief that the cost of
    bad debt is a cost of conducting a mobile operator business. Net profit is
    unaffected by this change.

(2) Lebanese pound amounts have been translated into U.S. dollars using an
    exchange rate of 0.00066313 U.S. dollars per Lebanese pound, which U.S.
    dollar amounts in income statement items have been translated into Finnish
    markkas using the Bank of Finland average exchange rate for the respective
    periods and in balance sheet items using the Bank of Finland middle rate in
    effect at the end of each year, which Finnish markka amounts have then been
    converted into euros at the irrevocable conversion rate between the Finnish
    markka and the euro of E1.00=FIM5.94573. The financial information in the
    table is sensitive to exchange rate fluctuations.

(3) Net debt consists of interest-bearing debt less cash and short-term
    investments.

     LibanCell commercially launched its GSM service in May 1995, pursuant to an
agreement with the Republic of Lebanon granting LibanCell the right to build,
operate and transfer a GSM network in Lebanon. The ten-year license expires in
2004 and LibanCell has an option to extend the license for an additional two
years. Under the terms of the license, LibanCell's GSM network will revert back
to the Republic of Lebanon after the expiration of the license. LibanCell pays
certain fixed amounts to the Republic of Lebanon annually together with a
percentage of revenues generated by airtime, connection and subscription fees,
and international call fees ranging from 20 percent in the first eight years to
50 percent in the final two years of the extended license term. The license also
restricts LibanCell's ability to increase rates for network usage. On April 22,
2000, the Lebanese Ministry of Post and Telecommunications served a payment
order on LibanCell for the amount of U.S.$300 million in connection with alleged
violations by LibanCell of the terms of its mobile operator license. France
Telecom Mobiles International, the other GSM operator in Lebanon, was also
requested to pay U.S.$300 million. In response, in May 2000, LibanCell filed a
request for arbitration of the matter pursuant to the terms of the 1994 contract
between LibanCell and the Republic of Lebanon, Ministry of Post and
Telecommunications. The matter is still pending and LibanCell's management is
not currently in a position to predict the timing or likely outcome of the
proceeding.

     Pursuant to an agreement between LibanCell and us, we provide technical
expertise and services to assist LibanCell in complying with the minimum
requirements of the build, operate and transfer license. In return for these
services, we receive four percent of LibanCell's annual net income. We currently
have one nominee serving on LibanCell's five member board of directors. We are
the only principal shareholder of LibanCell that operates its own
telecommunications network, the other principal shareholders being Lebanese
Telecommunications Company SARL, Lebanese Communication Holding SAL and Almabani
Liban. Although the shareholders can freely sell their shares to one another,
sales of shares to parties other than shareholders are subject, first, to a
right of first refusal held by LibanCell and, thereafter, to a right of first
refusal held by the other shareholders

                                        61
<PAGE>   75

proportionally in accordance to their holdings. Any transfer of shares is also
subject to the prior approval of the Lebanese Ministry of Posts and
Communications.

     The only other provider of mobile telecommunications services in Lebanon is
France Telecom Mobile Liban, which serves approximately 50 percent of the
Lebanese market. However, the Lebanese government has made public that it is
considering launching a state-owned cellular phone company to compete with the
two current providers. The terms regarding exclusive rights granted to LibanCell
in the current license agreement between LibanCell and the Republic of Lebanon
would allow the new company to start its operations in 2003.

Deutsche Telekom

     We own approximately 72 million shares of Deutsche Telekom, representing
less than two percent of its outstanding shares. Deutsche Telekom is the largest
provider of telecommunications services in Europe. We acquired our interest in
Deutsche Telekom as a result of a number of different transactions relating to
our investment in the U.S. PCS operators, Aerial Communications, Inc., Powertel,
Inc. and VoiceStream Wireless Corporation. These transactions are summarized
below:

     -  In September 1998, we invested U.S.$200 million in Aerial Operating Co.,
        the principal operating subsidiary of Aerial Communications, Inc.
        (Aerial), in exchange for an initial 19.4 percent ownership interest in
        Aerial Operating Co.

     -  In September 1999, we acquired a 9.1 percent ownership interest, on a
        fully diluted basis, in Powertel, one of the largest GSM-based PCS
        operators in the United States, for a purchase price of U.S.$122.7
        million. This was effected through our purchase of 100,000 shares of
        Powertel's Series A convertible preferred stock from LM Ericsson. We
        subsequently converted the Powertel Series A preferred shares into
        shares of Powertel common stock.

     -  In November 1999, we made an additional investment of U.S.$230 million
        in Aerial.

     -  In February 2000, in connection with the merger of VoiceStream and
        Omnipoint Corporation, a U.S. PCS operator, we purchased VoiceStream
        shares representing 3.6 percent of its outstanding share capital for a
        purchase price of U.S.$500 million.

     -  On May 4, 2000, Aerial and VoiceStream merged. Pursuant to the merger
        agreement, we received 0.455 shares of VoiceStream for each Aerial
        common share that we held prior to the merger.

     -  On January 31, 2001, we acquired additional shares of common stock of
        Powertel representing approximately 2.7 percent of its outstanding share
        capital for an aggregate purchase price of approximately $125 million.

     -  In May 2001, we sold 3,300,000 VoiceStream shares and sold 1,100,000
        Powertel shares for which we received proceeds of approximately E430
        million in the aggregate.

     -  On May 31, 2001, Deutsche Telekom completed the acquisitions of
        VoiceStream and Powertel. Under the terms of the merger agreements, each
        share of VoiceStream held by us was converted into the right to receive
        a combination of U.S.$15.9062 in cash and 3.6683 shares of Deutsche
        Telekom and each share of Powertel common stock was converted into the
        right to receive 2.6353 shares of Deutsche Telekom. In connection with
        the merger we received, in the aggregate, approximately 72 million
        shares of Deutsche Telekom and approximately E290 million in exchange
        for our VoiceStream and Powertel holdings.

     We expect to use the cash proceeds in connection with (1) our sale of
VoiceStream and Powertel shares in May 2001 and (2) the tender of all of our
VoiceStream shares pursuant to the merger of VoiceStream with and into Deutsche
Telekom to reduce our outstanding indebtedness. We plan to dispose of our shares
in Deutsche Telekom, taking into consideration market conditions and our lock-up
obligations, in an effort to maximize our return on the shares.

     In connection with the merger of VoiceStream and Deutsche Telekom, we,
together with certain other large former shareholders of VoiceStream and
Powertel, have agreed with Deutsche Telekom not to transfer any

                                        62
<PAGE>   76

Deutsche Telekom shares received in exchange for our VoiceStream and Powertel
shares in the mergers except for the percentage of our holdings set forth below,
subject to certain exceptions:

     1.    For the three-month period following the merger: none.

     2.    For the three-month period ending six months after the merger: 40
           percent. This percentage is calculated based on the number of
           Deutsche Telekom shares we would have received in the Deutsche
           Telekom-Powertel-VoiceStream merger, assuming (i) we held the number
           of Powertel and VoiceStream shares at the time of the merger as we
           held at the time of the respective shareholders' meeting of Powertel
           and VoiceStream approving the merger with Deutsche Telekom (both of
           which occurred in March 2001) and (ii) we had elected to receive a
           "mixed consideration" of Deutsche Telekom shares and cash in
           connection with our tender of VoiceStream shares as provided in the
           VoiceStream-Deutsche Telekom merger agreement. Based on our
           interpretation of the agreements we entered into with Deutsche
           Telekom, we believe that we will be able to sell an aggregate of
           approximately 34.5 million shares we hold in Deutsche Telekom during
           the period from September 1, 2001 to December 1, 2001.

     3.    After six months after the merger: 100 percent.

     Our consolidated earnings in 2000 included a gain of E835 recorded as a
result of the Aerial/VoiceStream merger. The amount of the gain was determined
by the difference between VoiceStream's market value at the time of the merger
and the carrying value of Aerial on our consolidated balance sheet. In April
2000, we received an advance ruling from the Central Tax Board of Finland,
according to which the Aerial/VoiceStream merger is considered a transaction for
which we are liable to pay tax in Finland. This ruling was subsequently affirmed
by the Supreme Administrative Court in Finland. As a result of the ruling, we
paid taxes of approximately E216 million relating to the Aerial/VoiceStream
merger in 2000 even though the merger had no effect on our cash flow.

EWV Holding

     In January 2001, we invested U.S.$75 million in Eliska Wireless Ventures
Holding Company, Inc., a newly-formed company which acquired the PCS licenses
and other assets of DiGiPH PCS, a GSM operator in Alabama, Mississippi and
Florida in January 2001. We hold a 30.1 percent interest in EWV. EWV's other
shareholders include Deutsche Telekom, which acquired its interest through the
merger with Powertel, and Eliska Wireless Investors I, L.P. with 49.9 percent
and 20.0 percent interests, respectively. In connection with the EWV
transaction, we entered into a put agreement with Deutsche Telekom (formerly
Powertel) pursuant to which Deutsche Telekom agreed that, from October 1, 2001
until June 30, 2002, we may sell all of our interest in EWV to Deutsche Telekom
in exchange for shares of Deutsche Telekom shares. Deutsche Telekom also has a
right of first offer on our EWV shares in the event we desire to sell such
shares to a third party.

INVESTMENTS IN UMTS LICENSES

     As part of our growth strategy, we have been active in investing, together
with partners, in UMTS licenses in a number of European markets. In 2000,
consortiums of which we are a member were granted UMTS licenses in Germany,
Italy, Spain and Norway. In addition, we were a member of a consortium that bid
for, but did not obtain, a UMTS license in Sweden. The following discussion
provides a brief description of our interest in the consortiums that have been
granted UMTS licenses and the markets in which such consortiums expect to
operate.

Germany

     Gruppe 3G, a consortium in which we hold a 42.8 percent interest, was
awarded a UMTS license as the result of an auction process in Germany in August
2000 for a total purchase price of E8,408 million. Telefonica Moviles S.A., a
subsidiary of Telefonica S.A., a major Spanish wireless communications company,
holds the remaining 57.2 percent interest in Gruppe 3G. In March 2001, Gruppe 3G
established its headquarters in Munich. Management expects that Gruppe 3G will
begin offering UMTS services on a commercial basis by 2002, depending, among
other things, upon the availability of third generation network elements and
handsets.

                                        63
<PAGE>   77

     Gruppe 3G's consolidated financial statements for the period as of December
31, 2000 and for the period from inception (August 2, 2000) to December 31, 2000
are included in this annual report.

     Concession.  Under the terms of Gruppe 3G's nationwide UMTS license in
Germany, Gruppe 3G is authorized to operate using two paired 10 MHz channels to
provide wireless services, including voice and data. Gruppe 3G is also
authorized to operate a single unpaired 5 MHz channel which can be used for
wireless data applications. Gruppe 3G's third generation license is valid for a
term of 20 years.

     Agreements.  The consortium agreement by and among Telefonica
Intercontinental S.A., a subsidiary of Telefonica Moviles, Sonera 3G Holding
B.V. and Sonera provides that, upon a direct or indirect change of control of
either Telefonica Intercontinental or Sonera 3G Holding that results in the
party being controlled by a competitor of the other party, Gruppe 3G or Gruppe
3G's operating subsidiary, a call right is triggered under which the party which
was not the subject of the change of control may purchase the other party's
interest in Gruppe 3G. In addition, the consortium agreement provides that upon
a change of control of either party which results in a regulatory determination
that causes such party to dispose of its interest in Gruppe 3G, then we have the
right to require Telefonica Moviles to purchase, or to cause a third party to
purchase, all of our interest in Gruppe 3G. Any payment would be based on the
cost of the license until August 2001 and, thereafter, fair market value.

     Competition.  In addition to the license awarded to Gruppe 3G, five other
UMTS licenses were awarded in August 2000, including four UMTS licenses that
were awarded to the incumbent wireless service providers in Germany. The four
incumbent service providers are:

     -  T-Mobil, owned by Deutsche Telekom;

     -  Vodafone (through its acquisition of Mannesmann AG);

     -  E-Plus, in which KPN and BellSouth have a significant interest; and

     -  Viag Interkom, which is controlled by British Telecom.

     Mobilcom, which is controlled by France Telecom and also received a UMTS
license, is currently operating as a wireless reseller for wireless network
service providers and does not have its own wireless network.

     German Regulatory Developments.  In June 2001, the German Regulatory
Authority for Post and Telecommunications (Reg TP) announced it would allow UMTS
licensees to cooperate in the construction and operation of UMTS networks. Under
the ruling, Reg TP indicated that it will permit different degrees of
cooperation among licensees depending upon the type of infrastructure at issue.
For these purposes, Reg TP distinguished between three classes of
infrastructure: one class which may be shared without restriction, another class
which may be shared provided the operator has the proper software, and a final
class comprised mainly of mobile switching centers which may not be shared. Reg
TP has announced that it believes that its regulatory structure will ensure
competition in the UMTS market.

     In light of Reg TP's announcement, Gruppe 3G has entered into discussions
with other UMTS licensees about cooperating on the roll out of the UMTS networks
in Germany. Any agreement among operators to cooperate with respect to UMTS
networks would likely be examined under European and national competition rules
and might be modified or blocked in the event of intervention by the relevant
authorities. In addition, competitors which unsuccessfully participated in the
tenders for the UMTS licenses may challenge any cooperation among the successful
UMTS bidders in court, asserting, among other things, that such cooperation
would violate the conditions of the UMTS licenses.

Italy

     In September 2000, we became one of the founding members of the Ipse 2000
S.p.A. consortium, which was formed principally to bid on third generation
licenses offered by the Government of Italy. In November 2000, Ipse 2000 was
awarded one of five national licenses. The aggregate price for the license was
approximately E3.3 billion, approximately E2.1 billion of which was paid at the
time the license was awarded, and the remaining E1.2 billion of which is due in
ten yearly installments commencing at the end of 2001. An Italian bank has

                                        64
<PAGE>   78

guaranteed the payment of the remaining E1.2 billion due to the Italian
government. In addition, we, together with other members of the consortium, have
guaranteed the payment obligations of certain smaller shareholders in the Ipse
2000 consortium in relation to the remaining E1.2 billion due to the Italian
government. As of January 26, 2001, we held an aggregate interest in Ipse 2000
of 12.55 percent.

     Our partners in Ipse 2000 include Telefonica Moviles, which as of the
beginning of 2001 had a 49.67 percent interest in the consortium, and Banca di
Roma, which as of the beginning of 2001 had a ten percent interest.

     Concession.  Under the terms of the nationwide UMTS license, which Ipse
2000 won in the auction, Ipse 2000 is authorized to operate using two paired 10
MHz channels, a further two paired 5 MHz channels and one unpaired, or single, 5
MHz channel to provide wireless services, including voice and data services. The
UMTS license in Italy will be valid for a term of 15 years.

     Agreements.  Under the terms of our consortium agreement for Ipse 2000,
Ipse 2000 created an operating company to provide third generation services.
Under the consortium agreement, Telefonica Moviles and Sonera have agreed to
exercise their voting rights as a single block, under the control of Telefonica
Moviles. A change of control in Sonera would trigger a right for us to sell our
interest in Ipse 2000 to Telefonica Moviles.

     Competition.  In addition to the license awarded to Ipse 2000, four other
UMTS licenses were awarded in November 2000 by the Italian authorities,
including three UMTS licenses that were awarded to the incumbent wireless
service providers in Italy. These three incumbent wireless service providers
are:

     -  Telecom Italia Mobile, owned by Telecom Italia;

     -  Omnitel, owned by Vodafone; and

     -  Wind, owned by Enel and France Telecom.

     The other new entrant operator granted a UMTS license is Andala, which is
70 percent owned by Hutchison.

Spain

     In January 2000, we became one of the founding shareholders of Xfera
Moviles S.A. In March 2000, Xfera Moviles was granted one of four third
generation licenses in Spain. Xfera Moviles paid an initial license fee of
approximately E130 million and agreed to invest an additional E500 million to
promote various government sponsored projects. From 2000 to 2005, we expect to
invest a total of E350 million in the shareholders' equity in Xfera. In addition
to shareholders' equity, Xfera intends to obtain additional funding through
project financing. Xfera has entered into a national roaming agreement with
Airtel Movil and expects to launch GSM/GPRS services in September 2001. The
Spanish government has extended the deadline for the initial roll out of UMTS
networks from August 2001 to June 2002. We currently hold a 14.25 percent
indirect interest in Xfera Moviles.

     In addition to Sonera, the shareholders of Xfera Moviles S.A. include
Vivendi, which holds a 29.5 percent interest in the consortium, and a number of
other Spanish and international financial and telecommunications groups. We hold
our interest in Xfera Moviles through ACS Sonera Moviles SA, a holding company
which has a 34.25 interest in Xfera. We own a 41.6 percent interest in ACS
Sonera, and ACS, a spanish instruction and engineering company, owns the
remainder.

     In early 2001, the Spanish government requested that Xfera Moviles pay an
annual spectrum fee of E163 million for 2001. In May 2001, the Spanish
government indicated that it would lower the fee.

     Concession.  Under the terms of the nationwide UMTS license, which Xfera
Moviles was awarded by the Spanish government, Xfera Moviles is authorized to
operate two paired 15 MHz channels to provide wireless services, including voice
and data. Xfera Moviles is also authorized to operate a single unpaired, 5 MHz
channel, which can be used for wireless data applications. The license is valid
for a term of 20 years.

     Agreements.  Under the terms of the agreement among the shareholders of
Xfera Moviles, we have the right to appoint two members to a 15 member Xfera
Moviles Board of Directors so long as we continue to maintain at least a ten
percent equity interest in Xfera Moviles. Under the terms of the shareholders'
agreement, Xfera

                                        65
<PAGE>   79

Moviles has established an executive committee comprised of the chief executive
officer and three board members, which is responsible for closely monitoring and
supporting the operation of the business and to decide matters not explicitly
reserved for the entire board of directors in the agreement. We have the right
to nominate one director to the executive committee so long as we maintain a ten
percent equity interest in Xfera Moviles. We also have the right to appoint two
members of Xfera Moviles' management team: the chief technical officer and the
director of sales & marketing. The shareholders' agreement provides for a right
of first refusal on the part of the other shareholders in the event a
shareholder desires to transfer its Xfera Moviles' shares to a third party.

     Competition.  In addition to the license awarded to Xfera Moviles, three
other UMTS licenses were awarded in March 2000 by the Spanish authorities. All
three of these licenses were awarded to existing GSM operators. The three
incumbent service providers are:

     -  Retevision Movil, in which Telecom Italia, Endesa and Union Fenosa have
        significant interests;

     -  Telefonica; and

     -  Airtel Movil.

Norway

     In November 2000, Broadband Mobile ASA, a consortium with the Norwegian
telecommunications company Enitel ASA, was granted a UMTS license for Norway.
Sonera and Enitel are equal partners in Broadband Mobile ASA. The State of
Norway charged a fee of NOK 200 million (approximately E25 million) for the
license. In addition, the State of Norway will levy an annual license fee, the
level of which will be decided by the Norwegian Parliament on an annual basis.
For 2001, the annual license fee is NOK 20 million (approximately E3 million).

     Concession.  Under the terms of Broadband Mobile's nationwide UMTS license
in Norway, Broadband Mobile is authorized to operate using two paired 15 MHz
channels to provide wireless services, including voice and data services.
Broadband Mobile is also authorized to operate a single, unpaired 5 MHz channel
which can be used for wireless data applications. The license is valid for a
term of 12 years.

     Agreements.  The shareholders' agreement with Enitel provides that the
board of directors of Broadband Mobile will consist of four members, two of whom
will be appointed by us. The transfer of shares in Broadband Mobile during a 36
month grace period after the granting of the UMTS license may only be made upon
certain circumstances and is subject to the consent of the other party. After
the grace period, a transfer of shares may be effected so long as the transferee
agrees to accept the obligations of the shareholders' agreement. In the event of
a change of control of either of the parties that could jeopardize Broadband
Mobile's chances of retaining the UMTS license, the other party shall have the
right to require such party to withdraw from the consortium.

     Competition.  In addition to the license awarded to Broadband Mobile, three
other UMTS licenses were awarded in November 2000, one of which was awarded to
the incumbent wireless operator in Norway, Telenor. The two other recipients of
UMTS licenses in Norway are NetCom and Tele2 Norge.

FIXED-LINE OPERATIONS

     Our principal fixed-line associated companies are Eesti Telefon in Estonia,
Lattelekom in Latvia and Lietuvos Telekomas in Lithuania. Each of these
companies is making the transition from a period of partially exclusive rights
to a deregulated operating environment.

Eesti Telefon

     Through our holding in Eesti Telekom, a publicly-listed Estonian
corporation, we have an indirect 24.5 percent interest in Eesti Telefon. Eesti
Telefon, a wholly-owned subsidiary of Eesti Telekom, is currently the dominant
provider of fixed-line telecommunications services in Estonia. As of December
31, 2000, Eesti Telefon had approximately 517,000 subscriber lines. In 2000,
Eesti Telefon's revenues amounted to E172 million, as compared to revenues of
E154 million in 1999.

                                        66
<PAGE>   80

     The following table sets forth certain information regarding Eesti Telefon
and the Estonian fixed-line telecommunications market:

<TABLE>
<CAPTION>
                                                                        AS OF OR FOR
                                                                 YEAR ENDED DECEMBER 31,(1)
                                                                ----------------------------
                                                                 1998      1999       2000
                                                                ------    -------    -------
                                                                 (IN E MILLIONS(2), EXCEPT
                                                                PERCENTAGES AND MARKET DATA)
<S>                                                             <C>       <C>        <C>
Revenues(3).................................................      138        154        172
Operating profit............................................       22         25         30
Net income(4)...............................................       16          9         27
Sonera's share of net income (%)............................     24.5       24.5       24.5
Equity income consolidated to Sonera(5).....................      4.0        0.5        6.5
Total assets................................................      162        173        178
Shareholders' equity........................................       80         80         97
Net debt(5).................................................       65         61         49
Number of access lines at period end (in thousands).........      493        510        517
Penetration rate of fixed-line telephone services in Estonia
  (%).......................................................     34.5       35.3       35.9
</TABLE>

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

(1) The selected data set forth above is based on our financial reports
    available to and estimates made by us in the preparation of our consolidated
    financial statements and the data presented above may therefore differ from
    the data included in the financial statements published by Eesti Telefon for
    the relevant periods. Consequently, the equity income consolidated to Sonera
    for a certain period is likely to include corrections from the previous
    year.

(2) For income statement items, Estonian kroon amounts have been translated into
    Finnish markkas using the Bank of Finland average exchange rate for the
    applicable period and for balance sheet items using the Bank of Finland
    middle rate in effect on December 31 of the applicable year, which Finnish
    markka amounts have then been converted into euros at the irrevocable
    conversion rate between the Finnish markka and the euro of E1.00 =
    FIM5.94573. The financial information in the table is sensitive to exchange
    rate fluctuations.

(3) In 1999, Eesti Telefon changed its recognition of interconnection revenues
    and costs to the gross method, which increased the revenues and costs
    compared to the previous years. Revenues for 1998 have been adjusted so as
    to be comparable to the 1999 and 2000 revenues.

(4) Due to the changes in Estonian tax law in effect from January 1, 2000, Eesti
    Telefon was required to write-off deferred tax assets. This had a negative
    effect on net income in 1999.

(5) Net debt consists of interest-bearing debt less cash and short-term
    investments.

     Until December 31, 2000, Eesti Telefon had exclusive rights to provide
basic fixed-line local, domestic long distance and international telephony
services in Estonia. The market for basic fixed-line services was fully
liberalized effective January 1, 2001, for which Eesti Telefon had been actively
preparing. Despite these preparations, management expects that the
liberalization will result in Eesti Telefon losing market share and being forced
to make changes to its tariff structure and reduce some of its tariffs.
Management, however, cannot currently assess what specific effects increased
competition will have on the results of operations or financial condition of
Eesti Telefon and, in turn, the amount of income we will derive from Eesti
Telefon in the future.

     To improve cost efficiency, Eesti Telefon has taken such steps as
outsourcing installation and maintenance tasks. During the past several years,
Eesti Telefon has made substantial investments in its fixed-line
telecommunications network. The number of access lines increased from 493,000 at
the end of 1998 to approximately 517,000 a the end of 2000. The rate of
penetration increased from 34.5 lines per 100 inhabitants at the end of 1998 to
approximately 35.9 lines per 100 inhabitants at the end of 2000. In addition,
the number of Eesti Telefon's telephone lines connected to digital switches
increased from 48 percent at the end of 1998 to approximately 71 percent at the
end of 2000. Customers connected to the digital system can also subscribe to
such services as call waiting, call forwarding, conference calls and voice mail.
Eesti Telefon also offers ISDN services in the majority of Estonia's most
populated regions, and has recently introduced ADSL products to the market. It
is expected that Eesti Telefon will continue to make substantial investments in
the modernization of its network. In cooperation with us, Eesti Telefon has
created a data communications system between Estonia and Finland based on ATM
technology and has plans to develop a basic ATM network covering the entire
country. Eesti Telefon also offers X.25 and frame relay data transmission
services as well as Internet access services. Eesti Telefon also has over 50
percent of the market for dial-up Internet access services in Estonia.

                                        67
<PAGE>   81

     Our indirect ownership interest in Eesti Telefon is held through Eesti
Telekom, a publicly-listed Estonian corporation. Prior to the initial public
offering of Eesti Telekom shares in 1999, Eesti Telekom and its operative
companies, AS EMT and Eesti Telefon, completed a restructuring pursuant to an
agreement between the Republic of Estonia and the other shareholders of AS EMT
and Eesti Telefon. Pursuant to the restructuring agreement, the shareholders of
AS EMT and Eesti Telefon, other than the Republic of Estonia, which already
prior to the restructuring owned its shares in the operative companies through
Eesti Telekom, exchanged their shareholdings in such companies for publicly
tradable shares of Eesti Telekom. See "-- Mobile Telecommunications Operations
-- AS EMT" for a description of the ownership structure of Eesti Telekom. A
number of lawsuits regarding the initial public offering and the restructuring
of Eesti Telekom have been brought against Eesti Telekom and other parties to
it, including Sonera. See "-- Mobile Telecommunications Operations -- AS EMT"
for a description of these lawsuits.

     Estonian telecommunications legislation was revised in preparation for
Estonia's expected membership in the European Union and went into effect on
March 19, 2000. Among other changes, the new legislation imposes a licensing
requirement on telecommunications operators. In 2000, as a consequence of the
new legislation, Eesti Telefon was granted a renewed and modified license. Eesti
Telefon and the Republic of Estonia also entered into an agreement on the
termination of the concession agreement signed in 1992. The new agreement
imposes certain obligations on Eesti Telefon, such as implementing number
portability and reducing the subscriber waiting list. There can be no assurance
that the interpretation and implementation of the new telecommunications
legislation in Estonia will not have an adverse effect upon Eesti Telefon.

Lattelekom

     We have a 44.1 percent indirect shareholding in Lattelekom, currently the
leading provider of fixed-line telecommunications services in Latvia. The other
shareholders in Lattelekom are the Republic of Latvia, which holds a 51.0
percent interest in Lattelekom, and the International Finance Corporation, which
holds a 4.9 percent indirect interest. As of December 31, 2000, Lattelekom had
approximately 735,000 subscriber lines. In 2000, Lattelekom's revenues amounted
to E248 million, as compared to revenues of E207 million in 1999.

     The following table sets forth certain information regarding Lattelekom and
the Latvian fixed-line telecommunications market:

<TABLE>
<CAPTION>
                                                                      AS OF OR FOR THE
                                                                 YEAR ENDED DECEMBER 31,(1)
                                                                -----------------------------
                                                                 1998       1999       2000
                                                                -------    -------    -------
                                                                  (IN E MILLIONS(2), EXCEPT
                                                                PERCENTAGES AND MARKET DATA)
<S>                                                             <C>        <C>        <C>
Revenues....................................................       178        207        248
Operating profit............................................        40         36         47
Net income(3)...............................................        32         34         42
Sonera's share of net income (%)(4).........................      44.1       44.1       44.1
Equity income consolidated to Sonera(5).....................       8.8       15.0       18.5
Total assets................................................       374        444        481
Shareholders' equity(5)(6)..................................       248        317        277
Net debt(7).................................................        53         55         25
Number of access lines at period end (in thousands).........       742        732        735
Penetration rate of fixed-line telephone services in Latvia
  (%).......................................................      30.1       30.2         32
</TABLE>

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

(1) The selected data set forth above is based on our financial reports
    available to and estimates made by us in the preparation of our consolidated
    financial statements and the data presented above may therefore differ from
    the data included in the financial statements published by Lattelekom for
    the relevant periods. Consequently, our equity income consolidated for a
    certain period is likely to include corrections from the previous year.

(2) For income statement items, Latvian lat amounts have been translated into
    Finnish markkas using the Bank of Finland average exchange rate for the
    applicable period and for balance sheet items using the Bank of Finland
    middle rate in effect on December 31 of the applicable year, which Finnish
    markka amounts have then been converted into euros at the irrevocable
    conversion rate between the Finnish markka and the euro of E1.00 = FIM
    5.94573. The financial information in the table is sensitive to exchange
    rate fluctuations.

                                        68
<PAGE>   82

(3) Lattelekom's net income includes its equity income in its associated company
    Latvijas Mobilais Telefons, in which it holds a 23 percent equity interest.

(4) We acquired an additional 30.9 percent interest in Lattelekom in September
    1998. We hold our interest in Lattelekom through a holding company, Tilts
    Communications, the only asset of which is a 49 percent equity interest in
    Lattelekom. We currently hold a 90 percent interest in Tilts Communications,
    the other Tilts Communications' shareholder being IFC. Prior to September
    1998, we held a 27 percent interest in Tilts Communications, and we
    historically treated Tilts Communications as an associated company,
    including its earnings in our consolidated accounts in accordance with the
    equity method of accounting. Since September 1998, we have consolidated the
    accounts of Tilts Communications and present IFC's minority interest in
    Tilts Communications separately in our consolidated income statement and
    balance sheet.

(5) Before any amortization of goodwill. We recorded amortization of goodwill of
    E8 million, E19 million and E18 million with respect to Lattelekom in 1998,
    1999 and 2000, respectively.

(6) Shareholders' equity for 2000 does not include redeemable share capital,
    which Lattelekom classifies under long-term liabilities in its IAS accounts.
    Shareholders' equity for 1999 and 1998 have not been restated.

(7) Net debt consists of interest-bearing debt less cash and short-term
    investments. Redeemable share capital has not been included in net debt.

     Lattelekom has made substantial investments in its fixed-line
telecommunications network, with cumulative investments from the beginning of
1994 to the end of 2000 amounting to approximately E628 million. During that
period, the number of access lines has grown by approximately 84,000. The rate
of penetration has increased from approximately 26.4 lines per 100 inhabitants
at the end of 1994 to approximately 31.0 lines per 100 inhabitants at the end of
2000. At the end of 2000, approximately 52 percent of all lines were connected
to digital switches, compared to 43 percent in 1999 and two percent in 1994. The
digital system offers customers additional services such as call waiting, call
forwarding and other value-added services. Lattelekom also offers ISDN services
in the majority of Latvia's most populated regions. Lattelekom expects that it
will continue to make substantial investments in the modernization of its
network.

     Although voice telephone services remain its core business, Lattelekom has
begun to offer many other types of telecommunications services, including
Internet access, data transmission and local area network connections.
Lattelekom offers its customers data transmission services and virtual private
network services using X.25 protocol, a world-wide protocol for transmitting
data in packet switched format. In 2000, Lattelekom began offering an Ultra DSL
broadband service, based on ADSL technology.

     Lattelekom was granted exclusive rights to provide local, domestic long
distance and international fixed-line telecommunication services throughout
Latvia through the end of 2013. However, there has already been significant
erosion of these exclusive rights. Furthermore, as part of its push for WTO
(World Trade Organization) and European Union memberships, the government of
Latvia has made a commitment to shorten the exclusivity period during which
Lattelekom may act as the exclusive fixed-line service provider in Latvia to the
end of 2002. We take the position that such a unilateral reduction of the
exclusivity period constitutes a breach of the agreement pursuant to which we
originally acquired our beneficial interest in Lattelekom. After negotiations
with the Latvian government failed to resolve the matter, Tilts Communications
brought the issue of compensation to be paid by the Republic of Latvia for
losses that will be sustained in the event of a unilateral reduction of the
license exclusivity period and for other breaches by the Republic of Latvia to a
court of arbitration. Deliberations on the arbitration matter are still in
progress. Management is currently not in a position to predict with any
certainty the likely outcome of these arbitration proceedings.

     In addition, in January 2001 the Latvian government issued to Latvijas
Mobilais Telefons a new license which grants to Latvijas Mobilais Telefons,
among other things, the right to provide international telephony services.
Lattelekom and Tilts Communications have notified the Latvian government that,
in their opinion, the new license should be amended because it violates the
exclusive rights of Lattelekom. Management is currently not able to estimate the
outcome of this matter.

     Pursuant to agreements with Lattelekom and the Republic of Latvia, Tilts
Communications provides Lattelekom management services, employee training and
assistance in the procurement of equipment and supplies for which Tilts
Communications received fees of E4 million in 2000, E4 million in 1999 and E9
million in 1998. Tilts Communications has also agreed to improve Lattelekom's
network and infrastructure. We have provided performance guarantees to
Lattelekom in respect of Tilts Communications' foregoing obligations.

                                        69
<PAGE>   83

     We currently have four nominees serving on Lattelekom's 11-member board of
directors. Executives nominated by us also serve as Chief Executive Officer and
Chief Financial Officer of Lattelekom.

     Latvian telecommunications legislation is currently being revised in
preparation for Latvia's expected membership in the European Union. There can be
no assurances that the interpretation and implementation of new
telecommunications legislation in Latvia will not have an adverse effect on
Lattelekom.

     Currently, Lattelekom is undergoing a regular state revenue tax audit
covering periods from 1997 to 1999. As the audit is not yet completed,
management cannot determine the effect that the results of the audit may have on
Lattelekom's tax position and the related adjustments that may be necessary to
Lattelekom's financial statements.

Lietuvos Telekomas

     In July 1998, we acquired a 30 percent indirect shareholding in Lietuvos
Telekomas, currently the leading provider of fixed-line telecommunications
services in Lithuania. As of December 31, 2000, Lietuvos Telekomas had
approximately 1,188,000 access lines. In 2000, Lietuvos Telekomas' revenues
amounted to E281 million, as compared to revenues of E231 million in 1999.

     The following table sets forth certain information regarding Lietuvos
Telekomas and the Lithuanian fixed-line telecommunications market:

<TABLE>
<CAPTION>
                                                                        AS OF OR FOR
                                                                 YEAR ENDED DECEMBER 31,(1)
                                                                -----------------------------
                                                                 1998       1999       2000
                                                                -------    -------    -------
                                                                  (IN E MILLIONS(2), EXCEPT
                                                                PERCENTAGES AND MARKET DATA)
<S>                                                             <C>        <C>        <C>
Revenues....................................................       204        231        281
Operating profit............................................        49         39         55
Net income..................................................        22         34         65
Sonera's share of net income (%)(3).........................        30         30         30
Equity income consolidated to Sonera(4).....................       6.6       10.2       12.2
Total assets................................................       356        492        552
Shareholders' equity........................................       233        302        315
Net debt(5).................................................        77        140        137
Number of access lines at period end (in thousands).........     1,110      1,161      1,188
Penetration rate of fixed-line telephone services in
  Lithuania (%).............................................      30.0       31.4         32
</TABLE>

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

(1) The selected data set forth above is based on financial reports available to
    and estimates made by us in the preparation of our consolidated financial
    statements and the data presented above may therefore differ from the data
    included in the financial statements published by Lietuvos Telekomas for the
    relevant periods. Consequently, our equity income consolidated for a certain
    period is likely to include corrections from the previous year.

(2) For income statement items, Lithuanian lita amounts have been translated
    into Finnish markkas using the Bank of Finland average exchange rate for the
    applicable period and for balance sheet items using the Bank of Finland
    middle rate in effect on December 31 of applicable year, which Finnish
    markka amounts have been converted into euros at the irrevocable conversion
    rate between the Finnish markka and the euro of E1.00 = FIM 5.94573. The
    financial information in the table is sensitive to exchange rate
    fluctuations.

(3) We acquired our 30.0 percent indirect interest in Lietuvos Telekomas in July
    1998.

(4) Before any amortization of goodwill. We recorded amortization of goodwill of
    E8 million, E16 million, and E16 million with respect to Lietuvos Telekomas
    in 1998, 1999, and 2000, respectively.

(5) Net debt consists of interest-bearing debt less cash and short-term
    investments.

     Lietuvos Telekomas has the exclusive right up to December 31, 2002 to be
the sole operator of Lithuania's public fixed telephone network and the sole
provider of public fixed telephone services in Lithuania. However, Lietuvos
Telekomas experiences significant competition in the fixed-line market from
Lithuanian mobile operators, which, under the terms of their past licenses, had
the right to provide international telephony services. During the past several
years, Lietuvos Telekomas has made substantial investments in its fixed-line
communications networks. At the end of 2000, 46.5 percent of access lines in use
were connected to digital exchanges as

                                        70
<PAGE>   84

compared to 33.7 percent at the end of 1999. The digital system offers customers
additional services such as call waiting, conference calling and other
value-added services. Lietuvos Telekomas has been investing significantly in the
modernization of its network, with 2000 net cash flow to investing activities in
the amount of E110 million.

     Lietuvos Telekomas offers a nationwide data transmission service, that
utilizes X.25 or X.28 protocols, two world-wide protocols for transmitting data
in packet switched format, via leased lines or via modem using the public
switched telephone network. Lietuvos Telekomas also offers X.400 e-mail
services.

     To improve its ability to provide wireless local loop (WLL) solutions in
Lithuania, Lietuvos Telekomas increased its ownership in UAB Comliet, an analog
mobile network operator in Lithuania, from 41 percent to 100 percent on December
15, 1999.

     We currently have three nominees serving on Lietuvos Telekomas' nine member
board of directors. One of our Sonera executives has been appointed as the
general manager of Lietuvos Telekomas. Lietuvos Telekomas' other shareholders
include Telia, which also holds an indirect 30 percent equity interest, and the
Republic of Lithuania, which retains an approximately ten percent interest. In
1999, in accordance with Lithuanian legislation, the State of Lithuania offered
approximately five percent of the share capital of Lietuvos Telekomas to
employees of Lietuvos Telekomas, thus reducing its interest in the company from
40 percent to approximately 35 percent. In June 2000, the State of Lithuania
sold, as part of an international and domestic offering, an additional 25
percent interest in Lietuvos Telekomas, thus reducing its interest in the
company to approximately ten percent. During the offering, UAB Lintkom, a
wholly-owned subsidiary of Lietuvos Telekomas, acquired and continues to hold
4.67 percent of Lietuvos Telekomas' shares.

OTHER SIGNIFICANT INVESTMENTS

Metro One

     In February 2001, we acquired a 25.5 percent interest in Metro One
Telecommunications, a developer and provider of enhanced directory assistance
and information services for the telecommunications industry based in Oregon,
the United States, for an aggregate purchase price of U.S.$68 million.

     Metro One primarily contracts with wireless providers to provide directory
assistance and information services to their subscribers. Metro One's customers
include many of the leading wireless telecommunications carriers in the United
States, including Sprint PCS, AT&T Wireless Services, Nextel Communications,
Pacific Bell Wireless and Vodafone Airtouch. Metro One offers services to a
carrier's subscribers under a brand name selected by the carrier, such as
"Sprint PCS Directory Assistance." Services offered by Metro One through its 28
call centers located throughout the United States include: directory listing
information; time, weather and traffic information; movie, restaurant and local
event information; and call completion services. Metro One maintains a
proprietary telephone listings database and has proprietary operator interface
software, data management systems and search engines to increase the access
speed and the efficiency and search capability of its operators. Metro One
currently charges its carrier customers on a per call basis.

     We entered into an Investment Agreement with Metro One which provides,
among other things, for the following:

     -  We may designate two persons as members of Metro One's seven member
        board of directors.

     -  Until February 2009, we have the right to purchase all or a portion of
        any common stock or securities convertible into common stock sold by
        Metro One, subject to certain ownership limitations described in the
        next paragraph.

     -  Prior to February 2004, we are prohibited from acquiring an interest
        greater than 33 percent in Metro One's common stock on a fully diluted
        basis, except in certain limited circumstances.

     Except with respect to transfers to permitted affiliated transferees and in
certain other limited circumstances, we are prohibited from transferring any
shares we have purchased in Metro One prior to the third anniversary of the
closing of the stock acquisition; provided, however, that we may sell shares
under certain limited circumstances and, after the second anniversary of the
closing of the stock acquisition, pursuant to Rule 144

                                        71
<PAGE>   85

under the Securities Act or in an offering registered under the 1933 Act
pursuant to a registration rights agreement we entered into with Metro One. From
the third to the eighth anniversary of the closing of the stock acquisition, if
we seek to transfer any shares we have purchased in Metro One to a nonaffiliated
transferee, Metro One has the right to purchase all or designated blocks of such
shares under certain circumstances. Under the registration rights agreement, we
have three demand registrations and five piggyback registrations under the
Securities Act with respect to shares purchased directly from Metro One, which
may be exercised on or after February 2003.

     If Metro One initiates any process to effect a change in control (as
defined in the Investment Agreement), we have the right to participate on at
least an equal basis with any other third party in such negotiations. If Metro
One effects a change in control, we have tag-along rights and Metro One has
drag-along rights with respect thereto, with certain limitations.

TietoEnator (Divested in March 2001)

     On March 1, 2001, we divested all of our shareholdings in Tieto Enator. Net
cash proceeds from the sale were E424 million, of which E286 million were
recorded as a gain in the first quarter of 2001. We initially acquired a 20.3
percent interest in TietoEnator, a leading supplier of information technology in
the Nordic Countries, as a consequence of our 27.3 percent holding in Tieto,
which was initially acquired in 1996 and our 4.99 percent holding in Enator
acquired in stock market transactions in 1998. Tieto and Enator merged in July
1999. TietoEnator provides processing and network services, software services
and industry specific professional services including consulting, development
and maintenance of software and information systems, application of software
packages and service integration.

FOREIGN SUBSIDIARIES

     We have several subsidiaries operating outside of Finland which focus
principally on providing data and media communications services. Our foreign
subsidiaries had revenues of E44 million in 1998, E53 million in 1999 and E79
million in 2000 and incurred operating losses of E21 million in 1998, E36
million in 1999, and E70 million in 2000, excluding capital gains. For financial
accounting purposes, we include the results of operations of our foreign
subsidiaries in our Media Communications and New Services and Sonera Telecom
business areas, as applicable.

Swedish Operations

     Sonera Sverige AB offers communications and information services in the
Swedish market. Sonera AB is primarily involved in the development and marketing
of telecommunications solutions, including Internet, intranet and call center
voice services to businesses and public entities. Sonera AB generated revenues
of E46 million in 2000, compared to E34 million in 1999 and E24 million in 1998.
In May 2001, we agreed to sell part of the fixed-line business of Sonera AB that
targets Swedish corporate customers to Song Networks (formerly Tele1 Europe) for
approximately SEK 200 million.

German Operations

     We have two subsidiaries in Germany, one based in Erfurt, which develops
and operates electronic payment services principally for German banks, and
another, based in Dusseldorf, which provides primarily data services.

Russian Operations

     Our wholly-owned subsidiary ZAO Sonera Rus operates its own end-to-end
fiber optic cable line with several fiber pairs and gigabit level capacity from
Helsinki, via St. Petersburg, to Moscow. Transmission on the Helsinki-Moscow
cable is based on SDH technology and is supported by ZAO Sonera's FastNet nodes
and IP routers. The cable, which is used for the out-bound traffic of Sonera's
and North-West GSm's Russian subscribers, and Russia-bound international transit
traffic, including traffic generated by our Finnish customers, is ZAO Sonera's
primary source of revenue. ZAO Sonera Rus also leases capacity in its cable
network to foreign as well as St. Petersburg and Moscow based companies. In
autumn 2000, ZAO Sonera Rus launched a project to
                                        72
<PAGE>   86

expand the capacity of its fiber optic cable with DWDM equipment. ZAO Sonera may
further extend its operation with new products to other major Russian cities in
the future.

Benelux Operations

     Sonera Nederland B.V. and Sonera Belgium n.v./s.a., our wholly-owned
Netherlands and Belgium based subsidiaries, are principally involved in
marketing our data and Internet services and technical solutions in the
Netherlands and Belgium.

Additional Investments

     We have invested in various venture capital funds that invest in companies
which have products or development projects that are of strategic interest to
Sonera. As of December 31, 2000, the carrying value of our investments in
venture capital funds was E37 million. See also Note 20 to our consolidated
financial statements.

     We may also from time to time make selective acquisitions or acquire
minority interests in companies that have technologies, service concepts or
personnel which can enhance the development of the products and services being
offered by our Media Communications and New Services businesses area.

MARKETING

     We devote significant resources to the marketing and distribution of our
products and services. We believe that our active marketing programs and
extensive distribution network increase customer awareness of our products and
services and bolster our ability not only to provide "one stop service" to our
business customers but also to offer customized services to our residential
customers. We believe the foregoing strengths give us a significant advantage
over our competitors.

     To orient our business towards customer service, we have created a
customer-focused marketing organization to support our various businesses. Our
principal customer-focused marketing units consist of Sonera Solutions and
Sonera Entrum.

     Sonera Solutions is a separately incorporated business unit that serves the
largest corporate customers in Finland. Sonera Solutions currently is
responsible for coordinating the marketing and sale of a complete range of
fixed-line telecommunications, mobile telecommunications and data and media
products and services to approximately 300 of the 400 largest corporations in
Finland, generating, in the aggregate, revenues of E304 million and E402 million
in 1999 and 2000, respectively. Sonera Solutions' marketing priority is to
establish Sonera as the single source for large customers' comprehensive
telecommunications needs. Sonera Solutions offers its customers fixed-line voice
services, including local, domestic long distance and international calling, and
value-added services based on intelligent network systems such as corporate
numbering, as part of its Vipgate package. Vipgate customers can elect either to
have Sonera act as the provider of all of their fixed-line telecommunications
needs or to have Sonera provide specific fixed-line communications services.
Vipgate customer agreements, which generally have terms ranging from one year to
18 months, also provide customers with a number of different billing options,
including integrated bills for fixed-line, mobile and data services, or bills
that are broken down by usage at various customer sites. Sonera Solutions also
enters into separate agreements with its customers for mobile telecommunications
and data and media services.

     Sonera Solutions has a group of account managers who are responsible for
the account relationships of our large customers. Sonera Solutions also employs
sales representatives with particular industry specializations, including the
forest and metal industry, the trade service industry, the information
technology industry, and the finance and insurance industry, who assist the
account managers in marketing industry specialized service offerings. In
addition, Sonera Solutions employs technical support staff and solutions
designers involved in designing and tailoring services for individual customers
and providing ongoing technical assistance. Sonera Solutions utilizes the
services of sales representatives from other Sonera marketing units, principally
Sonera Entrum and mobile services, for certain special assignments or for
customers' remote sites. Sonera Solutions is also responsible for our data
services business.

                                        73
<PAGE>   87

     Sonera Entrum Ltd. concentrates on serving SMEs, communities and
residential customers. For its SME customers, Sonera Entrum offers the Skaala
solution, under which we provide fixed-line telecommunications, mobile
telecommunications and data and media services. Account managers are responsible
for customer relationships with the larger SME customers and sales
representatives are responsible for medium-sized business customer accounts.
Other distribution channels that we use include telephone sales and chains of
resellers. For residential customers in our traditional service areas, Sonera
Entrum markets a complete line of standard fixed-line telecommunications
services as well as value-added services such as voice mail, caller
identification and call forwarding for which customers receive an integrated
bill. Sonera Entrum has nine separate sales areas throughout Finland and employs
approximately 103 account managers and sales representatives. The unit also
operates through one of our subsidiaries, Sonera Innotele Oy, which has a sales
force that is focused on SME customers in the Helsinki area. Sonera Entrum has
call centers for both business and residential customers which provide a single
convenient point of contact with us and enable customers to address all of their
telecommunications needs via telephone, including ordering services, registering
complaints and making inquiries. In April 2001, Sonera Entrum agreed to
outsource some of its operations to Keypro Oy, a Finnish IT company.

     Our Domestic Mobile Communications business area is responsible principally
for marketing mobile telecommunications services to business and residential
customers. The business area has a direct sales force which, in coordination
with Sonera Solutions and Sonera Entrum, serves larger corporate customers. We
market our mobile communications services to residential customers primarily
through a large network of independent distributors and our own retail outlets.
Our strategic focus has been on offering a broad range of mobile
telecommunications tariff and service packages to appeal to different customer
segments. The Domestic Mobile Communications business area's customer service
department, which operates customer call centers 24-hours-a-day,
seven-days-a-week, not only enables subscribers to order additional services,
make bill inquiries, and report faults, but also provides dealer support. Our
Domestic Mobile Communications business area also offers SMS-based account
inquiry services and distributes a magazine for its mobile subscribers. We
believe that the marketing and customer care initiatives of our Domestic Mobile
Communications business area have contributed to subscriber growth and increased
customer loyalty.

     Our other marketing and sales units include our Media Services unit and
other sales and marketing operations. Our Media Services unit is responsible
primarily for marketing our new media products, including Internet and cable TV
services, and business media services, and has approximately 80 sales
representatives. Sonera Solutions is responsible for the sale, construction and
maintenance of data processing and telecommunications equipment to our
customers. Sonera Solutions also supervises our Data-Info franchise network, and
operates its TeleService maintenance and after-sales service operations, and
also works in close coordination with Sonera Entrum in the provision of
telecommunications equipment to our large business and SME customers. We also
maintain several marketing centers responsible for the publication of printed
and Internet telephone directories and the marketing of our other operations.

     Our brand development is managed by our corporate communications unit. The
unit works closely together with our business units to build the value of the
Sonera brand by developing strategic and product level advertising and
marketing.

     For general marketing activities and the development of public awareness of
our services and products, we devote substantial resources to TV, radio, print
and outdoor advertising.

COMPETITION

     With the liberalization of local and long distance telephone services on
January 1, 1994, and international telephone services on July 1, 1994, all
telecommunication services in Finland were opened to full competition. Other
sectors of telecommunications services, including mobile communications and data
communications, were liberalized during the period ranging from 1987 to 1991.
The telecommunications market in Finland is highly competitive, characterized by
successive promotional campaigns and price competition, with the exception of
local telephone service where the market is dominated by incumbent local
operators which control, with minor exceptions, the local access market. Despite
the liberalization of the market, true competition has not developed on the
local access market and market shares have remained generally static.

                                        74
<PAGE>   88

     In Finland, our main competitor is Elisa Communications (formerly Helsinki
Telephone Corporation), which is the largest local access operator in Finland
and whose traditional service area is the Helsinki metropolitan area. Elisa
Communications is also the parent of Radiolinja, a mobile communications
operator; Datatie, a provider of data transmission services; and FinnetCom Oy, a
provider of telecommunications services to corporate customers. Elisa
Communications has a minority interest in Soon Communications (formerly Tampere
Telephone) and is expected to acquire control of Soon in 2001. In addition,
Elisa Communications owns considerable direct and indirect minority interests in
certain local telephone companies including KSP Group (formerly, Keski-Suomen
Puhelin), Lounais-Suomen Puhelin and Tikka Communications (formerly Joensuun
Puhelin), and in Finnet International, a provider of international
telecommunications services.

     Another significant competitor in Finland is the Finnet Group, an alliance
of local telephone companies and certain national telecommunication operators
such as Kaukoverkko Ysi, a domestic long distance telephone operator, and Oy
Omnitele Ab, a provider of telecommunications consulting services. The alliance
is based upon a common shareholding structure whereby the local telephone
companies of the Finnet Group hold varying percentage interests in each of these
national telecommunications operators. As a response to the aggressive growth
strategy of Elisa Communications and its takeover of control in Radiolinja, 41
of the 46 Finnish local telephone companies, excluding Elisa Communications and
its affiliates Soon Communications and KSP Group as well as two other local
operators, established a new company, Finnish 3G Ltd., for the purpose of
applying for a third generation mobile license. While the primary business of
the local telephone companies that have interests in Finnish 3G consists of
operating local networks in their respective service areas, Finnish 3G was
granted a nationwide third generation mobile technology based mobile license in
1999 together with Tele2 AB (formerly Netcom AB). These companies are expected
to enter into the mobile communication services market when third generation
mobile technology becomes commercially available.

     Prior to January 2000, Sonera and Radiolinja were the only holders of
national GSM 900 licenses in Finland. On January 21, 2000, Suomen 2G was granted
a GSM 900 license by the Ministry of Transport and Communications. Suomen 2G is
a mobile network operator owned by 36 local telephone companies. Suomen 2G's GSM
900 network began commercial operations in Finland in February 2001 through its
affiliate DNA Finland Ltd.

     In addition, we compete with Telia Finland and Telia Mobile AB,
subsidiaries of the Swedish state-owned telephone company Telia AB. Telia
Finland operates on the Finnish international and domestic long distance
markets. Telia Mobile AB provides GSM 900 and 1800 mobile services. Telia Mobile
AB maintains its own national and regional trunk network and infrastructure for
local GSM 1800 mobile operations and has also operated as a service provider
utilizing Radiolinja's GSM 900/1800 networks for national coverage since
December 1999. Other operators and service providers in the Finnish market
include Jippii Group, Song Networks, KPN Qwest, Utfors, Tele2, Telenordia,
Global One Communications Ltd., Facilicom Finland Ltd., a Finnish subsidiary of
a U.S. based telecommunications company, and RSL COM Finland Ltd., a U.S. based
reseller of international and domestic voice services, all of which provide
network and other services to their customers. Jippii Group and RSL COM Finland
have entered into service provider agreements with us and provide mobile
communication services to their customers through our network. In addition, we
expect to face increased competition from specialized market participants such
as Colt Telecom Group plc and MCI Worldcom, Inc. The identity of new entrants on
the Finnish telecommunications market and the extent of the impact on our market
share will depend upon a variety of factors that are difficult to assess at
present.

MOBILE COMMUNICATIONS

GSM Networks

     The Finnish mobile telecommunications market has been open to competition
since 1990. We are the leading mobile communications operator in Finland with an
over 60 percent share of the combined digital and analog mobile market in terms
of subscriptions as of December 31, 2000. We provide GSM 900 mobile telephone
services in competition with Radiolinja, Telia Mobile, DNA Finland and a number
of service providers which do not maintain their own network such as Jippii
Group and RSL COM principally on the basis of price and quality of service. As
of December 31, 2000, Radiolinja had an overall share of over 30 percent in the
GSM mobile

                                        75
<PAGE>   89

telecommunications services market in terms of number of subscriptions. In
February 2001, a third GSM 900 operator, DNA Finland, began selling
subscriptions on a commercial basis, which is expected to increase competition
on the Finnish mobile telecommunications market. We consider it likely that
Radiolinja and other competitors will continue to market their services
aggressively and reduce prices for their services in the future. We also believe
that competition from new entrants such as Jippii Group will intensify.

     Allocation of additional frequency capacity to other operators could, in
the future, increase the competitive environment in the GSM market. At present,
there are no unallocated frequencies in the GSM 900 MHz band that are accessible
using commercially available telecommunications equipment. The authorities have
indicated that unallocated GSM 1800 frequencies, although limited, may be
allocated on demand within the next few years. In such an event, these
frequencies may be allocated to Sonera, Radiolinja, Telia Finland, or a new
entrant to the GSM market which is able to demonstrate the ability to satisfy
the service standards set forth in the Finnish Telecommunications Market Act.

     The Ministry of Transport and Communications has announced that it
currently has no plans to require existing operators to give other GSM operators
and service providers mandatory national roaming rights. In the event that a
national roaming scheme were introduced either for current or future
frequencies, local mobile operators would gain access to our national GSM 900
network, which could result in increased competition in the Finnish mobile
market. In addition, under new Finnish law, holders of UMTS licenses will have
the right to roam on the GSM 900 and GSM 1800 networks of operators under
certain conditions, which could have the effect of increasing competition. See
"-- Regulation." For a discussion of the statute of legal proceedings relating
to the issue of national roaming in Finland, see "Item 8. Financial Information
-- Legal and Regulatory Proceedings -- National Roaming Cases."

NMT Networks

     We are the sole provider of NMT mobile telephone services in Finland. Our
NMT operations face indirect competition from providers of other mobile
communications services, principally GSM 900 and GSM 1800 services. We have
experienced a decline in our NMT subscriber base in recent years as NMT
subscribers continue to switch to GSM service to take advantage of its higher
transmission quality, greater value-added services, greater roaming capability
and the smaller handsets used to access GSM networks. We believe that the use of
NMT services will continue to decline for the next few years as the majority of
present NMT subscribers switch to GSM. As a result of the decreasing subscriber
numbers, we discontinued our NMT 900 service on December 31, 2000. We expect
that, ultimately, the remaining users of NMT 450 mobile services will primarily
be certain niche groups, including freight transport operators and seasonal
users, who prefer it for its marginally broader network coverage as compared to
GSM service.

MEDIA COMMUNICATIONS AND NEW SERVICES

Media Communications

     The Finnish market for media communications, including the provision of
Internet services and cable television, is highly competitive. We believe that
we are the leading ISP in Finland, with a share of nearly 40 percent of the
market as of December 2000. With respect to consumer media services, including
Internet related services, we compete mainly with Saunalahden Serveri Oy, a
Finnish ISP, Elisa Communications and the Finnet Group. In the future, we expect
to face competition from Scandinavian Online, a joint venture of Telia Finland,
Telenor and Schibsted that provides Internet services in most of Scandinavia,
and MTV3, a Finnish broadcasting company that operates a national commercial
television channel. With respect to the provision of Internet access to business
customers, we compete principally with Elisa Communications, the Finnet Group
and Eunet, a Finnish ISP, and expect to face competition from Telia Finland,
Saunalahden Serveri and a range of IT companies in the future. Because Internet
connections face mounting price pressures, such as the trend toward offering
free Internet connections, the growth in revenues from new media functions will
depend on larger volumes of content services and advertising income in coming
years.

                                        76
<PAGE>   90

New Services

     We expect to face tough competition in both our international mobile
services business and our wireless security solutions businesses. Among Sonera
zed's competitors are other providers of mobile communications, existing and
newly created Internet portals, equipment manufacturers and software creators.
As with the introduction of any new product or service, the breadth of the
market for Sonera zed's services remains untested.

     SmartTrust's competitors in the provision of wireless security solutions
include PKI vendors, cryptography developers, systems integrators and
application service providers, and manufacturers of wireless devices and SIM
cards among others. In addition to the competition faced from competitors, the
technologies at the core of SmartTrust's current solutions, namely RSA
encryption algorithms and PKI, each face competition from other security
technologies or architectures. Export controls with respect to encryption
products in the United States are currently more stringent than those in other
jurisdictions, including those in the European Union and its member states.
However, many non-U.S. companies, including us, have been able to take advantage
of the strict U.S. export regulations by supplying products with strong
encryption capabilities in the global market without serious competition from
U.S. companies. This current comparative advantage vis-a-vis SmartTrust's U.S.
competitors, however, is unlikely to continue. The U.S. government has recently
loosened U.S. controls on the export of encryption technology and software. The
ability of SmartTrust's U.S. competitors to more freely export products with
strong encryption capabilities could adversely affect our wireless security
solutions business. See "-- Regulation -- European Union Law -- Encryption
Regulation."

SONERA TELECOM

Local Voice Services

     In addition to us, there are currently 46 Finnet Group operators providing
local telephone services in Finland. These local operators generally own their
own networks and operate mainly in larger cities and towns. Traditionally, there
has been only one local operator per area. Competition has not increased
materially since the opening of the local voice market in 1994 due to the high
upfront costs of building a local network and the long-term relationships
between local telephone companies and their customers.

     As a result of the foregoing, competition in local markets is limited, and
has focused largely on business customers. We have been installing fiber optic
cable loops in major cities and leasing lines from our competitors primarily to
satisfy existing demand from our corporate customers and to build platforms for
possible future competition in local markets. As a result, we have gained a
market share in the local access market of approximately four percent in
Helsinki and certain other large cities in Finland. For the reasons identified
above, we have not faced increased competition in the areas in which we operate
local networks, although the number of subscribers in our service areas, which
are located principally in the sparsely populated areas of eastern and northern
Finland, is expected to decrease slightly due to increased usage of mobile
phones and expected declines in population in such areas. As of December 31,
2000, the overall market share of local telephone companies for local voice
services calculated on the basis of access lines was 73 percent as compared to
27 percent for Sonera.

Long Distance Voice Services

     Long distance calls in Finland have been subject to intense competition
since the liberalization of the market in 1994. Competition has forced the
prices of long distance calls in Finland to levels considerably below the
average long distance calling rates in the European Union. Our primary
competitors are Kaukoverkko Ysi, a nationwide telephone operator and member of
the Finnet Group, and Telia Finland. Both Kaukoverkko Ysi and Telia Finland
operate their own trunk networks. During the year ended December 31, 2000,
Sonera, Kaukoverkko Ysi and Telia Finland had approximately 37 percent, 58
percent and five percent shares of the domestic long distance market,
respectively, calculated on the basis of minutes of use. We believe that, since
1995, our share of the domestic long distance market has been relatively stable.

                                        77
<PAGE>   91

International Voice Services

     International voice services in Finland have also been open to competition
since 1994. Our principal competitors in the provision of international voice
services are Finnet International, a nationwide telephone operator providing
international telecommunications services, and Telia Finland.

     The international voice service market has been characterized by aggressive
promotional campaigns and price reductions, particularly by Telia Finland, which
has been offering low-rate tariffs on calls to other Nordic Countries. We
believe that competition will continue to increase in the international
telecommunications market, resulting in further reductions of tariffs. During
the year ended December 31, 2000, Sonera, Finnet International and Telia Finland
had approximately 50 percent, 28 percent and seven percent shares of the
international telecommunications market, respectively, calculated on the basis
of called minutes. In addition, we face competition from service operators, and
from international telecommunications operators and alliances, such as RSL COM,
Facilicom, Global One, Uniworld and Tele Nordia which together hold an
approximately nine percent market share.

Data Communications

     The Finnish market for data communication was opened to full competition in
1990. Since that time, competition has been vigorous in all aspects of the data
communications markets, including data transmission services, LAN
interconnection and management services and leased lines. We believe that we are
a leading provider in Finland for data transmission and LAN interconnection
management services. In data communications services, our principal competitor
is Datatie, a national operator of data transfer links owned by the Elisa
Communications Corporation. In leased lines services, our principal competitor
is Kaukoverkko Ysi, a national long distance operator owned by the Finnet Group.
In addition, we compete with large international telecommunications companies
such as Global One and KPN Qwest in providing data services to large corporate
customers.

                                   REGULATION

     The Finnish telecommunications market has traditionally been one of the
most liberalized in Europe. The telecommunications service industry has been
gradually opened to competition since 1987, when the markets for data
communications and business networks were partially liberalized. In 1994, more
than three years ahead of most other European countries, the Finnish
telecommunications market was fully liberalized and, since then, every segment
of the market has been subject to competition.

     We are subject to the comprehensive regulatory regime applicable to the
Finnish telecommunications industry under the Finnish Telecommunications Market
Act (396/1997), as amended (the "Telecommunications Market Act"), and related
regulations, decrees and administrative decisions, which replaced the Finnish
Telecommunications Act (183/1987), as amended (the "Telecommunications Act").
Together with the Finnish and European Union competition rules, the
Telecommunications Market Act, which became effective on June 1, 1997, is the
principal body of law governing our activities. See "-- Competition."

     The Telecommunications Market Act was amended in two significant ways in
the beginning of 2001, effective April 2001. One amendment, which is aimed at
enhancing the Finnish market for broadband services, requires telecommunications
operators with significant market power to lease a portion of their unused
subscriber line transfer capacity in the fixed voice network to, for example,
providers of high-speed data transmission services. See "--Interconnection." A
second amendment grants holders of third generation mobile telecommunications
licenses a right to roam on the GSM 900 and GSM 1800 networks of operators with
significant market power provided certain conditions are met. See "-- National
Roaming."

     The stated purpose of the Telecommunications Market Act is to promote the
efficiency of the Finnish telecommunications market so that telecommunications
in Finland meets the reasonable needs of users and is competitive, technically
advanced, of good quality, functionally reliable and secure, and reasonably
priced. The Telecommunications Market Act also brought Finnish
telecommunications law into line with European Union legislation in this area.
See "-- European Union Law." Certain provisions of the Telecommunications Market

                                        78
<PAGE>   92

Act have been implemented by ministerial decisions or decrees covering specific
subjects such as interconnection, accounting separation and the rights of users.

     The openness of the Finnish market is evidenced by the current licensing
regime. The Telecommunications Market Act requires licensing only for the
provision of telecommunications network services in the public mobile network.
Such a license is granted to all applicants that meet the requirements set forth
in the Telecommunications Market Act, subject to the availability of
frequencies. The construction of public telecommunications networks and the
provision of publicly available telephony services is normally subject to a
notification procedure. A notification, which includes information on the
organization and the activities of the filing entity, has to be submitted to the
Ministry of Transport and Communications before the filing entity can commence
operations. Provision of other telecommunications services does not require a
license or filing of notification. See "-- Allocation of Mobile Frequencies."

     As part of its objective to promote further competition, the
Telecommunications Market Act encourages new market entrants by introducing the
concept of "significant market power," holders of which are subject to a higher
degree of transparency in their accounting, more stringent fair pricing
requirements and requirements not to discriminate. See "-- Tariff Structure" and
"-- Interconnection." Pursuant to the Telecommunications Market Act, the
Ministry of Transport and Communications considers a number of factors when
deciding upon whether an operator is deemed to possess significant market power.
However, in practice, operators with a market share exceeding 25 percent in a
relevant market have been presumed to have significant market power in that
market. By ministerial decision, we currently have significant market power in
long distance, international, international transit and mobile
telecommunications throughout Finland and in local voice telephony in our
traditional service areas.

     A number of our other activities, including our cable TV operations, are
also subject to regulation under legislation other than the Telecommunications
Market Act, and related decisions of the Finnish Government and the Ministry of
Transport and Communications.

     On May 10, 2001, the Ministry of Transport and Communications distributed a
memorandum outlining its unofficial proposal for new legislation that would
bring the regulatory regimes covering different communications networks under a
single communications law (the "Communications Act Proposal"). The new law would
replace the Telecommunications Market Act and would also govern digital TV and
Internet activities as well as telecommunications. The Ministry of Transport and
Communications has requested various communications market participants to
comment on the proposals outlined in the Communications Act Proposal. The
principal idea behind the Communications Act Proposal is that same rules should
apply to different communications media. As a response to the ongoing
convergence of different communications services, providers of different
communications services would have equal rights and obligations regardless of
the media. The Communications Act Proposal would apply to communications
networks, but the new law would not cover the content of services delivered
through the networks.

REGULATORY INSTITUTIONS

     Regulatory authority under the Telecommunications Market Act is divided
between the Ministry of Transport and Communications and the Finnish
Telecommunications Administration Center (the "TAC"). Like other
telecommunications operators in Finland, we are also subject to Finnish and
European Union competition law which is applied by the Finnish Competition
Authority (the "FCA") and the European Commission (DG for Competition),
respectively. See "-- European Union Law" and "-- Competition Law." Other
regulatory authorities that have jurisdiction over issues relating to our
business operations include the Office of Data Protection Ombudsman, in relation
to data protection regulation, and the Office of the Consumer Ombudsman and
National Consumer Administration Finland, as well as the Finnish Market Court,
both in relation to consumer protection and marketing regulation. See "-- Tariff
Structure."

     On April 26, 2001, the Finnish Government submitted a proposal to the
Finnish Parliament to change the name of the TAC to the Finnish Communications
Regulatory Authority. The amendment is expected to enter into force on September
1, 2001.

                                        79
<PAGE>   93

     The Ministry of Transport and Communications is responsible for drafting
legislation, granting licenses for mobile network operators, administering fixed
network operator and service operator notifications and issuing executive orders
based on certain telecommunications regulations. The TAC, which commenced its
operations on October 1, 1988, is an agency under the Ministry of Transport and
Communications with responsibility for radio, telecommunications and postal
administration and television license management. With respect to
telecommunications, the powers of the TAC include supervising operators in the
market, establishing and administering the numbering plan, assigning
frequencies, overseeing technical standards and administering type approvals for
telecommunications equipment. The Communications Act Proposal envisages
strengthening of the TAC's regulatory powers.

     European Union regulations and the World Trade Organization
Telecommunications Agreement require that regulatory powers be separated from
the ownership of state-owned telecommunication operators. In Finland, this
separation has been implemented through the separation of regulatory functions
and ownership functions within the Ministry of Transportation and Communications
and the creation of the TAC.

     One of the TAC's particular responsibilities is to oversee the financial
and operational aspects of interconnection arrangements among operators and
service providers in the Finnish telecommunications sector. The TAC is
authorized to investigate complaints and to seek to resolve disputes with
respect to interconnection and other pricing-related matters. In the event the
parties to a dispute are unable through commercial negotiations to resolve the
dispute, the TAC has the authority to impose a resolution on the parties.

     The FCA has general jurisdiction under the Act on Competition Restrictions
to investigate complaints by competitors or act on its own initiative with
respect to competition law issues. In certain respects, the FCA and the TAC have
overlapping jurisdiction to investigate and resolve disputes involving our
relationships with our competitors and subscribers pursuant to the respective
mandates under the Act on Competition Restrictions and the Telecommunications
Market Act. See "-- Competition." The Telecommunications Market Act and the Act
on Competition Restrictions establish different market share and revenue based
threshold tests and other guidelines for merger control and for administrative
intervention with respect to operators with significant market power under the
Telecommunications Market Act and operators with a "dominant market position"
under the Act on Competition Restrictions. Although the telecommunications and
the competition authorities have independent legislative mandates and
responsibilities, the Telecommunications Market Act establishes a mechanism for
inter-agency cooperation through a referral procedure where the Ministry of
Transport and Communications or the TAC may transfer an investigation or certain
parts of an investigation to the FCA. This reduces the likelihood of unnecessary
burdens being imposed on telecommunications operators due to the two agencies'
overlapping jurisdictions.

TELECOMMUNICATIONS LICENSING AND NOTIFICATIONS

     Under the Telecommunications Market Act, a license from the Ministry of
Transport and Communications is required for the provision of telecommunications
network services in the public mobile network. Each license granted to a mobile
communications network operator under the Telecommunications Market Act defines
the operational area of the operator and may have an associated schedule of
conditions setting forth obligations relating to essential requirements, such as
the safety of network operations, the maintenance of the operability of the
network and data protection. Licenses granted by the Ministry of Transport and
Communications have a maximum term of 20 years and are renewable. The
Telecommunications Market Act limits the grounds on which the Ministry of
Transport and Communications may reject a license application to the lack of
financial resources, non-compliance with relevant telecommunications regulations
and the unavailability of frequencies. The Ministry of Transport and
Communications may not revoke the license of a telecommunications network
operator in part or in full unless (1) an operator has failed to comply with the
telecommunications regulations and has, after having been put on notice of the
alleged breach, failed to enter into full compliance therewith within a
reasonable time or (2) the nature and extent of the operator's activities have
changed to the extent that grounds to reject a license application would exist.

     Before granting a license for provision of telecommunication network
services in a public mobile network, the Ministry of Transport and
Communications is required to give public notice of the availability of new

                                        80
<PAGE>   94

licenses. Applicants are required to provide, among other things, a description
of their planned networks and interconnection points, an estimate on the
investments needed to commence operation and a plan for funding such
investments. If licenses cannot be granted to all applicants due to the limited
number of frequencies, the Ministry of Transport and Communications shall grant
licenses to applicants whose operations best meet the objectives of the
Telecommunications Market Act, including promoting competition, satisfying
market demands and advancing high technical standards, quality, reliability and
reasonable pricing. Our current license was granted on November 6, 1997, for a
term of 20 years. The license covers the NMT 450, GSM 900 and GSM 1800 networks
in Finland. The license does not contain any additional conditions to those
expressed in the Telecommunications Market Act relating to the financial
condition of an operator and the network coverage. Prior to January 2000, Sonera
and Radiolinja were the only holders of national GSM 900 licenses in Finland. On
January 27, 2000, Suomen 2G, which is owned by a group of local
telecommunications companies, was granted a GSM 900 license by the Ministry of
Transport and Communications. Suomen 2G, through its affiliate DNA Finland,
commenced commercial activity in February 2001. In addition to Sonera, Telia
Mobile Finland and Radiolinja hold nationwide GSM 1800 licenses. Regional GSM
1800 licenses are held by 39 local telecommunications companies.

     On March 18, 1999, we received a third generation mobile license for a term
of a 20 years. Our license currently covers operation of a public third
generation mobile network throughout Finland. The license is conditional upon
obtaining necessary permits to possess radio transmitters and obliges us to
commence activities no later than on January 1, 2002, in line with the decision
128/1999/EC of the European Parliament and the Council adopted on December 14,
1998 (the "UMTS Decision"). Additionally, the introduction of third generation
mobile communication services is dependent upon a number of factors, including
the development of commercially viable technology and the ability of
telecommunications operators to license such technology on commercially
acceptable terms. See "-- European Union Law -- Licensing." Third generation
mobile licenses were also issued to Radiolinja, Telia Mobile Finland and Finnish
3G. In March 2001, the TAC delivered a report to the Ministry of Transport and
Communications on the progress of build up of third generation communication
networks in Finland. In its report, the TAC noted that the build up of networks
is going forward as planned, but any delays in delivery of third generation
handsets and network equipment will delay the introduction of third generation
commercial services in Finland. The TAC noted that operators are expected to
reach such geographical coverage for their third generation networks as
mentioned in their license applications, but it is expected that the UMTS
network will not be ready for wider commercial use at the beginning of 2002. The
TAC will issue its next report on September 30, 2001.

ALLOCATION OF MOBILE FREQUENCIES

     Radio spectrum is a limited resource necessary to operate a mobile network
and is allocated by the TAC through an administrative procedure. Pursuant to the
decisions of the TAC, we have been allocated the following frequency bands for
public mobile telecommunications networks:

     -  2x4.475 MHz (453.000 -- 457.475 / 463.000 -- 467.475 MHz) for our NMT
        450 services;

     -  2x13.6 MHz (890.2 -- 903.6 / 935.2 -- 948.6 MHz) in the Helsinki
        metropolitan area, Turku, Tampere and Oulu and 2x11.6 MHz (890.2 --
        901.6 MHz / 935.2 -- 946.6 MHz) elsewhere in Finland for our GSM 900
        services;

     -  2x11 MHz (1,710.2 -- 1,721.0 / 1,805.2 -- 1,816.0 MHz) for our GSM 1800
        services;

     -  2x10 MHz (1,950.0 -- 1,960.0 / 2,140.0 -- 2,150.0 MHz) for our IMT-2000
        / UMTS services until June 30, 2001; and

     -  2x15 MHz (1,964.9 -- 1,979.7 / 2,154.9 -- 2,169.7 MHz) and 5 MHz (center
        frequency 1,902.4 MHz) for our IMT-2000 / UMTS services from July 1,
        2001.

     At present, there are some nationwide unallocated frequencies in the GSM
900 MHz extension band as well as in the GSM 1800 MHz band. As a result of the
termination of our NMT 900 services, frequencies from 900 MHz band were released
and reallocated for mobile operators by the TAC.

                                        81
<PAGE>   95

RIGHTS OF WAY

     Pursuant to the Telecommunications Market Act, telecommunications network
operators are entitled to use public roads, public areas and private properties
for the installation of telecommunications cables. Prior to laying a cable, the
telecommunications network operator must prepare a route plan, which it must
make public by publishing it in a local newspaper and notifying estate owners
affected by the plan. In drawing up the plan, landscape and environmental
factors must be taken into account. Where possible, preference should be given
to installing cables along public roads and public areas, which are available
free of charge. Estate owners or any other party whose interests or rights are
affected by the route plan have the right to file objections with the municipal
building board within 30 days from the date the plan was made public.

     Once the route plan has been approved, the telecommunications network
operator has the right to undertake construction work along the approved route
for the installation of the telecommunications cables, as well as equipment,
minor structures and poles related to the network. The area affected by the
installation must be restored after completion of the work. Private estate
owners are entitled to full compensation for any loss and damage caused by the
cable installation.

     The Act on Land Use and Construction (132/1999, the "Construction Act")
entered into force on January 1, 2000 superseding the Construction Act of 1958.
In connection with the entrance into force of the Construction Act, the relevant
provisions of the Telecommunications Market Act governing the construction of
telecommunications networks were also amended. The legislation obligates network
operators, among other things, to pay compensation for establishment of
easements for purposes of laying cable in real estate other than public roads
and areas. In addition, it provides for a special procedure establishing a right
to install cables pursuant to which telecommunications operators would have a
duty to negotiate with the owners of real estate to obtain their permission. If
such negotiations are not successful, the local municipal building board may
decide on the installation of the cable. In addition, the legislation provides
that both public and private real estate holders have a right to receive
compensation for inconvenience and expenses resulting from the establishment of
easements, and that, in certain instances, the telecommunications operators will
be obligated to compensate for damages resulting from any necessary removal of
cables. We believe that the implementation of the Construction Act and the
amended provisions of the Telecommunications Market Act will not have a material
adverse effect on our operations, although it could increase the costs of
constructing telecommunications networks.

TARIFF STRUCTURE

     Telecommunication operators in Finland, including Sonera, may freely
determine tariffs for their telecommunications services. The Ministry of
Transport and Communications may, however, issue orders on the general
principles of telecommunications tariffs, the calculation of costs and publicity
and itemization of fees if the overall objectives of the Telecommunications
Market Act are threatened by the tariff policies of significant market power
operators or if required by European Union legislation. See "-- Numbering and
Carrier Selection" and "-- European Union Law." The Communications Act Proposal
does not suggest to change the freedom operators have in determining tariffs,
but does give the TAC the possibility to intervene and challenge unreasonable
pricing terms applied by operators with significant market power.

     Our leased line and voice services are also subject to the provisions of
the Telecommunications Market Act and the related decisions of the Ministry of
Transport and Communications that implement European Union's framework directive
relating to Open Network Provision ("ONP"), as well as to specific ONP-related
directives. These directives require operators with significant market power
with respect to leased lines and voice services to apply rates that are
transparent, non-discriminatory, and cost-oriented. The ONP directives also
impose cost accounting obligations designed to ensure that rates are
cost-oriented. ONP rules are without prejudice to the application of the
competition rules. See "-- Competition" and "-- European Union Law."

     Effective August 1999, the Ministry of Transport and Communications
determined that significant market power operators' tariffs for fixed public
local telephone network services and for leased lines should be public,
cost-related, transparent and non-discriminatory. This determination, however,
applies only to cases where a customer's subscriber lines have a capacity of
less than 2Mbps in both directions. In addition, reasonable volume discounts are
explicitly permitted. The Ministry of Transport and Communications determined on
June 21, 2001
                                        82
<PAGE>   96

that we have significant market power with respect to the Finnish local, long
distance, international and mobile telecommunications markets throughout
Finland. A total of 48 other telecommunications operators in Finland are also
deemed to have significant market power. On the local market, 44 of the regional
companies are deemed to have significant market power. On the long distance
market, Kaukoverkko Ysi has been determined to possess significant market power.
On the international telecommunications market, Finnet International has been
determined to possess significant market power, as do Radiolinja and Alands
Mobiltelefon on the mobile market. The ministerial decision regarding
significant market power became effective on July 1, 2001 and expires on June
30, 2002.

     Our agreements with our residential customers are also subject to the
requirements of the Finnish Consumer Protection Act (38/1978), as amended (the
"Consumer Protection Act"). The Consumer Protection Act requires that a consumer
contract must not include unreasonable terms and conditions. The Finnish Market
Court is vested with the authority to prohibit the use of unreasonable terms and
conditions in consumer contracts and the Consumer Ombudsman has the authority to
impose that type of prohibition on a temporary basis. In addition, an aggrieved
consumer may seek relief directly in a general court under the Consumer
Protection Act. The Ministry of Transport and Communications has issued a
decision on the general grounds for the delivery terms of telecommunications
services providing for a minimum standard for delivery terms for household
users. See "--Universal Service."

INTERCONNECTION

     On June 30, 1997, the European Union adopted a directive on
interconnection, and the requirements of the directive were later that year
incorporated into the Finnish telecommunications regulation. Under the
Telecommunications Market Act and decisions issued by the Ministry, operators of
public telecommunications networks in Finland have an obligation to negotiate
interconnection agreements with each other for the purpose of offering their
telecommunications services. The purpose of this obligation is to ensure that
Finnish subscribers can contact subscribers to other networks in Finland or
abroad. Under the Telecommunications Market Act and decisions issued by the
Ministry, for operators without significant market power in interconnection, the
obligation to interconnect extends to interconnecting with at least one other
operator operating a public telecommunications network to ensure that its
subscribers' communications can be routed to other networks or service
providers. Interconnection should be granted without delay at the requested
interface following a written request. Significant market power operators are
under an obligation to behave in a transparent and non-discriminatory manner and
to offer interconnection with their networks to all telecommunications service
operators on non-discriminatory terms and at a reasonable price in view of
costs. See "-- Tariff Structure." Significant market power operators may not
refuse a request for interconnection if the proposed terms are reasonable. In
addition, pursuant to an amendment to a decision of the Ministry of Transport
and Communications on interconnection in February 2001, operators with
significant market power have to provide subscribers with access to all local,
long distance, mobile and international telecommunications services provided in
their area.

     If no agreement can be reached between the operators, the TAC will seek to
settle any dispute through negotiations between the parties and may order the
party deemed to be non-compliant to comply with its obligations under the
Telecommunications Market Act. To ensure that the objectives of the
Telecommunications Market Act are met, the Ministry of Transport and
Communications has the power to issue orders regarding the general principles
for telecommunications fees, the calculation of costs in relation to fees and
the publication and itemization of such fees.

     All operators with significant market power must publish the technical and
pricing terms on which they will provide interconnection to other operators in a
so-called "Reference Interconnection Offer" (the "RIO"). This offer must be
itemized and related to reasonable costs incurred. In addition, a decision
issued by the Ministry of Transport and Communications on February 19, 1999, as
amended on February 7, 2001, obligates operators with significant market power
to separately determine reference fees for incoming (terminating) and outgoing
(access) interconnection traffic. The aim of the ministerial decision is to
create a regulatory platform that would enable operators to offer end-to-end
pricing for their services. The decision does not apply (1) with respect to
access, (A) to communication without prefix or pre-selection transmitted from a
local telecommunications network to another local telecommunications network or
service within the same telecommunications area nor (B) to
                                        83
<PAGE>   97

communication from a mobile communications network to a local telecommunications
network or service or to another mobile communications network or its service,
and (2) with respect to termination, to communication transmitted from a local
telecommunication network to a mobile communication network or its service.

     The Telecommunications Market Act and a related decision of the Ministry of
Transport and Communications explicitly provide that interconnection charges may
cover a reasonable profit on invested capital but provides no detailed
methodology on how costs should be allocated. Significant market power operators
must, however, offer a description of the calculation system used to arrive at
their interconnection charges and, after submitting the description for the
review and approval of the Ministry of Transport and Communications, make
interconnection agreements publicly available, subject to the deletion of
confidential information covering the business strategy of the parties.

     In addition, all telecommunication operators have a duty to collect, upon
reasonable terms, telecommunications fees from their subscribers on behalf of
other operators or to provide sufficient information for the invoicing of such
services.

     Historically, Finnish operators have entered into bilateral interconnection
agreements on a collective basis. These interconnection agreements establish
interconnection and related changes for the term of such agreements.

     Effective April 13, 2001, the Telecommunications Market Act was amended to
require telecommunications operators to lease a portion of their unused
subscriber line transfer capacity in the fixed voice network (shared use of the
local loop) to third parties for, for example, the provision of parallel
high-speed subscriber lines. The obligation to lease does, under certain
conditions, also require telecommunications operators to provide space for other
operators' equipment on their property (co-location) to allow other service
providers to connect to a subscriber connection with the necessary technical
equipment. Parallel access to subscriber connections is expected to promote the
availability of low-cost Internet connections to households. The cost payable by
the lessee for a shared access to subscriber line can be no more than half the
cost of the use of such subscriber connection for all purposes, unless the
telecommunications operator is able to show for the TAC that its costs for
allowing parallel access are higher than this.

     On April 24, 2001, the TAC issued a decision in which it stated that the
interconnection fees we charged for calls terminating on our domestic mobile
network are not reasonable in relation to the actual costs of providing such
services. The TAC also stated that, in its opinion, our interconnection fees
violated the Telecommunications Market Act and ordered us to revise our
interconnection fees. See "Item 8. Financial Information -- Legal Proceedings --
Interconnection Fees" for further details on this matter. On May 25, 2001, we
filed an appeal against the TAC's decision to the Helsinki Administrative Court.

     Because of the high market shares of local telephone operators in their
respective areas, the terms upon which interconnection is offered are expected
to be material to the development of competition in the Finnish fixed
telecommunications market. Notwithstanding the above regulations, there can be
no certainty that we will be able to negotiate favorable interconnection
contracts as part of our efforts to provide competitive communications service
in new markets.

NATIONAL ROAMING

     Roaming consists of providing mobile connections to other operators'
subscribers while they are outside the network coverage of their own service
operator. Prior to an amendment to the Telecommunications Market Act on April
13, 2001, there was neither a regulatory nor a commercial national roaming
system in Finland for GSM 900 and GSM 1800 networks. As a result of amendments
to the Telecommunications Market Act that went into effect in April 2001,
holders of third generation mobile telecommunications licenses have a right to
roam on the GSM networks of operators with a significant market power. This
amendment does not apply to roaming between GSM networks. This enables third
generation license holders to provide services available through GSM networks on
a nationwide basis before the license holders have completed the build-out of
their third generation networks. A third generation mobile license holder must
be granted the right to roam on GSM networks if its own third-generation network
covers at least one-fifth of the population in the licensed area, as defined in
the respective license. Operators with significant market power have an
obligation to negotiate with third generation

                                        84
<PAGE>   98

license holders which request the right to roam. If an agreement cannot be
reached within six months, the TAC may grant the requesting party the right to
roam on the GSM networks of the operator to whom such request was made. Owners
of GSM networks are not required to grant roaming rights in an area where the
requesting party already has its own digital network or access to a GSM network
through a separate agreement with a third party. In principle, the pricing for
compulsory roaming services is calculated in the same way as the pricing for the
provision of mobile network access for services providers. In the event the
parties are unable to conclude an agreement, the TAC may set the terms and
conditions of a network roaming agreement within the parameters set forth in the
Telecommunications Market Act.

     The terms upon which any national roaming scheme will be offered may
influence the development of competition on the Finnish mobile
telecommunications market. The availability and cost of roaming may affect
existing operators' decisions of whether to build their own nationwide networks
or simply rely on the networks we or other nationwide mobile network operators
provide. In the event national roaming were to be mandated on terms and
conditions which do not provide an adequate return on our investment in our GSM
networks, our mobile communications business could be materially adversely
affected.

     We are currently a party to administrative proceedings at both the national
and the European Union level in which one of our competitors has claimed that we
have an obligation to provide national roaming. See "Item 8. Financial
Information -- Legal and Regulatory Proceedings -- National Roaming Cases."

NUMBERING AND CARRIER SELECTION

     The TAC is responsible for administering the national numbering plan. Upon
application by a telecommunications operator, the TAC assigns numbers and
addresses on a transparent, equal and non-discriminatory basis. The TAC must
ensure that applications relating to numbers and addresses are handled without
delay.

     The TAC is also charged with overseeing number portability. Geographic
number portability in the public switched network was introduced as a pilot
scheme in Helsinki on June 1, 1997, and, it has been mandatory in the whole of
Finland since September 30, 1998. The regulatory framework requires local number
portability (within an existing area) and nation-wide number portability using a
newly allocated numbering area. Operators with significant market power are
required to offer number portability at cost oriented prices. The legislative
framework does not enforce any other mandatory provisions for the allocation of
costs and conditions for the establishment of number portability. The
Communications Act Proposal includes a proposal that would allow a mobile user
to change the user's mobile communications operator without changing the user's
mobile number.

     Carrier selection is the facility that allows a user to choose a local,
long distance, mobile or international carrier independent of its local loop
provider. This can be achieved in different ways: (1) by pre-selection: the
carrier is chosen by the user; (2) by call-by-call procedures: the user
typically inserts a prefix before a dialed number; or (3) randomly based on the
carriers' market shares of local or long distance and international calls.

     The Telecommunications Market Act and related decisions of the Ministry
require fixed network operators with significant market power to enable
residential customers to select their preferred operator on a call-by-call
basis. Our prefix for long distance calls is "101" while Telia Finland and
Kaukoverkko Ysi have the prefixes "1041" and "109," respectively. Our prefix for
international calls is "990" while Telia Finland and Finnet International have
the "994" and "999" prefixes, respectively. Our other competitors on the long
distance and international telecommunications market also have their own
prefixes. From March 1, 2001, telecommunications operators have had the
possibility to obtain a general carrier access code from the TAC. To use the
general carrier access code, a user dials a five digit operator specific carrier
access code when calling from a fixed network. The call is routed to the network
of the owner of the general carrier access code dialed by the user. Our general
carrier access code is "90020."

     Fixed network operators with significant market power must also offer upon
request carrier pre-selection. Thus, a call dialed without any prefix or with
the "00" prefix is automatically routed to a local, long distance or an
international telecommunications service selected by the user. Where the user
neither selects a prefix nor has made a pre-selection of an operator for long
distance or international telecommunications services, traffic is allocated
proportionally among the operators whose services can be used without a separate
service agreement. If

                                        85
<PAGE>   99

the user neither selects a prefix for local telecommunications services or
mobile communications nor has concluded a contract on pre-selection for such
services, the fixed network operator may decide on the routing of the
communication. Mobile operators with significant market power are required to
offer carrier selection and pre-selection for international calls. However, they
are not obligated to offer carrier selection or pre-selection for national calls
including calls between mobile networks.

     Under Finland's interconnection regime, operators may only offer selection
barring services to their retail customers in a manner that does not
discriminate against competing telecommunications operators.

UNIVERSAL SERVICE

     Universal service entails an obligation to provide access to the public
telephone network and to deliver an affordable telephone service to all users
reasonably requesting it. More specifically, pursuant to European Union
legislation, universal service obligations include the provision of access to a
fixed network which will allow usage of voice services, fax and data
transmission services, operator assistance, emergency and directory inquiry
services (including subscriber directories) and public payphones. However,
neither mobile services, with the exception of free emergency calls and
directory assistance, nor Internet services are included in the universal
service requirement. The proposed European Union universal service directive
clarifies that the scope of the universal service obligations includes access to
data communications such as Internet via the public telephone network from a
fixed location, and addresses affordability of the service. This proposal, as
well as other parts of the proposed electronic communications framework, are at
an early stage of discussions and their final wording is as yet unknown. See "--
European Union Law -- New Communication Framework."

     A few European countries which have introduced universal service
requirements have also implemented funding schemes to allocate the costs of
providing the service among all organizations providing public
telecommunications networks or publicly available telecommunications services.
Two methods for collecting and distributing universal services are considered:
either a universal service fund at the national level or a system of
supplementary charges collected directly by the operator providing universal
service from other operators interconnecting with its network. In Finland, no
scheme for allocating the costs of providing universal service has yet been
devised, nor has one been proposed by the Ministry of Transport and
Communications or the TAC.

     Currently, the Finnish telecommunications regulations do not specifically
require us to offer universal service. However, the Telecommunications Market
Act sets forth a general objective that telecommunications services should be
provided in accordance with the reasonable needs of users and be reasonably
priced. The Ministry's current interpretation of this requirement is that fixed
network operators that possess significant market power are obliged to provide
basic services, but neither at rates below their competitive market rates nor
using equally priced nationwide tariffs and subscription charges.

     To control the costs of operating our extensive fixed network, we have
examined more cost-effective ways of providing network connections to the most
rural regions, such as mobile terminals which are dwelling-installed, use the
standard GSM network for transmission, and to which an ordinary fixed-line
terminal can be connected. For low-medium traffic to and from remote areas,
providing so-called "fixed wireless" connections is more cost-effective than
maintaining a sizable fixed network local loop for a limited number of
subscribers. The Ministry of Transport and Communications has communicated to us
and other telephone operators that the installation of fixed wireless units
using NMT and GSM networks for residential customers will satisfy the
requirement for providing telecommunications services set forth in
Telecommunications Market Act. In addition, the Ministry of Transport and
Communications noted that telephone operators will not have the right to change
the type of technology used in the provision of services without the
subscribers' permission, except when the standard of service and the level of
pricing for their services remains the same.

TELECOMMUNICATIONS DATA PRIVACY ACT

     On April 22, 1999, the Finnish Parliament adopted the Act on the Protection
of Privacy and Data Security in Telecommunications (the "Telecommunications Data
Privacy Act") that implements the European Union directive (97/66/EC) on the
protection of individuals with regard to the free movement and processing of
personal data in telecommunications networks (the "Telecommunications Data
Protection Directive"). The Telecommuni-
                                        86
<PAGE>   100

cations Data Privacy Act entered into force on July 1, 1999. The purpose of the
Act is to protect the confidentiality of personal data, ensuring, among others,
the user's right to protect his or her telecommunications messages by technical
means such as encryption. The Act also provides for strict rules as regards a
telecommunications operators' right to process user data, such as traffic data,
the subscription number or the length of a call and governs disclosure of a user
and a caller's identity, storing of billing records and itemization of calls.
For example, as a general rule, the itemization of calls has been expanded to
show all but the last three digits of a call made, instead of the earlier four
digits. Under the Act, direct marketing through automatic calling systems is
possible only with the consent of the consumer, allowing the prevention of any
mass sending of text and e-mail messages. As regards directories, the Act
obligates the telecommunication operators to give, on equal terms, the
information published in directories to be published in some other directory,
thereby aiming to increase competition in directory business. According to the
Act, the telecommunications operators are obliged to manage the directories of
subscribers and national directory services. A private person is entitled to
have his or her personal data contained in directories of subscribers partially
or fully omitted from the directory or changed free of charge. In the
Communications Act Proposal, the Ministry of Transport and Communications
indicates that the information that may be included in these directories should
be defined more narrowly and should include only information on the name,
address and phone number of a subscriber. Telecommunications operators are
required to safeguard the data security of their own networks and to inform the
users of any risks. A telecommunications operator violating the
Telecommunications Data Privacy Act or the regulations thereunder, may be
ordered to correct its error or omission, or face fines or a possible suspension
of all of its operations.

     In July 2000, the European Commission proposed a new directive on data
protection in the electronic communications sector. The proposal aims at
expanding the current provisions of the Telecommunications Data Protection
Directive on traffic data to ensure, among other things, that all communications
services providers (including Internet service providers) must obtain the
consent of the subscriber before using traffic data processed for the
transmission of a communication for marketing purposes or for the provision of
value-added services. This proposal is at an early stage of the legislative
process and its final wording is uncertain.

ACCESS TO TELEPHONE CALL AND CALLER RECORDS

     On March 1, 2001, an amendment to the Finnish Police Act (the "Police Act")
became effective. The Police Act expands the rights of the police in connection
with the prevention of crime to, among other things, receive information on
short notice related to data that is collected from the telecommunication
networks. This information includes data relating to calls made or calls
received and the identity and location of the callers. To comply with the
obligations of the amendments to the Police Act, we installed a new data
collection system (KUHA). The implementation of the Police Act has not, however,
led to an increase in our operating costs because (1) the Ministry of the
Interior reimbursed us for the development and installation of the KUHA, and (2)
we charge the relevant police authorities for all the direct costs relating to
the use of the KUHA.

TELEVISION AND RADIO BROADCASTING

     Provision and transmission of television and radio programs via wires or
radio waves, including satellite transmission, is regulated by the Finnish Act
on Television and Radio Operations (744/1998), as amended (the "Television and
Radio Act"). According to the Television and Radio Act, broadcasting of and
radio signal via radio waves requires a license issued by the Finnish
Government. These licenses can be obtained only after the Finnish Government has
made a public notification of the availability of new licenses. When granting
the licenses, the Finnish Government is obligated to consider, among other
things, the effect of such licenses on the entire radio and television market,
with a view to promoting freedom of speech, versatility of the programs and the
needs of various interest groups. The licenses are valid for a maximum of ten
years. Other television and radio operations are not subject to a licensing
requirement. Prospective operators are merely required to submit a notification
to the TAC prior to commencing operations.

     The TAC has general jurisdiction to oversee compliance with the Television
and Radio Act as well as the rules and regulations thereunder. The consumer
ombudsman exercises a parallel right with the TAC to oversee certain provisions
relating to consumer protection. The Finnish Government may revoke a license or
order operations carried out under the notification procedure to be stopped if
the operator, after having been put on
                                        87
<PAGE>   101

notice of the alleged breach, continues to be in serious breach of the
Television and Radio Act. The license for television and radio operations can
also be annulled due to the unavailability of appropriate frequencies. The
Television and Radio Act also provides for the obligation of telecommunications
operators that own or hold a right to operate a telecommunications network
primarily for the transmission of television and radio programs to transmit,
without charge, programs of certain other program providers as defined in the
Television and Radio Act. In addition, the Television and Radio Act contains
provisions on quotas for European content and content produced by independent
producers as well as other content related issues such as advertising.

     The Television and Radio Act provides for the right of the Ministry of
Transport and Communications and the TAC to receive information from the
operators needed to carry out its oversight and regulatory tasks. The licensed
operator must also inform the Ministry of Transport and Communications when the
voting participation, or the percentage ownership, of any of its shareholders
reaches, exceeds or falls below 1/10, 1/5, 1/3, 1/2, or 2/3 of the operator's
total share capital. A shareholder owning more than 20 percent of the shares or
votes of a licensed operator must give the Ministry of Transport and
Communications and the TAC a notice regarding any change, to its knowledge, in
which the voting participation and the percentage ownership of any shareholder
of the licensed operator reaches, exceeds or falls below 1/10, 1/5, 1/3, 1/2, or
2/3 of the operator's total share capital.

     Pursuant to the Communications Act Proposal, the regulation of television
and radio broadcasting would be divided into two separate branches. The
Television and Radio Act would continue to regulate broadcasting content and the
offering of television programs on digital networks would be covered by new
legislation. Analog television broadcasting would not be covered by the
Communications Act and would continue to be regulated under the Television and
Radio Act. The Ministry of Transport and Communications also proposes that
digital television and radio networks would be, after a transitional period,
subject to access and interconnection rules. The Communications Act Proposals
also contains a discussion about the inclusion of a so-called "must carry"
requirement for digital television and radio network operators (in practice,
cable television companies). An operator controlling such network would be
required to allow access to services providers to broadcast their programs in
the operator's network.

EUROPEAN UNION LAW

     Finland is a member state of the European Union and, as such, is required
to implement European Union legislation in its national law and to comply with
European Union legislation when applying its national law. European Union
legislation can take a number of forms. Regulations have general application and
are binding in their entirety and directly applicable in all member states.
Directives are binding, but national authorities may choose the form and method
of implementation. In certain circumstances, the European Court of Justice or a
national court may declare that a directive is directly applicable in a member
state, even if it has not been formally adopted through national legislation by
the deadline set forth in such directive. Council decisions are also binding and
require implementation by national regulatory authorities. Recommendations are
not, however, binding, unlike regulations, council decisions and directives.
Resolutions are policy statements that have political significance but no legal
character.

     European Union institutions have enacted numerous directives providing for
an open and seamless telecommunications market within and between the member
states, following two distinct and complementary processes: (1) liberalization
and (2) harmonization. A first series of directives, adopted pursuant to Article
86(3) of the EC Treaty on state monopolies or undertakings with special or
exclusive rights, mandated the full liberalization of national
telecommunications markets and the abolition of the monopoly rights of
state-owned or licensed operators by January 1, 1998. A second series of
directives, adopted pursuant to Article 95 of the EC Treaty on harmonization of
member states' regulatory requirements, provides for open and efficient access
and use of public telecommunications networks and services across member states'
territories (the "ONP" directives). A complete review of the regulatory
framework is currently under way. It aims to simplify the legislative framework
and adapt it to the latest developments in the information society, by making it
technologically neutral and applicable to all communication infrastructures and
associated services.

                                        88
<PAGE>   102

LIBERALIZATION DIRECTIVES

     The services liberalization directive was adopted on June 28, 1990 (the
"Services Directive"). The Services Directive provided for the new
liberalization of telecommunications services other than voice telephony, mobile
telecommunications, telex and satellite communications. The Services Directive
has been progressively amended to liberalize satellite telecommunications
services other than public switched voice services (October 1994),
telecommunications services provided over cable television networks (October
1995) and mobile services (January 1996). Completing the liberalization process,
on March 13, 1996, a new directive (1) required the full liberalization, as of
July 1, 1996, of the use of alternative infrastructures (such as
telecommunications infrastructures of railways) for the provision of all
telecommunications services other than voice telephony and, in addition, (2)
required complete liberalization of voice telephony and (3) the provision of
public telecommunications infrastructure by January 1, 1998.

     On June 23, 1999, the European Commission adopted a directive further
modifying the Services Directive. This so-called "Network Separation" directive
introduces a requirement that any telecommunications organization which is
either controlled by a member state or which has been granted special or
exclusive rights over radio frequencies should operate its cable television
networks under a separate entity from its public telecommunications network,
always provided the operator has a dominant position in a substantial part of
the common market. This goes further than the current provisions on accounting
separation set forth in the Telecommunications Market Act. According to the
Ministry, the modified Directive will not concern operators in Finland as there
are no exclusive or other special concession in place for operation of cable
television network. The Commission has not responded to the Ministry's
interpretation. The Commission may eventually demand that the Telecommunication
Market Act has to be changed, and, as a consequence, we could be obligated to
incorporate our cable television interest into a separate legal entity. We do
not believe that this legal separation will have an adverse effect on our
results of operations or financial condition.

ONP DIRECTIVES

     The ONP directives are intended to harmonize technical interfaces, usage
conditions and tariff principles throughout the European Union and to ensure
objectivity, transparency and non-discrimination in access to services provided
in accordance with ONP requirements. On June 28, 1990, along with the first of
the liberalization directives, the European Union adopted a basic ONP framework
directive. It was followed by directives on leased lines in June 1992 and on
voice telephony in December 1995. Recommendations for dealing with packet
switching data services and ISDN offerings have also been adopted.

     The interconnection directive adopted on June 30, 1997, establishes
principles for setting interconnection charges and allocating the cost of
universal service obligations, requires accounting safeguards to avoid unfair
cross-subsidization, and allocation of telephone numbers, defines the role of
national regulators and establishes a common dispute resolution procedure. On
October 6, 1997, the ONP framework and the ONP leased line directives were
modified to adapt them to a competitive telecommunications environment. On
January 14, 1998, the Council and the European Parliament adopted a directive on
the application of ONP to voice telephony and on universal service obligations
for telecommunications. This directive updated the ONP voice telephony directive
of December 1995 in the context of full liberalization of telecommunications
infrastructures and services across the European Union (with the exception of
some member states) on January 1, 1998. Finally, on September 24, 1998, the
Council and the European Parliament adopted an amendment to the interconnection
directive accelerating the introduction of operator number portability in fixed
networks through the European Union and to create a legal basis for the
introduction of carrier pre-selection. The European Commission has issued a
recommendation on termination charges in the fixed network and a recommendation
on local loop unbundling.

NEW COMMUNICATIONS FRAMEWORK

     On July 12, 2000, in line with the results of an in-depth review of the
telecommunications regulatory framework in 1999, the European Commission
proposed a new regulatory framework for electronic communications networks and
services (the "Communications Framework") consisting of:

                                        89
<PAGE>   103

     -  five harmonization directives, including a framework directive and four
        specific directives on (1) authorization, (2) access and
        interconnection, (3) universal service and user rights, and (4) data
        protection in the electronic communications sector;

     -  a regulation on the unbundling of the local loop;

     -  a liberalization directive concerning competition in the electronic
        communications sector; and

     -  a decision on European Union radio spectrum policy.

     The Communications Framework will apply to all forms of communications
networks carrying publicly available communications services, whether used for
voice, fax, data or images, including fixed and mobile telecommunications
networks, cable television networks, networks used for terrestrial broadcasting,
satellite networks and networks using Internet protocol. It aims to bring the
sector-specific rules for electronic communications more in line with the
general competition rules. For example, the framework directive bases the notion
of significant market power on the concept of dominant position in particular
markets, calculated in accordance with the competition law practice. The new
form of significant market power will embrace single company dominance, joint
dominance and the leverage of a dominant position onto an associated market.
National regulatory authorities will be able to notify companies that they have
significant market power and to impose ex ante obligations where such firms are
considered to have a dominant position under competition law and where either
there are problems of incumbency and/or problems of vertical integration, such
that the ex post remedies of competition law are not adequate to meet the market
problems identified. The European Commission's proposal also aims to ensure that
national regulatory authorities do not impose significant market power
obligations on newly emerging markets.

     The Commission's proposals are currently at various stages in the
legislative process. The final wording of the new Communications Framework will
not become clear until the end of the legislative process. Although its precise
impact on our business is uncertain, certain features of the new regulatory
environment, such as the increased convergence between fixed and mobile
regulations, if adopted, may have a material adverse effect on our business.

Access and Interconnection

     Within the Communications Framework, the European Commission has proposed a
new directive on access to, and interconnection of, electronic communications
networks (the "Access and Interconnection Directive"). The proposed Access and
Interconnection Directive harmonizes the way in which European Union member
states regulate the market between suppliers of communications networks and
services in the European Union.

     Pursuant to the proposal, a national regulatory authority may impose
obligations on operators having significant market power in the markets listed
in the Commission's decision to grant access to, and use of, specific facilities
and/or associated services, for example, in situations where the national
regulatory authority considers that denial of access would hinder the emergence
of a sustainable competitive market at the retail level or would not be in the
end-user's interest.

     Operators with significant market power may be required, among other
things:

     -  to give third parties access to specified network elements and/or
        facilities;

     -  not to withdraw access to facilities already granted;

     -  to provide resale of specified services;

     -  to grant open access to technical interfaces, protocols or other key
        technologies that are indispensable for the interoperability of
        services;

     -  to provide co-location or other forms of facility sharing, including
        duct, building or mast sharing;

     -  to provide specified services needed to ensure interoperability of
        end-to-end services to users, including facilities for intelligent
        network services or roaming on mobile networks;

                                        90
<PAGE>   104

     -  to provide access to operational support systems or similar software
        systems necessary to ensure fair competition in the provision of
        services; and

     -  to interconnect networks or network facilities.

     National regulatory authorities may attach to those obligations conditions
covering fairness, reasonableness, timeliness, transparency and/or
non-discrimination.

     Pursuant to the Commission's proposal, the access and interconnection
obligations may be imposed by the national regulatory authorities in the markets
to be listed in the Commission's decision. The framework directive contains a
proposed list of such markets, which comprises, for example, a market for access
to public mobile telephone networks, including carrier selection. The
Communications Framework, with the exception of the regulation on unbundling of
the local loop, is at an early stage of the legislative process and its final
wording is as yet unknown. However, if it is adopted and applied by the TAC,
mandatory cost-based access to our mobile network may have a material adverse
effect on our business.

LICENSING

     The European Union directive on general authorizations and individual
licenses in the field of telecommunications services was adopted on April 10,
1997. The key elements of the directive are:

     -  the prohibition of any limit on the number of new entrants, except to
        the extent required to ensure an efficient use of radio frequencies and,
        under limited circumstances and for a temporary period, of numbers;

     -  the priority given to general authorizations as opposed to individual
        licenses; and

     -  the definition of harmonized licensing principles and procedures.

     The new Communications Framework proposes that all services and networks
should be covered under a general authorization, and specific rights of use
should be limited to the assignment of frequencies and numbers only.

UNBUNDLING OF THE LOCAL LOOP

     The local loop is the physical twisted metallic pair circuit connecting the
network termination point at the subscriber's premises to the main distribution
frame or equivalent facility in the fixed public telephone network. Local loop
unbundling means the granting by incumbent operators of full unbundled access to
the local loop and shared access to the local loop. It does not entail a change
in ownership of the local loop.

     The European Commission views local loop unbundling as a necessary step
towards the provision of a full range of communications services, including
broadband multimedia and high-speed Internet (the local loop can be adapted for
provision of high-speed broadband services by applying digital subscriber line
technologies).

     On December 18, 2000, the European Parliament and the Council adopted
regulation 2887/2000 on unbundled access to the local loop (the "ULL
Regulation"). Under the directly applicable regulation, the operators designated
as having significant market power are under an obligation to publish from
December 31, 2000, and keep updated, a reference offer for unbundled access to
their local loops and related facilities. They are also required to meet
reasonable requests from beneficiaries for unbundled access to their local loops
and related facilities, under transparent, fair and non-discriminatory
conditions. Where access is refused, the aggrieved party may submit the case to
the dispute resolution procedure set up by the ULL Regulation. Except where
specifically exempted by the national telecommunications authority, prices
charged for unbundled access to the local loop and related facilities notified
operators need to be cost-orientated.

     The Finnish regulatory regime has already provided for "full" and "shared"
access. We do not, therefore, expect the ULL Regulation to have a material
adverse effect on our business or financial results.

                                        91
<PAGE>   105

LIABILITY OF INTERNET SERVICE PROVIDERS

     Subscribers to our Internet services may access content on our portals or
on other web-sites via hyperlinks on our portals, download this content and
transmit it to others over the Internet. They may also upload content onto our
servers, either onto their individual web pages hosted by us, in chat rooms,
bulletin boards or news groups. In addition, they may use the email accounts we
provide to send and receive content by email. Any of these actions by
subscribers could potentially result in claims against us as a service provider
based on infringement of intellectual property rights of third parties,
including copyright and trademark infringement, as well as defamation and
publication or transmission of obscene material. We attempt to reduce our
exposure to this potential liability through, among other things, the general
terms and conditions we apply to subscribers to our Internet services and
through our portal disclaimers.

     Our activities are increasingly subject to self-regulation laid down in
industry codes of conduct. On January 25, 1999, the European Union adopted an
action plan to combat illegal and harmful content on the Internet. Under the
action plan, European Union member states agree to promote, encourage and
support the development of industry self-regulation and content-monitoring
schemes regarding the safer use of the Internet, industry filtering tools and
rating system to protect minors, as well as to promote international cooperation
on these points.

ELECTRONIC COMMERCE

     Directive 2000/31/EC of June 8, 2000 on certain legal aspects of
information society services, in particular electronic commerce, in the internal
market (the "Electronic Commerce Directive") aims to ensure the free movement of
information, including electronic commerce, within the European Union member
states, based on a country of origin principle. The Electronic Commerce
Directive regulates the legal recognition of electronic contracts, the formation
of electronic contracts, the information to be provided by the service provider
to the consumer, and solicited and unsolicited commercial communications with
consumers.

     The Electronic Commerce Directive also contains rules on liability of
intermediary service providers for mere conduit, as well as for caching and
hosting activities. In principle, intermediary service providers cannot be held
liable if they only act as a mere conduit, that is, as long as they do not
initiate the transmission, select the receiver of the transmission or select or
modify the information contained in the transmission. Similarly, for caching the
intermediary service provider cannot be held liable as long as it: (1) does not
modify the information; (2) complies with the conditions on access to
information; (3) complies with the rules regarding the updating of information;
(4) does not interfere with the lawful use of technology to obtain data on the
use of the information; and (5) acts expeditiously to remove or disable access
to the information upon receiving actual knowledge that the information at the
initial source has been removed or access to it has been disabled, or have been
ordered to do so by a court or an administrative authority. Furthermore, for
hosting activities, intermediary service providers cannot be held liable if the
provider does not have actual knowledge of illegal activity or information and
was not aware of facts or circumstances from which illegal activity or
information is apparent. Where the provider receives such information, it can
avoid liability by acting expeditiously to remove or disable access to the
information. The Electronic Commerce Directive does not deal with the liability
for hyperlinks; it indicates, however, that the European Commission should
address this issue in the future.

     European Union member states must implement the Electronic Commerce
Directive by January 17, 2002. The Finnish State circulated a first draft of a
proposal for the legislation on electronic commerce to interested parties on
March 8, 2001. The implementing legislation is expected to enter into force
before the deadline set out in the Electronic Commerce Directive. As European
Union member states will have a margin of discretion in implementing the
Electronic Commerce Directive, their national laws relating to electronic
commerce may vary. It is, therefore, difficult to predict the Electronic
Commerce Directive's precise implications for Sonera until the implementation of
the Directive is completed. The Commission will publish a first review of the
Electronic Commerce Directive before July 17, 2003.

                                        92
<PAGE>   106

COPYRIGHT

     As far as liability issues are concerned, the Electronic Commerce Directive
is closely linked to the directive on copyright and related rights in the
information society (the "Copyright Directive"), which was adopted on April 9,
2001. The Copyright Directive is to be implemented by European Union member
states within 18 months of its entry into force (which will be on the day of its
publication in the Official Journal).

     The Copyright Directive introduces, among other things, an exclusive right
to make on-demand transmissions available to the public, and to harmonize
reproduction and distribution rights. The Copyright Directive contains a long
list of exceptions to the reproduction right. Only one of these exceptions is
mandatory. This exception covers transient or incidental copies which are an
integral and essential part of a technological process. This exception needs to
be read together with the liability stipulations in the Electronic Commerce
Directive. The Copyright Directive also deals with technological measures to
protect against copyright infringements and aims to provide legal protection
against the circumvention of these measures.

     We believe that the scope of the exceptions for intermediary activities
should be sufficient to ensure that most of our services escape liability for
infringements. However, it cannot be excluded that our transmission or ISP
activities may not always benefit from exceptions in the e-commerce or copyright
directives. Implementation of the two directives into national law should
clarify matters further.

ELECTRONIC SIGNATURES

     Closely connected with our electronic commerce activities is the use of
electronic signatures. The European Union adopted a directive on a community
framework for electronic signatures on December 13, 1999 (the "Electronic
Signatures Directive"), which establishes a framework in which third parties,
also known as "certification service providers", issue "qualified certificates"
to enable the verification of electronic signatures. The Electronic Signatures
Directive also sets out criteria for the legal recognition of electronic
signatures. The Electronic Signatures Directive is required to be implemented by
European Union member states by July 19, 2001.

     In Finland, electronic signatures already apply to a certain extent in the
public sector. There is an existing law on using electronic signatures in public
administration (you can have an ID with an electronic signature "function").
Moreover, the Finnish government is preparing Finnish regulations designed to
implement the Electronic Signatures Directive. It appears likely that the
legislation will be adopted during the fall 2001. The Electronic Signatures
Directive does not differentiate between public and private sector and Finland
is expected to have as few exceptions to the public sector as possible. Among
other things, the new proposal will incorporate the existing rules applicable to
public administration. However, the issue whether the government can delegate
the "identification" function to a commercial certificate authority is being
discussed.

ENCRYPTION REGULATION

     With the development of information and communications technologies that
allow vast quantities of data to be transmitted, copied and stored quickly and
easily, encryption is fast becoming an integral part of personal and business
computing. While uniform international policy on encryption has been elusive,
several countries have implemented regulations and policies on the use of
encryption and other countries may do so in the future. The European Union has
played a key role in liberalizing restrictions on encryption. The European
Commission requires European Union member states to report to it any national
proposals to impose technical rules for marketing, use, manufacture or import of
encryption products. The European Commission has also successfully dismantled a
large part of internal European Union controls on commercial encryption
products. Encryption products that can be used for both civil and military
purposes and are listed in the relevant Council decision can only be exported on
the basis of an authorization.

     On June 22, 2000, the European Commission adopted a new regulation on
export controls of dual-use goods and technology which repealed the previous
regulation 3381/94/EC on export controls of dual-use goods (the "Amended Export
Controls Regulation"). The Amended Export Controls Regulation simplified export
licensing procedures and created an European Union general export authorization.
The newly created authorizations are

                                        93
<PAGE>   107

valid for most of the widely traded dual-use items for exports to Australia,
Canada, Czech Republic, Japan, Hungary, Norway, New Zealand, Poland, Switzerland
and the United States. The Amended Export Controls Regulation reduced and
simplified European Union's internal trade, notably in nuclear and ballistic
devices. It created a common list of items for European Union would maintain
internal controls, which would replace national lists. European Union's internal
trade was liberalized completely for information security items (including
encryption), except for a few highly specialized products (cryptanalysis items).

     In addition, the United States has recently shown significant activity in
legislation and regulation affecting such areas as digital signatures and
electronic commerce. The U.S. federal government added a measure of uniformity
on the regulation of electronic business when the Electronic Signatures in
Global and National Commerce Act (S.761) ("E-Signatures Act") was signed into
law on June 30, 2000. The E-Signatures Act effectively gives electronic
signatures and other legal transactions conducted through electronic means the
same legal status as written documents. It ensures that consumers who contract
on-line have the same kind of protection and records that they currently receive
when they sign paper contracts. The E-Signatures Act allows the states to pass
their own laws with respect to electronic commerce, either by adopting the
Uniform Electronic Transaction Act or other similar laws, but requires that
these laws must be consistent with the E-Signatures Act and not technologically
biased.

     In January 2000, the U.S. government enacted legislation which eased
encryption controls. The U.S. federal restrictions on encryption transfers were
further reduced via a regulatory amendment promulgated on October 19, 2000. The
objective was to parallel European Union liberalizations in this area to ensure
U.S. companies are able to compete internationally. Under the new rules, certain
lower level encryption products may be "self-classified" by business and
exported without the need for government review, although reporting requirements
may apply. Products (i.e., audio devices, video cameras, mobile phones) that
incorporate components providing cryptographic functionality limited to
short-range wireless technology can mostly be exported freely without review.
The amendment also liberalized the export of higher level encryption products.
Provided a classification request is submitted prior to export, all encryption
items (except encryption used to break codes) may be exported and reexported
without a license to all end-users (both government and non-government) in the
European Union, Australia, Czech Republic, Hungary, Japan, New Zealand, Norway,
Poland, and Switzerland without a license (i.e., under license exception.)
Outside these countries exportation of such encryption products generally will
also be permitted under license exception to non-government end users but will
require licensing to government end-users. The amended rule confirms that all
encryption items of any key length also are authorized for export to foreign
subsidiaries of U.S. companies without review and classification. In a new
development, certain encryption items have been made eligible for de minimis
treatment, meaning that they may be incorporated under certain circumstances
into non-U.S. origin items and reexported without the need for a license after
prior review and classification. The amendment does not modify prior U.S.
restrictions on exportation to embargoed countries (Cuba, Iran, Iraq, Sudan,
Libya and North Korea).

DISTANCE SELLING

     Our activities in the field of electronic commerce will also be subject to
a directive on the protection of consumers in respect of distance contracts (the
"Distance Selling Directive"), which sets out rules for contracts concluded at a
distance, including contracts for goods and services sold over the Internet. The
Distance Selling Directive requires suppliers to provide consumers with specific
information, including their name, address, price and delivery costs, before a
contract is concluded. Consumers generally have a seven working day right of
withdrawal. The Distance Selling Directive prohibits "inertia selling" (the
supply of goods or services without prior request) and suppliers are restricted
in their use of automatic calling or facsimile machines or unsolicited e-mails
to communicate with consumers. Consumers must have effective means of redress.

     The Distance Selling Directive does not apply to contracts such as those
relating to financial services, contracts concluded with telecommunications
operators through the use of public pay-phones, and contracts concluded at an
auction. European Union member states were required to implement the Distance
Selling Directive by June 4, 2000. Finland implemented the Distance Selling
Directive by amendments to the Consumer Protection Act and the Act on Unfair
Trade Practices, both adopted on December 15, 2000.

                                        94
<PAGE>   108

MEDIA REGULATION

     The European Union regulatory framework with respect to media contains
regulation on both infrastructure and content.

Infrastructure

     To promote the launch of digital television services, the European Union
adopted on October 24, 1995, Directive 95/47/EC on the use of standards for the
transmission of television signals (the "Transmission Standards Directive"). The
Transmission Standards Directive requires, among other things, that: (1)
conditional access providers offer broadcasters access on fair, reasonable and
non-discriminatory terms, (2) hardware manufacturers use the European common
scrambling system to make it technically possible to receive all digital
television services through the decoder, and (3) broadcasters use European
standards for television transmission; it does not, however, mandate any
particular standard or type of service. The Transmission Standards Directive
does not apply to cable television operators. The new Communications Framework,
if adopted in its current form, will repeal the Transmission Standards Directive
incorporating its contents.

     On November 20, 1998, the European Parliament and Council adopted Directive
98/84/EC on the legal protection of services based on, and consisting of,
conditional access (the "Conditional Access Directive"). Conditional access
services include pay-television, video-on-demand, music-on-demand, electronic
publishing and a wide range of other on-line services. The Conditional Access
Directive requires European Union member states to prohibit and provide
appropriate sanctions against all commercial activities related to unauthorized
access to a protected service, such as the sale of pirate decoders, smart cards
or software. It also prohibits member states from invoking "anti-piracy" grounds
to restrict the free movement of legitimate services and conditional access
devices originating in another member state. The Conditional Access Directive
forms part of a package of measures related to electronic commerce. See "--
Liability of Internet Services Providers." European Union member states were
required to implement the Conditional Access Directive by May 28, 2000. The
substance of the Conditional Access Directive was incorporated into two Finnish
acts: the Telecommunications Market Act and the Radio Act.

     The proposed Access and Interconnection Directive envisages an amendment
which imposes the conditional access obligations on all operators of conditional
access services, irrespective of the means of transmission, who provide access
services to digital television services. This amendment appears mainly to
clarify the application of the conditional access obligations to cable network
operators.

Content

     On October 3, 1989, the European Union adopted Directive 89/552/EEC on the
coordination of certain provisions concerning the pursuit of television
broadcasting activities which was amended on June 30, 1997 by Directive 97/36/EC
(the "Revised Television Without Frontiers Directive"). The Revised Television
Without Frontiers Directive was designed to establish a harmonized framework for
the free movement of television broadcasting services in the European Union. The
aim of the Revised Television Without Frontiers Directive is to promote a
European market in broadcasting and related activities, such as television
advertising and the production of audiovisual programs. It covers promotion of
the production and distribution of European works, television advertising and
sponsorship, the protection of minors, the right of reply, law applicable to
television broadcasts, and access of the public to major (sports) events. The
most controversial provision lays down a European content quota, by which
broadcasters must ensure that, wherever practicable, the majority of their
content consists of European programming. The European content quota provisions
do not apply to television broadcasts that are intended for local audiences and
do not form part of a national network. The Commission is currently preparing a
review of the Television Without Frontiers Directive. The Directive provides for
a further review by June 30, 2002.

COMPETITION LAW

     In Finland, since the commencement of the liberalization of the
telecommunications market in 1987, competition law has gradually been applied to
telecommunication services and is currently being applied fully to
                                        95
<PAGE>   109

services we offer. Finnish competition law, including the Act on Competition
Restrictions, prohibits the abuse of a dominant market position, restrictive
practices relating to prices and agreements or collusive behavior among market
participants restricting competition. The Telecommunications Market Act provides
that the Ministry of Transport and Communications and the TAC may refer any
matter, to the extent that it may infringe the competition law, to the Finnish
Competition Authority.

     The FCA monitors the application of the competition law and in the event of
an infringement, the FCA may propose to the Finnish Competition Council that it
order the infringing parties to pay a fine or bring to an end the infringement,
or both. The maximum fine may be increased where justified on the basis of the
seriousness of the infringement and the prevailing circumstances, but the amount
cannot exceed ten percent of the preceding year's turnover of the parties
involved, on a consolidated basis. When considering the competition restrictions
and their harmful consequences on the telecommunications market, the FCA and the
Finnish Competition Council must also take into account the provisions of the
Telecommunications Market Act and potential conflicts therewith.

     In addition to Finnish competition law, we must adhere to the European
Union competition rules, the main principles of which are set forth in Articles
81 and 82 of the EC Treaty, as well as national competition laws in
jurisdictions where we operate. Article 81 prohibits agreements or collusive
behavior between companies which may affect trade between member states and
which have the object or effect of restricting competition within the European
Union. Article 82 prohibits any abuse of a dominant market position within a
substantial part of the European Union that may affect trade between member
states. These rules are enforced by the European Commission in cooperation with
the national competition authorities. The European Commission may impose fines
in the event of a breach amounting to up to ten percent of a company's turnover
on a consolidated basis in the preceding financial year. In addition, national
courts have jurisdiction to apply European Union competition law and award
damages in the event of a breach.

     For so long as the majority of our shares are owned by the Finnish State or
the Finnish State exercises a significant influence over us, the European
Commission will have the authority to address individual decisions to the
Finnish State to ensure our compliance with European Union competition rules. In
this regard, the European Commission will be able to initiate proceedings
against us directly under Articles 81 and 82 of the EC Treaty, or against the
Finnish State under Article 86 of the EC Treaty. As a result, we may have to
face two different proceedings, one of which we cannot directly influence and in
which we are not a party.

MERGER CONTROL

     Since October 1, 1998, mergers and acquisitions by companies exceeding
certain turnover thresholds have been subject to the prior notification to and
approval by the Finnish competition authorities. The Finish Competition Council
may, upon a proposal by the FCA, prohibit a transaction which results in the
creation or strengthening of a dominant position of the parties, as a result of
which competition would be significantly impeded in the Finnish market or in any
significant part thereof. The Finnish Competition Council may also approve the
transaction conditionally, ordering the parties to dispose of part of their
business. If the transaction in question falls within the scope of the European
Union merger control regulation, such European Union regulation overrides the
Finnish rules and the transaction must be notified to and approved by the
European Commission (although national authorities may ask to review all or part
of a transaction that significantly impedes competition within its territory).
Besides the power to block a transaction, the European Commission also has a
power to make any clearance decision conditional, among other things, upon
changes to the parties' business practices or a divestiture of assets or
businesses. Similar national merger control rules also exist in most other
countries in which we operate. These kind of regulations may negatively affect
our ability to acquire, merge with, or enter into joint ventures with other
companies, particularly in countries where we already have a large market share
or are deemed to occupy a dominant market position.

WORLD TRADE ORGANIZATION TELECOMMUNICATIONS AGREEMENT

     In February 1997, 69 governments, including Finland and other countries in
which we are active, made multilateral commitments as part of the WTO
Telecommunications Agreement to liberalize the market for basic and certain
telecommunications services. The agreement became effective on February 5, 1998.

                                        96
<PAGE>   110

     As a member of the European Union, Finland's commitment to the WTO
Telecommunications Agreement includes complete liberalization of services
(facilities-based and resale) for all market segments (local, long distance and
international). The commitment of the European Union also covers satellite
networks and services and all mobile and personal communications services and
systems. Unlike some other European countries, Finland requested no derogation.
In addition, the European Union is committed to the Reference Paper on
Regulatory Principles. The European Commission noted in the past that a new
round of the General Agreement on Trade and Services negotiations and other
international negotiations would likely take place in conjunction with the work
on the new European Union communications regulatory framework. See "-- New
Communications Framework." The European Commission aims to ensure that the new
European Union communications regulatory framework and the results of these
negotiations are fully consistent with each other.

                             PROPERTY AND EQUIPMENT

     Our principal properties consist of telecommunications network
infrastructure located throughout Finland, including fixed network switches,
mobile switching centers, concentrators, base station control units and base
station equipment, transmission equipment, cables, equipment for radio
communication and related buildings. We lease some of the sites on which our
concentrators and base stations are located under 30-year renewable leases. We
transferred our base station operations, which include primarily the real estate
and the leases for the base station sites and related buildings to our
subsidiary Unibase Oy in 1999. We own the real estate on which our corporate
executive offices are located and a number of other office buildings. Otherwise,
we rent office space and space for our equipment and system sales operations,
generally under five to ten-year leases.

     Our principal executive offices are located at Teollisuuskatu 15, Helsinki,
Finland.

ITEM 5.  OPERATING AND FINANCIAL REVIEW AND PROSPECTS.

     You should read the following discussion in conjunction with our
consolidated financial statements and our unaudited condensed consolidated
interim financial statements, each of which are included elsewhere in this
annual report. Our consolidated financial statements and our unaudited condensed
consolidated interim financial statements have been prepared in accordance with
Finnish GAAP, which differ in certain significant respects from U.S. GAAP. See
note 21 to our consolidated financial statements for a discussion of the
principal differences between Finnish GAAP and U.S. GAAP relevant to Sonera.

                                    OVERVIEW

OVERVIEW OF 2000

     Our revenues increased by E208 million, or 11.2 percent, from 1999 to 2000.
This was principally due to an increase in revenues generated by Domestic Mobile
Communications, which accounted for approximately 54 percent of our total
revenues in 2000, as well as an increase in revenues generated by Media
Communications and New Services. Sonera Telecom business area revenues also
increased in 2000 as compared to 1999, although at a slower rate than our
Domestic Mobile Communications and Media Communications and New Services
business areas.

     Our profit before extraordinary items and taxes increased by E1,363
million, or over 270 percent, from 1999 to 2000, due to large capital gains
recorded in 2000 relating to our sale of a portion of our interest in Turkcell
and the acquisition of our interest in Aerial Communications by VoiceStream.
Excluding non-recurring items, our profit before extraordinary items and taxes
would have declined by 34 percent, principally due to higher expenses incurred
in connection with new services businesses included in our Media Communications
and New Services business area.

     Our net debt levels rose to E5,641 million at the end of 2000 as compared
to E1,181 million at the end of 1999, mainly as a consequence of our investments
in consortiums outside of Finland that received UMTS licenses.

                                        97
<PAGE>   111

OUTLOOK FOR 2001

     We expect to experience further revenue growth in 2001. In the domestic
mobile telecommunications market, we expect that average use per subscription
will continue to increase and that the use of non-voice services will continue
to grow. We do, however, expect to experience more intense competition
domestically because of, among other things, the start up of commercial
operations of a new nationwide GSM competitor in Finland, DNA Finland, and the
increased activity of service providers on the Finnish market such as Jippii
Group. Nevertheless, we believe that we are well positioned to maintain our
strong market position in 2001 due principally to the breadth and high quality
of our services. We also expect to experience increased revenues from Media
Communications and New Services as our Sonera SmartTrust, Sonera zed and Sonera
Juxto businesses continue to increase their commercial activities. We also
expect Sonera Telecom revenues to increase in 2001 as a result of our increased
sales of capacity to international operators and broadband initiatives.

     We will record significant capital gains in 2001, primarily relating to the
sale of shares we held in VoiceStream, Powertel and TietoEnator. We are also
expecting, taking into consideration market conditions and other factors, to
sell shares we received in Deutsche Telekom as a result of the acquisition of
both VoiceStream and Powertel by Deutsche Telekom.

     We anticipate that the relative profitability of our Domestic Mobile
Communications business area will remain at approximately the level recorded in
2000 assuming no major changes take place in either the competitive environment
for mobile services in Finland or the regulatory environment in Finland. We also
believe that Sonera Telecom's profitability will remain at approximately the
level recorded in 2000.

     We expect that EBITDA, excluding capital gains and losses, will increase
(in euro terms) in 2001. Among other things, we expect that the negative EBITDA
of Media Communications and New Media will decrease slightly in 2001.

     We expect to record an equity loss from associated companies in 2001 of
approximately E350 million as compared to equity income in 2000 of E121 million.
Both Turkcell and Fintur are expected to report losses in 2001 and we expect to
incur equity losses from our associated company Gruppe 3G due to start-up costs.

     Financial expenses will grow in 2001 as compared to 2000 as a result of the
increase in debt, which we used principally to finance our acquisition of
interests in consortiums which hold UMTS licenses. We do not currently expect to
make any significant equity investments in 2001 in new ventures that would
materially increase our debt levels.

     We plan to reduce our debt in 2001 through, among other actions, disposals
of non-core assets. In May 2001, we sold VoiceStream shares and Powertel shares
for which we received proceeds of approximately E430 million in the aggregate.
On May 31, 2001, Deutsche Telekom completed the acquisitions of VoiceStream and
Powertel. Under the terms of the acquisition, we received approximately E290
million in cash and received approximately 72 million shares of Deutsche Telekom
as consideration. We plan to dispose of our shareholdings in Deutsche Telekom,
taking into consideration market conditions and our lock-up obligations, in an
effort to maximize the returns on the shares.

FACTORS AFFECTING OUR BUSINESS

     Our business has been affected in recent years by a number of important
trends. One of the most important trends in Finland has been the growth of the
mobile telecommunications market. In step with this trend, we have continued to
transform our Company into a provider of advanced telecommunications services
increasingly focused on mobile communications. In 2000, we derived approximately
54 percent of our revenues from domestic mobile operations. Another important
trend is the ongoing liberalization of the European markets and the resultant
increase in competition in both mobile and fixed-line telecommunications. Other
important factors which are expected to affect our operating results and
financial condition include the development of the market for next generation
mobile services based on UMTS technology, ongoing developments in the regulatory
and legal environment in which we operate, and our ongoing investment in and the
success of our new service businesses.

                                        98
<PAGE>   112

INCREASING FOCUS ON MOBILE COMMUNICATIONS

     Finland's mobile telecommunications market has demonstrated strong growth
in recent years. In Finland, the mobile penetration rate increased from
approximately 42 percent at the beginning of 1998 to over 70 percent at the end
of 2000. This growth was driven primarily by lower acquisition costs for mobile
handsets, lower tariffs and the introduction of new value-added products and
services to the market. Penetration growth rates, however, slowed considerably
in 2000 as compared to 1999 and we believe that while the penetration rate will
continue to grow, it will be at a slower rate than in the past several years.
Growth in the mobile telecommunications market is expected to be driven in part
by the development of new services for mobile handsets, including wireless data
capabilities and wireless transaction based services. Future growth is also
expected to result from the continuing evolution of Finland as a wireless
communications environment in which subscribers have more than one mobile
connection. However, we also believe that revenues generated by new services for
mobile handsets and multiple mobile connections are unlikely to sustain the
rates of revenue and profit growth generated from enrolling new subscribers and
that, accordingly, the Finnish mobile communications market in the future is
likely to grow at a slower rate than in the past several years.

     Because of the expected slowdown in the rate of growth in the Finnish
mobile market, we have been actively pursuing a dual-part growth strategy. One
part of this strategy is to grow internationally by acquiring interests in
mobile operators outside of Finland. Our acquisition of interests in consortia
that acquired UMTS licenses in Germany, Italy, Spain and Norway reflects this
strategy. The second part of this growth strategy is the development and
marketing of network independent mobile communications services and
technologies, including our Sonera SmartTrust products and our Sonera zed
services. In 2000, we began to market these technologies and services to other
mobile communications providers, financial institutions and other service
providers.

ONGOING LIBERALIZATION

     The telecommunications market in Finland was fully liberalized in 1994,
more than three years ahead of most other European countries, and since that
time every segment of the market has been subject to competition. Because we
have experienced competition in all of our markets since 1994, the European
Union requirement that all European telecommunications markets be liberalized by
1998 has not had as significant an impact on us as on other providers of
telecommunications services in Europe. Nonetheless, the liberalization in other
parts of Europe has resulted in increased competition in each of our business
areas as new entrants from other European countries and North America enter our
markets. Because of continued market liberalization, we expect to face
increasing competition from a variety of international and domestic providers.

     In the mobile market we have begun to experience increased competition in
the GSM market because of, among other things, the start up of commercial
operations of a new nationwide GSM competitor in Finland, DNA Finland, and the
increased activity of service providers on the Finnish market such as Jippii
Group. The introduction in December 2000 of GPRS, a GSM-based packet switched
mobile data transmission technology, and other high speed and advanced mobile
technologies, as well as the greater variety of new services these technologies
are capable of supporting, are also expected to have a significant impact on the
future competitive environment in the Finnish mobile market. In addition, the
commercial introduction of services based on UMTS technology will open the
market for one additional mobile operator, Finnish 3G Ltd., and strengthen the
position of Telia Mobile Finland which, together with Sonera and Radiolinja,
received third generation mobile licenses in 1999. Third generation mobile
services will allow for the provision of new value-added services. Our ability
to compete will therefore be largely dependent upon our ability to develop and
introduce such services.

     In the fixed-line segment, we have experienced steadily increasing
competition in the international and long-distance call market. Increased mobile
handset usage has also contributed to the decline in long distance and
international traffic volumes. This has resulted in a gradual loss of market
share and lower tariffs. In the local market, there has been relatively little
competition, as incumbent local operators continue to control the market. We
have experienced a gradual decline in revenues from the local access market as
residential subscribers have moved away from our traditional service areas
located mainly in the more sparsely populated areas of eastern and northern
Finland. Despite this increasing competition, we continue to maintain a high
market share in the domestic long distance and international call market and on
the local access market. New demand for fixed-line

                                        99
<PAGE>   113

services has been generated largely due to the increasing number of faster
digital lines, and we are increasingly focusing on providing customers with
higher capacity broadband connections. New regulations relating to the shared
use of the local loop by fixed-line telecommunications operators may have a
material effect on the development of competition in the Finnish fixed
telecommunications market. Finnish regulatory authorities have also recently
required that fixed network operators with significant market power, such as
Sonera, offer subscribers the ability to pre-select their local, long-distance
and international voice carrier. This may have a significant effect on the
competitive situation in the fixed network voice traffic market.

INVESTMENT IN UMTS LICENSES

     In 1999 and 2000, a number of European countries offered licenses for the
next generation of mobile communications technology known as Universal Mobile
Telecommunications Systems, or UMTS. As part of our growth strategy, we have
invested in UMTS licenses in a number of European markets. In 1999, we received
a UMTS license in Finland. In 2000, consortiums of which we are a member were
granted UMTS licenses in Germany, Italy, Spain and Norway. See "Item 4.
Information on the Company -- International and Other Significant Investments --
Investments in UMTS Licenses." Since UMTS technology is expected to facilitate
the provision of certain services more efficiently, such as mobile data
transmission, we believe that the third generation licenses we have acquired are
important for the future expansion and success of our business. The economic
success of these investments will depend on the availability of services based
on UMTS technology that will be attractive enough to customers to generate
sufficient traffic volume and sufficiently high prices. The level of demand for
such UMTS services that will prevail in the future is unknown, however, and may
not justify the cost of providing UMTS services.

     Moreover, our UMTS strategy has been expensive. We paid a total of
approximately E4 billion for UMTS licenses in 2000, which required us to take on
a significant amount of debt. As a result of this increase in debt, we will have
higher financial expenses in the near future. Our high debt levels will also
limit our ability to use operating cash flow in other areas of our business. In
addition, the roll out of the UMTS networks of our third generation joint
ventures will cause those joint ventures to incur significant operating expenses
and to make significant capital expenditures, which may require their
shareholders, including Sonera, to provide them with additional funds. In light
of the expected high cost of rolling out the UMTS networks and the uncertainty
of the commercial success of third generation services, our management will
continue to review our third generation strategy.

REGULATORY AND OTHER LEGAL DEVELOPMENTS

     Our business has been and continues to be strongly influenced by the
regulatory regime applicable to telecommunications service providers in Finland.
The Ministry of Transport and Communications has determined that we have
significant market power in the local, long distance, international and mobile
telecommunications in Finland. As a result, many of our tariffs and other
activities are subject to enhanced regulatory scrutiny. For a full description
of the regulatory regime to which we are subject, see "Item 4. Information on
the Company -- Regulation." In addition, we are involved in a number of legal
proceedings, including cases related to our interconnection fees and to national
roaming, that may affect our business in the future. For a full description of
the material legal proceedings in which we are involved see "Item 8. Financial
Information -- Legal and Regulatory Proceedings."

ONGOING INVESTMENT IN MEDIA COMMUNICATIONS AND NEW SERVICES BUSINESS AREA

     As an integral part of our growth strategy, we are developing and
commercializing a wide variety of advanced mobile communications services and
technologies that are designed to function on other mobile networks as well as
our own. These services and technologies include new mobile transaction security
applications, such as Sonera SmartTrust, advanced mobile portal services, such
as Sonera zed, and ASP services, such as Sonera Juxto. We expect these services
and technologies to be an important contributor to our revenue growth in the
future. We have, however, incurred significant expenses to develop these new
service businesses, which has had a material impact on our results of
operations. For instance, the EBITDA loss of Media Communications and New
Services increased from E47 million in 1999 to E303 million in 2000. Our Media
                                       100
<PAGE>   114

Communications and New Services business area has also been the focus of much of
our increase in capital expenditures. Our Media Communications and New Services
Businesses recorded capital expenditures of E104 million in 2000 as compared to
E15 million in 1999, a significant portion due to the building of data centers
for Sonera zed. We plan to continue to make significant outlays and capital
expenditures to further develop and market our advanced mobile communications
services and technologies, which is expected to have a negative effect on our
consolidated results of operations and cash flows for at least the next two
years. In addition, we have recently lowered our future cash flow expectations
of some of our new service businesses. In particular, our future cash flow
expectations of Sonera SmartTrust are lower than then they were in 2000 at the
time we concluded our acquisitions of Across Holding and iD2 Holding. As a
result of these and other findings, we have recorded an impairment loss of E704
million under U.S. GAAP for the year ended December 31, 2000 to reduce the
carrying value of the goodwill and identified intangible assets related to the
acquisitions of Across and iD2.

REORGANIZATION OF BUSINESS AREAS

     Beginning January 1, 2001, we changed our method of presenting segment
information. We now have the following operating segments: (1) Domestic Mobile
Communications, (2) International Mobile Communications, (3) Media
Communications and New Services, (4) Sonera Telecom and (5) Other Operations.
Previously, we had the following operating segments: (1) Mobile Communications,
(2) Media Communications and New Services, (3) Fixed Network Voice and Data
Services, (4) Equipment Sales and Other Operations and (5) International and
Other Significant Investments. We now treat International Mobile Communications
as a separate business segment which is primarily responsible for administering
our holdings in, and providing services to, our international GSM operators and
third generation joint ventures. In addition, the separate business areas, Fixed
Network Voice and Data Services and Equipment Sales and Other Operations, have
been combined to form a single business segment, Sonera Telecom. As a reflection
of this, in June 2001, we announced that the assets and liabilities related to
our Sonera Telecom business segment will be transferred to a separate
subsidiary, Sonera Telecom Oy, in the second half of 2001. We no longer treat
International and Other Significant Investments as a separate business segment.
In addition, in accordance with SFAS. 131, we have restated our business segment
information as of and for the years ended December 31, 1998, 1999 and 2000, so
that it corresponds with the way in which we present our segment information
beginning as of January 1, 2001. In presenting segment information, we make
various adjustments to properly allocate the costs of internal services and
certain administrative overhead expenses. Due to significant interdependencies
and overlaps among the various operating units, the information on operating
profits with respect to each segment may not be indicative of the amounts that
would have been reported if these segments were operationally or legally
independent of one another. However, we believe that such allocations accurately
reflect the degree of utilization by such business segments of Sonera's
corporate resources. See Note 19 to our consolidated financial statements.

INVESTMENTS IN ASSOCIATED COMPANIES AND OTHER EQUITY INTERESTS

     Earnings in companies in which we have a significant influence ("associated
companies") are included in our consolidated accounts in accordance with the
equity method of accounting. Generally we consider ourselves to have significant
influence when we hold between 20 to 50 percent of the share capital and voting
rights of another company. Our principal GSM investments have been substantial
minority positions in providers of mobile telecommunications services in rapidly
growing developing markets such as Turkey, the Baltic States and Hungary where
we have been able to leverage our expertise in building and operating advanced
GSM networks as well as our strength in the areas of sales, marketing and
customer service. In 2000, we also made significant investments in consortia
which received UMTS licenses in a number of European markets. We have also made
substantial investments in providers of fixed network communications in the
Baltic States. While our equity income from associated companies had shown
strong growth in prior years, increasing from E59 million in 1998 to E110
million in 1999 and E121 million in 2000, we currently expect to record an
equity loss of approximately E350 million in 2001. Both Turkcell and Fintur are
expected to report losses in 2001 due, among other things, to the slowdown in
the Turkish telecommunications market, the continuation of a temporary tax on
mobile phone subscriptions in Turkey, the devaluation of the Turkish lira and
increased expenses for the development of new services. We also expect to incur
significant equity losses from our associated company Gruppe 3G due to start-up
costs.
                                       101
<PAGE>   115

     A number of transactions and other events have occurred since the beginning
of 2000 that have affected our associated companies and other equity interests,
including the following:

     -  In February 2000, in connection with the merger of VoiceStream and
        Omnipoint Corporation, a U.S. PCS operator, we purchased VoiceStream
        shares representing 3.6 percent of its outstanding share capital for a
        purchase price of U.S.$500 million.

     -  On May 4, 2000, Aerial and VoiceStream merged. Pursuant to the merger
        agreement, our Aerial common shares were exchanged for VoiceStream
        shares. After the completion of the merger, we held approximately 7.9
        percent of VoiceStream's outstanding shares on a fully diluted basis.

     -  In January 2001, we purchased approximately 1.7 million shares of
        Powertel for an aggregate purchase price of U.S.$125 million. We also
        invested U.S.$75 million for a 30.1 percent interest in Eliska Wireless
        Ventures Holding Company, Inc., a newly established U.S. company formed
        to offer PCS services.

     -  In May 2001, we sold 3,300,000 VoiceStream shares and sold 1,100,000
        Powertel shares for which we received proceeds of approximately E430
        million in the aggregate.

     -  On May 31, 2001, Deutsche Telekom completed the acquisitions of
        VoiceStream and Powertel. In connection with the resulting mergers, our
        holdings in VoiceStream and Powertel shares were converted into
        approximately 72 million shares of Deutsche Telekom and approximately
        E290 million in cash.

     -  In May 2000, we invested U.S.$127 million in the share capital of Fintur
        Holding B.V., thus acquiring a 35.3 percent holding in the company, the
        principal purpose of which is to hold Turkcell's non-GSM investments,
        investments in other businesses, including GSM operator businesses,
        outside of Turkey and certain interests in businesses contributed by the
        other Fintur shareholders.

     -  In July 2000, we sold a portion of our interest in Turkcell as part of
        Turkcell's initial public offering. Prior to the offering, (1) we made a
        capital contribution to Turkcell in the amount of E113 million as part
        of a share capital increase and (2) we purchased an additional holding
        of approximately 0.6 percent in Turkcell, increasing our total interest
        to approximately 41.6 percent of the company. In the offering, we sold
        approximately one tenth of the Turkcell shares we owned prior to the
        offering. After the underwriting discounts, the total sales proceeds to
        us from the offering totaled E735 million and we recorded a gain of E680
        million from the sale in our third quarter results. We currently hold
        approximately 37.3 percent of Turkcell's equity. In June 2001, we
        announced that we would participate in a rights offering by Turkcell to
        existing shareholders. Our pro rata participation in the offer would
        amount to approximately U.S.$75 million.

     -  In September 2000, we invested E908 million in the share capital of
        Gruppe 3G, which holds a German UMTS license, in exchange for a 42.8
        percent interest in the company. In addition, we granted a shareholder
        loan of E2,719 million to Gruppe 3G. As of December 31, 2000, we had
        invested a total of E913 million in the share capital of Gruppe 3G.

     -  In March 2000, we made an initial equity investment in Xfera Moviles
        S.A., which holds a Spanish UMTS license. As of December 31, 2000, we
        had invested a total of E43 million in the share capital of Xfera. We
        hold a 14.25 percent indirect interest in Xfera Moviles.

     -  In December 2000, we made an equity investment of approximately E270
        million in Ipse 2000 S.p.A. consortium, which holds an Italian UMTS
        license. We hold a 12.55 percent interest in Ipse 2000.

     -  In the first quarter of 2001, we made an equity investment of
        approximately E16 million in Broadband Mobile ASA, which holds a
        Norwegian UMTS license. We made the investment by converting into equity
        a shareholder loan of E16 million that we had granted to the company in
        the last quarter of 2000. We hold a 50 percent interest in Broadband
        Mobile.

     -  In May 2000, we sold our 50 percent holding in the German service
        provider HanseNet Telefongesellschaft mbH & Co. KG to the other partner
        of the joint venture. We recorded a E22 million gain from this
        transaction.

                                       102
<PAGE>   116

     -  In September 2000, we sold our 40 percent holding in Transmast Oy to
        Fortum. We recorded a E12 million gain from the transaction.

     -  In the first quarter of 2001, we acquired a 24.1 percent interest in
        Loimaan Seudun Puhelin Oy, a local telephone operator based in
        south-western Finland, for approximately E25 million. The transaction is
        subject to the approval of the competition authorities.

     -  In February 2001, we acquired a 25.5 percent holding in Metro One
        Telecommunications Inc., a Nasdaq quoted provider of directory services
        for mobile handset subscribers in the United States, for E75 million.

     -  During the third quarter of 2000, our holding in TietoEnator fell below
        20 percent as a result of directed equity issues by TietoEnator in
        connection with its acquisitions. Beginning with the final quarter of
        2000, we no longer included TietoEnator as an associated company in our
        consolidated financial statements. In March 2001, we sold all of our
        remaining equity interest in TietoEnator for E424 million.

     We plan to enhance the value of our existing investments, by using our
technical and commercial know-how developed in the Finnish home market and in
connection with our international activities to assist our associated or
affiliated companies in improving their operations.

ACQUISITIONS OF ACROSS HOLDING AND ID2 HOLDING; IMPAIRMENT LOSS RELATING TO THE
ACQUISITIONS UNDER U.S. GAAP

     We completed two acquisitions in 2000 that are expected to enhance our
Sonera SmartTrust business. In April 2000, we acquired the entire share capital
of Across Holding AB of Sweden, a provider of wireless Internet-based service
platforms. The Across Holding interest was subsequently transferred to our
Sonera SmartTrust subsidiary. We paid for the acquisition by issuing 16,732,055
new shares valued at E897 million at the time of the completion of the
transaction.

     In June 2000, we acquired the entire share capital of iD2 Holding AB of
Sweden, a provider of secure authentication solutions based on PKI (Public Key
Infrastructure) and smart card technology. The iD2 interest was subsequently
transferred to our Sonera SmartTrust subsidiary. We paid for the acquisition by
issuing 4,802,431 new shares valued at E250 million at the time of the
completion of the transaction.

     Under Finnish GAAP, we recorded no goodwill from the acquisitions of Across
and iD2. Under U.S. GAAP, however, we accounted for both transactions using the
purchase method of accounting which resulted in us recording goodwill in the
amount of E861 million and E243 million for Across and iD2, respectively. The
amortization period for goodwill is five years under both acquisitions.

     At the end of 2000, our management saw clear indications that the decline
in the market values of publicly listed companies that operate in comparable
lines of business to Sonera SmartTrust might require us to record an impairment
loss in the carrying value of the goodwill that arose from our acquisitions of
Across and iD2. Moreover, in the course of the recent updating of the strategy
and business plan of our Sonera SmartTrust subsidiary, it became evident to us
that the future cash flow expectations of Sonera SmartTrust were lower than what
they were at the time we completed the acquisitions of Across and iD2. As a
result of these findings, we performed an impairment test for all of the assets
of Sonera SmartTrust, including goodwill arising from the acquisition of Across
and iD2. The impairment test did not support the ultimate recoverability of the
total carrying value of the assets. As a result of the test, we recorded an
impairment loss of E704 million under U.S. GAAP for the year ended December 31,
2000 to reduce the carrying value of the goodwill and identified intangible
assets related to the acquisitions of Across and iD2 to their estimated fair
value. Under Finnish GAAP, there was no impairment loss, as there was no
goodwill recorded from the acquisitions.

INTERCONNECTION ARRANGEMENTS

     Interconnection allows a telecommunications operator to connect its network
to the network of another telecommunications operator. Interconnection therefore
ensures that subscribers to one network can contact subscribers to other
networks and access the services of other telecommunications operators.
Historically, Finnish

                                       103
<PAGE>   117

operators have entered into bilateral interconnection agreements on a collective
basis. These interconnection agreements establish interconnection and related
charges for the term of such agreements. Current interconnection agreements
between Sonera, Elisa Communications, Radiolinja, Kaukoverkko Ysi Oy and Finnet
International Oy became effective as of May 1, 1999 (the "1999 Interconnection
Regime"). During 1999, we entered into interconnection agreements with terms
similar to the 1999 Interconnection Regime with a majority of the other Finnish
operators. See "Item 8. Financial Information -- Legal and Regulatory
Proceedings" and "Item 4. Information on the Company -- Regulation."

     The 1999 Interconnection Regime had a negative effect upon our
interconnection revenues, and, in particular, revenues generated by our
fixed-line trunk services and mobile network services. This is principally
because the 1999 Interconnection Regime provides for higher fees for access and
termination of calls which benefits the local fixed-line operators at the
expense of trunk and mobile operators. The net effect on our annual operating
profit was a reduction of approximately E15 million in 1999. In order to partly
offset the negative impact on profitability of domestic calls as a result of the
new regime, we changed our pricing in July 1999 by raising the per-call charge
and lowering the time charge. As a result interconnection revenue generated by
our fixed line and mobile services increased in 2000 as compared to 1999. Mobile
termination fees charged by us under the 1999 Interconnection Regime are
currently under legal challenge, and may therefore be subject to revision. See
"Item 8. Financial Information -- Legal and Regulatory Proceedings" and "Item 4.
Information on the Company -- Regulation -- Interconnection." In June 2001, we
concluded new commercial interconnection agreements with Telia Mobile and
Radiolinja, and we are continuing to negotiate with other Finnish mobile
operators on the Finnish market regarding interconnection.

                              RECENT DEVELOPMENTS

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2001

     In the three months ended March 31, 2001, our revenues were E525 million,
an increase of eight percent from revenues of E487 million for the corresponding
period in 2000. The growth in revenues was mainly attributable to Domestic
Mobile Communications.

     The following table sets forth our revenues by business area for the
periods indicated:

<TABLE>
<CAPTION>
                                                       THREE MONTHS ENDED MARCH 31,     YEAR ENDED
                                                       ----------------------------    DECEMBER 31,
                                                                         2001/2000     ------------
                                                       2000    2001     (% CHANGE)         2000
                                                       ----    -----    -----------    ------------
                                                        (UNAUDITED)
                                                           (IN E MILLIONS, EXCEPT PERCENTAGES)
<S>                                                    <C>     <C>      <C>            <C>
Domestic Mobile Communications.....................    264      290             10            1,134
International Mobile Communications................     --        2            n/a                5
Media Communications and New Services..............     51       63             24              254
Sonera Telecom.....................................    243      245              1            1,020
Other Operations...................................     23       31             35               85
Intra-Group Sales(1)...............................    (94)    (106)            13             (441)
                                                       ---     ----     ----------     ------------
Total..............................................    487      525              8            2,057
                                                       ===     ====     ==========     ============
</TABLE>

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

(1) For each of the periods presented in the table above, Intra-Group sales
    consisted primarily of the following: (1) sale of network capacity and
    construction and maintenance services by Sonera Telecom to Domestic Mobile
    Communications, (2) sales of products by Domestic Mobile Communications and
    Media Communications and New Services to Sonera Telecom for further resale
    by Sonera Telecom to its corporate customers and (3) centralized services
    provided and invoiced by Other Operations to each of the other business
    segments.

     For the three months ended March 31, 2001, EBITDA was E384 million and the
EBITDA margin was 73 percent as compared with EBITDA of E162 million and an
EBITDA margin of 33 percent for the corresponding period in 2000. EBITDA
includes a gain on the sale of shares of TietoEnator which was completed in
March 2001. The comparable EBITDA excluding non-recurring items was E102 million
for the first three months of 2001 as compared to E158 million for the first
three months of 2000, and E91 million for the last three

                                       104
<PAGE>   118

months of 2000. Operating expenses grew by 29 percent in the three months ended
March 31, 2001 as compared to the corresponding period in 2000, largely due to
major outlays on new services and an increase in the number of personnel. The
most significant contributors to the increase in operating expenses in the first
quarter of 2001 were the cost of developing and marketing new services and an
increase in the number of personnel.

     The following table sets forth our EBITDA by business area for the periods
indicated:

<TABLE>
<CAPTION>
                                                                  THREE MONTHS       YEAR ENDED
                                                                ENDED MARCH 31,     DECEMBER 31,
                                                                ----------------    ------------
                                                                 2000      2001         2000
                                                                ------    ------    ------------
                                                                  (UNAUDITED)
                                                                        (IN E MILLIONS)
<S>                                                             <C>       <C>       <C>
Domestic Mobile Communications..............................      132       144              543
International Mobile Communications.........................       (6)       (3)           1,502
Media Communications and New Services.......................      (31)      (89)            (303)
Sonera Telecom..............................................       63        59              300
Other Operations............................................        4       273                5
                                                                -----     -----     ------------
Total.......................................................      162       384            2,047
                                                                =====     =====     ============
</TABLE>

     Operating profit amounted to E300 million for the three months ended March
31, 2001, compared to E90 million for the corresponding period in 2000.
Depreciation and amortization for the three months ended March 31, 2001 totaled
E84 million compared to E72 million for the three months ended March 31, 2000.

     The following table sets forth our operating profit by business area for
the periods indicated:

<TABLE>
<CAPTION>
                                                                  THREE MONTHS       YEAR ENDED
                                                                ENDED MARCH 31,     DECEMBER 31,
                                                                ----------------    ------------
                                                                 2000      2001         2000
                                                                ------    ------    ------------
                                                                  (UNAUDITED)
                                                                        (IN E MILLIONS)
<S>                                                             <C>       <C>       <C>
Domestic Mobile Communications..............................      102       113              414
International Mobile Communications.........................       (6)       (4)           1,502
Media Communications and New Services.......................      (36)     (100)            (335)
Sonera Telecom..............................................       26        26              162
Other Operations............................................        4       265                5
                                                                -----     -----     ------------
Total.......................................................       90       300            1,748
                                                                =====     =====     ============
</TABLE>

     We recorded an equity loss in associated companies of E38 million for the
three months ended March 31, 2001 as compared to equity income of E20 million in
the corresponding period in 2000. Equity income in associated companies was
weakened by the net losses of Turkcell and Fintur Holding B.V.

     Our net financial expenses were E17 million for the three months ended
March 31, 2001 as compared with net financial income of E3 million for the
corresponding period in 2000. Interest income rose to E51 million for the three
months ended March 31, 2001 as compared with interest income of E4 million for
the corresponding period in 2000 due to a shareholder loan granted to Gruppe 3G.
Interest expenses grew to E68 million for the three months ended March 31, 2001
as compared with interest expenses of E17 million for the corresponding period
in 2000 due to increased debt. In addition, interest expenses of E15 million
were capitalized on the balance sheet for the three months ended March 31, 2001.

     In the three months ended March 31, 2001, profit before extraordinary items
and taxes was E245 million, an increase of approximately 117 percent as compared
to E113 million for the corresponding period in 2000. Income taxes amounted to
E81 million in the first three months of 2001 as compared to E31 million in the
corresponding period in 2000.

     Earnings per share were E0.22 for the three months ended March 31, 2001, an
increase from E0.06 for the corresponding period in 2000.

                                       105
<PAGE>   119

     For the three months ended March 31, 2001, return on capital employed was
14 percent, and return on shareholders' equity was 20 percent compared with 15
percent and 18 percent, respectively, for the corresponding period in 2000.

BUSINESS AREAS

Domestic Mobile Communications

     Revenues from Domestic Mobile Communications totaled E290 million for the
three months ended March 31, 2001, an increase of ten percent as compared to the
corresponding period in 2000 principally due to higher traffic volumes and
increased demand for value added services. EBITDA rose to E144 million in the
three months ended March 31, 2001, a nine percent increase from E132 million in
the corresponding period in 2000. Operating profit was E113 million in the three
months ended March 31, 2001, an increase of 11 percent from E102 million in the
corresponding period in 2001. The improvement in EBITDA and operating profit was
principally due to growth in revenues.

     In the three months ended March 31, 2001, the average monthly use of our
mobile subscribers grew to 139 minutes, a six percent increase as compared to
131 minutes in the corresponding period in 2000, and average monthly revenues
per subscriber rose to E39.5 compared with E38.8 for the corresponding period in
2000. Revenue from non-voice services, including SMS text messages and content
services, was E33 million for the three months ended March 31, 2001, as compared
to E28 million for the corresponding period in 2000, an increase of 18 percent.
In the three months ended March 31, 2001, each Sonera GSM subscriber transmitted
25 text messages per month on average as compared to 23 per month for the
corresponding period in 2000.

     Approximately 70 percent of Sonera GSM subscribers used SMS text messages
on a monthly basis during the three months ended March 31, 2001, as compared to
approximately 66 percent in 2000, and 32 percent of the subscribers used content
services on a monthly basis, as compared to 30 percent in the corresponding
period in 2000.

     The number of Sonera GSM subscriptions grew by one percent in the three
months ended March 31, 2001, totaling 2,307,014 at the end of the first quarter
of 2001 as compared to 2,281,916 at December 31, 2000. The total number of all
of our mobile subscriptions amounted to 2,403,586 at the end of the period, as
compared to 2,364,562 on December 31, 2000. The figure also includes 51,437 NMT
450 subscriptions and approximately 45,000 Jippii Group Oyj and RSL COM Finland
Oy service provider subscriptions.

     The annualized churn rate for GSM customers in the three months ended March
31, 2001 was 10.3 percent as compared to 9.7 percent for the corresponding
period in 2000. According to the definition of customer churn adopted in 2000,
customer churn does not include cases in which the owner of the subscription
changes but the user remains the same.

     In the three months ended March 31, 2001, we continued to expand our
value-added services and improve customer care. In February 2001, we introduced
the GSM Recharging Card, through which talk time and text message balance can be
loaded onto a handset. In March 2001, we launched Sonera Talonmies (Sonera
Janitor), a remote-control system designed for households for monitoring and
controlling the equipment in the home by means of a mobile phone. Also in March
2001, we launched the Mconsole service, developed by Sonera Mspace. With the
Mconsole program, service and content providers can develop their own Java
applications for the Mconsole environment. Sonera Mspace is our open test
environment for testing and developing third generation mobile communications
services.

     We also expanded our roaming cooperation during the three months ended
March 31, 2001. Thanks to our new roaming partners, Sonera GSM functioned on the
networks of 205 operators in 101 countries or areas at the end of March 2001. At
the beginning of February 2001, we became one of the first in the world to
launch GPRS roaming. In addition to Finland, our customers can now use Sonera's
GPRS services in Denmark and Norway.

     On April 24, 2001, the TAC issued a decision on the complaint that had been
filed by Telia Finland in November 1998 concerning our domestic mobile
interconnection charges. Based on its calculations, the TAC has concluded that
our domestic mobile interconnection charges are not in proportion to related
expenses. The TAC

                                       106
<PAGE>   120

also stated that, in its opinion, our interconnection fees violated the
Telecommunications Market Act and ordered us to revise our interconnection fees.
We appealed the TAC's decision to the Helsinki Administrative Court in May 2001.
In June 2001, we concluded commercial interconnection agreements with Telia
Mobile and Radiolinja, and we are continuing to negotiate with other mobile
operators on the Finnish market regarding interconnection.

     At the end of 2000, we detected a software fault in some of our SIM cards.
To remedy the fault, we began a program to replace 360,000 faulty SIM cards with
new ones starting in May 2001. As the fault did not result from the technology
that we developed, we are negotiating with the card manufacturer to cover the
cost of replacing the cards. We believe that the card replacement will not have
a material adverse effect on our mobile communications business.

International Mobile Communications

     Beginning January 1, 2001, we began treating International Mobile
Communications as a separate business segment for financial reporting purposes.
From that time, we have been administering our holdings in our associated GSM
operating companies and third generation joint ventures through our
International Mobile Communications business area. Earnings in these associated
companies continue to be included in our consolidated accounts in accordance
with the equity method of accounting. The International Mobile Communications
business area derives revenues and expenses from ongoing business conducted with
our associated GSM operating companies and our third generation joint ventures.
For example, the International Mobile Communications business area derives
substantially all of its revenues from the provision of technical, management
and other services by Sonera to our associated GSM operating companies and our
third generation joint ventures, including the temporary transfer of Sonera
employees to such companies. International Mobile Communications' expenses
consist mainly of personnel expenses related to employees who administer our GSM
and UMTS investments, employees who have been temporarily transferred to our
associated GSM operating companies and our third generation joint ventures,
travel expenses and consultant service fees.

     International Mobile Communications recorded revenues of E2 million in the
three months ended March 31, 2001. This business area recorded insignificant
revenue in the corresponding period of 2000. International Mobile Communications
recorded EBITDA of negative E3 million in the three months ended March 31, 2001,
as compared to negative E6 million in the corresponding period in 2000.
International Mobile Communications recorded an operating loss of E4 million in
the three months ended March 31, 2001, as compared to a loss of E6 million in
the corresponding period in 2000.

Media Communications and New Services

     Revenues from Media Communications and New Services were up 24 percent to
E63 million in the three months ended March 31, 2001 as compared to E51 million
for the corresponding period in 2000. For the three months ended March 31, 2001,
Media Communications and New Services recorded EBITDA of negative E89 million
and an operating loss of E100 million as compared with EBITDA of negative E31
million and an operating loss of E36 million for the corresponding period in
2000. Profitability was weakened by major outlays on Sonera zed.

     During the three months ended on March 31, 2001, Sonera zed had on average
352,000 users in Finland using Sonera zed services at least once a month, as
compared to 384,000 in the comparable period of 2000. The decrease in users may
be the result of a considerable increase in competition on the Finnish market
during the first three months of 2001. Globally, Sonera zed services had on
average 800,000 users per month.

     At the end of March 2001, Sonera zed's SMS-based services became available
to the customers of mobile communications operator Vodafone in the United
Kingdom. We also introduced zed services in Germany at the same time. In January
2001, zed concluded a cooperation agreement with Telecom Italia Mobile of Italy
pursuant to which zed will start to offer its SMS and WAP based services to
Telecom Italia Mobile's customers during the first half of 2001. In February
2000, Sonera zed also signed a distribution agreement with Radiolinja on the
Finnish market.

                                       107
<PAGE>   121

     In February 2001, we purchased a 25.5 percent interest in Metro One
Telecommunications, Inc. of the United States for E75 million.

     The number of Sonera Internet subscriptions grew in the first three months
of 2001 by approximately two percent, amounting to approximately 244,000 on
March 31, 2001, as compared to 239,000 on December 31, 2000. In January 2001,
Sonera Plaza signed a letter of intent with eQ Online Corporation for the
provision of online brokerage services to Sonera's customers towards the end of
2001. The service will be part of Sonera Plaza's online financial services,
which are currently being reorganized.

     In February 2001, Juxto chose Fenestrae to be its technology partner in the
implementation of wireless ASP services. We expect that Juxto's wireless ASP
services will become available in Finland by the summer of 2001 and in Sweden
during the autumn of 2001. We completed the integration of the operations of
Frontec Support and Operations AB, which we purchased in December 2000, into
Sonera Juxto in the first quarter of 2001.

Sonera Telecom

     Sonera Telecom, which began operating as a separate business area from the
beginning of 2001, combines our former Fixed Network and Data Services business
area and our Equipment Sales and Other Operations business area. Sonera Telecom
is comprised of fixed network domestic and international voice services, data
services, leased lines, equipment sales and construction and maintenance
services. Five separate subsidiaries carry out the principal operations of the
Sonera Telecom business area:

     -  Sonera Entrum Ltd is engaged in the fixed network access business and
        offers voice and data services to consumers as well as to small- and
        medium-sized companies in Finland.

     -  Sonera Telecom's equipment sales operations are carried out primarily by
        Sonera Solutions Ltd. and Telering Ltd.

     -  Sonera Solutions Ltd. provides services to our major customers,
        marketing and selling telecommunications solutions primarily to Finnish
        companies that operate in the domestic market.

     -  Sonera Carrier Networks Ltd. owns and operates our fixed-line network
        infrastructure and acts as a wholesaler of narrowband and broadband
        capacity to other telecommunications operators and service operators.

     -  Sonera Telecom's construction and maintenance services are carried out
        primarily by Primatel Ltd.

     In June 2001, we announced that the assets and liabilities related to our
Sonera Telecom business area will be transferred to a separate subsidiary,
Sonera Telecom Oy, in the second half of 2001.

     Sonera Telecom recorded revenues of E245 million for the three months ended
March 31, 2001, a one percent increase as compared to revenues of E243 million
for the corresponding period in 2000. Sonera Telecom recorded EBITDA of E59
million, and operating profit of E26 million for the corresponding period in
2001 as compared to E63 million and E26 million, respectively, for the
corresponding period in 2000. An increase in the expenses related to mobile
terminated international calls resulted in an approximate E3 million decrease in
EBITDA.

     In the three months ended March 31, 2001, aggregate revenues from domestic
voice services were E59 million for the three months ended March 31, 2001, a
nine percent decrease as compared to E65 million for the corresponding period in
2000. The reduction was attributable to the decrease in the number of
long-distance call minutes and subscriptions. Revenues from international voice
services were E34 million for the three months ended March 31, 2001, a 17
percent increase as compared to E29 million for the corresponding period in
2000. The growth was attributable to the increase in the number of call minutes
and the introduction of an international termination fee for mobile calls.

     For the three months ended March 31, 2001, we generated aggregate revenues
from data services and leased lines of E54 million, the same level as in the
corresponding period in 2000. Increased revenues from leased lines increased as
a result of the leasing of new capacity on the fiber optic cable between St.
Petersburg and Moscow

                                       108
<PAGE>   122

were offset by the transfer of certain data product groups from data services to
Sonera Juxto, which has been part of the Media Communications and New Services
as from June 2000.

     In January 2001, Sonera Solutions Ltd supplied the Finnish Meteorological
Institute (FMI) with the first Finnish-language speech recognition application
in Finland usable by phone. The application has been tailored to FMI from the
Sonera Say It service concept. FMI expects that, from May 2001 onwards, customer
contacts to the Finnish Agricultural Weather Service will function with speech
recognition software.

     In February 2001, the ownership arrangement between us and ICL Invia Oyj
related to the sale of DataInfo Oy shares was canceled. The cancellation
occurred because no new reseller agreements could be negotiated between DataInfo
Oy and the independent resellers of the DataInfo Oy chain, the negotiation of
which was a condition of the transaction. DataInfo Oy remains a wholly-owned
subsidiary of Sonera.

     In March 2001, a new sea cable connection for high-rate data transmission
between Europe and the United States was launched. The cable line, on which we
rent space, will double our trans-Atlantic transmission capacity. The cable is
part of Sonera Carrier Networks Ltd's international broadband solution that
connects Moscow, Western Europe and the United States.

     Revenues generated by equipment sales increased by 16 percent to E29
million for the three months ended March 31, 2001 as compared to E25 million for
the corresponding period in 2000. External revenues from construction and
maintenance were E3 million for the three months ended March 31, 2001 as
compared to E4 million for the corresponding period in 2000.

ASSOCIATED COMPANIES AND OTHER SIGNIFICANT HOLDINGS

     The following table shows the equity income we have derived from our
associated companies for the periods indicated.

<TABLE>
<CAPTION>
                                                                   THREE MONTHS      YEAR ENDED
                                                                ENDED MARCH 31,    DECEMBER 31,
                                                                ---------------    ------------
                                                                 2000      2001            2000
                                                                -----     -----    ------------
                                                                  (UNAUDITED)
                                                                        (IN E MILLIONS)
<S>                                                             <C>       <C>      <C>
Turkcell lletisim Hizmetleri A.S............................       33       (10)            130
Fintur Holding B.V..........................................       --       (28)            (13)
Aerial Communications, Inc.(1)..............................      (12)       --             (12)
Gruppe 3G and Broadband ASA.................................       --        (2)             (2)
Other mobile operators......................................        9        11              42
Fixed network operators.....................................       12         6              38
Service providers...........................................       (1)       --              (1)
Other associated companies..................................        2        --               5
Amortization of goodwill....................................      (23)      (15)            (66)
                                                                -----     -----    ------------
Total.......................................................       20       (38)            121
                                                                =====     =====    ============
</TABLE>

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

(1) Aerial merged with VoiceStream effective May 4, 2000. As a result of the
    merger, we received a 7.9 percent interest, on a fully diluted basis, in
    VoiceStream and discontinued the equity methods of accounting for Aerial.
    VoiceStream was not treated as an associated company.

     In compliance with new accounting practices adopted in 2000, our results of
operations for each quarter include the results generated by Turkcell and Fintur
in the preceding quarter. In the three months ended March 31, 2001, Turkcell
recorded a loss of E10 million, as compared to net income of E33 million for the
corresponding period in 2000, while Fintur recorded a loss of E28 million. As
Fintur was established after the first quarter of 2000, there are no
corresponding figures for the first quarter of 2000. Equity income in other
associated GSM operating companies amounted, in the aggregate, to E11 million
for the three months ended March 31, 2001, as compared to a loss of E3 million
for the corresponding period in 2000. The comparative figure for the previous
year includes a loss of E12 million recorded from Aerial Communications, Inc. We
estimate that we will

                                       109
<PAGE>   123

record a significant equity loss from our associated companies in 2001 resulting
from, among other things, start-up losses of our third generation joint
ventures, losses at Turkcell caused by the devaluation of the Turkish lira, the
negative effects on Turkcell of a weakening Turkish economy, the potential
payment to the Turkish Government of VAT on Turkcell's GSM license, and outlays
on digital TV and Internet businesses by Fintur.

     During the three months ended March 31, 2001, estimated total revenues
generated by our associated companies in the area of mobile communications rose
by 35 percent to E937 million from E693 million in the corresponding period in
2000. The aggregate number of customers of these associated companies was
approximately 14.1 million on March 31, 2001, as compared to 13.1 million on
December 31, 2000, and 8.3 million on March 31, 2000. The aggregate number of
customers of mobile communications companies in which we have a minority holding
but which are not our associated companies was estimated to be approximately 5.8
million on March 31, 2001, as compared to 5.4 million on December 31, 2000 and
1.0 million on March 31, 2000.

     In relation to our investments in Germany, we and Telefonica Moviles are
preparing a new business plan for the German consortium Gruppe 3G, of which we
are a 42.8 percent shareholder and Telefonica Moviles is a 57.2 percent
shareholder. We and Telefonica Moviles are revising the business plan in light
of recent major changes in the economic and legal environment for mobile
operators, including the possibility of lowering both investment and operating
expenses through the partial joint use of networks by the license companies. In
June 2001, the principal telecommunications regulator in Germany, Reg TP,
announced that it would allow UMTS licensees to cooperate in the construction
and operation of UMTS networks. There can be no assurance, however, that Reg
TP's decision will not be modified or blocked by relevant competition
authorities or objected to by other telecommunication operators. See
"Information on the Company -- Business Overview -- International and Other
Significant Investments -- Investments in UMTS Licenses -- Germany." Partial
joint use of the third generation networks would lower Gruppe 3G's capital
expenditures for the build-out of its third generation network and lower the
amount of non-recourse project financing Gruppe 3G would require.

     In addition, on April 30, 2000, Gruppe 3G signed a national GPRS/GSM
roaming agreement with German mobile network operator E-Plus. The roaming
agreement covers all of Germany and is valid until 2012. Gruppe 3G plans to
launch GSM services on the German market in the second half of 2001. Gruppe 3G
does not plan to commence the build-out of a third generation network until
third generation mobile handsets are available.

     We believe that the implementation of Gruppe 3G's new business plan will
result in lower capital expenditures and operating expenses for Gruppe 3G than
earlier forecast. Furthermore, it will push the capital expenditures on fixed
assets and the operating expenses to a date subsequent to one that was initially
set out in the earlier business plan. In light of current negotiations with
vendors and financial institutions, as well as the new business plan, we and
Telefonica Moviles do not currently anticipate any need for additional equity
contributions once the current shareholder loans made to Gruppe 3G are converted
into shareholders' equity.

     In the three months ended March 31, 2001, we recorded an equity loss from
our UMTS participations in Germany and Norway of E2 million.

     In January 2001, we purchased 16.7 percent of the share capital of Loimaan
Seudun Puhelin Oy, a regional telephone company in Finland, and in February 2001
we raised our holding to 24.1 percent. The overall purchase price was
approximately E25 million. The transaction remains subject to the approval of
the Finnish competition authority. In December 2000, Loimaan Seudun Puhelin
acquired a majority interest in Turun Puhelin Oy, another regional telephone
company in Finland. At the end of March 2001, the companies' aggregate number of
fixed-line subscriptions was approximately 137,000.

FINANCIAL POSITION

     For the three months ended March 31, 2001, cash flow provided by our
operating activities amounted to E25 million as compared to E74 million for the
corresponding period in 2000. This decrease was principally a result of lower
EBITDA levels, excluding capital gains we recorded, and higher net interest
payments.

     The amount of net interest-bearing debt increased during the three months
ended March 31, 2001, and was E5,661 million at March 31, 2001, a slight
increase from E5,641 million at December 31, 2000. On March 31,
                                       110
<PAGE>   124

2001, the equity-to-assets ratio was 33 percent and the gearing ratio 169
percent as compared to 33 percent and 174 percent, respectively, on December 31,
2000.

     Net financial expenses totaled E17 million for the three months ended March
31, 2001, as compared to net financial income of E3 million for the
corresponding period in 2000. Interest income rose to E51 million for the three
months ended March 31, 2001, as compared to E4 million for the corresponding
period in 2000. The increase in interest income was due to the shareholder loan
granted to the UMTS associated company in Germany. Interest expenses increased
to E68 million in the three months ended March 31, 2001 as compared to E17
million for the corresponding period in 2000 due to an increased level of
indebtedness. In addition, interest expenses of E15 million were capitalized on
the balance sheet for the three months ended March 31, 2001; there was no
comparable capitalization in 2000.

     On March 31, 2001, our current liabilities totaled E4,037 million and
current assets E3,666 million. Our cash and short-term investments totaled E270
million. In addition, we had E253 million of undrawn committed long-term credit
facilities, E200 million of unused long-term bond-based credit facilities as
well as unused commercial paper credit facilities amounting to approximately
E450 million.

     In June 2001, we entered into a E1.33 billion variable rate loan facility.
We plan to draw the entire principal amount of the facility in July 2001 to
prepay a portion of our other indebtedness.

     In light of the E1.33 billion long-term refinancing, unused credit
facilities, cash and short-term investments and the anticipated proceeds from
pending asset sales, we believe that, together with cash provided by operations,
we will have sufficient funds to meet our financial obligations and to carry on
our business operations for the foreseeable future.

Financial Income and Expenses

<TABLE>
<CAPTION>
                                                                    THREE MONTHS      YEAR ENDED
                                                                 ENDED MARCH 31,    DECEMBER 31,
                                                                ----------------    ------------
                                                                  2000      2001            2000
                                                                ------    ------    ------------
                                                                  (UNAUDITED)
                                                                        (IN E MILLIONS)
<S>                                                             <C>       <C>       <C>
Dividend income.............................................       14        --               21
Interest income.............................................        4        51               82
Interest expense............................................      (17)      (83)            (155)
Capitalized interest expenses...............................       --        15               20
Other financial income and expenses.........................        1         1               23
Exchange rate gains and losses..............................        1        (1)              --
                                                                 ----      ----     ------------
Total.......................................................        3       (17)              (9)
                                                                 ====      ====     ============
</TABLE>

     In February 2001, we issued floating rate notes with a principal amount of
E500 million and a term of 18 months under our EMTN program. In May 2001, we
issued fixed rate notes with a principal amount of E150 million and a term of 12
months. In May 2001, we also issued zero coupon notes in the principal amount of
E50 million and a term of 6 months. Each of these tranches of notes were issued
under our EMTN facility and together they represent our total borrowings under
this facility. Furthermore on May 11, 2001, we increased the maximum drawable
amount of our EMTN facility to E3 billion. With these notes, we diversified our
funding and refinanced a portion of our existing short-term credit facilities.

     On February 20, 2001, Standard & Poor's lowered our long-term corporate
credit and senior unsecured ratings from A to A- and lowered our short-term
corporate credit and commercial paper rating from A-1 to A-2. Our debt ratings
were also placed on CreditWatch with negative implications. On May 3, 2001,
Moody's Investor Services downgraded our senior unsecured long-term debt ratings
from A2 to Baa2 and our short-term debt rating from Prime-1 to Prime-2. Moody's
kept our debt ratings on review for possible further downgrade.

                                       111
<PAGE>   125

INVESTMENTS AND DIVESTMENTS

     During the three months ended March 31, 2001, our capital expenditures on
fixed assets amounted to E82 million as compared to E64 million during the
corresponding period in 2000. Investments in shares totaled E400 million as
compared to E519 million for the corresponding period in 2000.

     The most significant share investments since January 1, 2001 have included:

     -  an additional investment in Powertel of the United States of
        approximately U.S.$125 million in January 2001;

     -  an investment of U.S. $75 million in January 2001 in EWV Holding
        Company, Inc., a newly formed company which acquired the PCS licenses
        and other assets of DiGiPH PCS, a GSM operator in Alabama, Mississippi
        and Florida in January 2001;

     -  the acquisition of a 25.5 percent interest in Metro One
        Telecommunications, a developer and provider of enhanced directory
        assistance and information services for the U.S. telecommunications
        carriers, for U.S. $68 million in February 2001;

     -  an increase in our interest in Fintur's share capital of E54 million in
        February 2001; and

     -  an investment of E25 million in January and February 2001 for a 24.1
        percent interest in Loimaan Seudun Puhelin Oy, a regional telephone
        company in Finland.

     In March 2001, we sold our 18.7 percent interest in TietoEnator Corporation
shares for E424 million. We recorded a E286 million gain from the transaction.
In May 2001, we sold 3,300,000 VoiceStream shares and 1,100,000 Powertel shares
for which we received proceeds of approximately E430 million in the aggregate.
On May 31, 2001, Deutsche Telekom completed the acquisitions of VoiceStream and
Powertel. Under the terms of the acquisition, we received approximately E290
million in cash and received approximately 72 million shares of Deutsche Telekom
as consideration. Based on agreements entered into by our Company in connection
with the mergers of Deutsche Telekom and both VoiceStream and Powertel, we are
subject to certain restrictions on selling additional shares of Deutsche Telekom
that we have received in the merger. See "Item 4. Information on the Company --
International and Other Significant Investments -- Deutsche Telekom."

     In May 2001, we entered into an agreement to sell a portion of our Sonera
Sverige AB fixed-network business targeted at Swedish companies to Song
Networks, for approximately SEK 200 million, subject to adjustments.

     In June 2001, we announced that we would participate in a rights offering
by Turkcell to existing shareholders. Our pro rata participation in the offer
would amount to approximately U.S. $75 million.

PERSONNEL

     For the three months ended March 31, 2001, our average payroll was 11,155,
as compared with 9,399 for the corresponding period in 2000. Most new employees
were hired to fill positions in the Media Communications and New Services
business area. On March 31, 2001, we had 11,229 employees, as compared to 11,271
on December 31, 2000.

CHANGES TO SONERA SMARTTRUST AND SONERA PLAZA OPTION PLANS

     In June 2001, in response to the adverse market conditions facing the
telecommunications and related industries, we decided to establish a new 2001
employee stock option program for Sonera SmartTrust. Based on the sharp downward
revision in our estimate of the market value of Sonera SmartTrust (we currently
estimate that the market value of Sonera SmartTrust is approximately E250
million, an approximate 80 percent drop from its estimated market value at the
time the Sonera SmartTrust stock option program was established in November
2000), we set the warrant subscription price for the 2001 warrants at E0.933,
significantly below the warrant subscription price of E6.27 set under the Sonera
SmartTrust 2000 stock option program. Under the terms of the program, the
combined Sonera SmartTrust 2000 and 2001 stock option programs cannot dilute our
holding in Sonera SmartTrust by more than 15 percent. At the same time, as a
reflection of the change in our service strategy
                                       112
<PAGE>   126

and our plan to retain full ownership of Sonera Plaza, we decided to terminate
Sonera Plaza's separate employee option plan. Sonera Plaza's employees will,
instead, be given the opportunity to participate in Sonera's 1999 and 2000
incentive programs. We did not revise the terms of the Sonera zed employee stock
option plan.

PRESIDENT AND CHIEF EXECUTIVE OFFICER, AND MANAGEMENT GROUP

     Aulis Salin, our President and Chief Executive Officer, retired on January
1, 2001. On March 22, 2000, our Board of Directors appointed Kaj-Erik Relander
as our Deputy Chief Executive Officer as of March 22, 2000, and as President and
Chief Executive Officer as of January 1, 2001. On June 8, 2001, Kaj-Erik
Relander announced that he would resign effective August 1, 2001. Aimo Eloholma
will serve as Deputy Chief Executive Officer until Mr. Relander's resignation,
when he will become acting President and Chief Executive Officer if another
Chief Executive Officer has not been appointed by the time Mr. Relander resigns.
Kim Ignatius will assume the responsibilities of Deputy Chief Executive Officer
if Mr. Eloholma becomes the acting President and Chief Executive Officer on
August 1, 2001.

                               OPERATING RESULTS

REVENUES

     Our revenues are derived from the following business segments:

     -  Domestic Mobile Communications;

     -  International Mobile Communications;

     -  Media Communications and New Services;

     -  Sonera Telecom; and

     -  Other Operations.

     The separately incorporated businesses organized within the Media
Communications and New Services business area include: (1) Sonera SmartTrust,
(2) Sonera zed, (3) Sonera Info Communications, (4) Sonera Plaza, (5) Sonera
Juxto and (6) Other New Services.

     Sonera Telecom consists of the following lines of business: (1) fixed
network voice services, (2) data services, (3) leased lines, (4) equipment
sales, (5) construction and maintenance and (6) other services.

     Other Operations includes other businesses, such as ticket sales services,
as well as Sonera's administrative functions and centralized services, which
generate primarily intra-Group revenues.

     Earnings from associated companies are included in our consolidated
accounts in accordance with the equity method of accounting under "Equity income
in associated companies" and are not included as part of our revenues.

                                       113
<PAGE>   127

     The following table sets forth our revenues by business area and line of
business and as a percentage of total revenues for the periods indicated:

<TABLE>
<CAPTION>
                                                             YEAR ENDED DECEMBER 31,
                                                  ---------------------------------------------
                                                      1998            1999            2000
                                                  -------------   -------------   -------------
                                                    E       %       E       %       E       %
                                                        (IN MILLIONS, EXCEPT PERCENTAGES)
<S>                                               <C>     <C>     <C>     <C>     <C>     <C>
DOMESTIC MOBILE COMMUNICATIONS:
Subscription, connection and other charges.....      96     5.9     103     5.6     122     5.9
Traffic revenues...............................     675    41.6     829    44.8     936    45.5
Other wireless services........................      55     3.4      52     2.8      76     3.7
                                                  -----   -----   -----   -----   -----   -----
  Subtotal.....................................     826    50.9     984    53.2   1,134    55.1
                                                  -----   -----   -----   -----   -----   -----
INTERNATIONAL MOBILE COMMUNICATIONS............       2     0.1       4     0.2       5     0.2
MEDIA COMMUNICATIONS AND NEW SERVICES..........     127     7.8     175     9.5     254    12.3
SONERA TELECOM:
Fixed network voice services:
  Domestic voice...............................     258    15.9     250    13.5     247    12.0
  International voice..........................     128     7.9     120     6.5     109     5.3
Data Services..................................     149     9.2     168     9.1     165     8.0
Leased lines and network capacity..............      25     1.5      32     1.7      52     2.5
Equipment sales................................      96     5.9     114     6.2     125     6.1
Construction and maintenance...................      31     1.9      24     1.3      34     1.7
Other services.................................     260    16.0     272    14.7     288    14.0
                                                  -----   -----   -----   -----   -----   -----
  Subtotal.....................................     947    58.3     980    53.0   1,020    49.6
                                                  -----   -----   -----   -----   -----   -----
OTHER OPERATIONS...............................      22     1.4      98     5.3      85     4.1
Intra-Group sales(1)...........................    (301)  (18.5)   (392)  (21.2)   (441)  (21.4)
                                                  -----   -----   -----   -----   -----   -----
  Total........................................   1,623   100.0   1,849   100.0   2,057   100.0
                                                  =====   =====   =====   =====   =====   =====
</TABLE>

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

(1) For each of the periods presented in the table above, Intra-Group sales
    consisted primarily of the following: (1) sale of network capacity and
    construction and maintenance services by Sonera Telecom to Domestic Mobile
    Communications, (2) sales of products by Domestic Mobile Communications and
    Media Communications and New Services to Sonera Telecom for further resale
    by Sonera Telecom to its corporate customers and (3) centralized services
    provided and invoiced by Other Operations to each of the other business
    segments.

DOMESTIC MOBILE COMMUNICATIONS

     Revenues from Domestic Mobile Communications are derived principally from
the provision of GSM and NMT mobile communications services. Revenues generated
by GSM and NMT communications services include connection fees and monthly
subscription charges and traffic revenues. Revenues from Domestic Mobile
Communications also include revenues derived from other wireless services such
as paging services, satellite and closed network radio services (which were
partly divested in December 2000), logistical control services, mobile
consultancy services and special products.

     Revenues from subscription, connection and other charges consist of
revenues from monthly subscription charges, initial connection fees and
complementary service charges, including fees for value-added services such as
voice mail and call waiting, for our GSM and NMT services. Revenues from
subscription, connection and other charges depend primarily on the total number
of subscribers, the mix of services utilized by subscribers and charges
applicable to such services.

     Traffic revenues consist of traffic charges paid by mobile subscribers,
interconnection fees and roaming fees from calls made by subscribers of
international mobile network operators while in Finland and calls made or
received outside of Finland by our subscribers using another mobile provider's
network. Traffic revenues also include revenues from SMS messages, SMS-based
content and transaction services, and other value-added services. SMS (short
message service) is a GSM technology based mobile communication service which
allows users to send messages from a mobile handset or an Internet site to
another mobile handset directly or via a

                                       114
<PAGE>   128

message center operator. Traffic revenues depend principally upon the total
number of subscribers, traffic volume, the mix of services utilized by
subscribers and tariffs applicable to such services.

     The table below sets forth revenues and other statistical information
regarding our subscription, connection and other charges and traffic revenues in
respect of our GSM and NMT mobile services for the periods indicated:

<TABLE>
<CAPTION>
                                                                                   YEAR ENDED
                                               YEAR ENDED DECEMBER 31,            DECEMBER 31,
                                          ---------------------------------   ---------------------
                                            1998        1999        2000      1999/1998   2000/1999
                                          ---------   ---------   ---------   ---------   ---------
                                                   (IN E MILLIONS)                 (% CHANGE)
<S>                                       <C>         <C>         <C>         <C>         <C>
Revenues:
  Subscription, connection and other
     charges...........................          96         103         122       7.3        18.4
  Traffic revenues.....................         675         829         936      22.8        12.9
Average number of subscriptions:
  Separated by type of service:
     GSM...............................   1,314,509   1,767,771   2,083,128      34.5        17.8
     NMT...............................     444,484     266,292     145,959     (40.1)      (54.8)
                                          ---------   ---------   ---------     -----       -----
       Total...........................   1,758,993   2,034,063   2,229,087       5.6         9.6
                                          =========   =========   =========     =====       =====
  Separated by type of subscription:
     Business(1).......................     417,282     442,677     467,668       6.1         5.6
     Residential(1)....................   1,341,711   1,591,386   1,761,419      18.6        10.7
                                          ---------   ---------   ---------     -----       -----
       Total...........................   1,758,993   2,034,063   2,229,087      15.6         9.6
                                          =========   =========   =========     =====       =====
Total traffic (millions of
  minutes)(2)..........................       2,452       3,173       3,724      29.4        17.4
Total number of SMS messages (millions
  of messages).........................       206.4       438.8       618.3     112.6        40.9
Average monthly minutes of use per
  subscription (minutes)(3)............         116         130         139      12.1         6.9
Average monthly SMS messages per
  subscription.........................        13.0        20.7        25.2      59.2        21.7
Average monthly revenue per
  subscription (in euros)(4)...........        36.5        38.8        40.4       6.3         4.1
</TABLE>

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

(1) Business and residential subscriptions have been divided according to tax
    identification number.

(2) Includes outgoing mobile to mobile and mobile to fixed-line voice calls and
    calls from subscribers of other operators roaming in our network.

(3) Average monthly minutes of use per subscription is calculated by dividing
    total outgoing traffic for our NMT and GSM services for the period by the
    average number of subscriptions for the period for both types of service
    divided by the number of months in the period.

(4) Average monthly revenue per subscription is calculated by dividing revenues
    for the period of our NMT and GSM services by the average number of
    subscriptions for the period for both types of service divided by the number
    of months in the period.

     In 2000, revenues from Domestic Mobile Communications amounted to E1,134
million, an increase of approximately 15.2 percent as compared to E984 million
in 1999. The growth was particularly strong in non-voice services, where
revenues grew by 35.7 percent to E114 million in 2000 as compared to E84 million
in 1999.

Subscription, connection and other charges

     Revenues from subscription, connection and other charges increased in 2000
as compared to 1999 and in 1999 as compared to 1998 primarily due to an increase
in the number of our GSM subscriptions. The number of Sonera GSM subscriptions
grew by 18 percent in 2000, and stood at 2,281,916 at December 31, 2000 compared
to 1,938,644 at December 31, 1999. Our average initial connection fees, monthly
subscription charges and

                                       115
<PAGE>   129

charges for other services have decreased since 1997 principally due to the drop
in connection charges under certain pricing plans and corporate discounts.

     We believe our GSM subscription growth reflects an expanding market for
mobile telecommunications services in Finland. Mobile penetration rates in
Finland have increased from approximately 42 percent from the beginning of 1998
to over 70 percent at the end of 2000. The mobile penetration growth rate in
Finland has, however, been decreasing since 1998. We believe that declining
mobile tariffs, the availability of smaller, more versatile mobile handsets,
improved service offerings and changes in consumer behavior were significant
factors in the increase in our GSM subscription base from December 31, 1997
through December 31, 2000. The recent increase in our GSM subscription base has
mainly been attributable to growth in the number of residential users.

     The subscription attrition or "churn rate" of our GSM service, which has
traditionally been low by international standards, also plays an important role
in determining the size of our subscription base. Our GSM churn rate, which
reflects the total number of GSM subscription deactivations during a period as a
percentage of the average number of our GSM subscriptions for the period was
14.0 percent, 14.6 percent and 12.4 percent in 1998, 1999 and 2000,
respectively. Customer churn, which excludes cases in which the registered owner
of the subscription changes but the user remains the same (as in the case where
a person has his or her individual subscription transferred to a company
subscription), was significantly lower at 9.7 percent in 2000, as compared to
12.1 percent in 1999.

     Subscription, connection and other charges from our NMT services decreased
in 2000 as compared to 1999 and in 1998, primarily due to a decrease in NMT 900
subscribers as a growing number of such subscribers migrated to GSM services
prior to the termination of NMT 900 services on December 31, 2000. The number of
subscribers to our NMT 450 services declined at a slower pace than NMT 900
service during 2000 as compared to 1999 and in 1999 as compared to 1998
principally due to continued use of our NMT 450 network by its core subscriber
base of certain niche groups such as a freight transport operators and seasonal
users who rely on NMT 450 for its coverage of remote areas. Our total NMT
subscriber base decreased by 40 percent in 1998 and 41 percent in 1999 as
compared to a decrease of 71.7 percent in 2000. The number of NMT subscriptions
at December 31, 2000 was 55,863 as compared to 197,597 in 1999. The dramatic
decrease in NMT subscriptions in 2000 is primarily due to the 109,251 NMT 900
subscriptions which were removed from the network when we discontinued NMT 900
network services on December 31, 2000. The operation of our NMT 450 network has
continued in its existing format. We expect revenues from our NMT services to
continue to decline in the future.

Traffic revenues

     Traffic revenues consist of traffic charges paid by our mobile subscribers,
interconnection fees and roaming fees. Traffic revenues also include revenues
from SMS messages, SMS based content and transaction services, and other
value-added services. Traffic revenues increased substantially in 2000 and in
1999 as compared to the previous year primarily as a result of growth in the GSM
subscription base, an increase in average monthly usage per GSM subscription and
increased use of SMS services, as well as increases in roaming revenues and
mobile interconnection fee revenues. Increases in traffic revenues were
partially offset by a decline in the NMT subscriber base and a decrease in the
average monthly minutes of use per NMT subscription, as well as decreases in GSM
and NMT traffic tariffs.

     Average monthly revenue per subscription for our mobile services increased
in 2000 as compared to 1999 and in 1999 as compared to 1998 primarily as a
result of increased usage of mobile phones by our GSM subscribers and the
substantial increase in the usage of value-added services, including SMS. NMT
subscribers generally generate lower revenues than GSM subscribers. Average
monthly revenue per subscription for our mobile services increased despite (1)
the negative effect of tariff reductions implemented throughout the period in
response to increased competition in the market and (2) the overall increase in
the number of residential subscriptions as a percentage of our total GSM
subscription base. Residential subscribers generally generate lower revenues
than business subscribers due to different tariff packages and calling habits.

     The increase in average monthly usage by GSM residential and business
subscriptions was due to declining mobile tariffs, the availability of smaller,
more versatile mobile handsets with improved battery lives, and the development
of new applications for mobile phones as well as the introduction of additional
value-added services
                                       116
<PAGE>   130

to our customers. Increases in average monthly usage have, however, been partly
offset by an increase in the number of lower volume users in the subscription
base. We expect that, as the mobile penetration rate in Finland increases,
growth in the average monthly usage per GSM subscription will continue to be
affected by the inclusion of an increased number of lower volume users in the
subscription base.

     An increase in the use of SMS, a service we first began offering in May
1995, by our GSM subscribers has also contributed to the increase of our mobile
communications traffic revenues. SMS messages, which are billed on a per message
basis, do not, however, have an effect on the average monthly minutes of use per
subscriber due to the extremely short airtime per message required for
transmitting SMS traffic. The number of SMS messages sent by our GSM subscribers
increased approximately six times from 1997 to 1998 and more than doubled from
1998 to 1999. During 2000, non-voice services generated approximately 11 percent
of total mobile communications revenues as compared to approximately eight
percent in 1999 and approximately 4.5 percent in 1998. This increase resulted
primarily from the increase in the number of SMS messages from 206 million in
1998 and 439 million in 1999 to 618 million in 2000.

     Our management believes that we can continue to increase average revenue
per customer and we are pursuing such a strategy through strategic service
enhancement. One important initiative is the provision of packet-switched GPRS
services which are able to transmit data to mobile handsets more efficiently
than GSM. In December 2000, we began offering GPRS services in the major cities
in Finland on a commercial basis and made such services available throughout
Finland in early 2001. We have also decided to start providing international
test connections in the GPRS interconnection network for packet-switched mobile
communications operators. In September 2000, we began offering Nokia GRX-based
GPRS roaming to our subscribers. GRX is a centralized IP routing network for
interconnecting GPRS networks operators.

     Average monthly usage by our NMT subscribers decreased in 2000, 1999 and
1998 as compared to previous years, primarily due to the continued migration of
higher volume NMT 900 subscribers to GSM services influenced in part by the GSM
handset exchange offers extended by us and by other Finnish mobile operators to
our NMT subscribers, and our termination of our NMT 900 service on December 31,
2000. The average monthly usage of our NMT 450 subscribers declined only
slightly during 2000, principally due to continued use of our NMT 450 network by
its core subscriber base who rely on NMT 450 for its ability to reach remote
areas.

     Our GSM and NMT traffic tariffs have declined since 1998 primarily in
response to increased competition from Radiolinja's GSM 900 services, and more
recently from other GSM operators and service providers.

     Roaming revenues consist of (1) the total amounts we bill for calls made
outside Finland by our customers using another GSM network and (2) amounts paid
to us by foreign GSM network operators with respect to calls made by customers
of such operators while in Finland. Roaming revenues accounted for approximately
nine percent, eight percent and eight percent of our Domestic Mobile
Communications traffic revenues in 1998, 1999, and 2000, respectively. Roaming
revenues increased in absolute terms in 2000 as compared to 1999 and in 1999 as
compared to 1998 due to both increased revenues generated by our GSM subscribers
traveling outside of Finland and by subscribers of international GSM network
operators visiting Finland. These increases have resulted primarily from higher
GSM penetration rates across much of Europe and from our completion of new
roaming agreements which have increased the geographical scope of roaming
coverage throughout the period.

     Mobile interconnection fees, which only include fees charged to other
Finnish mobile operators for terminating calls on our mobile network, accounted
for approximately six percent, nine percent and ten percent of our Domestic
Mobile Communications traffic revenues in 1998, 1999 and 2000, respectively.
Revenues from mobile interconnection fees increased in 2000 as compared to 1999
and in 1999 as compared to 1998, reflecting the increase in calls originating on
other operators' mobile networks which terminated on our mobile network as a
result of the increased size of our and other operators' subscriber bases.

     Mobile interconnection fees, including fees for terminating traffic to our
mobile network, are covered by bilateral interconnection agreements. Mobile
interconnection tariffs have been generally stable since 1996. Mobile
termination fees charged by us under the interconnection agreements currently in
effect are under legal challenge, and may therefore be subject to revision. See
"Item 8. Financial Information -- Legal and Regulatory Proceedings --
Interconnection Fees."

                                       117
<PAGE>   131

Other wireless services

     Other wireless services comprise our paging services, satellite services,
closed network radio services (which were divested in 2000), logistical control
services, mobile consultancy services and special products. The following table
sets forth certain information regarding revenues from other wireless services
for the periods indicated:

<TABLE>
<CAPTION>
                                                            YEAR ENDED            YEAR ENDED
                                                           DECEMBER 31,          DECEMBER 31,
                                                        ------------------   ---------------------
                                                        1998   1999   2000   1999/1998   2000/1999
                                                        ----   ----   ----   ---------   ---------
                                                         (IN E MILLIONS)          (% CHANGE)
<S>                                                     <C>    <C>    <C>    <C>         <C>
Other wireless services..............................    55     52     76      (5.5)       46.2
</TABLE>

     Revenues from other wireless services increased in 2000 as compared to 1999
principally due to increased revenues from radio services, mobile consultancy
services and various special products. These increases were partially offset by
declining revenues from paging services and ARP services, our mobile vehicle
radio telephone system which predates NMT and GSM. We discontinued all of our
ARP network operations as of December 31, 2000. Revenues derived from logistical
control services were generally stable throughout the period. We expect that
revenues from our paging services will continue to decline as users of these
services migrate to GSM services. Revenues for other wireless services also
include certain intra-Group sales made by Domestic Mobile Communications to
other business areas, including mobile products sold to customers of Sonera
Telecom and mobile products sold to Sonera's personnel employed by other
business areas. Intra-Group sales have witnessed steady growth since 1998.

INTERNATIONAL MOBILE COMMUNICATIONS

     International Mobile Communications focuses principally on administering
our holdings in international GSM operators and third generation joint ventures.
Earnings in these associated companies continue to be included in our
consolidated accounts in accordance with the equity method of accounting. The
International Mobile Communications area derives revenues and expenses from
ongoing business conducted with our associated GSM operating companies and our
third generation joint ventures. In particular, the International Mobile
Communications business area derives substantially all of its revenues from the
provision of technical, management and other services by us to our associated
GSM operating companies and our third generation joint ventures, including the
temporary transfer of Sonera employees to such companies. International Mobile
Communications' expenses consist mainly of personnel expenses related to
employees who administer our GSM and UMTS investments, employees who have been
temporarily transferred to our associated GSM operating companies and our third
generation joint ventures, travel expenses and consultant service fees.
International Mobile Communications generated revenues of E5 million, E4 million
and E2 million in 2000, 1999 and 1998, respectively.

MEDIA COMMUNICATIONS AND NEW SERVICES

     In total, our Media Communications and New Services business area generated
revenues of E254 million in 2000, or approximately 12 percent of our total
revenues for the year.

     The following table sets forth the revenues of our Media Communications and
New Services business area by for the periods specified:

<TABLE>
<CAPTION>
                                                         YEAR ENDED               YEAR ENDED
                                                        DECEMBER 31,             DECEMBER 31,
                                                    --------------------    ----------------------
                                                    1998    1999    2000    1999/1998    2000/1999
                                                    ----    ----    ----    ---------    ---------
                                                      (IN E MILLIONS)             (% CHANGE)
<S>                                                 <C>     <C>     <C>     <C>          <C>
Media Communications and New Services...........    127     175     254       37.8         45.1
</TABLE>

                                       118
<PAGE>   132

Media Communications

     Media Communications consists of new media and business media operations.
Our new media services include consumer and corporate Internet services, cable
TV services and special calling services. Our business media operations offer a
variety of communications, marketing and customer care solutions for business
customers, such as toll-free numbers and local access charge corporate numbers,
multifax services, telephone and video conference calling and remote working, as
well as e-commerce services. Revenues from Media Communications are generated
from subscription fees, rental fees for hosting services, on-line advertising
fees, calling and transaction fees for services. Revenues from media services
depend on the cost and mix of services subscribed, tariff levels and the mix of
transmission volumes, durations and combinations.

     Revenues from our Media Communications increased in 2000 as compared to
1999 and in 1999 as compared to 1998 principally as a result of the growth in
the number of subscribers to its Internet access and hosting services, as well
as increased use of our Internet services provided by our foreign subsidiaries.
The number of subscribers to our Internet access services, which are provided by
our subsidiary Sonera Plaza, increased from approximately 100,000 in February
1998 to more than 239,000 subscribers in December 2000. We expect our Internet
access subscriber growth to continue as Internet penetration rates in Finland
increase and Internet portal services continue to develop. Increased demand for
calling plan services, including toll free numbers, also contributed to the
increase in media services revenue for the period, as well as revenues from
remote work services. Revenues from cable TV services, fax services and
telephone and video conference calling were generally stable throughout the
period. Revenues from charged service calls, on the other hand, have been
declining since 1997, principally due to increased competition and decreased
demand.

     Due to the increased pricing pressures on Internet service access,
including the increasing trend of offering Internet access service at no charge,
we believe that revenue growth from media communications is likely to be
dependent upon growth in content-based services and advertising revenue in the
future, such as that to be provided by Sonera Plaza Finanssipalvelut, a service
started in September 2000 with the OKOBANK Group to provide online financial and
related value added services to retail customers.

New Services

     Our New Services businesses are still largely in their early stage of
commercial development and, with the exception of our Sonera Info Communications
directory services business and our Sonera Plaza Internet access service
business, did not generate significant revenues prior to 2000.

     Prior to 2000 Sonera SmartTrust derived most of its revenue from its
operation of a secure electronic payment network for Finnish customers.
Beginning in 2000, Sonera SmartTrust generates revenues primarily from licensing
the rights to its wireless security solutions to service providers, such as
banks and brokers, and wireless operators, as well as to certificate
authorities, smart card manufacturers and systems integrators. In 2000, Sonera
SmartTrust had revenues of E18 million, largely from its Across and iD2 business
activities. As of December 31, 2000, Sonera SmartTrust had an order backlog of
over E11 million. We also made two acquisitions in 2000 that management expects
will generate additional revenues for Sonera SmartTrust services. In April 2000,
we acquired the entire share capital of Across Holding AB of Sweden, a provider
of wireless Internet-based service platforms. In June 2000, we acquired the
entire share capital of iD2 Holding AB of Sweden, a provider of secure
authentication solutions based on PKI (Public Key Infrastructure) and smart card
technology. Both Across and iD2 have become wholly-owned subsidiaries of Sonera
SmartTrust Ltd.

     However, in the course of the updating of the strategy and business plan
for Sonera SmartTrust, it has become evident that the future cash flow
expectations of Sonera SmartTrust are lower than at the time we completed the
acquisitions of Across and iD2 in April and June of 2000, respectively. As a
result of these and other findings, we have recorded an impairment loss of E704
million under U.S. GAAP for the year ended December 31, 2000 to reduce the
carrying value of the goodwill and identified intangible assets related to the
acquisitions of Across and iD2.

     In 2000, Sonera zed generated revenues of E7 million, principally from
services offered to our mobile customers in Finland. Sonera zed seeks to offer a
range of customized zed mobile value-added services to mobile

                                       119
<PAGE>   133

operators and their customers throughout the world. During 2000, Sonera zed has
entered into agreements with various mobile operators including E-Plus, D1 and
D2 in Germany, Smart Communications in the Philippines, KPN Mobile and Libertel
in the Netherlands, MobileOne (M1) of Singapore, as well as Powertel (which has
subsequently been acquired by Deutsche Telekom) of the United States, Vodafone
in the United Kingdom and Turkcell in Turkey to provide Zed services in the
markets of these operators. As of December 31, 2000, the number of registered
Sonera zed users totaled approximately 223,000 as compared to 127,000 as of
December 31, 1999. In August 2000, Sonera zed launched its mobile non-voice
services in the Netherlands.

     Sonera Plaza, Sonera Info Communications and Sonera Juxto generated
approximately two-thirds of the revenue recorded by the Media Communications and
New Services business area in 2000. Sonera Plaza generated revenues principally
from its Internet access service business. Sonera Info Communications generated
revenues from both electronic and operator assisted directory services and
printed telephone directories. Sonera Juxto, which began providing ASP and
management services in June 2000, was also a significant contributor to the
revenues of Media Communications and New Services in 2000. Some of the advanced
systems management services provided by Sonera Juxto were previously included as
part of Sonera Telecom's data service business.

SONERA TELECOM

     Sonera Telecom is comprised of fixed network domestic and international
voice services, data services, leased lines, equipment sales, construction and
maintenance and other services. Revenues from Sonera Telecom were E947 million,
E980 million and E1,020 million in 1998, 1999, and 2000, respectively. The
increase in revenues in 2000 as compared to 1999 was primarily due to increased
leased line revenues and the increase in 1999 as compared to 1998 was primarily
due to increased revenues from data services.

Fixed Network Voice Services

     Revenues from fixed network voice services consist of domestic voice
revenues and international voice revenues.

     Domestic voice revenues.  Domestic voice revenues consist of (1)
subscription, connection and other charges, (2) traffic charges for local and
long distance calls placed by our subscribers and (3) interconnection revenues.
Revenues from subscription, connection and other charges consist principally of
revenues from monthly subscription charges, initial connection fees,
complementary service charges, including monthly fees for services such as voice
mail, call waiting and other value-added services, and certain equipment rental
charges. Revenues from subscription, connection and other charges depend
primarily on the total number of lines subscribed and the mix of standard lines
(traditional copper wire access lines), ISDN lines (copper wire access lines
with a transmission system which allows for the transmission of two streams of
information at the same time) and 2 Mbps lines (copper wire access lines with a
transmission system which allows for the transmission of multiple streams of
information at the same time). Revenues from traffic charges for local and long
distance calls are dependent upon the number of calls made, the mix between
local calls and higher priced long distance calls, call duration and applicable
tariffs.

     Interconnection revenues include fees paid to us by the local operators of
the Finnet Group and other operators of fixed networks in Finland as well as by
Radiolinja, Telia Finland, DNA Finland and other mobile operators for
interconnection with our fixed-line network. Interconnection revenues consist of
three main components: access, transit and termination fees. Smaller items which
are also counted in calculating interconnection revenue include routing service
fees and international pre-selection fees. See "Item 4. Information on the
Company -- Regulation -- Interconnection" and "Item 8. Financial Information --
Legal and Regulatory Proceedings -- Interconnection Fees."

                                       120
<PAGE>   134

     The table below sets forth domestic voice revenues and certain information
regarding traffic and our access lines for the periods indicated:

<TABLE>
<CAPTION>
                                                                                           YEAR ENDED
                                                     YEAR ENDED DECEMBER 31,              DECEMBER 31,
                                               ------------------------------------   ---------------------
                                                  1998         1999         2000      1999/1998   2000/1999
                                               ----------   ----------   ----------   ---------   ---------
                                               (IN E MILLIONS, EXCEPT AS INDICATED)        (% CHANGE)
<S>                                            <C>          <C>          <C>          <C>         <C>
Domestic voice revenues:
Local calls(1)
Subscription, connection and other
  charges...................................        169          199          198        17.8        (0.5)
Long distance calls(2)......................         26           28           25         7.7       (10.7)
Interconnection revenues....................         63           23           24       (63.5)        4.3
                                                -------      -------      -------       -----       -----
  Total.....................................        258          250          247        (3.1)       (1.2)
                                                =======      =======      =======       =====       =====
Domestic traffic (in millions of minutes):
Local calls(1)..............................      1,994        1,869        1,834        (6.3)       (1.9)
Long distance calls(2)......................        749          667          588       (10.9)      (11.8)
                                                -------      -------      -------       -----       -----
  Total.....................................      2,743        2,536        2,422        (7.5)       (4.5)
                                                =======      =======      =======       =====       =====
Number of access lines at end of period:(4)
Standard....................................    656,524      592,337      541,612        (9.8)       (8.6)
ISDN........................................     24,772       36,413       45,931        47.0        26.1
2 Mbps......................................      2,820        3,509        3,612        24.4         2.9
                                                -------      -------      -------       -----       -----
  Total equivalent lines(3).................    790,668      770,433      741,834        (2.6)       (3.7)
                                                =======      =======      =======       =====       =====
</TABLE>

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

(1) Revenues and minutes accrued from calls originating on our fixed network and
    terminated within the same telecommunications area.

(2) Revenues and minutes accrued from calls utilizing our trunk network
    including long distance calls placed by subscribers of other service
    operators which are routed through our trunk network. Revenues from long
    distance calls exclude interconnection revenues.

(3) For purposes of calculating total equivalent lines, ISDN lines are counted
    as two standard lines and 2 Mbps lines are counted as 30 standard lines.

(4) Principles for keeping access lines statistics was changed in the beginning
    of 1999. Prior to the change, residential ISDN lines were registered both as
    standard and ISDN lines. Certain 2Mbps lines were also registered both as
    standard and as 2Mbps lines. Information for periods prior to 1999 has not
    been restated.

     Domestic voice revenues decreased slightly in 2000 as compared to 1999
principally as a result of lower local and long distance calling minutes partly
offset by higher tariffs. Domestic voice revenues decreased in 1999 as compared
to 1998 mainly due to decreases in long distance voice calling minutes and lower
local network interconnection charges partly offset by increases in
subscription, connection and other charges. In 1998 and 1999, as part of our
overall strategy of continuing to rebalance our fee and tariff structure, we
increased our basic monthly subscription charge for standard access lines,
whereas we lowered our connection fee in 1999. On the other hand, revenues from
subscription, connection and other charges have been negatively affected by the
decrease in the number of standard access line connections as residential
subscribers have moved away from our traditional service areas located
principally in the more sparsely populated areas of eastern and northern
Finland. Although the number of equivalent lines has generally been stable,
mainly attributable to an increase in the number of ISDN and 2 Mbps lines, these
higher capacity lines typically have lower monthly subscription charges than
standard access lines on a per equivalent line basis. The growth in the number
of ISDN and 2 Mbps lines throughout the period reflects our strategy of building
fiber optic local loop infrastructure in the largest cities in Finland primarily
to attract business subscribers. We have recently introduced a new pricing
structure for local calls in which we raised the call connection charge and
lowered the time-based charges in order to stimulate increased Internet usage.

     Long distance call revenues decreased slightly in 2000 as compared to 1999
and increased in 1999 as compared to 1998. On July 1, 1999, we increased our
domestic long distance tariff in response to both increased costs and the
decline in domestic long distance traffic. We believe that we will continue to
experience a gradual

                                       121
<PAGE>   135

decline in domestic long distance traffic in the future as subscribers switch
from fixed-line services to mobile telecommunications services.

     Interconnection revenues generally remained level in 2000 as compared to
1999. Interconnection revenues are gross amounts before deduction of
interconnection fees we pay to other telecommunications operators, which are
included as expenses under "services bought" in the income statement. In 1999
interconnection revenues decreased as compared to 1998 principally due to the
impact of the 1999 Interconnection Regime. See "-- Overview -- Interconnection
Arrangements."

     International voice revenues.  Revenues from international voice services
consist of revenues from outgoing international calls and incoming international
calls, including charges with respect to international transit traffic, and
calls generated by our foreign subsidiaries. Revenues from international voice
services depend on (1) the total number, duration and destination of outgoing
calls originating in Finland and the applicable tariffs, (2) the total number
and duration of incoming calls and the rates we charge to foreign operators for
carrying such calls on our network, (3) the total number and duration of
international transit traffic calls and (4) the total number, duration and
destination of outgoing calls made through services provided by our consolidated
foreign subsidiaries. In addition, we have launched a new tariff structure
effective as of January 1, 2001, under which international tariffs for outgoing
calls vary depending on whether the call terminates on a mobile or fixed-line
outside of Finland.

     The following table sets forth information concerning international traffic
revenues and outgoing and incoming international traffic for the periods
indicated:

<TABLE>
<CAPTION>
                                                         YEAR ENDED               YEAR ENDED
                                                        DECEMBER 31,             DECEMBER 31,
                                                    --------------------    ----------------------
                                                    1998    1999    2000    1999/1998    2000/1999
                                                    ----    ----    ----    ---------    ---------
                                                      (IN E MILLIONS)             (% CHANGE)
<S>                                                 <C>     <C>     <C>     <C>          <C>
International traffic revenues:
  Outgoing international(1).....................     67      66      69        (1.5)         4.5
  Incoming international(2).....................     51      44      33       (13.7)       (25.0)
  Foreign subsidiaries..........................     10      10       7          --        (30.0)
                                                    ---     ---     ---       -----        -----
     Total......................................    128     120     109        (6.3)        (9.2)
                                                    ===     ===     ===       =====        =====
International traffic (in millions of minutes):
  Outgoing international(3).....................    225     229     231         1.8          0.9
  Incoming international(4)(5)..................    278     277     283        (0.4)         2.2
</TABLE>

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

(1) Outgoing international revenues include revenues generated from
    Finland-originated international calls, including calls placed by
    subscribers of other service operators which are routed through our
    international network. These amounts show gross revenues before deduction of
    settlement payments to foreign operators to carry our outgoing traffic,
    which are reflected as "external services" expenses in the income statement.

(2) Incoming international revenues include revenues generated from
    Finland-terminated international calls, including calls terminating with
    subscribers of other service operators which are routed through our
    international network, as well as international transit traffic utilizing
    our international network.

(3) Outgoing international traffic includes Finland-originated international
    calls, including calls placed by subscribers of other service operators
    which are routed through our international network.

(4) Incoming international traffic includes all Finland-terminated international
    calls, including calls terminating with subscribers of other service
    operators which are routed through our international network, as well as
    international transit traffic utilizing our international network.

(5) Principles for keeping international incoming and transit traffic statistics
    changed in 1999. Prior to 1999, the calculation was based on payments from
    foreign operators instead of directly from the network. Information for
    periods prior to 1999 has not been restated.

     Revenues from outgoing international traffic were substantially unchanged
in 2000 as compared to 1999 and in 1999 as compared to 1998. We expect revenues
from outgoing international traffic to decrease in the future due to the impact
of anticipated price reductions. Revenues from incoming international traffic
decreased in 2000 as compared to 1999 and in 1999 as compared to 1998 largely
due to decreases in the settlement rates we charge to foreign telecommunications
operators for terminating calls on our networks. Under international
telecommunica-

                                       122
<PAGE>   136

tions settlement arrangements, we receive payments from other carriers for the
use of our network for international calls terminating in or transferred via our
network. Settlement rates will vary depending upon whether the international
call terminates on a mobile or a fixed-line. We expect that settlement rates
will decline, particularly between Finland and other member states of the
European Union and between Finland and the United States.

     The implementation of regulations requiring pre-selection of international
operators has not materially affected our market share of international traffic.
However, international pre-selection may, together with the anticipated increase
in competition from providers of Internet telephony services, have an adverse
effect upon our future international traffic revenues. See "Item 4. Information
on the Company -- Regulation -- Numbering and Carrier Selection."

     We make settlement payments to foreign operators to complete or route
outgoing calls after they leave our network. Such payments are shown as a cost
under "services bought" which is a component of "operating expenses" in the
income statement. See "-- Operating Expenses."

Data Services

     Data services consists of basic data services, (i.e., digital transmission
of packet switched data through wired networks) as well as LAN services and
intranet services, which consist of network maintenance and management services
provided for companies to support their internal networks. Our basic data
services comprise our managed leased line service, FastNet, and our managed
packet-switched services, DataPak. Our LAN and intranet services include our
DataNet LAN interconnection and system management services for corporate
customers. Revenues from basic data services are generated from monthly
subscriptions and additional fees based on usage (with respect to DataPak
services) or capacity (with respect to FastNet services). Revenues from LAN and
intranet services are generated from monthly subscriptions based on service
levels as well as fees from system management services. Revenues from data
services depend on the cost and mix of services subscribed, tariff levels and
the mix of transmission volumes, durations and combinations.

     The following table sets forth information concerning revenues from data
services for the periods indicated:

<TABLE>
<CAPTION>
                                                         YEAR ENDED               YEAR ENDED
                                                        DECEMBER 31,             DECEMBER 31,
                                                    --------------------    ----------------------
                                                    1998    1999    2000    1999/1998    2000/1999
                                                    ----    ----    ----    ---------    ---------
                                                      (IN E MILLIONS)             (% CHANGE)
<S>                                                 <C>     <C>     <C>     <C>          <C>
Data Services...................................    149     168     165       12.8         (1.8)
</TABLE>

     Revenues from data services decreased slightly in 2000 as compared to 1999
principally as a result of the transfer of some advanced systems management
services from the data services area to Sonera Juxto. Excluding the effects of
this transfer, data services would have recorded an increase in revenues of
approximately ten percent in 2000 as compared to 1999. The growth in revenues
from data services in 1999 as compared to 1998 primarily reflected increased
demand for systems solutions, including LAN management services and systems
integration and management services, as well as increased use of our data
services provided by our foreign subsidiaries. While the estimated number of
connections to our DataNet services have increased from 1998 to 2000, the
estimated number of connections to our FastNet increased and DataPak have
decreased during the same period. We expect revenues from our basic data
services to remain relatively stable over the next few years while revenues from
our DataNet LAN and intranet services and system management business are
expected to increase modestly.

                                       123
<PAGE>   137

Leased Lines

     The following table sets forth information with respect to revenues from
leased lines for the periods indicated:

<TABLE>
<CAPTION>
                                                         YEAR ENDED               YEAR ENDED
                                                        DECEMBER 31,             DECEMBER 31,
                                                    --------------------    ----------------------
                                                    1998    1999    2000    1999/1998    2000/1999
                                                    ----    ----    ----    ---------    ---------
                                                      (IN E MILLIONS)             (% CHANGE)
<S>                                                 <C>     <C>     <C>     <C>          <C>
Leased lines and capacity.......................     25      32      52        28.0        62.5
</TABLE>

     Revenues from leased lines are generated from initial connection fees and
monthly rental charges which vary upon the type of the leased line and the total
transmission capacity. Revenues from leased lines increased in 2000 as compared
to 1999 primarily due to the significant amount of data traffic generated by our
fiber optic connection between St. Petersburg and Moscow for which we received a
license in February 2000.

Equipment Sales

<TABLE>
<CAPTION>
                                                         YEAR ENDED               YEAR ENDED
                                                        DECEMBER 31,             DECEMBER 31,
                                                    --------------------    ----------------------
                                                    1998    1999    2000    1999/1998    2000/1999
                                                    ----    ----    ----    ---------    ---------
                                                      (IN E MILLIONS)             (% CHANGE)
<S>                                                 <C>     <C>     <C>     <C>          <C>
Equipment Sales.................................     96     114     125        18.8         9.6
</TABLE>

     Revenues from telecommunications equipment sales include revenues from the
sale of individual telephones, mobile handsets and computers targeted at
residential customers, and the sale, construction and maintenance of more
complex telephone terminals, private computerized telephone switching systems
(PBXs or private branch exchanges), electronic payment terminals and complete
network systems targeted at business customers. Revenues from our equipment
sales also include sales financed by Sonera Gateway Ltd. (formerly Sonera Credit
Ltd.), which provides lease financing for our customers.

     The increase in revenues from equipment sales in 2000 as compared to 1999
was primarily due to very strong Christmas sales of mobile handsets and related
accessories. Increase in revenues in 1999 as compared to 1998 was due in part to
increased volumes of mobile handsets sold as customers upgraded handsets to dual
band service and smaller models as well as to our purchase of additional retail
outlet chains. These acquisitions include a 59 percent majority holding in
Paamies-kauppiaat Oy, a joint marketing company for a chain of mobile phone
distributors with 54 stores around Finland, in January 1999. In 2000, 1999 and
1998 our equipment sale revenues benefited from increased sales volumes of
mobile handsets, PBX equipment, Internet service packages and LAN systems
equipment.

Construction and Maintenance

<TABLE>
<CAPTION>
                                                         YEAR ENDED               YEAR ENDED
                                                        DECEMBER 31,             DECEMBER 31,
                                                    --------------------    ----------------------
                                                    1998    1999    2000    1999/1998    2000/1999
                                                    ----    ----    ----    ---------    ---------
                                                      (IN E MILLIONS)             (% CHANGE)
<S>                                                 <C>     <C>     <C>     <C>          <C>
Construction and Maintenance....................     31      24      34       (22.6)       41.7
</TABLE>

     In July 1999, our construction and maintenance services business was
transferred to a wholly-owned subsidiary, Primatel Ltd. Primatel provides
installation and maintenance services both to Sonera and third parties,
including other telecommunications operators and end-users such as public
utilities, corporations and residential customers.

     Revenues from construction and maintenance increased in 2000 as compared to
1999 primarily as a result of orders from other telecommunications operators
which are laying new cables in Helsinki and other major cities in Finland.

                                       124
<PAGE>   138

     Revenues derived from construction and maintenance fluctuate based upon the
level of network construction orders. Primatel's principal customers have been
our mobile and fixed-line network operations. Our goal is to increase the amount
of construction and maintenance services Primatel provides to third parties in
the future.

Other Services

<TABLE>
<CAPTION>
                                                         YEAR ENDED               YEAR ENDED
                                                        DECEMBER 31,             DECEMBER 31,
                                                    --------------------    ----------------------
                                                    1998    1999    2000    1999/1998    2000/1999
                                                    ----    ----    ----    ---------    ---------
                                                      (IN E MILLIONS)             (% CHANGE)
<S>                                                 <C>     <C>     <C>     <C>          <C>
Other Services..................................    260     272     288        4.6          5.9
</TABLE>

     Revenues from Other Services consist of revenues from various non-core
fixed-line related businesses including network consulting services and public
phones, as well as intra-Group operations such as network capacity sales to
other business areas, reselling products of other business areas to corporate
customers of Sonera Telecom and the provision of construction and maintenance
services to Domestic Mobile Communications. Revenues from Other Services
increased in 2000 as compared to 1999 and 1999 as compared to 1998, principally
as a result of increases in network capacity sales, higher resales of products
purchased from Domestic Mobile Communications and Media Communications and New
Services and increased provision of construction and maintenance services to
Domestic Mobile Communications.

OTHER OPERATIONS

     Revenues from Other Operations consist principally of revenues generated
from the provision of administrative functions and centralized services to
Sonera's other business segments, as well as sales generated from other non-core
businesses such as ticket sales. Revenues from Other Operations decreased in
2000 as compared to 1999 largely due to the transfer of certain technology
servicing operations to Isoworks Oy, an associated company. In 1999 as compared
to 1998, revenues from Other Operations increased primarily as a result of a
growth in demand for network consulting services provided to our associated
companies and other customers and as a result of growing intra-Group sales of
administrative and centralized services.

OTHER OPERATING INCOME

     Other operating income consist mainly of revenues from rental income, gains
from the sale of business operations, gains from the sale of fixed assets and
penalty fees charged to subscribers in connection with the collection of overdue
receivables.

     The following table sets forth information concerning other operating
income for the periods indicated:

<TABLE>
<CAPTION>
                                                                YEAR ENDED DECEMBER 31,
                                                                ------------------------
                                                                1998     1999      2000
                                                                -----    -----    ------
                                                                    (IN E MILLIONS)
<S>                                                             <C>      <C>      <C>
Rental income...............................................      3        3          4
Gains from sales of business operations and shares..........      4       24        729
Gains from sales of fixed assets............................      2        1         --
Fees charged on collection of overdue receivables...........      9       11         13
Gain from Aerial/VoiceStream merger.........................     --       --        835
Other items.................................................      6        6          8
                                                                 --       --      -----
  Total.....................................................     24       45      1,589
                                                                 ==       ==      =====
</TABLE>

     Other operating income increased dramatically in 2000 compared to 1999
principally due to (1) the non-cash gain of E835 million related to the
Aerial-VoiceStream merger and the conversion of our shares of Aerial into shares
of VoiceStream in connection with the merger, and (2) a gain of E680 million
relating to our sale of Turkcell shares in connection with the Turkcell initial
public offering.

                                       125
<PAGE>   139

OPERATING EXPENSES

     Operating expenses consist of (1) the cost of sold equipment and materials,
(2) services bought, (3) personnel expenses, (4) rental expenses and (5) other
operating expenses. The following table sets forth our operating expenses broken
down by type and as a percentage of total revenues for the periods indicated:

<TABLE>
<CAPTION>
                                                              YEAR ENDED DECEMBER 31,
                                                ---------------------------------------------------
                                                     1998              1999               2000
                                                --------------    ---------------    --------------
                                                  E        %        E         %        E        %
                                                -----    -----    ------    -----    ------    ----
                                                         (IN MILLIONS, EXCEPT PERCENTAGES)
<S>                                             <C>      <C>      <C>       <C>      <C>       <C>
Cost of equipment and materials.............      116     7.2       142      7.7       160      7.8
Services bought.............................      367    22.6       431     23.3       511     24.8
Personnel expenses..........................      309    19.0       340     18.4       445     21.6
Rental expenses.............................       40     2.5        47      2.5        65      3.2
Other operating expenses....................      228    14.0       266     14.4       418     20.3
                                                -----    ----     -----     ----     -----     ----
  Total.....................................    1,060    65.3     1,226     66.3     1,599     77.7
                                                =====    ====     =====     ====     =====     ====
</TABLE>

COST OF EQUIPMENT AND MATERIALS

     Cost of equipment and materials consists of costs (1) incurred with respect
to the purchase of equipment for resale to customers and (2) associated with
telecommunications hardware and materials to provide and maintain services
rendered to customers.

     In 2000 as compared to 1999 and in 1999 as compared to 1998, the cost of
equipment and materials increased principally as a result of increases in the
purchases of mobile handsets, Internet packages, LAN systems equipment and other
telecommunications equipment for resale.

SERVICES BOUGHT

     Expenses associated with services bought include (1) payments made to other
telecommunications operators, including interconnection fees to domestic
telecommunications operators, leased line fees and settlement payments (payments
to foreign operators for carrying and terminating international traffic
originating from our network) to international network operators, and (2)
payments for other services bought, including network repair and maintenance
subcontracting and other subcontracting services and commissions to dealers for
new mobile subscriptions and to vendors for sales of public telephone cards. The
following table sets forth our costs of services bought and the percentage
changes therein for the periods indicated:

<TABLE>
<CAPTION>
                                                         YEAR ENDED               YEAR ENDED
                                                        DECEMBER 31,             DECEMBER 31,
                                                    --------------------    ----------------------
                                                    1998    1999    2000    1999/1998    2000/1999
                                                    ----    ----    ----    ---------    ---------
                                                      (IN E MILLIONS)             (% CHANGE)
<S>                                                 <C>     <C>     <C>     <C>          <C>
Payments to other operators for use of
  networks......................................    227     263     317          15.9         20.5
Payments for other external services............    140     168     194          20.0         15.5
                                                    ---     ---     ---     ---------    ---------
Total...........................................    367     431     511          17.4         18.6
                                                    ===     ===     ===     =========    =========
</TABLE>

     Costs of services bought increased in 2000 as compared to 1999 and in 1999
as compared to 1998 as a result of increased payments to other operators and
payments for other external services. Payments to other operators increased
throughout the period principally due to increased mobile interconnection costs
arising out of the growth in mobile traffic volumes. External service payments
increased substantially in line with revenue growth.

                                       126
<PAGE>   140

PERSONNEL EXPENSES

     Personnel expenses include wages and salaries, pension expenses and certain
other expenses such as social security, insurance and other legally mandated
payroll costs. The following table sets forth our personnel expenses and the
percentage changes therein for the periods indicated:

<TABLE>
<CAPTION>
                                                         YEAR ENDED               YEAR ENDED
                                                        DECEMBER 31,             DECEMBER 31,
                                                    --------------------    ----------------------
                                                    1998    1999    2000    1999/1998    2000/1999
                                                    ----    ----    ----    ---------    ---------
                                                      (IN E MILLIONS)             (% CHANGE)
<S>                                                 <C>     <C>     <C>     <C>          <C>
Wages and salaries..............................    248     279     369       12.5         32.3
Pension expenses................................     30      29      45       (3.3)        55.2
Other personnel expenses........................     31      32      31        3.2         (3.1)
                                                    ---     ---     ---       ----         ----
  Total.........................................    309     340     445       10.0         30.9
                                                    ===     ===     ===       ====         ====
</TABLE>

     Wages and salaries increased sharply in 2000 as compared to 1999
principally due to significant increases in the number of employees and the
hiring of a greater number of higher paid employees in our Media Communications
and New Services business area. Our acquisitions of Across Wireless and iD2 in
2000 contributed to this increase in our personnel expenses. Overall, the
average number of our employees grew by 11 percent in 2000 as compared to 1999.
Wages and salaries increased in 1999 as compared to 1998 due to an eight percent
increase in the average number of employees and the recruitment of a greater
number of higher paid skilled and managerial employees in the mobile and data
communications fields as well as in our international operations. Personnel
costs relating to the construction of telecommunications networks in the amounts
of E16 million, E19 million and E17 million for 2000, 1999 and 1998,
respectively, have been capitalized and are not presented as personnel expenses
in our income statement. We do not expect the number of our employees will grow
in 2001 as compared to 2000, and plan to downsize some of our units through
reduced hiring, redeployment to other areas within Sonera, early retirement,
selective dismissals and layoffs.

     As required by Finnish pension legislation, we make monthly contributions
to the PT Pension Fund to fund pension obligations for most of our employees.
Other personnel expenses consist of amounts paid in respect of social security
and other legally mandated payments which depend on the base level of wages and
salaries and the number of employees.

RENTAL EXPENSES

     Rental expenses, which relate primarily to the lease of office space,
increased in 2000 and 1999, as compared to 1999 and 1998, respectively, due to
our leasing of additional office space to accommodate the increased number of
employees throughout the period.

OTHER OPERATING EXPENSES

     Other operating expenses include marketing costs, general administration
costs, certain research and development expenses, office maintenance, voluntary
personnel costs such as education and health care programs offered to employees,
travel costs, insurance, consulting and certain other expenses. The following
table sets forth our other operating expenses and the percentage changes therein
for the periods indicated:

<TABLE>
<CAPTION>
                                                         YEAR ENDED               YEAR ENDED
                                                        DECEMBER 31,             DECEMBER 31,
                                                    --------------------    ----------------------
                                                    1998    1999    2000    1999/1998    2000/1999
                                                    ----    ----    ----    ---------    ---------
                                                      (IN E MILLIONS)             (% CHANGE)
<S>                                                 <C>     <C>     <C>     <C>          <C>
Other operating expenses........................    228     266     418       16.7         57.1
</TABLE>

     Other operating expenses increased significantly in 2000 as compared to
1999 and in 1999 as compared to 1998 primarily as a result of increased
marketing expenses, research and development expenses and general and
administrative expenses. In 2000 as compared to 1999, other operating expenses
increased as a result of higher spending on the development, start-up and
marketing of our new service businesses, including, in particular,

                                       127
<PAGE>   141

Sonera zed, Sonera Plaza and Sonera SmartTrust. Increased marketing expenses in
1999 related principally to brand marketing and advertising campaigns for our
mobile communications, international voice and Internet services. Increased
administration expenses in 1999 included expenses related to the implementation
of a new management software system, SAP R/3, a new sales and customer software
system, and increased consultancy expenses. Other expenses, including office
space maintenance costs and bad debt costs remained largely unchanged.

DEPRECIATION AND AMORTIZATION

     The following table sets forth depreciation and amortization and the
percentage changes therein for the periods indicated:

<TABLE>
<CAPTION>
                                                         YEAR ENDED               YEAR ENDED
                                                        DECEMBER 31,             DECEMBER 31,
                                                    --------------------    ----------------------
                                                    1998    1999    2000    1999/1998    2000/1999
                                                    ----    ----    ----    ---------    ---------
                                                      (IN E MILLIONS)             (% CHANGE)
<S>                                                 <C>     <C>     <C>     <C>          <C>
Telecommunications networks.....................    206     211     214        2.4          1.4
Other property, plant and equipment.............     43      52      66       20.9         26.9
Amortization of intangible assets...............     12      18      19       50.0          5.6
                                                    ---     ---     ---       ----         ----
  Subtotal......................................    261     281     299        7.7          6.4
                                                    ---     ---     ---       ----         ----
Write-downs
  Telecommunication networks....................     34      --      --         --           --
  Buildings.....................................      3      --      --         --           --
                                                    ---     ---     ---       ----         ----
  Subtotal......................................     37      --      --         --           --
                                                    ===     ===     ===       ====         ====
  Total.........................................    298     281     299       (5.7)         6.4
                                                    ===     ===     ===       ====         ====
</TABLE>

     Depreciation increased in 2000 as compared to 1999 primarily as a result of
capital expenditures related to the development of our new service business.
Depreciation increased in 1999 as compared to 1998 primarily as a result of
continued capital expenditure to digitalize our fixed network and to broaden the
coverage and capacity of our mobile network.

EBITDA AND OPERATING PROFIT

     EBITDA equals operating profit before depreciation, amortization and
write-downs on fixed assets. EBITDA should not be considered as an alternative
to net income as an indicator of our operating performance, or as an alternative
to cash flow from operations as a measure of liquidity. We believe that EBITDA
is a standard measure commonly reported and widely used by analysts, investors
and other interested parties in the telecommunications industry. Accordingly,
this information has been disclosed to permit a more complete comparative
analysis of our operating performance relative to other companies in the
industry. However, our definition of EBITDA may differ from the definition of
EBITDA used by other companies.

     EBITDA does not show significant trends related to the following items:
depreciation and amortization; write-downs on fixed assets; equity income in
associated companies; financial income and expense; and income taxes. For a
discussion of the trends relating to these items, see "-- Depreciation and
Amortization," "-- Equity Income in Associated Companies," "-- Financial Income
and Expense" and "-- Income Taxes."

                                       128
<PAGE>   142

     The following table sets forth EBITDA and operating profit for Sonera and
our four operating business areas for the periods indicated:

<TABLE>
<CAPTION>
                                                                 YEAR ENDED DECEMBER 31,
                                                                -------------------------
                                                                1998      1999      2000
                                                                -----    ------    ------
                                                                 (IN E MILLIONS, EXCEPT
                                                                      PERCENTAGES)
<S>                                                             <C>      <C>       <C>
EBITDA (in euro millions):
Domestic Mobile Communications..............................      362       472       543
International Mobile Communications.........................       (1)       (4)    1,502
Media Communications and New Services.......................       21       (47)     (303)
Sonera Telecom..............................................      205       247       300
Other Operations............................................       --        --         5
                                                                -----    ------    ------
Sonera......................................................      587       668     2,047
                                                                =====    ======    ======
EBITDA margin (%)(1):
Domestic Mobile Communications..............................     43.8      48.0      47.9
International Mobile Communications.........................    (50.0)   (100.0)    300.4
Media Communications and New Services.......................     16.5     (26.9)   (119.3)
Sonera Telecom..............................................     21.6      25.2      29.4
Other Operations............................................       --        --       5.9
Sonera......................................................     36.2      36.1      99.5
Operating profit (in euro millions)
Domestic Mobile Communications..............................      223       349       414
International Mobile Communications.........................       (1)       (4)    1,502
Media Communications and New Services.......................       14       (60)     (335)
Sonera Telecom..............................................       53       102       162
Other Operations............................................       --        --         5
                                                                -----    ------    ------
Sonera......................................................      289       387     1,748
                                                                =====    ======    ======
Operating profit margin (%)(2)
Domestic Mobile Communications..............................     27.0      35.5      36.5
International Mobile Communications.........................    (50.0)   (100.0)    300.4
Media Communications and New Services.......................     11.0     (34.3)   (131.9)
Sonera Telecom..............................................      5.6      10.4      15.9
Other Operations............................................       --        --       5.9
Sonera......................................................     17.8      20.9      85.0
</TABLE>

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

(1) EBITDA margin is the ratio of EBITDA to revenues, expressed as a percentage.
    In calculating EBITDA margin for each business area, the EBITDA for each
    business area is divided by the total revenues for such business area.
    Internal revenues and expenses for each business area are included in the
    calculation of EBITDA margin for each business area. See Note 19 to our
    consolidated financial statements.

(2) Operating profit margin is the ratio of operating profit to revenues,
    expressed as a percentage. In calculating operating profit margin for each
    business area, the operating profit for each business area is divided by the
    total revenues for such business area. Internal revenues and expenses for
    each business area are included in the calculation of operating profit
    margin for each business area. See Note 19 to our consolidated financial
    statements.

     Sonera's EBITDA increased in 2000 as compared to 1999 primarily due to
non-recurring capital gains. The biggest items were an E835 million non-cash
gain relating to the merger of Aerial and VoiceStream, and a E680 million gain
relating to our sale of Turkcell shares. Comparable EBITDA, excluding all
capital gains and losses and similar non-recurring items was E501 million in
2000 compared to E647 in 1999, and the comparable EBITDA margin was 24% in 2000
compared to 35% in 1999. The comparable EBITDA fell due to outlays made on new
service businesses. Excluding the additional outlays, the comparable EBITDA
margin was higher in 2000 than in 1999. Our EBITDA increased in 1999 compared to
1998 primarily as a result of revenue growth from Domestic Mobile
Communications. In 1999, the increase was partly offset by the negative EBITDA
recorded by

                                       129
<PAGE>   143

Media Communications and New Services. Our EBITDA margin (excluding
non-recurring capital gains) decreased in 2000 as compared to 1999 due to heavy
outlays on new service businesses. We believe that our EBITDA margin will be
lower in 2001 than 2000 due to continuing heavy outlays on new service
businesses.

     Domestic Mobile Communications' EBITDA increased in 2000 to E543 million
compared to E472 million in 1999. The increase is in line with the revenue
growth of Domestic Mobile Communications in 2000 as compared to 1999. Mobile
Communication EBITDA margin was essentially level between 2000 and 1999.

     International Mobile Communications' EBITDA increased dramatically in 2000
as compared to 1999 as a result of the capital gains from the Aerial merger with
VoiceStream and the Turkcell offering.

     The EBITDA loss for Media Communications and New Services increased
significantly in 2000 as compared to 1999 and in 1999 as compared to 1998,
principally due to substantial research and development costs for new services
and products in the new service businesses unit and start-up and marketing costs
for new businesses. In 2000, Sonera zed accounted for more than 40 percent of
the increase in outlays affecting EBITDA and Sonera SmartTrust accounted for 25
percent of such outlays. In 2000, Media Communications and New Services' EBITDA
also included approximately E13 million of capital losses. Sonera Plaza, Sonera
Juxto and a number of other development projects also contributed to the
increase in negative EBITDA experienced by Media Communications and New Services
in 2000.

     Sonera Telecom's EBITDA increased in 2000 as compared to 1999 principally
due to capital gains booked on the sales of the associated companies HanseNet
and Transmast Oy and improvements in efficiency. Sonera Telecom's EBITDA
increased in 1999 as compared to 1998 principally due to proportionately lower
operating expenses and capital gains on the disposal of businesses.

     Other Operations' EBITDA increased in 2000 as compared to 1999 because of
capital gains related to non-core business disposals.

     Our operating profit, which is equal to EBITDA after taking into account
depreciation and amortization and write-downs on fixed assets, increased in 2000
and 1999 as compared to 1999 and 1998, respectively.

     Our operating profit increased during these periods as a result of
increases in revenues, particularly from Domestic Mobile Communications and
Sonera Telecom, which increases were partially offset by increases in operating
expenses and depreciation and amortization expenses. The increased depreciation
and amortization expenses resulted from increased capital expenditures in 2000,
largely related to the development of new service business and, in 1999, on our
fixed network and GSM networks in recent years.

EQUITY INCOME IN ASSOCIATED COMPANIES

     Investments accounted for by using the equity method of consolidation are
investments in associated companies that we do not control but over which we
exercise a significant influence. Generally, we consider that we have
significant influence when we hold between 20 to 50 percent of the share capital
and voting rights of another company.

                                       130
<PAGE>   144

     In 2000, equity income in our associated companies was affected mainly by
the results of the following companies:

<TABLE>
<CAPTION>
                                                                OUR EQUITY INTEREST
                                                              AS OF DECEMBER 31, 2000
                                                              -----------------------
<S>                                                           <C>
Mobile network operators:
Turkcell Iletisim Hizmetleri A.S.(1)........................           37.3
Fintur Holdings B.V.(2).....................................           35.3
AS EMT(3)...................................................           24.5
Latvijas Mobilais Telefons SIA(4)...........................           24.5
UAB Omnitel(5)..............................................           27.5
Pannon GSM Rt.(6)...........................................           23.0
ZAO North-West GSM(7).......................................           23.5
Aerial Communications, Inc(8)...............................             --
Fixed network operators:
AS Eesti Telefon(9).........................................           24.5
Lattelekom SIA(10)..........................................           44.1
AB Lietuvos Telekomas(11)...................................           30.0
</TABLE>

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

(1) Between June 1993 and April 1998, we held a 34.0 percent interest in
    Turkcell. We increased our percentage interest in Turkcell to 41.0 percent
    in April 1998. In connection with Turkcell's initial public offering in July
    2001, we reduced our percentage interest in Turkcell to 37.3 percent.

(2) We acquired our interest in Fintur in May 2000, prior to Turkcell's initial
    public offering.

(3) AS EMT is a wholly-owned subsidiary of AS Eesti Telekom, a publicly listed
    Estonian corporation, in which we have a partly indirect 24.5 percent equity
    interest.

(4) We acquired our 24.5 percent interest in Latvijas Mobilais Telefons SIA in
    October 1991.

(5) We acquired our 27.5 percent interest in UAB Omnitel in September 1998.

(6) Between October 1993 and October 1996, we held a 14.6 percent interest in,
    and from November 1996 to July 1998 held an 18.1 percent interest in,
    Pannon. We increased our percentage interest in Pannon to 23.0 percent in
    August 1998.

(7) We established North-West GSM ZAO in June 1993, together with other
    shareholders acquiring our 23.5 percent initial interest in it.

(8) We acquired our initial 19.4 percent interest in Aerial Operating Co., Inc.
    in September 1998. We made an additional investment in the company in
    November 1999 together with the majority owner. Our ownership has been
    calculated as if our shares in Aerial Operating Co., Inc. had been converted
    into shares of Aerial Communications, Inc. In May 2000, as a result of the
    Aerial/VoiceStream merger, our shares of Aerial were converted into shares
    of VoiceStream. As a result of that merger, we stopped treating Aerial as an
    associated company.

(9) AS Eesti Telefon is a wholly-owned subsidiary of AS Eesti Telekom, a
    publicly listed Estonian corporation, in which we have a partly indirect
    24.5 percent equity interest.

(10) In September 1998, we increased our interest in Lattelekom to 44.1 percent.
     Previously, we had a 13.2 percent interest in the company.

(11) We acquired our 30.0 percent interest in Lietuvos Telekomas in July 1998.

     Our share of profit from associated companies increased to E121 million in
2000 from E110 million in 1999 and E59 million in 1998. In each of those years,
Turkcell has been the largest contributor to our equity income. While Turkcell's
profitability increased in 1999 as compared to 1998, it decreased in 2000 as
compared to 1999. Turkcell's profitability was negatively affected in 2000 by a
number of factors, including the ongoing effects of a mobile phone use tax in
Turkey, accruals made in connection with legal disputes and the effects of the
Turkish banking crisis in November 2000. The mobile phone use tax, which was
levied in 1999 in response to earthquakes in the Marmara region of Turkey and
which amounts to 25 percent of a subscriber's monthly phone bill, exclusive of
VAT, and is expected to be effective until the end of 2002, has had a negative
effect on mobile phone usage in Turkey. Accruals relating to amounts that
Turkcell paid to the Turkish Treasury for ongoing license fees in connection
with a dispute with the Turkish Treasury and Ministry of Transportation over the
calculation of the license fees increased Turkcell's direct cost of revenues in
2000. Turkcell also recorded significantly higher interconnection fees in 2000
as compared to 1999 relating to a dispute between Turkcell and Turk Telekom
regarding the calculation of interconnection fees. A banking crisis in Turkey in
November 2000 also had a negative effect on Turkcell's net income.

                                       131
<PAGE>   145

     In addition, our equity loss in Fintur had a negative effect on our equity
income in 2000. Several of the former Turkcell businesses included within Fintur
are in their start-up phase of operation and incurred substantial losses in
2000. Our equity income was also reduced by our share of net loss of Aerial of
E34 million in 1999 and E12 million in 2000.

     Turkcell is expected to report a loss in 2001 due to, among other things,
the slowdown in the Turkish telecommunications market, the continuation of the
temporary mobile phone use tax in Turkey and the devaluation of the Turkish lira
in the beginning of 2001. In addition, the results of certain legal proceedings
involving Turkcell may adversely affect the equity income we receive from
Turkcell in the future. Based on Turkcell's interim financial statements of
March 31, 2001, Turkcell was in breach of certain of its bank loan covenants. In
the event Turkcell were to default on its bank loans, it could have a material
adverse effect on Turkcell and could negatively impact us. See "Item 4.
Information on the Company -- Business Overview -- International and Other
Significant Investments -- Turkcell and Fintur."

     As of the beginning of 2000, we changed our accounting practice as regards
Turkcell in such a manner that our results for each quarter include the results
generated by Turkcell in the preceding quarter. The accounting practice was
changed because of the Turkcell initial public offering and listing, carried out
in July 2000, after which we have only reported and will only report on a
going-forward basis information published by Turkcell that is made available to
all of its shareholders.

     Gruppe 3G, a German UMTS license holder in which we hold a 42.8 percent
interest, and Broadband Mobile ASA, a Norwegian UMTS license holder in which we
hold a 50 percent interest, are both treated as associated companies. Gruppe 3G
observes an accounting policy according to which amortization of the acquisition
cost of its UMTS license will not begin until the network being built by Gruppe
3G is substantially completed and it puts the UMTS network into commercial
operation. Similarly, the interest expenses incurred during the build out of the
network will be capitalized as part of the network's acquisition cost. We expect
that amortization costs relating to the UMTS licenses to be recorded by Gruppe
3G once its third generation network is rolled out will have a negative effect
on the equity income we record from our associated companies in the future. We
currently do not treat Ipse 2000, an Italian UMTS license holder in which we
hold a 12.55 percent interest, or Xfera Moviles, a Spanish UMTS license holder
in which we hold a 14.25 percent interest, as associated companies and,
accordingly, the earnings of these license holding companies have not had a
direct effect on our consolidated earnings.

FINANCIAL INCOME AND EXPENSE

     The following table sets forth financial income and expense for the periods
indicated:

<TABLE>
<CAPTION>
                                                                YEAR ENDED DECEMBER 31,
                                                                -----------------------
                                                                1998     1999     2000
                                                                -----    -----    -----
                                                                    (IN E MILLIONS)
<S>                                                             <C>      <C>      <C>
Dividend income.............................................       5       21       21
Interest income.............................................      12       14       82
Other financial income......................................       2        6       28
Interest expense............................................     (19)     (40)    (155)
Capitalized interest(1).....................................      --       --       20
Other financial expenses....................................      (1)      (1)      (5)
Net exchange gains (losses).................................      (1)      --       --
                                                                 ---      ---     ----
Net financial income (expense)..............................      (2)      --       (9)
                                                                 ===      ===     ====
</TABLE>

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

(1) In 2000, we adopted an accounting practice according to which interest
    expenses related to construction in progress are capitalized in the balance
    sheet and charged to expense in the coming years as part of depreciation on
    fixed assets. See Notes 5 and 7 to our consolidated financial statements.

     Our net financial expenses increased principally due to an increase in the
interest expenses we paid for our interest-bearing debt, partially offset by an
increase in interest income we received, principally as a result of our

                                       132
<PAGE>   146

shareholder loan in favor of Gruppe 3G. Our interest-bearing debt amounted to
E5,797 million as of December 31, 2000, a more than 500 percent increase over
E923 million of interest-bearing debt as of December 31, 1998. The substantial
increase in interest-bearing debt since 1998 was due to debt incurred to finance
the significant investments in associated companies in 1998, 1999 and 2000,
including, in particular, our proportional share of contributions to fund
acquisitions of UMTS licenses in Germany, Italy, Spain and Norway in 2000. See
"-- Capital Resources" and Note 5 to our consolidated financial statements.

     Dividend income for 2000 included E17 million of dividend income from
investments in venture capital funds and E4 million from LibanCell S.A.L. In
1999, we recorded E18 million in dividend income from investments in venture
capital funds and E3 million from LibanCell S.A.L. Interest expense in 2000
amounted to E155 million, a 228 percent increase over interest expense of E40
million in 1999 primarily as a result of higher debt levels in 2000.

     In the third quarter of 2000, we adopted an accounting practice that
management believes will give a fairer view of our results of operations and
financial position in the future. Starting in the third quarter of 2000,
interest expenses related to construction in progress are capitalized in the
balance sheet and charged to expense in the future years as part of depreciation
on fixed assets. In practice, the change does not have an impact on the
comparability of the previous periods, and management believes that it will
present a fairer view of our results of operations and financial position in the
future. In 2000, we capitalized E20 million of interest expenses.

INCOME TAXES

     The following table sets forth the tax charges we incurred, the percentage
of income taxes we paid relative to our profit before income taxes and minority
interest, and the Finnish statutory income tax rate for the periods indicated:

<TABLE>
<CAPTION>
                                                                YEAR ENDED DECEMBER 31,
                                                                -----------------------
                                                                 1998     1999     2000
                                                                -----    -----    -----
                                                                (IN E MILLIONS, EXCEPT
                                                                     PERCENTAGES)
<S>                                                             <C>      <C>      <C>
Current tax expense.........................................      76      108      277
Deferred tax expense........................................      18       18       41
                                                                ----     ----     ----
     Total..................................................      94      126      318
                                                                ====     ====     ====
Income taxes, in relation to profit before taxes (%)........    27.2     25.4     17.1
Finnish statutory income tax rate (%).......................    28.0     28.0     29.0
</TABLE>

     Under Finnish tax legislation, companies are required to pay taxes on an
individual entity basis, regardless of whether they belong to a consolidated
group. However, individual companies within a consolidated group are permitted
under certain circumstances to transfer income to other Finnish entities within
the consolidated group within a tax period. Such transfers are referred to as
group contributions. In each of the years presented, as is common practice in
Finland, subsidiaries transferred a portion of their taxable profits to Sonera
(or PT Finland, as the case may be) to finance the dividends paid by Sonera (or
PT Finland, as the case may be).

     Deferred tax expenses result primarily from the difference between tax
depreciation under Finnish tax legislation and depreciation calculated for
purposes of our financial statements as well as provisions for withholding taxes
on profits of associated companies.

     The applicable Finnish corporate income tax rate was 28 percent in 1998 and
1999. However, the corporate income tax was raised to 29 percent, with effect
from January 1, 2000. In 2000, the difference between income tax expense as a
percentage of profit before income taxes and minority interest and the statutory
rate was mainly due to the fact that the capital gains on the sale of Turkcell
shares were not taxable in Finland. For 1998 and 1999, the difference between
income tax expense as a percentage of profit before income taxes and minority
interest and the statutory tax rate was mainly due to equity income in
associated companies which is not reflected in the individual accounts of our
Company or of any of our subsidiaries and thus not subject to taxation in
Finland. See Note 6 to our consolidated financial statements.

                                       133
<PAGE>   147

     In 2000, the increase in current tax expense resulted primarily from the
increase in other operating income relating to the non-cash gain of E835 million
in connection with the Aerial-VoiceStream merger.

     On May 4, 2000, VoiceStream completed its merger with Aerial. Our
consolidated earnings for 2000 included the non-recurring gain of E835 million
from the merger as a result of the unrealized gain from our receipt of
VoiceStream shares in connection with the merger. The gain from the merger had
no cash flow effect on us. In 2000, we received an advance ruling from the
Finnish Central Tax Board, which was subsequently upheld by the Finnish Supreme
Administrative Court, according to which the Aerial-VoiceStream merger was
considered a transaction for which we were liable to pay tax in Finland. As a
result, we had to pay a tax of approximately E216 million in connection with the
transaction, which has been included in our results of operations for 2000.

     In recent years, we have been actively restructuring our organization,
which has included the incorporation of many of our separate businesses, in
response to changing industry and business developments. We believe that all of
the transactions carried out in connection with our restructuring have been made
in compliance with Finnish tax legislation and, where applicable, foreign tax
regulations. We have also requested advanced tax rulings for certain significant
transactions, in an effort to ascertain the applicable tax treatment of such
transactions. However, Sonera has not undergone a Finnish income tax audit for
any fiscal year starting from 1994. We are currently unable to assess the timing
or likely outcome of an income tax audit in Finland.

NET INCOME

     The following table sets forth our net income and earnings per share
information for the periods indicated:

<TABLE>
<CAPTION>
                                                                                  YEAR ENDED
                                                 YEAR ENDED DECEMBER 31,         DECEMBER 31,
                                               ---------------------------   ---------------------
                                                1998      1999      2000     1999/1998   2000/1999
                                               -------   -------   -------   ---------   ---------
                                                                                  (% CHANGE)
<S>                                            <C>       <C>       <C>       <C>         <C>
Net income (in E millions)..................       251       370     1,506      47.4       307.0
Number of shares at end of period
  (thousands)...............................   722,000   722,000   743,534        --         3.0
Average during the period (thousands).......   720,247   722,000   735,917       0.2         1.9
Earnings per share (in euros)(1)............      0.35      0.51      2.05      45.7       302.0
</TABLE>

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

(1) Net income divided by the average number of shares outstanding during the
    period.

     Net income grew in 2000 as compared to 1999 primarily due to the impact of
the non-cash gain of the Aerial/VoiceStream merger and the gain from the
Turkcell offering. Net income also grew in 1999 and in 1998 as compared to the
previous year principally as a result of the growth in revenues from Domestic
Mobile Communications and, to a lesser extent, due to increased revenues from
Sonera Telecom as well as increased equity income from associated companies.

                                   LIQUIDITY

     The following table sets forth our cash flows for the periods indicated:

<TABLE>
<CAPTION>
                                                                 YEAR ENDED DECEMBER 31,
                                                                --------------------------
                                                                  1998      1999      2000
                                                                ------    ------    ------
                                                                     (IN E MILLIONS)
<S>                                                             <C>       <C>       <C>
Cash provided by operating activities.......................       508       442       227
Cash used in investing activities...........................    (1,126)     (771)   (4,572)
Cash provided by financing activities.......................       632       309     4,394
Effect of exchange rate changes on cash and cash
  equivalents...............................................        (1)        1         1
                                                                ------    ------    ------
Net increase (decrease) in cash and cash equivalents........        13       (19)       50
Cash and cash equivalents at the beginning of the year......        44        57        38
                                                                ------    ------    ------
Cash and cash equivalents at the end of the period..........        57        38        88
                                                                ======    ======    ======
</TABLE>

                                       134
<PAGE>   148

CASH PROVIDED BY OPERATING ACTIVITIES

     Cash provided by operating activities has been the primary source of
funding for our capital expenditures and dividend payments. Net cash provided by
operating activities reflects funds generated from operations and changes in
operating assets and liabilities. Cash provided by operating activities
decreased by E215 million in 2000 as compared to 1999 principally due to
significantly larger tax payments and higher interest payments. Cash provided by
operating activities in 1999 as compared to 1998 decreased primarily due to an
increase in working capital and larger tax payments.

CASH USED IN INVESTING ACTIVITIES

     Cash flows used in investing activities are primarily driven by our equity
investments and capital expenditures. Equity investments were E2,117 million in
2000, E410 million in 1999 and E898 million in 1998. This increase in equity
investment in 2000 as compared to 1999 was mainly due to investments in our
third generation joint ventures. In addition, we granted a loan of E2,719
million to our German UMTS consortium, Gruppe 3G. Capital expenditures amounted
to E430 million in 2000, E338 million in 1999 and E351 million in 1998. Cash
used in investing activities was partially offset by proceeds of E735 million
from the sale of Turkcell shares in July 2000.

CASH PROVIDED BY FINANCING ACTIVITIES

     Cash provided by financing activities is primarily driven by our borrowing
activities offset by repayments of debt and dividend payments. We received net
proceeds from current and long-term debt of E4,509 million in 2000, E370 million
in 1999 and E750 million in 1998. We made dividend payments of E87 million in
2000, E61 million in 1999 and E132 million in 1998. In 2000, we also repurchased
550,000 Sonera shares for a consideration of approximately E28 million.

     At March 31, 2001, our current liabilities, which totalled E4,037 million,
exceeded our current assets, which totalled E3,666 million. A significant
portion of our current liabilities related to a short-term credit facility we
entered into in August 2000 to finance our investment in Gruppe 3G. We are,
however, in the process of reducing our short-term debt through cash generated
from the disposition of equity investments, including (1) the sale of
VoiceStream and Powertel shares in May 2001, which generated cash proceeds of
approximately E430 million, (2) cash proceeds received in connection with the
merger of Deutsche Telekom, VoiceStream and Powertel, which amounted to
approximately E290 million, and (3) the expected sale of shares in Deutsche
Telekom that we currently hold. We also entered into a E1.33 billion variable
rate loan facility in June 2001 which we intend to draw on in July 2001 to
refinance a portion of our short-term debt. As a result of these steps, together
with cash provided by operating activities, we believe we are capable of funding
our current business plan, capital expenditures and interest and financing
costs, and to settle or refinance our short-term liabilities.

     The amount of net interest-bearing debt increased in 2000 primarily due to
new share investments and was E5,641 million as of December 31, 2000, as
compared to E1,181 million as of December 31, 1999. At December 31, 2000, the
equity-to-assets ratio was 33 percent and the gearing ratio was 174 percent. On
December 31, 1999, the equity-to-assets ratio was 51 percent and the gearing
ratio was 65 percent. If the interest-bearing loan receivables of E2.8 billion
were deducted from the net interest-bearing debt, the resulting gearing ratio
would have been 86 percent as of December 31, 2000. Following the resolution of
the Annual General Meeting of March 22, 2000, dividends totaling E87 million
were paid to the shareholders on April 3, 2000.

                               CAPITAL RESOURCES

     In general, we meet our long-term financing needs through borrowings under
syndicated and bilateral bank facilities and debt issuance programs.

     In February 2001, Standard & Poor's lowered our long-term credit rating to
a single-A-minus from single-A and the short-term rating to A-2 from A-1. In
addition, the ratings were placed on CreditWatch with negative implications. Our
credit ratings may be subject to further downgrades. On May 3, 2001, Moody's
Investor
                                       135
<PAGE>   149

Services downgraded our senior unsecured long-term debt ratings from A2 to Baa2
and our short-term debt rating from Prime-1 to Prime-2. Moody's also kept our
debt ratings on review for possible further downgrade. See "Item 3. Key
Information -- Risk Factors. S&P and Moody's have downgraded our credit ratings
and our credit ratings may be downgraded further. These downgrades may make it
more difficult and expensive for us to finance our operations."

     Our principal long-term credit facilities consist of the following:

     -  E100 million syndicated term loan due in 2001 that bears a variable
        interest rate based on LIBOR;

     -  E50 million term loan due in 2001 that bears a variable interest rate
        based on Euribor;

     -  E44 million term loan due in 2008 that bears a variable interest rate
        based on LIBOR;

     -  E42 million term loan due in 2008 that bears a variable interest rate
        based on Euribor;

     -  E200 million term loan due in installments from 2003 to 2009 based on
        the EIB reference rate;

     -  DEM 300 syndicated revolving credit facility due in installments in 2002
        to 2004 with a variable interest rate based on LIBOR, of which E53
        million was undrawn as of March 31, 2001; and

     -  DEM 1,000 syndicated revolving credit facility due in installments in
        2003 to 2005 with a variable interest rate based on LIBOR, of which E200
        million was undrawn as of March 31, 2001.

     In addition, in June 2001, we entered into a E1.33 billion variable rate
loan facility which loan matures in 2004 and carries interest at a rate based on
Euribor. We plan to draw the entire principal amount of the facility in July
2001 to prepay a portion of our other indebtedness.

     In addition, we have a E3 billion Euro Medium Term Note program, under
which we currently have total borrowings of E2 billion. The securities we have
issued from the program include:

     -  E300 million notes due in 2009 with a fixed interest rate of 4.625
        percent;

     -  E1 billion notes due in 2005 with a fixed interest rate of 5.625
        percent;

     -  E500 million Floating Rate Notes due August 2002;

     -  E150 million Fixed Rate Notes due May 2002; and

     -  E50 million Zero Coupon Notes due in November 2001.

     On October 31, 2000, we entered into a 359-day term loan facility arranged
by Citibank, N.A., Deutsche Bank AG, Dresdner Bank AG, J.P. Morgan Securities
Ltd and Merita Bank Plc, in the aggregate amount of E3,250 million. We have used
the entire amount of the loan facility to refinance the Group's existing
indebtedness, including a E3.5 billion credit facility arranged by Sonera and
Citibank, N.A. and Dresdner Bank AG dated August 25, 2000 to finance costs
incurred in connection with the award to Gruppe 3G of a UMTS license in Germany.
Loans drawn under the facility carry a floating interest rate based on Euribor.
As of May 31, 2001, E2.55 billion was outstanding under the facility. We plan to
use the cash proceeds received in connection with the merger of Deutsche
Telekom, VoiceStream and Powertel as well as any proceeds from other sales of
equity securities prior to the maturity date of the facility, including sales of
Deutsche Telekom shares, together with funds drawn from the E1.33 billion
facility, to pay down outstanding amounts under the short-term debt facility.

     To meet our short-term financing needs, we can deploy a E500 million Euro
Commercial Paper Program and domestic E300 million Commercial Paper Program.

     At March 31, 2001, we had undrawn committed long-term revolving credit
facilities of approximately E253 million and cash and short-term investments
amounting to E270 million. Management believes that our cash provided by
operations, together with cash and short-term investments and expected proceeds
from our sale of shares in Deutsche Telekom and credit facilities, are
sufficient to meet our present funding needs. We may, however, enter into
additional financing arrangements to fund capital investments in the future.

                                       136
<PAGE>   150

     To help implement our growth strategy, we plan to commit significant funds
for the further development and commercialization of services and products,
including e-commerce solutions, currently being developed by our new services
business unit, assuming certain growth targets and other conditions are met.
These operating expenditures are expected to be funded primarily from cash
provided by operations and capital markets transactions, including possible
partial spin-offs or sales of the businesses included within the new services
business unit. As part of our longer-term growth strategy, we may also make
significant investments in mobile and other service providers, or providers of
related technology or services, in the future which we expect to fund primarily
from cash provided by operations, capital markets transactions and bank debt.

     Our total indebtedness was E5,931 million at March 31, 2001 compared to
E1,296 million at December 31, 1999 and E923 million at December 31, 1998. Total
indebtedness increased between December 31, 1998 and March 31, 2001 due to
increased long-term borrowings principally to finance our international
investments and UMTS commitments. Scheduled repayments of indebtedness and
possible prepayments are expected to be financed from cash provided by operating
activities, sales of equity stakes and from undrawn committed credit facilities,
as well as additional financing arrangements, as needed. See Note 12 to our
consolidated financial statements.

     As of December 31, 2000, after taking into account our interest rate swaps
and options, approximately 70 percent of our net indebtedness bore interest
based on floating rates and approximately 30 percent bore interest at fixed
rates (with interest maturities ranging from 12 months to five years). Our long-
and short-term borrowings are primarily arranged by Sonera Corporation and, with
limited exceptions, individual subsidiaries may not enter into their own
financing arrangements.

     As of December 31, 2000, we had outstanding guarantees with respect to E85
million on behalf of our associated companies principally representing
guarantees for the debt incurred in connection with the purchase of network
equipment by Turkcell and Fintur. As of December 31, 2000, Turkcell Holding
A.S., our associated company which holds a portion of our interests in Turkcell,
had pledged one-fourth of its shareholding in Turkcell as security for
Turkcell's debt-financing arrangements. See Note 16 to our consolidated
financial statements. Based on Turkcell's interim financial statements of March
31, 2001, Turkcell was in breach of certain of its bank loan covenants. In the
event Turkcell were to default on its bank loans, we might be required to
forfeit a portion of our holdings in Turkcell and satisfy our obligations under
the guarantee. See "Item 4. Information on the Company -- International and
Other Significant Investments -- Mobile Telecommunications Operators -- Turkcell
and Fintur."

     Our loan agreements contain certain standard covenant restrictions. As of
December 31, 2000, we were in compliance with these requirements.

     In December 1998, we entered into a cross-border finance lease-leaseback
agreement under which we leased some of our mobile telecommunications network
equipment to a group of U.S. equity trusts which simultaneously leased the
equipment back to us. The ownership of the equipment, the total book value of
which was E151 million, E128 million and E96 million on December 31, 1998, 1999
and 2000, respectively, is retained by us. Both the receivables from the lease
and the obligations from the leaseback were settled at the inception of the
lease agreements, and we received a net cash consideration of E9 million. We may
consider the use of similar specialized financing techniques again in the
future. See Notes 13 and 16 to our consolidated financial statements.

     Our net debt-to-book capitalization ratio, calculated as the ratio of total
debt less cash and short-term investments to total debt plus shareholders'
equity and minority interest was 62.4 percent, 38.0 percent and 35.2 percent as
of December 31, 2000, 1999 and 1998, respectively. Our equity-to-assets ratio,
calculated as the ratio of shareholders' equity and minority interest to total
assets less advances received, was 33.4 percent, 50.6 percent, and 51.5 percent
as of December 31, 2000, 1999 and 1998, respectively. The increase in our net
debt-to-book capitalization ratio between December 31, 1998 and December 31,
2000 is attributable to the increase in net debt, primarily to finance equity
investments in foreign minority shareholdings.

                                       137
<PAGE>   151

                      CAPITAL EXPENDITURES AND INVESTMENTS

     The table below sets forth our capital expenditures and equity investments
for the periods indicated:

<TABLE>
<CAPTION>
                                                                YEAR ENDED DECEMBER 31,
                                                                -----------------------
                                                                1998     1999     2000
                                                                -----    -----    -----
                                                                    (IN E MILLIONS)
<S>                                                             <C>      <C>      <C>
Capital expenditures........................................      351      338      430
Investments in shares.......................................      898      410    2,117
</TABLE>

CAPITAL EXPENDITURES

     From 1998 through the end of 2000, we made significant capital expenditures
in connection with our mobile and fixed-line networks. In addition, in 2000, we
made significant capital expenditures in connection with our Media
Communications and New Services businesses, in particular in relation to the
international launch of Sonera zed's data centers and Sonera Plaza. In 1998 and
1999, capital expenditures with respect to our mobile network were used
principally to expand the coverage and capacity of the network and to build out
our GSM 1800 network. In 2000, with the build out of our GSM 1800 network
largely complete, we recorded lower capital expenditures on our mobile network.
Equipping our network with GPRS capacity did not increase our capital
expenditures significantly in 2000. In 1998 and 1999, capital expenditures with
respect to our fixed-line network were used primarily to fully digitalize the
network, to install fiber optic loops in the largest cities in Finland and to
update our switching technologies. In 2000, fixed-line capital expenditures
focused largely on our international operations, including our Russian fiber
optic lines. Capital expenditures for Domestic Mobile Communications accounted
for 47.3 percent, 43.8 percent and 28.8 percent of total capital expenditures in
1998, 1999 and 2000, respectively; capital expenditures for Sonera Telecom
accounted for 49.9 percent, 51.8 percent and 47.0 percent of the total capital
expenditures in 1998, 1999 and 2000, respectively; capital expenditures for
Media Communications and New Services accounted for 2.8 percent, 4.4 percent and
24.2 percent of the total capital expenditures in 1998, 1999 and 2000,
respectively.

     Our annual capital expenditures, including investment in the third
generation mobile network in Finland, are expected to be approximately E450
million in 2001 and approximately E400 million per year in the next few years.
Capital expenditures for our new services businesses will continue to be
significant in 2001, and are expected to be lower in 2002 and thereafter. We do
not expect that the further expansion of our GPRS coverage or the roll out of
our UMTS network in Finland will significantly increase capital expenditures of
Domestic Mobile Communications. We expect to finance capital expenditures over
the next few years primarily from cash flow from operations.

INVESTMENTS IN SHARES

     As of December 31, 2000, the carrying value of our equity investments was
E4,737 million. Since December 31, 1999, we have made a number of investments
which have substantially expanded our total level of investment in international
associated companies and other minority shareholdings. See "-- Investments in
Associated Companies and Other Equity Interests" for a description of the
principal investments we have made in shares since the beginning of 2000.

     We continuously evaluate potential acquisitions and business opportunities
and may, depending, among other things, on the availability and cost of
financing, make investments in furtherance of our strategic plans that offer
attractive potential for return on investment. See "Item 4. Information on the
Company -- Strategy." On the other hand, in an attempt to maximize the return on
our investments, we may also decide to dispose of certain of our investments in
our international associated companies either in whole or in part.

SHARE REPURCHASE AUTHORITY

     In March 2001, our annual general meeting of shareholders authorized the
Board of Directors to repurchase shares of Sonera Corporation. The authorization
is valid until March 21, 2002. The maximum number of shares to be repurchased
under the authorization is 2,000,000, representing 0.3 percent of the total
shares of Sonera

                                       138
<PAGE>   152

Corporation. These shares can be used as consideration for our acquisition of
property related to our business, as consideration for acquisitions, or for
hedging against social security costs resulting from stock options held by our
employees in a manner and scope decided on by the Board of Directors. Our social
security costs are calculated based on the total compensation of employees,
including the value of stock options when they are exercised or sold by
employees. As a result, we can hedge the possible appreciation of the stock
options held by our employees by maintaining shares in treasury and selling
those shares when the social security payments are realized. Any shares
repurchased will be acquired on the Helsinki Exchanges for the publicly traded
price at the time of the acquisition. Any acquisition of shares will reduce our
distributable equity.

                            RESEARCH AND DEVELOPMENT

     We have long considered research and development to be of paramount
strategic importance. Our annual research and development expenditures have
averaged between three to four percent of revenues between 1994 and 2000 and
totaled E70 million in 2000, an as compared to 64 million in 1999. In recent
years, our research and development has focused on mobile and new service
businesses.

     Our research and development program has resulted in our being among the
first telecommunications operators in Europe and the world to commercially
introduce a number of advanced mobile, fixed-line and data and media
communications products and services. We were the first telecommunications
operator in Europe to offer commercial LAN interconnection, frame relay and ATM
services. We were also one of the first telecommunications operators in Europe
to introduce networked multimedia Internet services and in 1998 became the first
telecommunications operator in Europe to offer cable TV Internet access service.
In the field of mobile telecommunications, in 1998, we became the first operator
in the world to introduce digital dual band service. We have also pioneered a
number of value-added SMS applications, including wireless telebanking. In 1997,
we also became one of the first telecommunications operators to introduce a
service that carries voice traffic over data networks using IP technology. In
August 1999, we became the first operator in the world to launch information
services intended for WAP compliant mobile phones.

     In light of the increasingly competitive and rapidly evolving Finnish,
European and global telecommunications markets, we expect to continue to devote
significant resources to the research and development of new products, services
and technologies. Currently, our principal research and development priorities
include UMTS mobile communications, customer service and billing solutions,
wireless Internet applications, data security for electronic and wireless
commerce and global IP-based roaming. In furtherance of our international
strategy, we are giving increasing priority to research projects that develop
products and services that can be applied in our overseas ventures.

     We currently employ more than 600 engineers, researchers and other experts
in our research and development units. Research and development activities are
carried out both within Sonera and in cooperation with equipment manufacturers,
research institutions and other operators.

     We have a number of patent applications pending as well as several patents
and licenses, none of which, individually, is material to our business. However,
certain of our subsidiaries and growth businesses may have patents and other
intellectual property that are material to their respective businesses. We plan
to continue to leverage our investment in research and development by seeking,
where appropriate, international patent protection on our innovations. There can
be no assurance, however, that any patent, if granted, will not be invalidated,
circumvented, opposed or canceled, or that the steps taken by us to protect our
rights will be adequate to prevent unauthorized use of our technology or to
preclude competitors from developing products with features similar to our
products. Third parties have opposed some Sonera patents and patent applications
including patents relating to our Sonera SmartTrust solution. Management is
currently in the process of reviewing these third party oppositions related to
these challenges and is not in a position to predict the likely outcome of these
opposition proceedings.

                                       139
<PAGE>   153

MOBILE COMMUNICATIONS

     In our mobile communications research and development efforts we
concentrate on developing and commercializing new applications for mobile
communications. The current focus of our mobile communications research and
development is on (1) smart communications, including the utilization of agent
technology and location information in the provision of SMS and other services,
(2) mobile multimedia, i.e., the development of new computer graphics based
services using new mobile technologies, such as UMTS, and (3) network planning
and implementation of UMTS.

     We are adopting and installing new network technologies with higher
transmission speeds. To improve the data transmission capacity of our mobile
network, we have installed multiple time slot technology in our network, which
allows for data transmission speeds of up to 43.2 Kbps. We have also focused on
the implementation of GPRS, a packet-switched technology whereby cellular base
stations can be connected directly to the Internet, bypassing the switching
systems presently used to connect mobile traffic to the fixed-line network,
improving mobile data transmission. We launched our GPRS service in December
2000 in the Helsinki area as well as in Turku, Tampere and Oulu with their
immediate surroundings. The GPRS service was added as a supplementary feature to
Sonera GSM subscriptions, and has been functioning throughout Finland since
March 2001. Our GPRS service currently achieves a transmission rate of up to 100
kbits/s, however, the first terminals entering the market can only operate up to
a speed of approximately 20 kbits/s. Sonera has also played an active role in
the development and advancement of the GRX system for GPRS roaming. We are also
developing new wireless data applications, which will use new high speed mobile
communications network as a platform.

     As part of our development of new wireless data solutions, we are also
focusing on UMTS mobile communications. UMTS, which is based on CDMA (Code
Division Multiple Access) as opposed to TDMA (Time Division Multiple Access)
technology underlying the GSM system, would support broadband access at speeds
ranging from 144 Kbps to 2 Mbps, and thus provide a foundation for a mobile
telecommunications system with greater multimedia capability such as
videoconferencing and efficient intranet and Internet access. UMTS is also
expected to provide improved transmission quality and security.

     In February 2001, we announced our endorsement of the Intel Personal
Internet Client Architecture (PCA), a scaleable architecture that enables
development and delivery of Internet, voice and data solutions to the wireless
devices. Intel PCA was chosen since it is an open architecture that enables the
proliferation and rapid deployment of software and Internet services across
standards and devices. Additionally, we announced our cooperation with Intel
Communications Fund in identifying investment opportunities in companies with
technologies that help shape and grow next-generation Internet applications for
wireless devices. The two companies will endeavor to co-invest globally in new
services that support open platforms and interoperable technology solutions.

     Our current research and development activities include a joint research
project, called "Mobile City Oulu," with the Finnish municipality of Oulu, Oulu
University, the Technical Research Center of Finland and a number of mobile
telecommunications equipment manufacturers, computer companies and retailers.
The project is aimed at developing new mobile telecommunications services and
applications for UMTS technology. We also have a number of ongoing research and
development projects with Nokia, some of which are focused on the development of
new services using UMTS. We seek to capitalize on our development projects
involving UMTS by being among the first operators to offer new services and
advanced applications utilizing the new mobile technology. We actively
participate in the development of UMTS-networks through international mobile
forums, which are preparing the standardization of UMTS technology. In addition,
in 1997, we entered into a joint research project with NTT Mobile Communications
Network, Inc. (NTT DoCoMo), regarding the development and testing of UMTS
networks. The project has provided us the opportunity to test UMTS radio
technology in DoCoMo's pilot third generation network and an opportunity to
participate in the development and commercialization of new service applications
for high speed mobile networks, prior to developing our own pilot network. In
2000, we launched Sonera Mspace, a service offering that concentrates on
developing and validating 3G service concepts by running real-world trials with
actual customers. Early adopters get to test cutting-edge applications and
services currently under development by Sonera and our partners. We believe that
this type of open laboratory test environment is the first of its kind
world-wide. Mspace has already conducted the first

                                       140
<PAGE>   154

consumer trial simulating next generation mobile services, the results of which
were announced in December 2000.

     We are a member of the Joint Initiative Towards Mobile Multimedia ("JIMM"),
a mobile operator's forum which seeks common technical approaches to enable
speedier development of envisioned mobile multimedia technology. JIMM promotes a
common platform of wireless applications and services based on third generation
technology in order to be able to meet customer demand for global mobile
multimedia. In addition to Sonera, members of JIMM include AT&T Wireless
Services, Inc., British Telecom, Deutsche Telekom MobilNet GmbH, France Telecom,
NTT DoCoMo, Singapore Telecom Mobile Pte Ltd., SK Telecom Co., Ltd., TIM and
Vodafone.

MEDIA COMMUNICATIONS AND NEW SERVICES

     We will continue to invest in electronic commerce solutions, which are
still primarily in the early commercial development phase. These include
electronic trading and EDI (Electronic Document Interchange) messaging, which is
a service for transmitting legally binding documents over an electronic network
in a standardized format, as well as services that facilitate e-commerce such as
telecommunications links to banks and credit card service providers. We are also
investigating further cooperation with TietoEnator, with a view to the
development of advanced billing systems and customer management systems. We are
exploring the possibility of marketing such services to other telecommunications
operators.

SONERA TELECOM

     Our Sonera Telecom business area is currently focusing on the delivery of
new broadband services, IP-based products, customized services based on
intelligent networks and electronic commerce. In conjunction with our launch of
ADSL services in certain large cities in Finland in the first half of 1998, we
are seeking to develop a range of new broadband services for our ADSL customers.
In those areas where it would otherwise be difficult to offer fixed-line
broadband access service, we are investigating the use of systems based on LMDS,
a platform that allows for the wireless delivery of broadband services through
radio technology. We are also conducting research on the delivery of new
value-added services through our new Nokia switching platform.

     We are one of the leading developers of services based on the transmission
of voice traffic over controlled networks using IP technology. In 1997, we
introduced Neophone service, which enables the transmission of voice calls
through our data networks, and we are researching ways to increase the
efficiency and quality of our IP telephony services. In addition, we are
developing new services that can be offered through the use of intelligent
networks, which facilitate the delivery of customized telecommunications
services to customers.

                                   INFLATION

     Inflation in Finland as measured by the consumer price index during the
years ended December 31, 2000, 1999, and 1998 was 3.4 percent, 1.2 percent and
1.4 percent, respectively. During the periods under review, inflation in Finland
has not had a significant impact on our operating results. However, most of our
associated companies operate in countries with rates of inflation higher than
that of Finland. Other than Turkey and Russia, in which our associated companies
Turkcell, Fintur and North-West GSM operate, respectively, none of such
countries is currently experiencing hyperinflation. Changes in rates of exchange
may or may not reflect differences in rates of inflation, making it difficult to
quantify the individual or combined effects of these factors on reported income.

                          RESULTS OF YEAR 2000 PROGRAM

     We experienced no Year 2000 related disruptions to business operations. To
prepare for potential Year 2000 related issues, we established our Year 2000
task force in February 1996. The task force was organized into separate teams
which covered our business and administration IT-systems, products and services,
telecommunications networks, customer interface (sales, marketing and customer
service), legal affairs (agreements and vendor management), risk management,
real estate and public relations. Our Year 2000 task force was coordinated by

                                       141
<PAGE>   155

a Year 2000 steering group which consisted of members of our upper management
and a number of Year 2000 specialists.

     In 1998, we began changing and upgrading our fixed network switching
platform hardware. This work was completed in September 1999. The remaining
upgrades of the fixed network and the process of upgrading our mobile networks
with respect to basic services and network components was completed in late
1999.

     Although we had little control over the Year 2000 readiness of our
customers, suppliers and third party providers, we took appropriate action to
determine their level of Year 2000 readiness and the potential impact on our
operations. Year 2000 readiness, including the business continuity of key
suppliers and third parties, was assessed by conducting surveys on such items as
purchased services, software, hardware and other components. Year 2000 readiness
of our interconnection partners was monitored through participation in European
and international telecommunication specific Year 2000 programs, including ETIS
AD2000 and ITU. As part of our Year 2000 project, we sent out tens of thousands
of letters to customers concerning the Year 2000 activities we carried out.

     We also prepared contingency plans which considered the critical functions
of our business including our products and services, as well as our customer
care, finance, telecommunication and IT systems and real estate in our different
business divisions. We identified and prepared plans for addressing the most
likely Year 2000 risk scenarios in all critical business and telephone network
processes, including faults in power supplies, interruptions in
telecommunications devices and unexpected errors in products, services and
computer systems. Also, as part of our Year 2000 contingency planning, we
established special recovery teams to support business continuity before and
after January 1, 2000 as needed.

     Our Year 2000 project progressed according to plan and within budget. Our
total cost for Year 2000 compliance was approximately E15 million including all
direct external year 2000 costs related to IT and non-IT items but excluding
indirect external and internal costs which were treated as normal business
development and maintenance costs. As a part of our normal operating procedure,
we will continue to monitor any potential Year 2000 related issues which may
arise. Year 2000 related costs in 2000 or beyond, if any, are not expected to be
material.

                            INTRODUCTION OF THE EURO

     In the beginning of May 1998, Finland was approved as one of the first 11
European Union member states to join Stage Three of the Economic and Monetary
Union from its commencement date. Stage Three, which commenced on January 1,
1999, involves the eventual replacement of participating countries' national
currencies with the euro. The final conversion rates of the euro and the
currencies of the member states participating in Stage Three became effective
from January 1, 1999. For the Finnish markka, such conversion rate is FIM
5.94573 to one euro. The euro is being introduced as an account currency through
a transitional period which began January 1, 1999 and ends December 31, 2001.
Beginning on January 1, 2002, euro notes and coins will be introduced and, from
March 1, 2002, the euro will be the only means of payment in Finland and the
other member states of the European Union.

     We established a management group in the first quarter of 1997 to analyze
and establish guidelines for the conversion to a euro-operating environment. Our
EMU management group and several working committees of the group have been
analyzing the impact of the euro on a number of aspects of our business,
including corporate finance, accounting, human resources, invoicing, pricing and
legal matters. Each of our operating units has also established its own EMU
working group to develop unit-specific strategies and operating plans to convert
to a euro-operating environment and to analyze both threats and opportunities
created by the introduction of the euro.

     We began providing customers with invoices in both euros and Finnish
markkas as of January 1, 1999. We began reporting in euros for financial
accounting purposes for the financial year that began on January 1, 1999. We
also anticipate that we will set and pay our wages and salaries in euros and
price our services in euros beginning January 1, 2002. We have not made any
provision for the costs to prepare us for conversion to a euro-operating
environment, and management is not currently in a position to make an accurate
estimate of the
                                       142
<PAGE>   156

amount of such future costs. However, as part of our year 2000 program and other
ongoing systems updates, we are concurrently making the necessary modifications
to our existing telecommunications network and information technology software
to permit us to bill, invoice and report in euros.

     We do not believe that the euro conversion will have a material competitive
impact on our business operations. However, management does expect that we will
face pressure from our subscribers to round down charges when publishing price
lists in euros, especially with respect to retail price lists.

     We are not a party to any derivatives or other financial instruments that
will need to be modified or closed out as a result of the euro conversion.

     We believe that the euro conversion will not result in the termination of
any of our operative contracts which are material to our business or enable one
party to break or change its contractual obligations. Furthermore, since the
fall of 1997 we have been adding a clause to each of the contracts we enter into
that provides for a substitution of the contract currency into euros (to the
extent applicable) at or prior to the end of the transitional period.

ITEM 6.  DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

     Sonera Corporation's corporate governance is the responsibility of the
Board of Directors and the President and Chief Executive Officer. On March 21,
2001, our annual general shareholders meeting resolved to abolish the
Supervisory Board which had previously shared some corporate governance
responsibilities with the Board of Directors and the President and Chief
Executive Officer. The Board of Directors is responsible for carrying out the
duties specified for it under the Companies Act and Sonera's articles of
association.

     The President and Chief Executive Officer attends to Sonera Corporation's
day-to-day administration in accordance with the instructions and regulations
issued by the Board of Directors. In managing our corporate business, the
President and Chief Executive Officer is assisted by the Executive Management
Team. Sonera Corporation's administration is overseen by statutory independent
auditors as well as the Group's Internal Audit function.

                               BOARD OF DIRECTORS

     The Board of Directors has general responsibility for our management in
accordance with law and the articles of association of Sonera Corporation. The
Board of Directors is composed of the Chairman, the Vice Chairman and between
three and eight members, who may be no more than 65 years of age. Currently, the
Board of Directors consists of a Chairman, a Vice Chairman and five members.
Members of the Board of Directors are elected by the Annual General Meeting of
shareholders for terms of one year. In addition, Sonera and its employee groups
agreed on April 5, 2001 that one employee representative will serve on the
Board. The employee representative has the right to attend, speak, and with
certain exceptions, to vote at the meetings of the Board of Directors. The
employee representative also has an alternate, who has the right to be a
participant in the meeting, but does not have voting rights. Maire Laitinen,
Group General Counsel, acts as Secretary of the Board of Directors.

                                       143
<PAGE>   157

     The present members of the Board of Directors, their respective years of
birth, their respective years of nomination, number of our shares owned by them
as of June 25, 2001, and their positions are as follows:

<TABLE>
<CAPTION>
                                                         SHARES
                                                        PURSUANT
                                    DIRECTOR   SHARES   TO STOCK
NAME                    YEAR BORN    SINCE     OWNED    OPTIONS                  POSITION
----                    ---------   --------   ------   --------                 --------
<S>                     <C>         <C>        <C>      <C>        <C>
Tapio Hintikka.......     1942        2001       --         --     Chairman
Jussi Lansio.........     1952        2000       --         --     Vice Chairman
Jorma Laakkonen......     1943        2001      500         --     Member
Eva Liljeblom........     1958        2001      440         --     Member
Roger Talermo........     1955        2001       --         --     Member
Esa Tihila...........     1964        2001       --         --     Member
Tom von Weymarn......     1944        2001       --         --     Member
Tapio Vaahtokivi.....     1942        1998      841      1,400     Employee Representative
Kari Vilkman.........     1951        1998      869      1,400     Alternate Employee Representative
</TABLE>

     Tapio Hintikka was elected as Chairman of the Board of Directors at the
Annual General Meeting held on March 21, 2001. Mr. Hintikka is the President and
Chief Executive Officer of Hackman Oyj Abp. He holds a Master of Science degree
in Engineering.

     Jussi Lansio has been on the Board of Directors since March 2000, and was
elected as Vice Chairman of the Board of Directors at the Annual General Meeting
held on March 21, 2001. Mr. Lansio is the President and Chief Executive Officer
of Oyj Hartwall Abp. He holds a Bachelor of Science degree in Economics.

     Jorma Laakkonen was elected to the Board of Directors at the Annual General
Meeting held on March 21, 2001. Until last year, Mr. Laakkonen was the Executive
Vice President and Head of Large Corporate Business for MeritaNordbanken Plc. He
holds a Master of Laws degree.

     Eva Liljeblom was elected to the Board of Directors at the Annual General
Meeting held on March 21, 2001. Ms. Liljeblom is a Professor of Finance and the
Head of the Department of Finance at the Swedish School of Economic and Business
Administration in Helsinki, Finland. She holds a Master of Science degree in
Finance, a Licentiate of Economics and a Doctorate from the Swedish School of
Economic and Business Administration in Helsinki, Finland.

     Roger Talermo was elected to the Board of Directors at the Annual General
Meeting held on March 21, 2001. Mr. Talermo is the President and Chief Executive
Officer of the Amer Group Plc. He holds a Bachelor of Science degree with majors
in Business Administration and Marketing and a Master of Science degree in
International and Industrial Marketing.

     Esa Tihila was elected to the Board of Directors at the Annual General
Meeting held on March 21, 2001. Mr. Tihila is the Group Executive Director of
ICL EMEA. He holds a degree in economics.

     Tom von Weymarn was elected to the Board of Directors at the Annual General
Meeting held on March 21, 2001. Mr. von Weymarn is the President and Chief
Executive Officer of Oy Rettig Ab. He holds a Master of Science degree in
Chemical Engineering.

     Tapio Vaahtokivi was elected to the Board of Directors by Sonera
Corporation and our Company's employee groups on April 5, 2001. He has been an
employee representative on the Board of Directors since 1998, and, prior to the
demerger of PT Finland, was an employee representative on the Board of Directors
of Telecom Finland. Mr. Vaahtokivi is the Chairman of the Telecommunications
Union, a labor union for telecommunications employees. He holds a Bachelor of
Science degree in Engineering.

     Kari Vilkman was elected as an alternate for the employee representative's
position to the Board of Directors by Sonera Corporation and our Company's
employee groups on April 5, 2001. Mr. Vilkman has been an employee
representative or alternate to the employee representative on the Board of
Directors since 1998. Prior to the demerger of PT Finland, he was an employee
representative on the Board of Directors of Telecom Finland. Mr. Vilkman holds a
Technician's degree in Telecommunications.

                                       144
<PAGE>   158

                           CORPORATE MANAGEMENT GROUP

     Our Management Group consists of the President and Chief Executive Officer
and the executive officers of Sonera Corporation. Our Management Group assists
our President and Chief Executive Officer in the management and coordination of
the implementation of our strategic and operational goals and deals with all
matters that are to be brought up before or decided by our Board of Directors.
The present members of the Management Group, their respective years of birth,
years in which they first joined our Company (or any of our predecessor
companies), number of our shares and stock options owned by them as of June 25,
2001 and their positions are as follows:

<TABLE>
<CAPTION>
                                YEAR
                        YEAR   FIRST    SHARES   SHARES PURSUANT
NAME                    BORN   JOINED   OWNED    TO STOCK OPTIONS              POSITION
----                    ----   ------   ------   ----------------              --------
<S>                     <C>    <C>      <C>      <C>                     <C>
Kaj-Erik Relander....   1962    1994     3,225   510,000 in Sonera       President and Chief
                                                 Corporation; 51,192     Executive Officer; to
                                                 in Sonera Plaza Ltd;    resign effective
                                                 218,826 in Sonera zed   August 1, 2001
                                                 Ltd; and 530,046 in
                                                 Sonera SmartTrust
                                                 Ltd.
Aimo Eloholma........   1949    1974    12,368   245,000                 Executive Vice
                                                                         President and Deputy
                                                                         Chief Executive
                                                                         Officer; to become
                                                                         acting President and
                                                                         Chief Executive
                                                                         Officer effective
                                                                         August 1, 2001
Kim Ignatius.........   1956    2000        --   175,000                 Executive Vice
                                                                         President and Chief
                                                                         Financial Officer; to
                                                                         become acting Deputy
                                                                         Chief Executive
                                                                         Officer effective
                                                                         August 1, 2001
Jari Jaakkola........   1961    1997     5,225   240,000                 Executive Vice
                                                                         President
Juha Varelius........   1963    1993     2,638   255,000 in Sonera       Executive Vice
                                                 Corporation; and        President
                                                 218,826 in Sonera zed
                                                 Ltd.
Jaakko Nevanlinna....   1956    1991       628   75,000                  Senior Vice President
Aimo Olkkonen........   1946   1969/        --   35,000                  Senior Vice President
                                1988
Niklas Sonkin........   1967    1988        --   90,000                  Senior Vice President
Anni Vepsalainen.....   1963    1987        --   185,000                 Senior Vice President
</TABLE>

     Kaj-Erik Relander has been our President and Chief Executive Officer since
January 1, 2001 and will resign effective August 1, 2001. Mr. Relander joined
Sonera in 1994 and he has held a number of positions in Sonera prior to becoming
President and Chief Executive Officer, including Executive Vice President of our
Mobile and Media area and Deputy Chief Executive Officer. In August 2001, Mr.
Relander will resign to join Accel Partners Venture Capital company in London.
Prior to joining Sonera, Mr. Relander worked for SITRA, a Finnish private equity
fund. He holds a Master of Science of Economics and a Masters of Business
Administration degree.

     Aimo Eloholma is our Deputy Chief Executive Officer and the Executive Vice
President of the newly formed Sonera Telecom area. As of August 1, 2001, Mr.
Eloholma will serve as our acting President and Chief Executive Officer. Mr.
Eloholma joined Sonera in 1974 and he has held a number of positions in various
fields of operation within Sonera including data communications, business
development and sales and marketing. He holds a Master of Science degree in
Engineering.

                                       145
<PAGE>   159

     Kim Ignatius has been an Executive Vice President and the Chief Financial
Officer of Sonera since April 1, 2000. As of August 1, 2001, Mr. Ignatius will
also serve as our acting Deputy Chief Executive Officer. Prior to joining
Sonera, Mr. Ignatius was the chief financial officer and a member of the
executive board of Tamro Corporation, a Nordic pharmaceutical distributor and
healthcare group. He holds a Bachelor of Science degree in Economics.

     Jari Jaakkola is the Executive Vice President of corporate communications
and investor relations. Prior to joining Sonera in 1997, Mr. Jaakkola was the
director of corporate communications at Metsa-Serla Corporation. He holds a
Bachelors of Arts degree in Journalism.

     Juha Varelius has been the Executive Vice President responsible for Sonera
Services since April 1, 2000. Mr. Varelius joined Sonera in 1993. He holds a
Masters of Science degree in Economics.

     Jaakko Nevanlinna has been the President of Sonera Carrier Networks since
January 1, 2001 and, before assuming that position, was the President of Sonera
Systems Ltd. since January 1, 1995. Mr. Nevanlinna joined Sonera in 1991. He
holds a Masters of Science degree.

     Aimo Olkkonen has been the Chief Executive Officer of Sonera Holding B.V.
since January 22, 2001 and, before that position, was the Senior Vice President
of Sonera Wireless Ventures. Mr. Olkkonen first joined Sonera in 1969, spent the
years between 1978-1988 as a consultant and project coordinator of the
International Telecommunications Union and returned to Sonera in 1988. He holds
a Masters of Science degree in Engineering and has taken an Advanced Management
Program at Harvard Business School.

     Niklas Sonkin has been the Chief Strategy Officer for Sonera since April
25, 2001, and before assuming that position was the Senior Vice President of
Corporate Strategy since September 1, 2000. Mr. Sonkin joined Sonera in 1988. He
holds a Masters of Science degree in Engineering.

     Anni Vepsalainen has been the Senior Vice President of Mobile Operations
since January 2000 and, before assuming that position, represented Sonera as the
Vice President of Product Development and Business Process Improvement at Aerial
Communications since December 1998. Ms. Vepsalainen joined Sonera in 1987. She
holds a Master of Science degree in Production Economics.

     The business address of each member of the Board of Directors, the
President and Chief Executive Officer of Sonera Corporation and each other
member of our Management Group is c/o Sonera Corporation, Teollisuuskatu 15,
FIN-00510 Helsinki.

                                    AUDITORS

     Pursuant to its articles of association, Sonera Corporation is required to
have one to three auditors. Auditors are elected by the shareholders annually.
Each auditor must be authorized by the Finnish Central Chamber of Commerce or a
public accounting corporation authorized by the Finnish Central Chamber of
Commerce. Our auditors are Jorma Heikkinen, Authorized Public Accountant, and
KPMG Wideri Oy Ab, independent accountants, with Solveig Tornroos-Huhtamaki,
Authorized Public Accountant as the chief auditor. KPMG Wideri Oy Ab was elected
as our auditors at the April 23, 1999 Annual General Meeting of shareholders and
re-elected at the Annual General Meeting of March 21, 2001. Prior thereto,
Tilintarkastajien Oy - Ernst & Young, independent accountants, with Jorma Jaske
as the responsible auditor, were our auditors.

                             EMPLOYMENT AGREEMENTS

     Members of our Management Group and other executive officers have entered
into employment agreements with Sonera, which, among other things, provide
standard employment terms, including compensation and termination provisions.
Pursuant to such agreements, executive officers receive a base salary and are
eligible for a performance related bonus on an annual basis. In addition, all
executive officers receive certain fringe benefits. Pursuant to these employment
agreements, employment can typically be terminated upon six months' notice after
which each executive remains subject to a confidentiality requirement and
non-competition clauses. Retirement age for the members of the management team
is between 60 and 65.

                                       146
<PAGE>   160

                     COMPENSATION OF DIRECTORS AND OFFICERS

     The aggregate compensation of members of the Supervisory Board, the Board
of Directors, the President and Chief Executive Officer, and the Executive Vice
Presidents for the year ended December 31, 2000, was approximately E4.7 million.
Part of the aggregate compensation to the President and the Executive Vice
Presidents was paid in the form of annual bonuses which were paid pursuant to
our executive incentive program. The executive incentive program is based on our
performance and provides executive officers and certain key employees with
annual incentive payments based upon our financial results for the most recent
financial year in comparison to past performance and budgeted performance
targets. Members of the Board of Directors (apart from employee representatives,
who receive no monthly fee) are paid a monthly fee and a fee for attending
meetings of the Board of Directors. Members of the Supervisory Board were also
paid a monthly fee and a fee for attending meetings of the Supervisory Board
before the Supervisory Board was abolished on March 21, 2001. At the annual
meeting of shareholders held March 22, 2000, our shareholders resolved that
effective June 16, 2000, the Chairmanship of the Board of Directors would be a
full-time position and the Chairman would be an executive officer of Sonera. In
connection with this change, the Chairman of the Board of Directors was paid a
monthly fee of FIM 250,000 and was entitled to participate in the incentive
schemes available to our management and employees as applicable. At the annual
meeting of shareholders on March 21, 2001, our shareholders resolved to make the
Chairmanship of the Board of Directors a part-time position again and to pay to
the Chairman a monthly fee of FIM 30,000. It was also resolved at the 2001
annual meeting of shareholders that the monthly fees of the Vice Chairman would
be FIM 20,000 per month, and that the monthly fees of the other members of the
Board of Directors (apart from employee representatives, who receive no monthly
fee), would be FIM 18,000 per month. In addition to the monthly fees, the
Chairman, Vice-Chairman and the other members of the Board of Directors receive
a fees per meeting of the Board of Directors of FIM 1,000.

                                BOARD PRACTICES

     Members of our Board of Directors are elected for a term of one year that
begins at the end of the general meeting of shareholders at which they are
elected and terminates at the end of the next following annual general meeting
of shareholders. Members of the Board of Directors may be elected or removed
only by a resolution of shareholders in general meeting, and there are no
benefits provided upon termination of employment.

     On March 6, 2000, the Board of Directors voted to create an Audit
Committee, and established guidelines under which the Audit Committee would
operate. The current members of the Audit Committee are Tapio Hintikka, Eva
Liljeblom and Jorma Laakkonen.

     The Audit Committee's charter is dated April 2001. The charter states that
the purpose of the committee is to assist the Board of Directors in fulfilling
its oversight responsibilities by reviewing our financial reports and other
financial information, our system of internal controls regarding finance,
accounting and legal compliance that management and the Board of Directors have
established, and other auditing, accounting and financial processes. The Audit
Committee's primary duties and responsibilities are:

     -  To serve as an independent and objective party to monitor our financial
        reporting process and internal control system;

     -  To review and appraise the audit efforts of our independent auditors and
        internal audit group; and

     -  To provide an open avenue of communication among the independent
        auditors, financial and senior management, the internal audit group, and
        the Board of Directors.

     The Audit Committee is comprised of three directors, all of whom are
elected by the Board of Directors at their first meeting after the annual
general meeting of shareholders and one of whom is elected to serve as the
Chairman of the committee. The Committee must meet at least three times annually
and at least once annually with management, the directors of the internal audit
and risk management groups and the independent auditors in separate executive
sessions. In addition, the Chairman of the Audit Committee should meet with the
independent auditors and management quarterly to review our financial
statements.

     The Audit Committee has a list of responsibilities and duties based around
the following six categories:
                                       147
<PAGE>   161

     -  Documents and Reports Review, including reports prepared by independent
        and internal auditors,

     -  Independent Auditors, including a review of the performance and
        independence of the independent auditors,

     -  Financial Reporting Processes, including a review of the integrity of
        our accounting principles and financial reporting process,

     -  Process Improvement, including addressing any significant disagreements
        between the independent auditors and our internal auditors,

     -  Risk Management, including ensuring that our review system adequately
        complies with legal requirements and that the risks that we face have
        been identified and analyzed, and

     -  Ethical and Legal Compliance, including a review of the activities,
        organizational structure and qualifications of our internal audit and
        risk management groups, legal compliance matters, and other activities
        as consistent with our by-laws and governing law, as the Committee or
        the Board deems necessary or appropriate.

                                   EMPLOYEES

     Between 1991 and 1994, we carried out a major reorganization of our
workforce, which resulted in a 32 percent reduction in the average number of
employees, from 10,174 in 1991 to 6,930 in 1994. The reorganization was driven
by a number of factors, including the opening of the Finnish telecommunications
market to competition, the digitalization of the network, which lessened the
need for construction and maintenance staff to service the network, and a severe
economic recession in Finland from 1991 to 1993. Since 1994, the average number
of persons we employ has risen gradually, reaching 10,305 for the year ended
December 31, 2000. In our recent recruitment efforts, we have concentrated on
hiring highly educated technical and business professionals for our high growth
businesses, such as mobile communications and media communications and new
services, but we have recently shifted to an employment policy focused on
retaining key current employees and maintaining employee numbers at the present
level.

     The average number of employees by business area during the years indicated
was as follows:

<TABLE>
<CAPTION>
                                                                 1998     1999      2000
                                                                -----    -----    ------
<S>                                                             <C>      <C>      <C>
AVERAGE NUMBER OF PERSONNEL BY BUSINESS AREA(1)
Mobile Communications.......................................    1,114    1,280     1,626
Media Communications and New Services.......................      555    1,346     2,810
Fixed Network Voice and Data Services.......................    2,485    2,442     2,555
Equipment Sales and Other Operations........................    4,455    4,202     3,314
                                                                -----    -----    ------
  Total.....................................................    8,609    9,270    10,305
                                                                =====    =====    ======
</TABLE>

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

(1) The average number of employees for a given year is calculated by averaging
    the number of employees at the end of each month of such year. When
    calculating the average number of employees during a given period, the
    number of part-time employees is converted into an equivalent number of
    full-time employees.

     As of December 31, 2000, approximately 58 percent of our employees were
members of unions, with our field engineers belonging primarily to the Finnish
Metal Workers' Union and the majority of our other unionized workers belonging
to the Finnish Telecommunications Union. Our unionized employees are covered by
one collective bargaining agreement which is valid until January 31, 2003. We
believe that our relations with our employees are good.

     Each active and retired employee of Sonera is entitled to statutory pension
benefits. The statutory pension scheme in Finland for employees in the private
sector is provided pursuant to the Finnish Employees' Pension Act (395/1961), as
amended (TEL), a defined benefit pension arrangement with retirement,
disability, unemploy-

                                       148
<PAGE>   162

ment and death benefits. In addition, we have complemented the pension coverage
of our employees through a voluntary supplemental pension.

     Our statutory pension obligations as well as certain supplemental pension
obligations for our employees and the employees of our principal subsidiaries in
Finland have been funded through the PT Pension Fund since January 1, 1994. PT
Pension Fund was originally established to fund the pension obligations of PT
Finland. Until the March 26, 2001 resolution of the Sonera Board of Directors
demerging the PT Pension Fund interests is put into effect as described below,
PT Pension Fund continues to fund the pension obligations of both Sonera and the
Finland Post Group Ltd. We make monthly contributions to PT Pension Fund, which
in 2000 amounted to 13.2 percent of the total wages and salaries paid to our
employees prior to social costs. Pension obligations accrued with respect to our
employees before the separation of our current operations from the Finnish State
budget in 1994 are covered by the Finnish State. We are responsible for ensuring
that our pension obligations are fully funded at all times. Currently, our
additional benefit obligations are fully funded. The PT Pension Fund is now
closed to new beneficiaries with respect to additional benefits. Our statutory
benefit obligations are also fully funded except for certain amounts to be paid
in the future under the Act for the Temporary Reduction in Insurance Premiums
(1536/1993). The statutory benefits of certain of our minor Finnish subsidiaries
are funded through pension insurance. In addition, our pension obligations for
subsidiaries located outside of Finland are covered according to local
regulation and practice, generally through the payments to pension insurance
companies. Contributions to our various pension schemes are based on periodic
actuarial calculations and are charged to income when incurred. See Notes 1 and
21(b) to our consolidated financial statements.

     On March 26, 2001, the Board of Directors of Sonera resolved to demerge the
PT Pension Fund to create two legal entities, the Sonera Pension Fund and the
Finnish Post Pension Fund. The demerger plan has been approved and the process
will take place some time during 2001 so that the first operative year of the
Sonera Pension Fund will be 2002. The assets of PT Pension Fund will be
separated with both Sonera and Finland Post receiving a proportionate share of
plan assets in relation to their respective shares of total liabilities of the
PT Pension Fund. We estimate that the separation will not significantly change
our pension obligations and the funding status of those obligations.

     The annual general meeting of shareholders of Sonera Group plc (presently,
Sonera Corporation) held on April 23, 1999 approved an incentive program for our
entire personnel in the form of a bond loan with warrants. The subscription
period for the bond loan with warrants concluded on May 21, 1999, and 5,326
employees, constituting approximately 60 percent of our personnel, subscribed to
the loan. Our wholly-owned subsidiary Telibra Oy subscribed for the remaining
part of the issued loan, which may be offered to current and new employees in
the future. The employee incentive program is intended to ensure the commitment
of our employees and to enable us to continue to attract highly qualified
personnel and to support the development of our business, with a continued focus
on shareholder value.

     At the annual general meeting of shareholders in 2000, our shareholders
approved the proposal of the Board of Directors to establish a similar incentive
program for 2000 consisting of a bond loan with warrants attached to be offered
to our personnel and to Telibra Oy, which may later offer the bond loan with
warrants to persons employed by us or to persons we seek to recruit. The
warrants attached to the loan entitle the holders to subscribe to a maximum of
20,000,000 million shares in the aggregate. The subscription period for the bond
loan with warrants attached was from May 15, 2000 to June 30, 2000.
Subscriptions for the bond loan with warrants are subject to the approval of our
Board of Directors. The bond portion of the loan with warrants carries no
interest and matures on June 1, 2002. On May 18, 2000, the Board of Directors
established an employee incentive plan under which certain of our Russian
employees will be entitled to receive cash compensation based upon the
appreciation in value of the shares of Sonera Corporation and upon terms similar
to the 2000 incentive program consisting of bond loans with warrants attached.

     At the annual general meeting of shareholders in 2001, our shareholders did
not approve a proposal of the Board of Directors for an incentive program
similar to that offered in 2000.

     In November 2000, our subsidiaries Sonera zed Ltd., Sonera SmartTrust Ltd.
and Sonera Plaza Ltd. decided, with the approval of our Board of Directors, to
establish their own stock option programs. Under the terms of each program, each
subsidiary's stock option program cannot dilute our holding in the subsidiary by
more than
                                       149
<PAGE>   163

15 percent. The programs allow employees of the respective subsidiaries to
subscribe for warrants to purchase such subsidiary's shares after such
subsidiary has been publicly listed. The initial subscription period for the
warrants of each subsidiary ended on December 15, 2000, and all of the warrants
offered were subscribed for. The period for share subscription based on the
exercise of warrants will begin at each company one year from the commencement
of public trading in the subsidiary's shares and will end for Sonera zed's
warrants by December 31, 2010 at the latest and for Sonera SmartTrust's and
Sonera Plaza's warrants by January 31, 2011 at the latest. The warrants intended
for the remainder of the personnel will be offered for subscription after the
listing of each subsidiary on a stock exchange. Of the warrants for top
management and key employees, 50 percent will entitle their holders to subscribe
for a subsidiary's shares at a predetermined price. The setting of the
subscription price was based on an estimate by an independent external party of
the subsidiaries' fair values at the time of introducing the option scheme. The
remaining 50 percent of top management's and key employees' warrants, as well as
all the warrants intended for the remainder of the personnel will entitle their
holders to subscribe for the subsidiary's shares at a price equal to the sale
price to retail investors in each subsidiary's planned initial public offering
and/or sale of shares.

     In June 2001, in response to the adverse market conditions facing the
telecommunications and related industries, we decided to establish a new 2001
employee stock option program for Sonera SmartTrust. Based on the sharp downward
revision in our estimate of the market value of Sonera SmartTrust (we currently
estimate that the market value of Sonera SmartTrust is approximately E250
million, an approximate 80 percent drop from its estimated market value at the
time the Sonera SmartTrust stock option program was established in November
2000), we set the warrant subscription price for the 2001 warrants at E0.933,
significantly below the warrant subscription price of E6.27 set under the Sonera
SmartTrust 2000 stock option program. Under the terms of the program, the
combined Sonera SmartTrust 2000 and 2001 stock option programs cannot dilute our
holding in Sonera SmartTrust by more than 15 percent. At the same time, as a
reflection of the change in our service strategy and our plan to retain full
ownership of Sonera Plaza, we decided to terminate Sonera Plaza's separate
employee option plan. Sonera Plaza's employees will, instead, be given the
opportunity to participate in Sonera's 1999 and 2000 incentive programs. We did
not revise the terms of the Sonera zed employee stock option plan.

ITEM 7.  MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

                               MAJOR SHAREHOLDERS

     The issued registered share capital of Sonera Corporation is
E319,719,828.98 consisting of 743,534,486 shares with no nominal value. Each
share entitles the holder to one vote at general meetings of shareholders.

     The following table lists, as of June 25, 2001, the total number of our
shares owned by (1) the Finnish State, the only person or entity known by us to
be the beneficial owner of five percent or more of our shares, and (2) members
of our Board of Directors and Management Group, as a group:

<TABLE>
<CAPTION>
SHAREHOLDER                                                    NUMBER OF SHARES    HOLDING, %
-----------                                                    ----------------    ----------
<S>                                                            <C>                 <C>
Finnish State...............................................        392,620,585          52.8
Members of the Board of Directors and Management Group (as a
  group)(1).................................................             26,734            --*
</TABLE>

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

* Less than 0.1 percent.

(1) Members of Sonera's Board of Directors and Management Group also hold
    warrants exercisable for 1,812,800 shares, which represents approximately
    0.2 percent of the total number of shares of Sonera Corporation, 51,192
    shares of Sonera Plaza Ltd., 437,652 shares of Sonera zed Ltd., and 530,046
    shares of Sonera SmartTrust Ltd.

RELATIONSHIP WITH THE FINNISH STATE

     The Finnish State currently owns 52.8 percent of the outstanding share
capital of our Company. From September 28 to October 12, 1999, the Finnish State
arranged an offering in which it offered 127 million Sonera shares to domestic
and international investors as well as retail investors. As a result, the
Finnish State's holding in Sonera fell from 77.8 percent to 60.2 percent. In
addition, the managers in the offering announced on October 20,
                                       150
<PAGE>   164

1999, that they would exercise the entire over-allotment option of 16.95 million
shares, after which the Finnish State's holding in Sonera fell to 57.9 percent.
The bonus shares in the offering arranged by the Finnish State in 1998 were
entered in the book-entry accounts of those entitled to them on November 17,
1999, after which the State's holding fell to 57.6 percent. In March 2000, the
Finnish State sold an additional 22 million shares at the price of E92 per share
to institutional investors on a private placement basis. As a result of the
offering, the State's holding fell from 57.6 percent to 54.5 percent. Following
our directed issues in April and June of 2000, the State's holding fell from
54.5 percent to 52.9 percent. On the basis of the 1999 offering, the Finnish
State gave approximately 1 million bonus shares on October 19, 2000 to those
entitled to such shares, which diminished the State's shareholding in Sonera to
52.8 percent. See "Item 4. Information on the Company -- History -- Follow-On
Offerings of Sonera Shares." In November 1999, the Finnish Parliament authorized
the Finnish State to lower its holding further to a floor of 34 percent and on
June 21, 2000 the Finnish Parliament authorized a reduction of the Finnish
State's shareholding to zero.

     It has been the practice of the Finnish State not to intervene in our
day-to-day management, and we have conducted and conduct our day-to-day
operations in a manner similar to that of other Finnish corporations. Management
believes that the Finnish State will continue to observe such a practice of
non-intervention.

     As the owner of a majority of the outstanding share capital of Sonera
Corporation, the Finnish State has the power to decide matters submitted for a
vote of shareholders, including matters such as the approval of the annual
financial statements, declarations of annual dividends, capital increases and
the election and removal of the members of the board of directors of Sonera. See
"Item 6. Directors, Senior Management and Employees -- Board of Directors."

     Under the Finnish Act on Audits of State-Controlled Companies (968/1947),
the Finnish State Audit Office has the right to conduct audits of companies that
are state-controlled, as defined in this act. In connection with an audit,
companies are required to disclose such documents as the Audit Office may
demand.

GUIDELINES ON THE FINNISH STATE'S SHAREHOLDING POLICY

     On September 16, 1999, the Finnish Council of State approved a policy
decision (the "guidelines") on the principles and goals for the Finnish State's
policies as a shareholder in companies in which the Finnish State has a
significant ownership interest (each, a "state-controlled company"). The
guidelines, which replaced similar guidelines adopted on June 23, 1994, provide
general principles that each of the ministries responsible for the supervision
of state-controlled companies is to observe in connection with the exercise of
the Finnish State's shareholder rights and in connection with the Finnish
State's internal decision-making in relation to the administration of its
ownership interests in such companies. The guidelines relate to companies in
which the Finnish State is a majority shareholder as well as, within the limits
permitted by the particular company's ownership structure, companies in which
the Finnish State maintains a significant minority shareholding. The guidelines
are not binding upon the state-controlled companies or their governing bodies
but rather serve as guidelines for each of the ministries responsible for the
supervision of such companies.

     The guidelines provide that state-controlled companies are required to be
operated profitably in accordance with sound business principles and with good
capital adequacy. In addition, state-controlled companies should be able to
operate on the same basis as other comparable companies and should operate in
accordance with the Finnish Companies Act (734/1978), as amended (the "Companies
Act"), and other applicable laws and regulations.

     As regards dividend distributions, the guidelines provide that dividends to
be paid by state-controlled companies shall be determined separately for each
company with a goal of supporting the positive value development and that
dividend distributions should be at a level comparable to general dividend
payment levels in the particular company's industry sector and should be
internationally competitive with a view to the company's valuation. Dividend
policies for each company shall be determined primarily on the basis of the
particular company's profitability with a goal of securing a relatively stable
annual dividend flow. Dividend policies should also take into account any
specific considerations related to the particular company's capital adequacy as
well as its market conditions and competitive situation.

                                       151
<PAGE>   165

     Pursuant to the guidelines, decisions relating to expansion of a particular
company's operations within its existing field of business, through acquisitions
or the establishment of subsidiaries, shall be made by the appropriate governing
bodies of such company. The guidelines, however, require that decisions
involving expansion beyond a company's existing field of business as well as
other strategic decisions be consented to by the principal shareholder of the
company. Under the Companies Act, an amendment to a Finnish corporation's field
of business specified in its articles of association requires approval by a
shareholders' meeting. Under the guidelines, if such company has a special
position in Finland due to government action or other circumstances, changes in
the company's field of business and any acquisitions by the company are to be
monitored by the appropriate ministry.

     Under the guidelines, expansion of the state-controlled companies'
operations outside of Finland is considered appropriate particularly if such
expansion is necessary in order to secure a sufficiently large market area,
receipt of technology, procurement of raw materials or other similar reasons.
Foreign investments that are of particular importance with respect to the
operations of a particular state-controlled company or the Finnish economy are
to be approved by the principal shareholder of the company prior to a final
decision by the company with respect thereto.

     The guidelines set a goal for state-controlled companies to be exemplary
employers that act in accordance with the prevailing contracts with labor unions
and continuously and actively develop their personnel policies. Each
state-controlled company is required to give reasonable advance notice to the
relevant ministry of any temporary or permanent termination of a substantial
number of employees.

     The guidelines provide that the operations of each state-controlled company
shall be the responsibility of the management and governing bodies of such
company in accordance with the Companies Act. The principal governing party of
each state-controlled company shall be the board of directors of such company,
which typically should include outside experts and a representative of the
appropriate ministry. On May 31, 2000, the Government of Finland amended the
guidelines with respect to use of supervisory boards in state-controlled
companies. Pursuant to the amendment, if the Finnish State's sole or principal
interest in the company in question is that of an investor, a supervisory board
is not deemed the appropriate corporate body to exercise the Finnish State's
shareholder rights and, accordingly, supervisory boards in such companies should
be discontinued. Only in situations where the Finnish State has a considerable
special interest (e.g., society as a whole) in such company in addition to a
strong investor interest is a supervisory board deemed an appropriate body. In
these situations, the tasks of the supervisory board should be limited to the
minimum requirements of the Finnish Companies Act. If such company currently has
a supervisory board with broader powers, the company's articles of association
should be amended so that the powers of the supervisory board do not exceed the
minimum level specified in the Companies Act. Finally, if the Finnish State has
a strong special interest in a company and no material investor interest, it is
deemed appropriate that the company in question have a supervisory board with
additional powers in addition to the minimum level specified in the Companies
Act. In the event that a particular ministry, as the Finnish State's principal
representative, exceptionally wishes to effect a business decision having an
impact on a state-controlled company that is contrary to the position of the
management of such company, the relevant decision shall be taken at such
company's shareholders' meeting. Under the guidelines, the development of the
management of state-controlled companies shall be carried out so as to secure an
effective management and supervision by the owner as regards the shareholding of
the Finnish State as well as possible special interests of the Finnish public.

     In relation to incentive programs to be adopted by state-controlled
companies, the guidelines provide that decisions concerning incentive programs
shall be taken separately for each company with a goal of securing the
competitiveness of such company in recruiting management personnel. For
publicly-listed companies, the goal is to encourage management ownership of
shares in the company. At the time of the implementation of an incentive program
for a particular company's management, incentive programs for other personnel of
such company should also be simultaneously developed and adopted.

     The guidelines also include general principles for any future broadening of
the ownership base in a state-controlled company and other transactions
affecting the Finnish State's ownership, including that decisions shall be taken
separately for each company, that the goal for each company shall be a stable
ownership base, that

                                       152
<PAGE>   166

representatives of the Finnish State should be appointed to the governing bodies
of each company in proportion to the Finnish State's ownership interest, and
that, as regards foreign ownership, the rules applicable to state-controlled
companies shall be the same as for other Finnish companies, unless specific
reasons exist for limiting foreign ownership.

                           RELATED PARTY TRANSACTIONS

     As a general matter, we deal at arms-length with our associated companies.
We have entered into technical assistance agreements with most of our associated
companies. Under the agreements, we supply those companies with technical
assistance relating to planning, constructing, operating and maintaining their
networks. In addition, we have entered into a significant loan agreement with
Gruppe 3G, our associated company in Germany that received a UMTS license in
2000.

     The table below summarizes the transactions between Sonera and our
associated companies for the periods indicated:

<TABLE>
<CAPTION>
                                                                 1999       2000
                                                                -----    -------
                                                                (IN E MILLIONS)
<S>                                                             <C>      <C>
Long-term loans receivable..................................      11          7
Current loans receivable....................................       9      2,737
Trade accounts receivable...................................      13          7
Prepaid expenses and accrued income.........................       1        102
Other long-term liabilities.................................       4         --
Advances received...........................................       1         --
Trade accounts payable......................................      17          6
Accrued expenses and prepaid income.........................       1          1
Other short-term liabilities................................       2         --
Fees charged from associated companies......................      28         24
Payments made for the services provided by associated
  companies.................................................      72         41
</TABLE>

ARRANGEMENTS WITH GRUPPE 3G

     In September 2000, we, together with one of our subsidiaries, entered into
a loan agreement with Gruppe 3G. The loan agreement confirms in writing the
terms of an oral loan agreement we had made with Gruppe 3G on August 28, 2000
for an aggregate of E2,719 million. According to the loan agreement, the
proceeds of the loan were to be applied to the cost of the license fee for the
UMTS license awarded to Gruppe 3G by the Regulatory Authority for
Telecommunications and Posts in Germany. According to the written terms of the
loan agreement, the proceeds of the loan were to be repaid on December 31, 2000,
but the maturity of the loan has been extended orally to the end of June 2001.

ARRANGEMENTS WITH TURKCELL

     We have entered into a technical assistance agreement with Turkcell through
our subsidiary Sonera Turkey. The agreement expired on December 31, 2000 and so
far the agreement has not been renewed. Under the agreement, we supply technical
assistance relating to the construction, operation and maintenance of Turkcell's
network. We supply technical assistance relating to planning and construction
services, site management, and the organization and supervision of the
construction and installation work of Turkcell's equipment supplier. We also
provide technical assistance on the planning, building up, facilitating,
training and tutoring of Turkcell's business and technical departments.

     As of December 31, we had outstanding guarantees to various lenders with
respect to E66 million in debt incurred by Turkcell and Fintur in connection
with the purchase of network equipment and the draw-downs on bank facilities. In
addition, as of December 31, 2000, Turkcell Holding, our 47.1 percent owned
associated company which holds the majority of our interest in Turkcell, has
pledged 25 percent of its Turkcell shares as security for Turkcell's loan
financing.

                                       153
<PAGE>   167

ARRANGEMENTS WITH LATTELEKOM

     Tilts Communications, our 90 percent owned subsidiary for which the only
significant asset is a 49 percent equity interest in the Latvian
telecommunications provider Lattelekom, provides Lattelekom management services,
employee training and assistance in the procurement of equipment and supplies
for which we receive fees. Tilts Communications has also agreed to improve
Lattelekom's network and infrastructure, and we have provided performance
guarantees to Lattelekom in respect of Tilts Communications' foregoing
obligations.

RELATIONSHIP WITH THE FINNISH STATE

     Except for the equity transactions between Sonera and the Ministry of
Transport and Communications as a shareholder, transactions with the Finnish
State and other companies owned by the Finnish State only include services
provided and purchased by us in the ordinary course of our business. These
transactions are made on an arm's length basis and on commercial terms similar
to those of our other customers and suppliers with the same size and location.

NO SIGNIFICANT LOANS TO MANAGEMENT

     With certain limitations, the Finnish Companies Act permits members of our
Board of Directors to borrow money from us, so long as such loan is secured and
is within the limits of our distributable equity. However, none of our directors
or executive officers and none of our ten percent shareholders owes any
significant amount of debt to us.

ITEM 8.  FINANCIAL INFORMATION.

                       CONSOLIDATED FINANCIAL STATEMENTS

     See "Item 18. Financial Statements."

                        LEGAL AND REGULATORY PROCEEDINGS

     We are involved in a number of legal proceedings in the ordinary course of
our business. These proceedings primarily involve claims arising out of
commercial law issues and regulatory matters. We are also involved in
administrative proceedings relating principally to competition law and consumer
protection issues. Except for the administrative proceedings described below,
which relate primarily to our alleged abuse of dominant market power, neither
Sonera Corporation nor any of our subsidiaries is involved in any legal,
arbitration or regulatory proceedings, which, if adversely decided, could have a
material adverse effect on our results of operations or financial condition.
However, the possibility of additional claims by competitors or other
proceedings, particularly in reliance on competition law, cannot be ruled out
and such claims or proceedings could have a material adverse effect on our
results of operations and financial condition.

INTERCONNECTION FEES

     On November 20, 1998, Telia Finland filed a complaint with the TAC relating
to the termination charges we applied on calls terminating in our mobile
network. Among other things, Telia Finland claims that the termination fees we
charged are not reasonably related to the actual costs of providing such
services and that the fees are thus contrary to the decisions issued by the
Ministry of Transport and Communications. We denied the allegations in responses
submitted to the TAC. On April 24, 2001, the TAC issued a decision in which it
stated that the interconnection fees we charged for calls terminating on our
domestic mobile network are not reasonable in relation to the actual costs of
providing such services. The TAC also stated that, in its opinion, our
interconnection fees violated the Telecommunications Market Act and the Ministry
of Transport and Communications' decisions on interconnection and ordered us to
revise our interconnection fees. We appealed the TAC's decision to the Helsinki
Administrative Court on May 25, 2001. We continue to believe that
interconnection pricing should be based on commercial negotiations among
operators. The decision of the TAC does not have binding effect prior to a
ruling by the Helsinki Administrative Court. In June 2001, we concluded
commercial
                                       154
<PAGE>   168

interconnection agreements with Telia Mobile and Radiolinja, and we are
continuing to negotiate with other mobile operators on the Finnish market
regarding interconnection.

NATIONAL ROAMING CASES

     On September 23, 1998, Telia Finland filed a complaint with the TAC and the
FCA claiming that both Sonera and Radiolinja were in violation of the
Telecommunications Market Act and Finnish competition law in refusing to
conclude national roaming agreements with Telia Finland. We have responded to
the complaints by denying Telia Finland's claims and stating that we view the
failure to conclude a national roaming agreement with Telia Finland as a
disagreement concerning the pricing of a commercially based service. On March
12, 1999, the TAC issued a decision on the complaint in our favor, which was
subsequently upheld in procedural appeals in the Helsinki Administrative Court
and the Supreme Administrative Court. On January 12, 2000, the FCA issued a
decision maintaining that the pricing of national roaming we applied does not
require any action on the part of the FCA. The FCA is of the opinion that a
telecommunications operator has several different ways of gaining access to a
national telecommunications network, e.g. a service provider agreement. In its
decision, the FCA further stated that we do not, either alone or together with
Radiolinja, have a dominant market position in the access markets of national
mobile networks. Telia Finland has filed an appeal with the Finnish Competition
Council with respect to the FCA's decision in our favor. Radiolinja was,
however, not named as a party to the appeal. We filed several responses to the
appeal in 2000. The European Commission filed a submission with the Competition
Council, and on June 15, 2001, we filed a response to the European Commission's
submission. The European Commission's submission included its general views on
market definitions and the issue of collective dominance. The appeal is still
pending and we are not currently in a position to assess when the proceedings
will be brought to a conclusion or what the final outcome of the proceedings
will be.

     In March 1999, Telia Finland introduced national roaming for its GSM 1800
service in our network through the international roaming arrangement that we had
with Swisscom AG. In April 1999, we announced that because of certain technical
hazards found in the technical solution, which among others would interfere with
the proper functioning of emergency calls and blocking of pay-per-call numbers,
we would have to discontinue connecting traffic to the numbers that Swisscom has
reserved for Telia Finland's Dual service, unless Telia Finland would indemnify
us for possible legal claims. In accordance with this announcement, we started
to close off our mobile network of Telia Finland's GSM Dual subscriptions on
April 16, 1999. On April 16, 1999, Telia Finland filed a complaint with the
European Commission (DG Competition) claiming that Sonera and Radiolinja had
abused their dominant positions in the mobile market in Finland by interfering
with Telia Finland's service provider agreement with Swisscom. However, as a
consequence of Telia Finland's execution of a service provider agreement with
Radiolinja in the latter part of 1999, Radiolinja is no longer a party to the
action. On April 28, 1999, the European Commission requested that the Ministry
of Transport and Communications should act as an intermediary in a conciliation
procedure to resolve the dispute. On June 23, 1999, Telia Finland discontinued
negotiations and resubmitted its complaint to the European Commission. We have
responded to the European Commission's request for information. The European
Commission informed us in October 1999 that pursuant to Article 6 of Commission
Regulation 2842/98 it had notified Telia Finland that, in the Commission's
preliminary view, Telia Finland's application for interim measures was not
justified. We entered into a new international roaming agreement with Swisscom
which came into effect on March 16, 2000. On November 21, 2000, we received
Telia's supplementary submission to the European Commission to which we
submitted our observations on December 22, 2000. Telia Finland's complaint
against us before the European Commission is still pending and it cannot be
excluded that the European Commission may open formal proceedings against us. We
are currently not in a position to predict with any certainty the timing or
likely outcome of the proceedings. We remain prepared to offer Telia Mobile
Finland national roaming services on a commercial basis.

     The TAC is currently investigating pricing and discount policies of several
Finnish telecommunications operators with respect to their leased line
operations. We received a request for information from the TAC on January 29,
1999, to which we have duly responded by providing the requested information. On
January 25, 2000, Telepohja Oy filed a complaint with the FCA requesting the FCA
to investigate whether we are abusing our alleged dominant position in the local
telecommunications market of our traditional local network areas. In the
complaint, Telepohja asserted that (1) our monthly rental prices for subscriber
lines and leased lines are

                                       155
<PAGE>   169

excessive, especially in rural areas; (2) the difference in prices charged in
urban areas as compared to rural areas are not related to costs; and (3) the
installation fees we charge are unreasonable. On January 25, 2000, Telepohja
also filed a complaint with the TAC on the same issue. Telepohja asked the TAC
to investigate whether our pricing described above is in compliance with the
Telecommunications Market Act, in view of our significant market power in
certain local telecommunications markets. The complaints are still pending and
management is currently not in a position to assess when the proceedings will be
brought to a conclusion or what the final outcome of the proceedings will be.

     On February 1, 2001 we received a request from the TAC for information
concerning interconnection fees and our compliance with the Telecommunications
Market Act with respect to our fixed network activities. We submitted our
response on April 30, 2001.

     In November 1999, MTV 3--Tele Oy filed a complaint against us with the FCA
claiming that the fees we charge for commercial SMS services are excessive. Our
response to the complaint on November 29, 1999 stated that the SMS services we
offer are reasonably priced and explained the division of SMS fees and costs as
between service providers and the content providers. On May 2, 2000, in a
related action, Televerkko Oy filed a complaint with the FCA against us claiming
that we are abusing our dominant market position in the market for mobile
services in connection with the pricing of our SMS services to content
providers. The FCA is investigating the pricing of our SMS services as well as
the actual costs we incur to provide SMS services to content providers. The FCA
has notified us that the pricing of our SMS services should be cost based,
non-discriminatory and transparent. On May 31, 2000, we responded to the FCA's
initial request for information. On April 10, 2001 we received a supplementary
request for information focusing on the pricing and billing of SMS services,
volumes of SMS traffic and market shares. According to a preliminary competition
analysis carried out by the FCA, we have a dominant market position in the
market of SMS based content services provided in its own network. We have
responded to the supplementary request for information on May 25 and June 8,
2001. These complaints are still pending. We are currently not in a position to
predict with any certainty the timing or likely outcome of the proceedings.

     In June 2000, the FCA sent a letter to Sonera and the Finnet companies
alleging that, based on complaints received by the FCA, we are abusing our
dominant position by refusing to deliver identification data on our mobile
subscribers and by discriminatory pricing of data on subscribers of the fixed
network in Finland. The FCA also alleges that Sonera and the Finnet companies
have violated the terms of the exemption that the FCA has granted to the
Directory Assistance Services Finland (Suomen Numeropalvelu Oy), which maintains
a joint database of Sonera's and Finnet companies' subscribers. We own 40
percent of Directory Assistance Services Finland. In the letter, the FCA
indicated that it may ask the Competition Council to revoke the exemption. A
similar proceeding is also pending at the TAC.

CONTROL OF CONCENTRATIONS

     On January 2001, we purchased a 24.1 per cent holding in Loimaan Seudun
Puhelin Oy, a local telephone company operating in the Western part of Finland.
We notified the FCA of the share purchase as required under Finnish control of
concentrations regulations. The closing of the purchase is conditional upon FCA
approval. The matter is still pending.

     In March 2001, a group of local Finnish telephone companies filed an
application with the Board of Arbitration of the Central Chamber of Commerce of
Finland requesting the commencement of arbitration proceedings regarding Loimaan
Seudun Puhelin Oy's 33 percent holding in Turun Puhelin Oy. The applicants have
demanded that the Court of Arbitration affirm that they have the right to have
their shares in Turun Puhelin Oy redeemed by us. The applicants base their claim
on the argument that Loimaan Seudun Puhelin Oy has acted merely as our
intermediary and that the actual owner of the 33 percent holding shares is
Sonera. The case is still pending and we are currently not in a position to
predict with any certainty the timing or likely outcome of the proceedings.

                                       156
<PAGE>   170

EUROPEAN UNION SECTOR INQUIRIES

     On July 27, 1999, the European Commission commenced a sector inquiry across
the European Union focusing on three areas of the telecommunications sector:
leased lines, mobile roaming and access to and use of the residential local
loop. The sector inquiry has been carried out in three phases. We responded to
the Commission's inquiry into leased lines in December 1999 and mobile roaming
in March 2000. We received a second set of questions relating to mobile roaming
on July 2000 to which we responded in August 2000. In July 2000, we also
received a request for information on unbundled access to the local loop and the
provision of DSL services to which we responded in September 2000.

     Except as noted above, we have responded to all requests for information
issued by the FCA, the TAC and the European Commission in relation to all above
matters, and the agencies are currently evaluating such responses, as well as
certain submissions by other interested parties. We are unable to predict with
any certainty the timing or the likely outcome of the disposition of the
proceedings pending before the FCA, the TAC and the European Commission.

     Since the liberalization of the Finnish telecommunications market in 1994,
Sonera and other telecommunications operators in Finland have been subject to
increased administrative and legal scrutiny, often in the form of an
administrative investigation initiated by Finnish or European Union regulatory
bodies and legal claims brought with little or no notice. Management expects
that administrative oversight of the Finnish telecommunications industry will
gradually shift to European Union institutions as a consequence of the recent
liberalization of the markets of most European Union member states. Therefore,
the possibility of additional claims by competitors or other proceedings,
particularly in reliance on competition law, cannot be ruled out and such claims
or proceedings could have a material adverse effect on our results of operations
and financial condition.

OTHER MATTERS

     In August 2000, Tilts Communications A/S, a Danish subsidiary of which we
own 90 percent, started arbitration proceedings against the Republic of Latvia
under the rules of the International Chamber of Commerce (ICC) in Stockholm. The
reason for initiating arbitration was the agreement signed in 1993 between the
Republic of Latvia and Tilts. According to this agreement, the Latvian
fixed-line operator, Lattelekom SIA, of which Tilts owns 49 percent and the
State of Latvia 51 percent, has exclusive rights to provide basic fixed network
services in Latvia until December 31, 2013. However, contrary to the agreement,
the Republic of Latvia has made a commitment to the World Trade Organization
that Lattelekom's exclusive rights will be revoked by January 1, 2003. A
decision in this case is not expected before 2002.

     On July 20, 1998, Swisscom AG filed an opposition with the European Patent
Office (EPO) to a patent related to technology used by Sonera SmartTrust. In its
filing, Swisscom AG requested that the opposed patent be revoked in its
entirety. The EPO's Opposition Division has revoked the current scope of the
patent and has summoned both Swisscom and Sonera to attend hearings on the
matter. We believe that, through the EPO appeals process, we will be successful
in getting the patent restated, even if the scope of the patent's claims are
narrower than in the patent as initially granted. We also believe that the end
of the EPO appeals process the scope of claims of the patent will provide Sonera
SmartTrust with adequate patent protection regarding our current products and
services.

     In connection with our termination of the executive agreement between
Sonera Corporation and Harri Vatanen, former Chief Executive Officer of Sonera
SmartTrust, we initiated legal proceedings on March 2, 2001 in Finland to
confirm, among other things, that the technology agreement we concluded with
Vatanen in 1998 is legally binding and in force and that we have fulfilled our
obligations under such agreement. We have commenced this action in order to
protect our interests in light of the termination of Vatanen's employment. In
this connection, Vatanen has brought a claim against Sonera and certain of its
subsidiaries in the Superior Court of California, County of Santa Clara, in the
United States for rescission of the technology agreement, alleged
misrepresentation and fraud in relation to entering into such agreement and
certain other related claims seeking, among other things, rescission of such
agreement, confirmation that Vatanen is the rightful owner of the intellectual
property covered thereby and award of compensatory damages in an unspecified
amount. Sonera

                                       157
<PAGE>   171

continues to pursue the legal proceedings initiated by it in Finland and
disputes both the jurisdiction of the Superior Court of California in the matter
and the claims brought by Vatanen therein.

     In April 2001, Murray L. Swanson, the former Managing Director and Chief
Executive Officer of Sonera Corporation U.S., our wholly-owned subsidiary,
brought a complaint in the Circuit Court of Cook County, Illinois County
Department, Law Division, against Sonera Corporation and Sonera Corporation U.S.
alleging breach of contract and fraudulent inducement in relation to the
employment agreement entered into between Sonera Corporation U.S. and Swanson on
October 7, 1998. In the complaint, Swanson claims that Sonera Corporation and
Sonera Corporation U.S. have failed to fulfill their obligations under the terms
of the employment agreement and that Sonera Corporation and Sonera Corporation
U.S. had made false representations in relation thereto. Swanson seeks, among
other things, recovery of his alleged damages, which he states are in excess of
U.S. $75 million, and punitive damages in an unspecified amount. We have denied
any basis for liability on our part and intend to defend vigorously against his
complaint.

                                DIVIDEND POLICY

     At our annual general meeting held on March 21, 2001, we declared a
dividend of E0.09 per share in respect of fiscal year 2000. The dividend,
totaling E67 million was paid on April 3, 2001 to shareholders of record on
March 26, 2001.

     PT Finland paid total cash dividends of E54 million and E185 million to the
Finnish State, its sole shareholder, for the fiscal years ended December 31,
1996 and 1997, respectively. These dividends were funded mainly through group
contributions made to PT Finland by Telecom Finland, Finland Post Ltd. and other
subsidiaries of PT Finland in accordance with their respective profitability
during such years. Accordingly, we have recorded in our consolidated financial
statements, as our share of dividends paid by PT Finland, dividends paid of E38
million and E132 million in respect of the fiscal years ended December 31, 1996
and 1997, respectively. We paid total cash dividends of E61 million and E87
million to our shareholders in respect of the fiscal years ended December 31,
1998 and 1999, respectively. These dividends may not be indicative of future
dividend payments we may make.

     The following table sets forth the annual dividends per share paid during
each of the financial years indicated:

<TABLE>
<CAPTION>
                                                                DIVIDEND PAID
                                                                  PER SHARE
                                                                -------------
YEAR ENDED DECEMBER 31,                                          E      U.S.$
-----------------------                                         ----    -----
<S>                                                             <C>     <C>
1996........................................................    0.04    0.05
1997........................................................    0.05    0.06
1998........................................................    0.18    0.20
1999........................................................    0.08    0.09
2000........................................................    0.12    0.11
2001........................................................    0.09    0.08
</TABLE>

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

(1) After the annual general meeting of shareholders has approved the annual
    financial statements and the amount of dividends, the amount is deducted
    from retained earnings and recorded as a liability until the time of
    payment. Dividend amounts have been restated in euros using the irrevocable
    conversion rate of E1.00 = FIM 5.94573 and translated into U.S. dollars at
    the Noon Buying Rate for the relevant dividend payment date.

     The determination to pay dividends, and the amount of the dividends, will
depend upon, among other things, the following:

     -  our earnings;

     -  our financial condition;

     -  our capital requirements;

     -  development requirements;
                                       158
<PAGE>   172

     -  cash provided by operating activities;

     -  applicable restrictions on the payment of dividends under Finnish law;
        and

     -  other factors as our Board of Directors may deem relevant.

     Subject to the foregoing constraints, the objective of our Board of
Directors is to recommend to shareholders the payment of an aggregate dividend
representing approximately one-fourth of our annual consolidated net income for
any particular year.

     Under the Finnish Companies Act, the amount of any dividend is limited to
the profits and other distributable funds available at the end of the preceding
fiscal year for Sonera Corporation or for Sonera on a consolidated basis,
whichever is lower. As of December 31, 2000, the total distributable funds of
Sonera Corporation amounted to E1,665 million and, for Sonera on a consolidated
basis, to E2,722 million.

     Dividends paid to holders of our shares (in the form of shares or ADSs) who
are non-residents of Finland will generally be subject to Finnish withholding
tax at a rate of 29 percent. Such shareholders may, however, be subject to a
lower withholding tax rate and may be allowed an imputation tax credit to reduce
the tax on dividends where there is a double taxation treaty with Finland that
contains appropriate provisions. The current convention between the Government
of the United States of America and the Government of the Republic of Finland
for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with
Respect to Taxes on Income and on Capital does not contain provisions that
extend such imputation credits to U.S. Holders of our shares (in the form of
shares or ADSs). See "Item 10. Additional Information -- Taxation -- Finnish
Taxation."

                              SIGNIFICANT CHANGES

     Except as otherwise disclosed in this annual report, there have been no
significant changes in our business or financial condition since March 31, 2001.

ITEM 9.  THE OFFER AND LISTING.

                            NATURE OF TRADING MARKET

     The principal trading market for our shares is the Helsinki Exchanges. The
following table below sets forth, for the periods indicated, the reported high
and low market quotations for our shares on the Helsinki Exchanges based on its
Daily Official List.

                                       159
<PAGE>   173

<TABLE>
<CAPTION>
                                                                {PRICE PER SHARE}
                                                                ------------------
                                                                 HIGH        LOW
                                                                -------    -------
                                                                      (IN E)
<S>                                                             <C>        <C>
1998
Fourth Quarter (from November 10, 1998).....................     16.82       9.92
1999
First Quarter...............................................     17.35      12.40
Second Quarter..............................................     23.00      15.32
Third Quarter...............................................     28.00      20.31
Fourth Quarter..............................................     71.10      23.95
2000
First Quarter...............................................     97.00      47.50
Second Quarter..............................................     71.00      39.70
Third Quarter...............................................     56.80      26.50
Fourth Quarter..............................................     30.90      17.15
2001
First Quarter...............................................     25.10       8.13
January.....................................................     25.10      17.40
February....................................................     22.11      10.52
March.......................................................     13.90       8.13
Second Quarter..............................................     12.99       7.10
April.......................................................     12.49       7.10
May.........................................................     12.99      10.10
June........................................................     10.79       8.21
</TABLE>

     Effective as of January 1, 1999, shares of companies listed on the Helsinki
Exchanges trade in euros. The share price information set forth above for 1998
represents the euro equivalent of such share prices in Finnish markka at the
conversion rate of FIM 5.94573 to one euro.

     Since October 13, 1999, our shares have been traded in the United States on
the Nasdaq National Market under the symbol "SNRA" in the form of American
Depositary Shares ("ADSs"), which are evidenced by American Depositary Receipts
("ADRs"). Each ADS represents one share. The depositary for the ADSs is
Citibank, N.A. (the "Depositary").

     The Depositary has advised us that, as of June 27, 2001, 1.2 percent of our
outstanding shares were held in the United States in the form of ADSs by 76
record holders. A significant number of ADSs are held of record by broker
nominees. The number of beneficial owners is unknown but is considered to be
materially higher than the number of record holders.

     The table below sets forth the high and low sales prices quoted for our
ADSs on the Nasdaq National Market.

                                       160
<PAGE>   174

<TABLE>
<CAPTION>
                                                                U.S. DOLLARS PER ADS
                                                                --------------------
                                                                 HIGH          LOW
                                                                -------      -------
<S>                                                             <C>          <C>
1999
Fourth Quarter (from October 13, 1999)......................     73.13        25.19
2000
First Quarter...............................................     93.13        53.50
Second Quarter..............................................     66.86        35.94
Third Quarter...............................................     53.38        24.75
Fourth Quarter..............................................     26.86        16.00
2001
First Quarter...............................................     23.13         7.25
January.....................................................     16.63        23.13
February....................................................     20.69         9.94
March.......................................................     12.94         7.25
Second Quarter..............................................     11.31         6.16
April.......................................................     11.14         6.16
May.........................................................     11.31         8.52
June........................................................      9.31         7.27
</TABLE>

                                TRADING MARKETS

TRADING AND SETTLEMENT ON THE HELSINKI EXCHANGES

     Trading in, and clearing of, securities on the Helsinki Securities and
Derivatives Exchange, Clearing House Ltd. (Helsinki Exchanges) takes place in
euros, with the minimum tick size for trading quotations being one euro cent.
All price information is produced and published only in euros.

     The trading system of the Helsinki Exchanges, the Helsinki Exchanges
Automated Trading and Information System, is a decentralized and fully automated
order-driven system. Trading is conducted on the basis of trading lots, which
are fixed separately for each share series.

     Official share trading takes place from 10:00 a.m. to 6:00 p.m. and evening
trading from 6:03 to 9:00 p.m. Helsinki time on each trading day. The official
closing prices are confirmed at the end of the official share trading at 6:00
p.m. Offers may be placed in the system beginning at 9:00 a.m. during a
pretrading period. Offers are matched from 09:40 to 10:00 a.m. to determine the
opening quotations of the day. Contract transactions may continue to be
registered during aftermarket trading from 6:03 to 6:30 p.m. and from 8:30 to
9:00 a.m. the following morning within the price limits arrived at during the
official share trading.

     The transactions are normally cleared in the Finnish Central Securities
Depository's automated clearing and settlement system on the third banking day
after the trade date unless otherwise agreed by the parties.

REGULATION OF THE FINNISH SECURITIES MARKET

     The principal statute governing the securities market is the Securities
Market Act of 1989, as amended (the "Securities Market Act"). The Securities
Market Act contains regulations with respect to company and shareholder
disclosure obligations, admission to listing and trading of listed securities
and public takeovers, among other things. The securities market in Finland is
supervised by the Finnish Financial Supervision Authority, who monitors
compliance with these regulations.

     The Securities Market Act specifies minimum disclosure requirements for
Finnish companies applying for listing on the Helsinki Exchanges or making a
public offering of securities in Finland. The information provided must be
sufficient to enable investors to make a sound evaluation of the security being
offered and the issuing company. Finnish listed companies have a continuing
obligation to publish regular financial information, and to inform the market of
any matters likely to have a material impact on the value of their securities.

                                       161
<PAGE>   175

     A shareholder is required to notify a Finnish listed company and the
Finnish Financial Supervision Authority when its voting participation in, or its
percentage ownership of, issued share capital of such Finnish listed company
reaches, exceeds or falls below five percent, ten percent, 15 percent, 20
percent, 25 percent, 33 1/3 percent, 50 percent or 66 2/3 percent, calculated in
accordance with the Securities Market Act, or when it enters into an agreement
or other arrangement that, when effected, has such effect. If a Finnish listed
company receives information indicating that a voting interest or ownership
interest has reached, exceeded or fallen below the aforementioned thresholds, it
must disclose such information to the public and to the Helsinki Exchanges.

     Pursuant to the Securities Market Act, a shareholder whose holding in a
listed company increases above two-thirds of the total voting rights attached to
the shares of the company after the commencement of a public quotation of such
shares must offer to purchase the remaining shares of such company for fair
market value. Under the Companies Act, a shareholder holding shares representing
more than 90 percent of all the share capital in a company and more than 90
percent of the shares and the votes entitled to be cast at a general meeting of
shareholders has the right to require the minority shareholders to sell the
remaining shares of such company to such shareholder for fair market value. In
addition, any minority shareholder that possesses shares that may be so
purchased by a majority shareholder is entitled to require such majority
shareholder to purchase its shares. Detailed rules apply for the calculation of
the above proportions of shares and votes.

     The Finnish Criminal Code also contains provisions relating to the misuse
of privileged or inside information and market manipulation. Breach of these
provisions constitutes a criminal offense.

THE FINNISH BOOK-ENTRY SECURITIES SYSTEM

     Finland has made a gradual changeover from a certificated securities system
to a book-entry securities system since August 1, 1991, when the relevant
legislation came into effect. Use of the book-entry securities system is
mandatory for shares listed on the Helsinki Exchanges. The shares of the Sonera
Corporation were entered into the book-entry system on May 2, 1996.

     The book-entry securities system is centralized at the Finnish Central
Securities Depository, which provides national clearing and registration
services for securities. The Finnish Central Securities Depository maintains a
central book-entry securities system for both equity and debt securities.

     The Finnish Central Securities Depository maintains a register of
shareholders of listed companies and book-entry accounts for shareholders that
do not wish to utilize the services of a commercial account operator, such as
credit institutions, investment services companies and other institutions
licensed to act as account operators by the Finnish Central Securities
Depositary (each, an "Account Operator"). The expenses incurred by the Finnish
Central Securities Depository in connection with maintaining such accounts are
borne by the issuers participating in the book-entry securities system and the
Account Operators. In addition to the Finnish Central Securities Depository, the
Account Operators are entitled to make entries in the book-entry register.

REGISTRATION

     In order to effect entries in the Finnish book-entry securities system, a
security holder or such holder's nominee must establish a book-entry account
with the Finnish Central Securities Depository or an Account Operator or
register its securities through nominee registration. All transactions in
securities registered with the book-entry securities system are executed as
computerized book-entry transfers. The Account Operator confirms book-entry
transfers by sending notifications of transactions to the investor holding the
respective book-entry account. Investors also receive an annual statement of
their holdings as of the end of each calendar year.

     Each book-entry account is required to contain specified information with
respect to the account holder or the custodian administering the assets of a
custodial nominee account. Such information includes the type and number of
book-entry securities registered and the rights and restrictions pertaining to
the account and to the book-entry securities registered in the account. A
custodial nominee account is identified as such on the entry. The Finnish
Central Securities Depository and the Account Operators are required to observe
strict confidentiality, although certain information (for example the name,
nationality and address of each account holder) contained in the registers must
be made available to the public.

                                       162
<PAGE>   176

     Each Account Operator is strictly liable for errors and omissions on the
registers maintained by it and for any unauthorized disclosure of information.
However, if an account holder has suffered a loss as a result of a faulty
registration or an amendment to, or deletion of, rights in respect of registered
securities and the Account Operator is unable to compensate such loss, such
account holder is entitled to receive compensation from the Finnish Central
Securities Depository. To cover this contingency, the Finnish Central Securities
Depository maintains a statutory registration fund. The capital of the fund is
at least 0.000048 percent of the average of the total market value of the book
entries kept in the book-entry system during the last five years, however, no
less than E20 million. The maximum compensation to be paid to one injured party
shall be equal to the amount of damages suffered by such injured party from a
single Account Operator, however, not more than E25,000. Furthermore, the
liability of the registration fund is limited to E10 million per incident.

CUSTODY OF THE SHARES AND NOMINEES

     Shares may be held in the book-entry register of the Finnish Central
Securities Depository. A non-Finnish shareholder may appoint a custodian (or
certain non-Finnish organizations approved by the Finnish Central Securities
Depository) to act as a nominee shareholder on its behalf. A nominee shareholder
is entitled to receive dividends and to exercise all share subscription rights
and other financial rights attaching to the shares held in its name. It may not,
however, exercise any administrative rights attaching to such shares, such as
the right to attend and vote at general meetings of the company. A beneficial
owner wishing to exercise such rights must seek a temporary registration in the
register of shareholders not later than ten days prior to the relevant general
meeting. A nominee is required to disclose to the Finnish Financial Supervision
Authority and the relevant company on request the name of the beneficial owner
of any shares registered in the name of such nominee, where the beneficial owner
is known, as well as the number of shares owned by such beneficial owner.

     Finnish Depositories for both Clearstream Banking and Euroclear have
nominee accounts within the book-entry securities system and, accordingly,
non-Finnish shareholders may hold their shares through their accounts with
Clearstream Banking or Euroclear.

     Shareholders wishing to hold their shares in the book-entry securities
system in their name and who do not maintain a custody account in Finland are
required to open a book-entry account at an authorized Account Operator in
Finland and a convertible Finnish markka or euro account.

ITEM 10.  ADDITIONAL INFORMATION.

                     MEMORANDUM AND ARTICLES OF ASSOCIATION

ORGANIZATION AND REGISTER

     Sonera Corporation is incorporated as a stock corporation (julkinen
osakeyhtio) organized under the laws of the Republic of Finland. Sonera
Corporation is registered in the Trade Register maintained by the National Board
of Patents and Registration of Finland, under the business code 1475607-9.

LINE OF BUSINESS

     Pursuant to Section 2 of the articles of association, the line of business
of Sonera Corporation is general telecommunications operations, building and
maintenance of telecommunications networks, and routing of telecommunications;
the provision of various telecommunications, data communications, Internet and
value-added services; publications, content provision and information service
business; electronic commerce; planning, development, manufacture, marketing and
sales of terminal equipment, information systems, software, services and other
products, and related research, consulting and maintenance operations, and other
business related to them or supporting them. We conduct our business either
directly or through our subsidiaries or joint ventures, and we have the right to
own shares and real property, trade in securities, and conduct other investment
business.

                                       163
<PAGE>   177

SHARE CAPITAL

     For a description of our share capital, see "Item 5. Operating and
Financial Review and Prospects -- Authorized Share Capital."

CORPORATE GOVERNANCE

     Matters pertaining to corporate governance are mainly regulated under the
Finnish Companies Act. Pursuant to the Companies Act, members of our Board of
Directors are prohibited from participating in the negotiation or performance,
or otherwise having an involvement in connection with, a contract between
themselves and Sonera. This prohibition includes contracts between Sonera and a
third party if such director would receive a material benefit in conflict with
the interests of Sonera. For a discussion of corporate governance relevant to
us, see "Item 6. Directors, Senior Management and Employees."

PRE-EMPTIVE RIGHTS AND POSSIBLE UNAVAILABILITY OF PRE-EMPTIVE RIGHTS FOR U.S.
HOLDERS

     U.S. holders of the shares and ADSs may not be able to exercise any
preemptive rights and preferential rights in respect of their shares unless a
registration statement under the Securities Act of 1933 is effective with
respect to these rights or an exemption from the registration requirements
thereunder is available.

     Under Finnish law, existing shareholders of Finnish companies have
preferential rights to subscribe, in proportion to their shareholdings, for new
shares of such companies as well as for issues of subscription warrants or debt
instruments convertible into shares or carrying warrants to subscribe for
shares, unless the corporate resolution approving such issue provides otherwise.
Under the Companies Act, a resolution waiving pre-emptive rights must be
approved by at least two-thirds of all votes cast and all shares represented at
the general meeting of shareholders.

GENERAL MEETING OF SHAREHOLDERS

     Under the Companies Act, shareholders exercise their power to decide on
corporate matters at general meetings of shareholders. Section 13 of the
articles of association require that a general meeting of shareholders be held
annually within four months of the end of the financial year, on a date decided
by the Board of Directors. At the annual general meeting of shareholders, the
financial statements, including the income statement, balance sheet and annual
report, the consolidated income statement and balance sheet, and the auditor's
report are presented to the shareholders for adoption. Also at the annual
general meeting of shareholders, the shareholders decide any measure warranted
by the profit or loss shown in the adopted balance sheet or consolidated balance
sheet, discharge members of the Board of Directors and the President and the
Chief Executive Officer from liability, elect the Chairman, Vice Chairman and
members of the Board of Directors, and decide on the number of members of the
Board of Directors and auditors and their remuneration.

     Under the articles of association, a shareholder must give notice to the
Sonera Corporation of his or her intention to attend a general meeting no later
than the date and time specified by the Board of Directors in the notice of the
general meeting, which may not be earlier than five days before the general
meeting (the "Registration Date"). Under the articles of association, notices of
general meetings must be given not earlier than two months prior to the
Registration Date and not later than 12 days before the meeting by publishing an
announcement of the meeting in at least two Finnish daily newspapers designated
by the Board of Directors at its discretion.

     Inasmuch as the shares have been transferred to the Finnish Book-Entry
Securities System, in order to have the right to attend and vote at a general
meeting, a shareholder must be registered not later than ten days prior to the
relevant general meeting in the register of shareholders kept by the Finnish
Central Securities Depository in accordance with the Companies Act and the Act
on the Book-Entry Securities System. See "Item 9. The Offer and Listing --
Trading Markets -- The Finnish Book-Entry Securities System." Voting rights may
not be exercised by a shareholder if such shareholder's shares are registered in
the name of a nominee. A beneficial owner wishing to exercise such rights should
seek a temporary registration in the register of shareholders not later

                                       164
<PAGE>   178

than ten days prior to the relevant general meeting. There are no quorum
requirements for general meetings in the Companies Act or the articles of
association.

VOTING

     A shareholder may attend and vote at a general meeting in person or through
an authorized representative. Each share is entitled to one vote. In order to
attend and vote at a general meeting, a shareholder generally must be registered
in the register of shareholders, which is kept by the Finnish Central Securities
Depository, Ltd. in accordance with the Companies Act and the Act on the
Book-Entry Securities System of 1991, as amended. Voting rights may not be
exercised by a shareholder if his shares are registered in the name of a
nominee, as is the case for registered holders and beneficial owners of the
ADSs. A registered holder or a beneficial owner of the ADSs, like other
beneficial owners whose shares are registered in the name of a nominee, may vote
such shares provided that he arranges to have his name entered in the register
of shareholders as of the record date of meeting, which must be no later than
ten days prior to a general meeting, until the day of meeting.

     Shareholders that have not transferred their shares to the Finnish
Book-Entry Securities System may also attend and vote at general meetings if
they were registered in the share register maintained by the Company before the
date on which the shares should have been transferred to the book-entry system
at the latest and provide evidence of their ownership of shares on the date of
the general meeting. In addition, in order to attend and vote at a general
meeting, a shareholder must notify the Company of its intention to do so no
later than the last registration date specified in the notice concerning the
general meeting, which under our articles of association may not be earlier than
two months before the Registration Date and not later than 12 days before the
meeting.

     A shareholder whose shareholding is registered in the name of a nominee may
not attend and vote at a general meeting. A beneficial owner wishing to exercise
such rights must cancel the nominee arrangements and seek individual
registration no later than ten days prior to the relevant general meeting.

     There are no quorum requirements for general meetings.

     At a general meeting, most resolutions are passed by a majority of the
votes cast. However, certain resolutions, such as a resolution to amend the
articles of association, a resolution to issue shares in contravention of
shareholders' preferential subscription rights and, in certain cases, a
resolution regarding a merger or liquidation of Sonera, require a majority of
two-thirds of the votes cast and shares represented at the general meeting.
Further, if an amendment to our articles of association would diminish the
rights of an entire class of shares, the resolution, in addition to the above
majority requirement, requires the consent of shares representing at least
one-half of all the shares of such class and two-thirds of the shares of such
class represented at the general meeting of shareholders.

LIQUIDATION

     If Sonera Corporation were to be liquidated, any liquidation proceeds
remaining after all of our liabilities were paid would be distributed to our
shareholders in proportion to their shareholdings.

PURCHASE OBLIGATIONS

     Pursuant to the Securities Market Act, a shareholder who acquires in excess
of two-thirds of the total voting rights of the shares of a company after the
commencement of a public quotation of the shares must offer to purchase the
remaining shares of the company.

CONTROL OF FOREIGN OWNERSHIP

     Restrictions on foreign ownership of Finnish companies were abolished as of
January 1, 1993. However, under the Act on the Control of Foreigners'
Acquisition of Finnish Companies of 1992, clearance by the Finnish Ministry of
Trade and Industry would be required if a foreign person or entity, other than a
person or entity from another member state of the European Economic Area or the
Organization for Economic Cooperation and Development, or a Finnish entity
controlled by one or more such foreign persons or entities, were to acquire
                                       165
<PAGE>   179

a holding of one-third or more of the voting power of the Company. The Ministry
of Trade and Industry could refuse clearance where the acquisition would
jeopardize important national interests, in which case the matter would be
referred to the government of Finland.

                               MATERIAL CONTRACTS

CONTRACTUAL ARRANGEMENTS RELATING TO OUR INVESTMENT IN GRUPPE 3G

     In August 2000, Gruppe 3G, a consortium in which we hold a 42.8 percent
interest, was awarded a 20 year UMTS license as the result of an auction process
in Germany for a total purchase price of E 8,408 million. Telefonica Moviles
S.A., a subsidiary of Telefonica S.A., a major Spanish wireless communications
company, holds the remaining 57.2 percent interest in Gruppe 3G.

ARTICLES OF ASSOCIATION OF GRUPPE 3G

     Gruppe 3G is incorporated in Germany. The purpose of Gruppe 3G is the
acquisition, holding and disposal of interests in domestic and foreign
enterprises and contributing to the expansion of UMTS services. Gruppe 3G may
acquire shares in, participate in, or lease other businesses to carry out its
purposes.

     The articles of association of Gruppe 3G establish an advisory board of
five members for the company. The members of the advisory board shall be
appointed and removed by the shareholders. The number of members of the advisory
board may be increased to seven by shareholders' resolution with a 75 percent
majority. The members of the advisory board and one substitute for each member
are appointed and removed by a shareholders' resolution with a simple majority.
Members of the advisory board are appointed for a term of three years. They can
be reappointed. A managing director or employee of the company may not be a
member of the advisory board. An employee or agent of an enterprise in which
Gruppe 3G holds a substantial number of shares also may not be a member of the
advisory board.

     The articles of association of Gruppe 3G create rights and duties on the
management. The document lists corporate actions that management may not
undertake without an advisory board resolution. Among others, the restricted
actions include the approval of major budgets and business plans, major
strategic alliances, investments, divestments, borrowing, employment agreements,
transfers of interest, pledges of assets, or changes in the articles of
association, the name of Gruppe 3G or the names of any of Gruppe 3G's
subsidiaries.

     The articles of association require that the following matters require the
approval of at least 90 percent of the votes cast as shareholders: any changes
to the name of Gruppe 3G; Gruppe 3G's transformation, merger, consolidation, or
division; any increase or decrease of the registered capital of Gruppe 3G; the
liquidation or winding up of Gruppe 3G; or the appointment of the auditor of
Gruppe 3G.

     Certain restrictions apply to the capital shares of Gruppe 3G. There is a
general restriction on capital shares requiring that they not be sold until
either (1) two years have passed from the date of the award of the UMTS license
in Germany or (2) one year from the clearly identifiable date of the launch of
the consortium's telecommunications services by subsidiaries of Gruppe 3G
(except for a sale to an affiliated enterprise as described in the articles of
association). There are procedural restrictions granting sub-participation,
silent participation or similar participation rights to third parties. There are
also procedural restrictions for shares transferred after the lock-up period.
Except for sales to affiliated parties, the shareholders not wishing to sell
their shares have a preemptive right to purchase the shares of the shareholder
that wishes to sell its shares, according to the terms of the articles of
association. The articles of association also provide for the procedures for
shareholders' meetings and accounting.

CONSORTIUM AGREEMENT

     The consortium agreement entered into on August 16, 2000 between Telefonica
Intercontinental S.A., a subsidiary of Telefonica Moviles, and Sonera 3G Holding
B.V., a subsidiary of Sonera, provides terms and conditions for, among other
things:

                                       166
<PAGE>   180

     -  the structure of the Gruppe 3G joint venture;

     -  the requirements relating to the auction of the German third generation
        license;

     -  the principles of corporate governance to be followed by the joint
        venture;

     -  the effects of a change of control in either signatory; and

     -  funding.

     The Gruppe 3G joint venture was initially created to participate in the
German UMTS license auction. As a part of the consortium agreement, the
signatories of the consortium agreement agreed to establish a company to conduct
Gruppe 3G's business utilizing the bandwidth available under the German UMTS
license. The terms of the business established were to be on arms-length
commercial terms. The consortium agreement states that one of the objectives of
Gruppe 3G is to undertake an initial public offering within five years of the
signing date, depending on market conditions.

     The signatories agreed that the joint venture would be managed on a
day-to-day basis by one or more managing directors. The managing directors are
chosen by the advisory board of Gruppe 3G. The advisory board is created
pursuant to the articles of association of Gruppe 3G and allows each shareholder
or group of shareholders representing 25 percent of the shares of Gruppe 3G to
appoint one member and a substitute to the advisory board. The term of office,
powers, duties and remuneration of the managing directors are also determined by
the advisory board, in accordance with the articles of association of Gruppe 3G
and the consortium agreement. The managing directors may include the chief
financial officer, the chief technical officer, or the chairman of the
management board (Vorsitzender der Geschaftsfuhrung, also known as the "CEO").
There is only a CEO if there are more than one managing director. As long as
Telefonica Moviles holds a greater than 30 percent beneficial interest in Gruppe
3G, Telefonica Moviles has the right to nominate the sole managing director, if
there is only one managing director, or the CEO. Our consent is required to
appoint the Managing Director or the CEO, which consent may not be unreasonably
withheld or delayed.

f The sole managing director, if there is only one managing director, or the
CEO, have the maximum powers and responsibilities accorded under the laws of
Germany, and either one is in principle responsible for the management of all
activities of Gruppe 3G, the implementation of the business plan created by the
signatories to the consortium agreement, and the provision of information to the
advisory board relating to all major activities of Gruppe 3G and its
subsidiaries.

     In addition to the advisory board, a supervisory board will be elected by
the shareholders in conformity with German law. The members of the supervisory
board will represent the shareholders in proportion to their percentage interest
in Gruppe 3G.

     The consortium agreement has specific conditions concerning a change of
control in either Telefonica Intercontinental or Sonera 3G Holding or their
respective parent companies. Upon a change of control of either party that
results in that party being controlled by a competitor of the other party,
Gruppe 3G or Gruppe 3G's operating subsidiary, a call right is triggered under
which the party which was not the subject of the change of control may purchase
the other party's interest. In addition, the consortium agreement provides that
upon a change of control of either party which results in a regulatory
determination that causes such party to dispose of its interest in Gruppe 3G,
then we have the right to require Telefonica Moviles to purchase, or to cause a
third party to purchase, all of our interest in Gruppe 3G. Any payment would be
based on the cost of the license until August 2001 and, thereafter, fair market
value.

     Funding both for the German UMTS license and the business to exploit that
license is to be provided according to UMTS each shareholder's percentage
interest in Gruppe 3G.

IRREVOCABLE OFFERS FOR REMAINING SHARES

     The Gruppe 3G subsidiaries of both Telefonica Moviles and Sonera have
signed agreements which provide that in the event that either party should want
to sell its shares, that party must first give the other party the right

                                       167
<PAGE>   181

to purchase, or to designate a third party to purchase, those shares at a price
determined under the rules of the agreement.

LOCK-UP ARRANGEMENTS RELATING TO OUR SHAREHOLDINGS IN DEUTSCHE TELEKOM

     We own approximately 72 million shares of Deutsche Telekom, representing
less than two percent of its outstanding shares. Deutsche Telekom is the largest
provider of telecommunications services in Europe. We acquired our interest in
Deutsche Telekom as a result of a number of different transactions relating to
our investment in the U.S. PCS operators, Aerial Communications, Inc., Powertel,
Inc. and VoiceStream Wireless Corporation. These transactions, which culminated
in the three-way merger of Deutsche Telekom, Powertel and VoiceStream, are
summarized in "Item 4. Information on the Company -- International and Other
Significant Investments -- Deutsche Telekom."

     In connection with the merger of Deutsche Telekom, VoiceStream and
Powertel, we, as a former significant shareholder of VoiceStream and Powertel,
entered into two stockholders agreements, a Stockholders Agreement dated as of
July 23, 2000, by and among certain former shareholders of VoiceStream and
Deutsche Telekom, and a Stockholders Agreement, dated as of August 26, 2000, by
and among certain former shareholders of Powertel and Deutsche Telekom, under
which we agreed, among other things, not to transfer any Deutsche Telekom shares
received with respect to our VoiceStream and Powertel shares tendered in
connection with mergers except for the percentage of our holdings set forth
below, subject to certain exceptions:

     1.    For the three-month period following the merger: none.

     2.    For the three-month period ending six months after the merger: 40
        percent. This percentage is calculated based on the number of Deutsche
        Telekom shares we would have received in the merger, assuming (1) we
        held the number of shares at the time of the merger as we held at the
        time of the respective shareholders' meetings of VoiceStream and
        Powertel approving the merger with Deutsche Telekom (both of which
        occurred in March 2001) and (2) we had elected to receive a "mixed
        consideration" of Deutsche Telekom shares and cash in connection with
        our tender of VoiceStream shares as provided in the VoiceStream-Deutsche
        Telekom merger agreement. Based on our interpretation of the
        stockholders agreements, we believe that we will be able to sell an
        aggregate of approximately 34.5 million shares we hold in Deutsche
        Telekom during the period from September 1 to December 1, 2001.

     3.    After six months after the merger: 100 percent.

MATERIAL INDEBTEDNESS

SHORT-TERM LOAN FACILITY

     On October 31, 2000, we entered into a 359-day term loan facility arranged
by Citibank, N.A., Deutsche Bank AG, Dresdner Bank AG, J.P. Morgan Securities
Ltd. and Merita Bank PLC, in the aggregate amount of E3,250 million. We have
used the entire amount of the loan facility to refinance the Group's existing
indebtedness, including a E3.5 billion credit facility arranged by Sonera and
Citibank, N.A. and Dresdner Bank AG, dated August 25, 2000, to finance costs
occurred in connection with the award to Gruppe 3G of a UMTS license in Germany.

     Loans drawn under the facility carry an interest rate of Euribor plus a
margin of 0.40 percent together with certain costs required to compensate the
arrangers for expenses relating to the U.K. Financial Services Authority and the
European Central Bank.

     The loan facility agreement contains important prepayment and negative
pledge clauses. In the event that we receive over E100 million in aggregate net
proceeds from asset disposals or disposals of interests in subsidiaries or
affiliates (with certain exceptions) during the term of the term loan facility
(except in the case of a disposal of any interest in Gruppe 3G, this provision
applies only to disposals where all or any part of the consideration for such
disposal is payable in cash or cash equivalents) we are required to apply such
net proceeds to the prepayment of the loan. In addition, in the event that we or
any of our subsidiaries receives (1) aggregate net

                                       168
<PAGE>   182

proceeds from borrowings during the life of the facility through the issuance of
debt securities or bilateral or syndicated loan facilities (with certain
exceptions) which exceed E950 million or (2) aggregate net proceeds from equity
issuances during the life of the facility which exceed E50 million, we are
required to apply such net proceeds to the prepayment of the loan.

     The term loan facility contains a negative pledge covenant which states
that we may not create or maintain any security interest on any of our assets
(subject to certain exceptions) unless (1) the aggregate book value of our
assets subject to security interests does not exceed 30 percent of our
consolidated assets or (2) the aggregate amount of indebtedness secured by
security interests does not exceed 30 percent of our consolidated assets. The
loan facility also restricts us and our material subsidiaries from disposing of
any of our assets unless such disposals are made (1) in the ordinary course of
business, (2) with the consent of the majority banks (as defined in the loan
facility) or (3) for fair market value and at arm's length, except that in
certain circumstances the majority banks may require the repayment of the loan
in the event of a disposal that would reasonably be expected to materially and
adversely affect our ability to perform our obligations under the term loan
facility. The term loan agreement also restricts the levels of indebtedness of
our subsidiaries and contains other standard loan covenants.

THREE-YEAR TERM LOAN FACILITY

     On June 15, 2001, we entered into a three-year term loan facility arranged
by Citibank, N.A., Deutsche Bank AG, Dresdner Bank AG, J.P. Morgan plc and
Merita Bank PLC, in the aggregate amount of E1,330 million. We plan to use the
entire amount of the loan facility to refinance a portion of our existing
indebtedness, including indebtedness under the E3,250 billion term loan facility
we entered into on October 31, 2000.

     Loans drawn under the facility carry a rate of Euribor plus a margin
together with certain costs required to compensate the arrangers for expenses
relating to the U.K. Financial Services Authority and the European Central Bank.
The margin ranges from 0.60 percent per annum to 1.50 percent per annum
depending upon the published long-term credit ratings assigned to us by S&P and
Moody's.

     The term loan facility contains a negative pledge covenant which states
that we may not create or maintain any security interest on any of our assets
(subject to certain exceptions) unless (1) the aggregate book value of our
assets subject to security interests does not exceed 20 percent of our
consolidated assets or (2) the aggregate amount of our indebtedness secured by
security interests does not exceed 20 percent of our consolidated assets. The
loan facility also restricts us and our material subsidiaries from disposing of
any of our assets unless such disposals are made (1) in the ordinary course of
business, (2) with the consent of the majority banks (as defined in the loan
facility) or (3) for fair market value and at arm's length, except that in
certain circumstances the majority banks may require the repayment of the loan
in the event of a disposal that would reasonably be expected to materially and
adversely affect our ability to perform our obligations under the term loan
facility. The term loan agreement also restricts the levels of indebtedness of
our subsidiaries and contains other standard loan covenants.

EURO MEDIUM TERM NOTE (EMTN) PROGRAM

     In March 1999, we established a E1.0 billion Euro Medium Term Note Program
under which we issued notes in the principal amount of E300 million, which
mature in 2009 and carry interest at a rate of 4.625 percent. In February 2000,
we increased the maximum amount drawable under the EMTN program to E2 billion
and, in March 2000, we issued notes in the principal amount of E1 billion, which
mature in 2008 and carry an interest rate of 5.625 percent. In February 2001, we
issued floating rate notes under the EMTN program in the principal amount of
E500 million with terms of 18 months. In May 2001, we issued one-year fixed rate
notes under the program in the principal amount of E150 million and six-month
zero coupon notes in the principal amount of E50 million. In May 2001 we also
increased the maximum amount drawable under the facility to E3 billion.

                               EXCHANGE CONTROLS

     The shares may be bought by non-residents of Finland ("non-residents") on
the Helsinki Exchanges without any Finnish exchange control consent. Furthermore
non-residents may receive dividends without a Finnish exchange control consent,
the transfer out of Finland being subject to payment by the Company of
withholding

                                       169
<PAGE>   183

taxes. Non-residents having acquired shares may receive shares pursuant to a
bonus issue or through participation in a new issue without Finnish exchange
control consent. Shares may be sold in Finland by non-residents, and the
proceeds of such sale may be transferred out of Finland in any convertible
currency. There are no Finnish exchange control regulations applying to the sale
of shares by non-residents to other non-residents.

                                    TAXATION

     The following summary is based on tax laws of Finland and the United States
on the date of this report, and is subject to changes in Finnish or United
States law, including changes that could have a retroactive effect. The
following summary is not exhaustive and does not take into account or discuss
the tax laws of any country other than Finland or the United States. Prospective
investors are advised to consult their own tax advisors as to the Finnish,
United States or other tax consequences of the purchase, ownership and
disposition of shares or ADSs, including, in particular, the effect of tax laws
in any other jurisdiction.

FINNISH TAXATION

     Residents and non-residents of Finland are treated differently for tax
purposes. The worldwide income and net wealth of persons resident in Finland is
subject to taxation in Finland. Non-residents who are not generally liable for
tax in Finland are taxed on Finnish source income and net wealth located in
Finland only. In addition, all income of a non-resident derived from and net
wealth allocable in a permanent establishment located in Finland will be taxed
in Finland.

     Generally, an individual is deemed a resident of Finland if such individual
resides in Finland for more than six consecutive months or if the permanent home
or dwelling of such individual is in Finland. Earned income, including salary,
is taxed at progressive rates while capital income, including dividend income
from a company listed on the Main List of the Helsinki Exchanges, is currently
taxed at a flat rate of 29 percent. Entities established under the laws of
Finland are regarded as residents of Finland.

COMPANIES

     Finnish companies are subject to national corporate income tax on their
worldwide income. Currently, the rate of such tax is 29 percent.

     Finland applies an imputation tax credit or avoir fiscal system for profits
distributed as dividends in order to eliminate double taxation of companies and
their shareholders. Under the avoir fiscal system, a Finnish company pays each
year the higher of its minimum tax and its comparison tax. The applicable
minimum tax payable to the Finnish tax authorities by a Finnish company depends
on the amount of profit distributed as dividends. The applicable minimum tax is
currently 29/71 of the dividends distributed to the shareholders. The comparison
tax is the tax payable on the amount of taxable corporate income. To the extent
that the minimum tax exceeds or is less than the comparison tax payable to the
Finnish taxation authorities, a supplementary tax liability will be imposed or a
tax surplus established as appropriate. Any surplus generated may generally be
carried over and used, for a period of ten years, to offset any supplementary
tax which may become payable in subsequent years.

SHAREHOLDERS

     The following is a summary of certain Finnish tax consequences relating to
the purchase, ownership and disposition of shares.

Tax Credit on Dividends

     The dividend income received from a company listed on the Helsinki
Exchanges and the related tax credit are taxable income for shareholders who are
residents of Finland. As of January 1, 2000, dividend payments have been subject
to a tax rate of 29 percent. Under the avoir fiscal system, a tax credit is
available to resident shareholders on the payment of dividends by a Finnish
company. As of January 1, 2000, the amount of tax credit have been equal to
29/71 of the dividends received. In taxation, the tax credit is offset against
the resident

                                       170
<PAGE>   184

shareholder's tax liability and, thus, no taxes are generally payable by
resident shareholders in respect of dividends received from a Finnish company
listed on the Main List of the Helsinki Exchanges.

     The tax credit is not available to non-residents, unless so provided in a
double taxation treaty with Finland that contains the appropriate provisions.
Currently, the only such tax treaty in force is with Ireland, entitling certain
shareholders resident in Ireland to a tax credit equal to one-half of the credit
available to residents in Finland. A Finnish permanent establishment of a
company resident in the EEA, however, is entitled to the imputation tax credit
if the shares are deemed to belong to the Finnish permanent establishment.

Withholding Tax on Dividends

     Non-residents are subject to Finnish withholding tax on dividends paid by a
Finnish company. In the absence of any applicable treaty, the rate of such
withholding tax is currently 29 percent. Finland has entered into double
taxation treaties with many countries pursuant to which the withholding tax rate
is reduced on dividends paid to persons entitled to the benefits under such
treaties. In the case of the treaties with the following countries, Finnish
withholding tax rates are generally reduced to the percentages given: Austria:
ten percent; Canada: 15 percent; Denmark: 15 percent; France: zero; Germany: 15
percent; Ireland: 15 percent; Italy: 15 percent; Japan: 15 percent; The
Netherlands: zero; Norway: 15 percent; Spain: 15 percent; Sweden: 15 percent;
Switzerland: five percent; the United Kingdom: zero; and the United States: 15
percent. A further reduction in the withholding tax rate is usually available to
corporate shareholders for distributions on qualifying holdings (usually at
least ten or 25 percent of the capital of the distributing company). The Finnish
company paying the dividend is responsible for deducting any applicable Finnish
withholding tax.

     A reduction of such withholding tax rate can be obtained at source upon the
submission of a Source Tax Card or the required information (name, date of
birth, any personal or corporate code in the home country and address) to the
payer prior to the payment of dividends. If such a Source Tax Card or such
information is not submitted in a timely manner, a refund of tax withheld in
excess of the applicable treaty rate can be obtained upon application to the
local tax authority.

     No withholding tax is levied under Finnish laws on dividends paid to
corporate entities which reside in the European Union and directly hold at least
25 percent of the capital of the distributing Finnish company, provided that
such entities are not entitled to the tax credit under the Finnish avoir fiscal
system and are subject to a general corporation tax in their respective
countries of residency, as specified in Directive 90/435/EEC.

Finnish Capital Gains and Other Taxes

     Any capital gains arising from the sale of shares by Finnish resident
individuals and estates are taxed as capital income. Any gain or loss is
calculated as the sales price less the original acquisition costs and the
selling expenses. Alternatively, in lieu of applying the actual acquisition
costs, individuals and estates may choose to apply a presumptive acquisition
cost equal to 20 percent of the sales price, or, if the shares sold have been
held for a minimum of ten years, 50 percent of the sales price. If the
presumptive acquisition cost is used instead of the actual acquisition cost, any
selling expenses are deemed to be included therein and, therefore, not be
deducted in addition to the presumptive acquisition cost.

     Finnish residents must report any sales of securities made in the tax year
on their tax return. Capital gains of individuals and estates are currently
taxed at a flat rate of 29 percent. For individuals and estates, capital losses
are primarily deductible from capital gains arising in the same year and the
following three years.

     Revenues arising from the sale of shares by Finnish resident companies are
counted as part of gross income, while the acquisition cost of the shares is
deductible in the taxation of the relevant company. The applicable corporate tax
rate is currently 29 percent.

     Non-residents who are not generally liable for tax in Finland will normally
not be subject to Finnish taxes on capital gains realized in the transfer of
shares of a Finnish company, except when more than 50 percent of the total
assets of the company in question consists of real estate located in Finland or
unless the capital gains realized in the transfer of shares relate to business
carried on in Finland by a foreign seller. Transfers of the shares by
non-residents by way of gift or by reason of the death of the owner are subject
to Finnish gift or inheritance
                                       171
<PAGE>   185

tax, respectively, if either the transferor or the transferee was a resident of
Finland at the time of death or when the gift was given or if more than 50
percent of the total assets of the company in question consist of real estate
located in Finland. Inheritance tax treaties may limit the taxation of
inheritance received by a non-resident in Finland.

     The shares are included in the taxable net wealth of individuals resident
in Finland, Finnish estates and Finnish legal entities that are subject to net
wealth tax. The shares are valued for net wealth tax purposes at 70 percent of
their market value at the end of the relevant tax year. While non-resident
individuals and legal entities are generally subject to net wealth tax in
Finland on their Finnish net assets, the shares will not be included in the tax
base when computing such tax liability of a non-resident, unless the shares are
related to the business of a permanent establishment located in Finland.

Finnish Transfer Tax

     There is no transfer tax payable in Finland on share transfers made on the
Helsinki Exchanges. If the transfer is not made on the Helsinki Exchanges, a
transfer tax at the rate of 1.6 percent of the relevant sales price is payable
by the buyer. However, if the buyer is neither a resident of Finland nor a
Finnish branch of a foreign credit institution nor a Finnish branch of a foreign
investment firm, the seller must collect the tax from the buyer. If neither the
buyer nor the seller is a resident of Finland or a Finnish branch of a foreign
credit institution or a Finnish branch of a foreign investment firm, and it is
not a question of transfer of shares in a housing or real estate company, the
transfer of shares will be exempt from Finnish transfer tax. No transfer tax is
payable in connection with the issuance of new shares.

UNITED STATES FEDERAL INCOME TAXATION

     The following is a summary of the principal United States federal income
tax consequences that may be relevant with respect to the acquisition, ownership
and disposition of shares or ADSs, which are evidenced by American Depositary
Receipts. This summary addresses only the United States federal income tax
considerations of holders that are initial purchasers of the shares or ADSs at
the initial issue price and that will hold shares or ADSs as capital assets.
This summary does not address tax considerations applicable to holders that may
be subject to special tax rules, such as financial institutions, insurance
companies, real estate investment trusts, grantor trusts, regulated investment
companies, dealers or traders in securities or currencies, tax-exempt entities,
persons that will hold shares or ADSs as part of a "hedging" or "conversion"
transaction or as a position in a "straddle" for United States federal income
tax purposes, persons that have a "functional currency" other than the United
States dollar or holders that own (or are deemed to own) ten percent or more (by
voting power or value) of the stock of Sonera. Moreover, this summary does not
address the U.S. federal estate and gift or alternative minimum tax consequences
of the acquisition, ownership and disposition of shares or ADSs. This summary is
based on the Internal Revenue Code of 1986, as amended (the "Code"), United
States Treasury Regulations and judicial and administrative interpretations
thereof, in each case as in effect and available on the date of this annual
report. All of the foregoing are subject to change, which change could apply
retroactively and could affect the tax consequences described below.

     The United States Treasury Department has expressed concern that
depositaries for American Depositary Receipts, or other intermediaries between
the holders of shares of an issuer and the issuer, may be taking actions that
are inconsistent with the claiming of United States foreign tax credits by
United States holders of such receipts or shares. Accordingly, the analysis
regarding the availability of a United States foreign tax credit for Finnish
taxes and sourcing rules described below could be affected by future actions
that may be taken by the United States Treasury Department.

     For purposes of this summary, a "United States Holder" is a beneficial
owner of shares or ADSs that, for United States federal income tax purposes, is:
(1) a citizen or resident of the United States, (2) a partnership or corporation
created or organized in or under the laws of the United States or any state
thereof (including the District of Columbia), (3) an estate the income of which
is subject to United States federal income taxation regardless of its source, or
(4) a trust, if such trust validly elects to be treated as a United States
person for United States federal income tax purposes or if (i) a court within
the United States is able to exercise primary

                                       172
<PAGE>   186

supervision over its administration and (ii) one or more United States persons
have the authority to control all of the substantial decisions of such trust. A
"Non-United States Holder" is a beneficial owner of shares or ADSs that is not a
United States Holder.

OWNERSHIP OF ADSS IN GENERAL

     For United States federal income tax purposes, a holder of ADSs generally
will be treated as the owner of the shares represented by such ADSs.

DISTRIBUTIONS

     Subject to the discussion below under "Passive Foreign Investment Company
Considerations," the gross amount of any distribution by Sonera of cash or
property (other than certain distributions, if any, of shares or ADSs
distributed pro rata to all shareholders of Sonera including holders of ADSs)
with respect to shares or ADSs will be includible in income by a United States
Holder as dividend income to the extent such distributions are paid out of the
current or accumulated earnings and profits of our Company as determined under
United States federal income tax principles. Such dividends will not be eligible
for the dividends received deduction generally allowed to corporate United
States Holders. To the extent, if any, that the amount of any distribution by
our Company exceeds our current and accumulated earnings and profits as
determined under United States federal income tax principles, it will be treated
first as a tax-free return of the United States Holder's adjusted tax basis in
the shares or ADSs and thereafter as capital gain. Our Company does not maintain
calculations of our earnings and profits under United States federal income tax
principles.

     Any such dividend paid in euros (or any currency other than U.S. dollars)
will be included in the gross income of a United States Holder in an amount
equal to the U.S. dollar value of the euro (or, if not euros, the currency in
which the dividend was paid) on the date of receipt. The amount of any
distribution of property other than cash will be the fair market value of such
property on the date of distribution.

     Dividends received by a United States Holder with respect to shares or ADSs
will be treated as foreign source income, which may be relevant in calculating
such holder's foreign tax credit limitation. Subject to certain conditions and
limitations, any Finnish tax withheld on dividends may be deducted from taxable
income or credited against a United States Holder's United States federal income
tax liability. The limitation on foreign taxes eligible for credit is calculated
separately with respect to specific classes of income. For this purpose,
dividends distributed by us generally will constitute "passive income," or, in
the case of certain United States Holders, "financial services income."

     Subject to the discussion below under "Backup Withholding Tax and
Information Reporting Requirements," a Non-United States Holder of shares or
ADSs generally will not be subject to United States federal income or
withholding tax on dividends received on shares or ADSs, unless such income is
effectively connected with the conduct by such Non-United States Holder of a
trade or business in the United States.

SHARES RECEIVED BY EMPLOYEES SUBJECT TO UNITED STATES TAXATION

     Any employee who is subject to United States federal income tax on his or
her compensation from Sonera who purchases shares or ADSs at a price
representing a discount from the fair market value of those shares or ADSs will
be subject to United States federal income and employment taxes with respect to
such discount. Such employee should recognize ordinary income at the time of the
receipt of such shares or ADSs equal to the fair market value of such shares or
ADSs minus the amount paid for such shares or ADSs. The issuance of such shares
or ADSs at a discount to such employee may be subject to United States wage
withholding.

SALE OR EXCHANGE OF SHARES OR ADSS

     Subject to the discussion below under "Passive Foreign Investment Company
Considerations," a United States Holder generally will recognize gain or loss on
the sale or exchange of shares or ADSs equal to the difference between the
amount realized on such sale or exchange and the United States Holder's adjusted
tax basis in the shares or ADSs. Such gain or loss will be capital gain or loss.
In the case of a noncorporate

                                       173
<PAGE>   187

United States Holder, the maximum marginal United States federal income tax rate
applicable to such gain will be lower than the maximum marginal United States
federal income tax rate applicable to ordinary income if such United States
Holder's holding period for such shares or ADSs exceeds one year and, in the
case of shares or ADSs acquired on or after January 1, 2001 will be further
reduced if such holding period exceeds five years. Gain or loss, if any,
recognized by a United States Holder generally will be treated as United States
source income or loss for United States foreign tax credit purposes. The
deductibility of capital losses is subject to limitations.

     The initial tax basis of shares or ADSs to a United States Holder will be
the U.S. dollar value of the euro denominated purchase price determined on the
date of purchase. If the shares or ADSs are treated as traded on an "established
securities market," a cash basis United States Holder (or, if it elects, an
accrual basis United States Holder) will determine the dollar value of the cost
of such shares or ADSs by translating the amount paid at the spot rate of
exchange on the settlement date of the purchase. The conversion of U.S. dollars
to euros and the immediate use of that currency to purchase shares or ADSs
generally will not result in taxable gain or loss for a United States Holder.

     With respect to the sale or exchange of shares or ADSs, the amount realized
generally will be the U.S. dollar value of the payment received determined on
(1) the date of receipt of payment in the case of a cash basis United States
Holder and (2) the date of disposition in the case of an accrual basis United
States Holder. If the shares or ADSs are treated as traded on an "established
securities market," a cash basis taxpayer (or, if it elects, an accrual basis
taxpayer) will determine the U.S. dollar value of the amount realized by
translating the amount received at the spot rate of exchange on the settlement
date of the sale.

     Subject to the discussion below under "Backup Withholding Tax and
Information Reporting Requirements," a Non-United States Holder of shares or
ADSs generally will not be subject to United States federal income or
withholding tax on any gain realized on the sale or exchange of such shares or
ADSs unless (1) such gain is effectively connected with the conduct by such
Non-United States Holder of a trade or business in the United States or (2) in
the case of any gain realized by an individual Non-United States Holder, such
holder is present in the United States for 183 days or more in the taxable year
of such sale or exchange and certain other conditions are met.

PASSIVE FOREIGN INVESTMENT COMPANY CONSIDERATIONS

     A Non-U.S corporation will be classified as a passive foreign investment
company (a PFIC) for U.S. federal income tax purposes in any taxable year in
which, after applying the look-through rules for 25 percent or more owned
subsidiaries, either (1) at least 75 percent of its gross income is passive
income or (2) on average at least 50 percent of the gross value of its assets is
attributable to assets that produce passive income or are held for the
production of passive income. Passive income for this purpose includes
dividends, interest, royalties, rents and gains from commodities and securities
transactions.

     We believe that we were not a PFIC in our 2000 taxable year. Our status in
future years will depend on our assets and activities in those years. We have no
reason to believe that our assets or activities will change in a manner that
would cause us to be classified as a PFIC. However, since our status will depend
on the nature of our income, assets and business from time to time, we can not
give you assurance that we will not be a PFIC in any future year.

     Notwithstanding the discussions above under the captions "Distributions"
and "Sale or Exchange of Shares or American Depositary Shares" if we were to
become a PFIC, a United States Holder of shares or ADSs would be subject to
imputed interest charges and other disadvantageous tax treatment with respect to
any gain from the sale or exchange of, and excess distributions with respect to,
the shares or ADSs. If we were to become a PFIC, a United States Holder of
shares or ADSs could make a variety of elections that may alleviate the tax
consequences referred to above, and one of these elections may be made
retroactively. However, it is expected that the conditions necessary for making
some of these elections will not apply in the case of the shares or ADSs. United
States Holders should consult their own tax advisors regarding the tax
consequences that would arise if we were to become a PFIC.

                                       174
<PAGE>   188

BACKUP WITHHOLDING TAX AND INFORMATION REPORTING REQUIREMENTS

     United States backup withholding tax and information reporting requirements
generally apply to certain payments to certain noncorporate holders of stock.
Information reporting generally will apply to payments of dividends on, and to
proceeds from the sale or redemption of, shares or ADSs made within the United
States to a holder of shares or ADSs (other than an "exempt recipient,"
including a corporation, a payee that is not a United States person that
provides an appropriate certification and certain other persons). A payor will
be required to withhold backup withholding tax from any payments of, dividends
on, or the proceeds from the sale or redemption of shares or ADSs within the
United States to a holder (other than an "exempt recipient") if such holder
fails to furnish its correct taxpayer identification number or otherwise fails
to comply with such backup withholding tax requirements. Under recently enacted
legislation, the backup withholding tax rate of 31 percent will be reduced as of
August 7, 2001 to 30.5 percent. That rate will be further reduced to 30 percent
for years 2002 and 2003, 29 percent for years 2004 and 2005, and 28 percent for
2006 and thereafter.

     In the case of such payments made within the United States to a foreign
simple trust, foreign grantor trust or foreign partnership (other than a payment
to a foreign simple trust, foreign grantor trust or foreign partnership that
qualifies as a "withholding foreign trust" or a "withholding foreign
partnership" within the meaning of such United States Treasury Regulations and a
payment to a foreign simple trust, foreign grantor trust or foreign partnership
that is effectively connected with the conduct of a trade or business in the
United States), the beneficiaries of the foreign simple trust, the persons
treated as the owners of the foreign grantor trust or the partners of the
foreign partnership, as the case may be, will be required to provide the
certification discussed above in order to establish an exemption from backup
withholding tax and information reporting requirements. Moreover, a payor may
rely on a certification provided by a payee that is not a United States person
only if such payor does not have actual knowledge or a reason to know that any
information or certification stated in such certificate is incorrect.

                              DOCUMENTS ON DISPLAY

     We are subject to the informational requirements of the Securities Exchange
Act of 1934, as amended. In accordance with these requirements, we file reports
and other information with the Securities and Exchange Commission. These
materials, including this annual report and the exhibits thereto, may be
inspected and copied at the Commission's Public Reference Room at 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the Commission's regional offices at
500 West Madison Street, Suite 1400, Chicago, Illinois 60661, and 7 World Trade
Center, New York, New York 10048. Copies of the materials may be obtained from
the Public Reference Room of the Commission at 450 Fifth Street, Washington,
D.C. 20549 at prescribed rates. The public may obtain information on the
operation of the Commission's Public Reference Room by calling the Commission in
the United States at 1-800-SEC-0330. The Commission also maintains a web site at
http://www.sec.gov that contains reports and other information regarding
registrants that file electronically with the Commission. This annual report and
some of the other information submitted by us to the Commission may be accessed
through this web site.

ITEM 11.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

GENERAL PRINCIPLES FOR FINANCING AND FINANCIAL RISK MANAGEMENT

     Our financing and our financial risks are managed according to directives
issued by, and under the control of, our Board of Directors and our President
and Chief Executive Officer. Our financial management operations are centralized
in our Treasury and Corporate Finance functions. Our Treasury operates as our
internal bank, and is responsible for the management of financing and financial
risks.

     The financial management policy approved by the Board of Directors defines
operational principles for the management of our finances, and the limits for
financial risks. Our financial position and financial risks are reported to the
Board of Directors on a regular basis. The objectives of the financial risk
management policy are to identify financial risks relating to Sonera, including
foreign exchange, interest rate, liquidity and credit risks, and to hedge those
risks to provide financially stable conditions for the development of our
business.

                                       175
<PAGE>   189

     Derivative financial instruments are used in hedging foreign exchange and
interest rate risks. We do not hold positions in derivative instruments for
speculative purposes.

     We continuously evaluate the market risks of financial assets and
liabilities and derivative instruments, and the potential impact of these risks
on our results of operations by comparing the components of our financial
instruments to market values and by estimating the sensitivity of value changes
to market factors.

EXCHANGE RATE RISK

     We seek to minimize the effects of exchange rate fluctuations on our
results of operations and financial position. We conduct our business mainly in
euros.

     Changes in exchange rates between the euro (previously, the Finnish markka)
and other currencies in which we have receivables, payables or other contractual
items generate exchange gains and losses which impact our results of operations
(transaction risk). Under our financial management policy, we hedge all
significant transaction risks with forward foreign exchange contracts, currency
swaps and options. As of December 31, 2000, 1999 and 1998, the post-hedging open
transaction risk of our Finnish companies group was E1 million, E1 million and
E5 million, respectively. A ten percent change in the value of the euro against
all other currencies would have had an immediate impact of E0.1 million, E0.1
million and E0.5 million on our net income, assuming that the open transaction
exposure would have been at the level of December 31, 2000, 1999 and 1998,
respectively, and that no new hedging measures would have been taken.

     Changes in exchange rates between the euro (previously, the Finnish markka)
and other currencies in which our foreign subsidiaries and associated companies
report their results of operations and shareholders' equity to be included in
our consolidated financial statements generate translation differences that
affect consolidated shareholders' equity (translation risk). On December 31,
2000, our pro rata share of shareholders' equity in our non-euro subsidiaries
and associated companies was E1,093 million as compared with E835 million and
E465 million at the end of 1999 and 1998, respectively. During 1998, 1999 and
2000, we did not hedge our translation risks. The decision whether to hedge in
each case is made by taking into account the impact of hedging on our results of
operations and cash flows, as well as the circumstances in local currency and
capital markets, including the level of interest rates and the liquidity of the
market. As of December 31, 2000, 1999 and 1998, a ten percent change in the
value of the euro against all other currencies would have had an immediate
impact of E109 million, E84 million and E45 million, respectively, on our
consolidated shareholders' equity, assuming that our pro rata share of
shareholders' equity in our foreign subsidiaries and associated companies would
have been at the level of December 31, 2000, 1999 and 1998, respectively, and
that no new hedging measures would have been taken.

     Turkcell and certain other subsidiaries and associated companies in
highly-inflationary countries report their financial statements either adjusted
for inflation, or in U.S. dollars instead of the local currency.

     The following table sets forth a breakdown of our consolidated
shareholders' equity by currency on December 31, 1998, 1999 and 2000:

<TABLE>
<CAPTION>
                                                                 AS OF DECEMBER 31,
                                                                --------------------
                          CURRENCY                              1998    1999    2000
                          --------                              ----    ----    ----
                                                                        (%)
<S>                                                             <C>     <C>     <C>
Euro........................................................     68      54      66
Turkish lira................................................     11      19      20
Latvian lat.................................................      8      10       6
U.S. dollar.................................................     --       7      --
Lithuanian lita.............................................      6       5       4
Estonian kroon..............................................      2       3       2
Other currencies............................................      5       2       2
                                                                ---     ---     ---
  Total.....................................................    100     100     100
                                                                ===     ===     ===
</TABLE>

                                       176
<PAGE>   190

INTEREST RATE RISK

     Our net interest-bearing debt as of December 31, 2000 was E5,641 million,
consisting of E5,794 million of interest-bearing loans and a E3 million bond
loan with warrants issued to Sonera employees, partially offset by E156 million
of cash and short-term investments. Our borrowings and the management of liquid
funds are centralized in the Treasury and Corporate Finance functions. With
limited exceptions, subsidiaries manage their financing with intra-group loans.

     Interest rate risks include cash flow risk (changes in interest income and
expenses when interest rates change) and price risk (changes in values of
financial instruments when interest rates change). We manage our interest rate
risks by diversifying our portfolio of investments and loans in fixed and
floating rate instruments, and by using interest rate swaps, interest rate
options and forward rate agreements.

     The calculation of interest rate risk exposure is based on the interest
rate maturities of loans and other financial instruments used. We seek to
minimize the impact of a rise in interest rates, taking into account the
prevailing interest rate levels, yield curves and volatilities. In accordance
with our financial management policy, approximately 70 percent of our net
interest-bearing debt on December 31, 2000 had floating interest rates (with
interest rate maturities less than 12 months) and approximately 30 percent had
fixed interest rates (with interest rate maturities ranging from 12 months to
five years).

     The average interest rate for our interest-bearing debt, including the
impact of hedging measures, was 5.37 percent and 3.75 percent on December 31,
2000 and 1999, respectively. A parallel change of one percentage point in the
level of interest rates would have had an impact of approximately E19 million
and E8 million on the annual net interest expense, assuming that our net
interest-bearing debt were to remain at the level of December 31, 2000 and 1999,
respectively, and that no new hedging measures were taken.

LIQUIDITY RISK

     Liquidity risks relate to the availability of sufficient funding for debt
service, dividend payment, capital expenditure and working capital requirements.
We seek to minimize our liquidity risks by maintaining sufficient cash flow from
operations, by having sufficient financing reserves, and by distributing the
maturities of our loan portfolio across different years.

     In accordance with our financial management policy, we seek to maintain our
liquidity position (i.e., cash and short-term investments and committed
long-term undrawn credit facilities less borrowings maturing within the next 12
months) at the level of at least E350 million. On December 31, 2000, our
liquidity position totaled approximately E292 million, consisting of E156
million of liquid funds and E465 million of undrawn revolving credit facilities
less E329 million of loans falling due during 2001. Loans falling due in 2001 do
not include our E3.626 million short-term loan portion of the German UMTS
license because we intend to finance the increase in short-term borrowings
resulting therefrom through disposals of certain investments and through
external non-recourse financing that will be arranged for the license-holding
company in Germany. In addition, in June 2001, we entered into a E1.33 billion
three-year variable rate loan facility which we plan to draw on in its entirety
in July 2001 to prepay a portion of our short-term debt. Additionally, we have
available E1 billion in undrawn amounts under a long-term euro medium term note
facility. To meet our short-term financing needs, we can also deploy a E500
million Euro Commercial Paper Program and a E300 million domestic Commercial
Paper Program.

                                       177
<PAGE>   191

     The following table sets forth maturities of long-term drawn-down loans and
undrawn committed credit facilities on December 31, 2000 as well as amounts
drawn and undrawn under such long-term loans and facilities:

<TABLE>
<CAPTION>
MATURITIES                                                      DRAWN DOWN    UNDRAWN    TOTAL
----------                                                      ----------    -------    -----
                                                                       (IN E MILLIONS)
<S>                                                             <C>           <C>        <C>
Fall due by December 31, 2001...............................        107          --        107
Fall due by December 31, 2002...............................          4          62         66
Fall due by December 31, 2003...............................        131         186        317
Fall due by December 31, 2004...............................        114         155        269
Fall due by December 31, 2005...............................      1,073          62      1,135
Fall due by December 31, 2006...............................         33          --         33
Fall due by December 31, 2007...............................         33          --         33
Fall due by December 31, 2008...............................        121          --        121
Fall due by December 31, 2009...............................        333          --        333
                                                                  -----         ---      -----
  Total.....................................................      1,949         465      2,414
                                                                  =====         ===      =====
</TABLE>

     In January 1999, we received long-term and short-term corporate credit
ratings. In January 1999, Standard & Poor's Ratings Group assigned an
AA-long-term rating and an A1+ short-term rating to Sonera. In January 1999,
Moody's Investor Services assigned an A-2 long-term credit rating and a Prime-1
short-term credit rating. In February 2001, Standard & Poor's lowered our
long-term credit rating to single-"A"-minus and lowered the short-term rating to
"A-2". In addition, the ratings were placed on CreditWatch with negative
implications. On May 3, 2001, Moody's Investor Services downgraded our senior
unsecured long-term debt ratings from A2 to Baa2 and our short-term debt rating
from Prime-1 to Prime-2. Moody's kept our debt ratings on review for possible
further downgrade. See "Item 3. Key Information -- Risk Factors -- S&P and
Moody's have downgraded our credit ratings and our credit ratings may be
downgraded further. These downgrades may make it more difficult and expensive
for us to finance our operations."

CREDIT RISK

     Financial instruments are subject to the risk that counterparties may be
unable to meet their contractual commitments. Investments in financial
instruments, including short-term investments of excess cash, long-term
investments in debt securities and loans receivable, as well as the use of
derivative instruments, are centrally managed by the Treasury, and are limited
to such counterparties and amounts as are approved by our Board of Directors.

     The credit risk with respect to our trade receivables is diversified among
a large number of customers, both private individuals and companies in various
industries. Exposure to credit loss and subscriber fraud is actively monitored
on a daily basis. Our credit monitoring includes processing current credit
information on subscribers from third-party sources. Bad debt expense in
relation to consolidated revenues was 0.4 percent, 0.3 percent and 0.3 percent
in 1998, 1999 and 2000, respectively.

                                       178
<PAGE>   192

FAIR VALUES OF DERIVATIVE FINANCIAL INSTRUMENTS

     The following table presents the carrying values and fair values for
derivative financial instruments, using exchange and interest rates current at
the indicated balance sheet date. While the contract amounts presented for
derivative instruments illustrate the scope of our hedging activities, they do
not necessarily represent amounts exchanged by the parties and, when considered
separately, are not a measure of our risk exposure.
<TABLE>
<CAPTION>
                                       AS OF DECEMBER 31, 1998                  AS OF DECEMBER 31, 1999
                                --------------------------------------   --------------------------------------
                                CONTRACT   CARRYING   FAIR    AVERAGE    CONTRACT   CARRYING   FAIR    AVERAGE
                                 AMOUNT     VALUE     VALUE   MATURITY    AMOUNT     VALUE     VALUE   MATURITY
                                --------   --------   -----   --------   --------   --------   -----   --------
                                      (IN E MILLIONS)         (MONTHS)         (IN E MILLIONS)         (MONTHS)
<S>                             <C>        <C>        <C>     <C>        <C>        <C>        <C>     <C>
Forward selling of foreign
  exchange
  USD.........................     39         --       (2)        2         43         (2)       (2)       2
  SEK.........................      1         --       --        --         19         --        --        5
  HKD.........................     14         --       --        --         --         --        --       --
  GBP.........................
  NOK.........................
Other currencies..............      1         --       --        --         --         --        --       --
Forward buying of foreign
  exchange
  USD.........................     --         --       --        --         61          3         2        2
  DEM.........................    576         --       --        --         --         --        --       --
  ECU.........................    194         (1)      --        --         --         --        --       --
  SEK.........................
Currency swaps -- sell
  SEK.........................      2         --       --         1         --         --        --       --
Interest rate swaps
  Euribor.....................    244         --       (3)       32        604          7       (15)      69
Purchased interest rate
  options Cap options,
  Euribor.....................     --         --       --        --        120          1         3       38

<CAPTION>
                                       AS OF DECEMBER 31, 2000
                                --------------------------------------
                                CONTRACT   CARRYING   FAIR    AVERAGE
                                 AMOUNT     VALUE     VALUE   MATURITY
                                --------   --------   -----   --------
                                      (IN E MILLIONS)         (MONTHS)
<S>                             <C>        <C>        <C>     <C>
Forward selling of foreign
  exchange
  USD.........................      50         3         4        3
  SEK.........................      48         1         1        3
  HKD.........................      --        --        --       --
  GBP.........................      17        --        --        5
  NOK.........................      16        --        --        1
Other currencies..............       9        --        --        6
Forward buying of foreign
  exchange
  USD.........................     125       (12)      (14)       3
  DEM.........................
  ECU.........................
  SEK.........................       3        --        --        1
Currency swaps -- sell
  SEK.........................                                   --
Interest rate swaps
  Euribor.....................   2,103        36        36       48
Purchased interest rate
  options Cap options,
  Euribor.....................     200         1         1       24
</TABLE>

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

For the carrying values and fair values of derivative instruments, a positive
value represents receivable and a negative value represents liability.

ITEM 12.  DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES.

     Not Applicable.

                                       179
<PAGE>   193

                                    PART II

ITEM 13.  DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES.

     None.

ITEM 14.  MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
          PROCEEDS.

     Not applicable.

ITEM 15.  RESERVED

     Not applicable.

ITEM 16.  RESERVED

     Not applicable.

                                    PART III

ITEM 17.  FINANCIAL STATEMENTS.

     Not applicable.

ITEM 18.  FINANCIAL STATEMENTS.

     See pages F-1 through F-147, incorporated herein by reference.

ITEM 19.  EXHIBITS.

     Documents filed as exhibits to this annual report.

1.1 Memorandum and Articles of Association of Sonera Corporation as amended to
     date (English translation included).

4.1 Shareholders' Agreement, dated as of August 16, 2000, between Telefonica
     International SA and Sonera 3G Holding B.V. regarding the corporate
     governance and administration of Marabu (Group 3G GmbH).

4.2 Stockholders' Agreement, dated as of July 23, 2000, among Sonera Holding
     B.V., Sonera Corporation and Deutsche Telekom, relating to Sonera's
     shareholding in VoiceStream.

4.3 Stockholders' Agreement, dated as of August 26, 2000, among Sonera Holding
     B.V., Sonera Corporation and Deutsche Telekom, relating to Sonera's
     shareholding in Powertel.

4.4 E3,250,000,000 Term Loan Facility Agreement among Sonera Corporation and
     Citibank, N.A., Deutsche Bank AG London, Dresdner Bank AG London Branch,
     J.P. Morgan Securities Ltd. and Merita Bank PLC with Dresdner Bank AG
     London Branch acting as Agent, dated October 31, 2000.

4.5 E1,330,000,000 Term Loan Facility Agreement among Sonera Corporation and
     Citibank, N.A., Deutsche Bank AG London, Dresdner Bank AG London Branch,
     J.P. Morgan plc and Merita Bank PLC with Citibank International plc, acting
     as Agent, dated June 15, 2001.

8.1 Significant subsidiaries as of the end of the year covered by this annual
     report: See "Item 4. Information on the Company -- Description of Group
     Operations -- Significant Subsidiaries."

                                       180
<PAGE>   194

                                   SIGNATURES

     Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant certifies that it meets all of the requirements for
filing on Form 20-F and has duly caused this Annual Report to be signed on its
behalf by the undersigned, thereunto duly authorized.

Date: June 29, 2001
                                          SONERA CORPORATION

                                                  /s/ KAJ-ERIK RELANDER
                                          By:
                                          --------------------------------------

                                            Name: Kaj-Erik Relander
                                            Title: President and Chief Executive
                                              Officer

                                                     /s/ AIMO ELOHOLMA
                                            By:
                                            ------------------------------------

                                              Name: Aimo Eloholma
                                              Title: Deputy Chief Executive
                                                Officer

                                       181
<PAGE>   195

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                              PAGE
                                                              -----
<S>                                                           <C>
CONSOLIDATED FINANCIAL STATEMENTS OF SONERA CORPORATION AND
  SUBSIDIARIES..............................................  F-2
  Report of Independent Accountants.........................  F-3
  Consolidated Income Statements............................  F-4
  Consolidated Balance Sheets...............................  F-5
  Consolidated Statements of Cash Flows.....................  F-7
  Notes to Consolidated Financial Statements................  F-8
  Unaudited Condensed Consolidated Interim Financial
     Statements.............................................  F-77
CONSOLIDATED FINANCIAL STATEMENTS OF TURKCELL ILETISIM
  HIZMETLERI ANONIM SIRKETI AND
  ITS SUBSIDIARIES..........................................  F-84
  Independent Auditors' Report..............................  F-85
  Consolidated Balance Sheets...............................  F-86
  Consolidated Statements of Operations.....................  F-87
  Consolidated Statements of Changes in Shareholders' Equity
     and Comprehensive Income...............................  F-88
  Consolidated Statements of Cash Flows.....................  F-89
  Notes to Consolidated Financial Statements................  F-90
CONSOLIDATED FINANCIAL STATEMENTS OF ORLA SIEBZEHNTE
  VERMOGENSVERWALTUNG GMBH
  (A DEVELOPMENT STAGE COMPANY) AND ITS SUBSIDIARIES........  F-136
  Report of Independent Public Accountants..................  F-137
  Consolidated Balance Sheet................................  F-138
  Consolidated Statement of Operations......................  F-139
  Consolidated Statement of Shareholders' Equity............  F-140
  Consolidated Statement of Cash Flows......................  F-141
  Notes to Consolidated Financial Statements................  F-142
</TABLE>

                                       F-1
<PAGE>   196

                       CONSOLIDATED FINANCIAL STATEMENTS
                     OF SONERA CORPORATION AND SUBSIDIARIES
                         AS OF AND FOR THE YEARS ENDED
                        DECEMBER 31, 1998, 1999 AND 2000

                                       F-2
<PAGE>   197

                       REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors of Sonera Corporation

     We have audited the consolidated balance sheets of Sonera Corporation and
subsidiaries as of December 31, 1998, 1999 and 2000, and the related
consolidated statements of income and cash flows for the years then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.

     We conducted our audit in accordance with auditing standards generally
accepted in Finland and the United States of America. Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit also
includes examining, on a test basis, amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

     In our opinion, the consolidated financial statements present fairly, in
all material respects, the financial position of Sonera Corporation and
subsidiaries as of December 31, 1998, 1999 and 2000, and the results of their
operations and their cash flows for the three years then ended in conformity
with generally accepted accounting principles in Finland.

     Generally accepted accounting principles in Finland vary in certain
significant respects from generally accepted accounting principles in the United
States. Application of generally accepted accounting principles in the United
States would have affected results of operations for the years ended December
31, 1998, 1999 and 2000, and shareholders' equity as of December 31, 1998, 1999
and 2000, to the extent summarized in Note 21 to the consolidated financial
statements.

Helsinki, Finland
February 26, 2001 (except for Notes 12 and 21
as to which the date is June 14, 2001)

KPMG WIDERI OY AB

Solveig Tornroos-Huhtamaki
Authorized Public Accountant

                                       F-3
<PAGE>   198

                      SONERA CORPORATION AND SUBSIDIARIES

                         CONSOLIDATED INCOME STATEMENTS

<TABLE>
<CAPTION>
                                                                    YEAR ENDED DECEMBER 31,
                                                                 -----------------------------
                                                         NOTE     1998       1999       2000
                                                         ----    -------    -------    -------
                                                                    E          E          E
                                                                  (IN MILLIONS, EXCEPT SHARES
                                                                    AND PER SHARE AMOUNTS)
<S>                                                      <C>     <C>        <C>        <C>
REVENUES...............................................  (19)      1,623      1,849      2,057
Other operating income.................................   (2)         24         45      1,589
Operating expenses:....................................   (3)
  Cost of sold equipment and materials.................             (116)      (142)      (160)
  Services bought......................................             (367)      (431)      (511)
  Personnel expenses...................................             (309)      (340)      (445)
  Rental expenses......................................              (40)       (47)       (65)
  Other operating expenses.............................             (228)      (266)      (418)
                                                                 -------    -------    -------
     Total operating expenses..........................           (1,060)    (1,226)    (1,599)
Depreciation and amortization..........................   (4)       (261)      (281)      (299)
Write-downs on fixed assets............................   (4)        (37)        --         --
                                                                 -------    -------    -------
OPERATING PROFIT.......................................              289        387      1,748
Equity income in associated companies..................  (10)         59        110        121
Financial income and expenses..........................   (5)         (2)        --         (9)
                                                                 -------    -------    -------
PROFIT BEFORE INCOME TAXES, MINORITY INTEREST AND
  EXTRAORDINARY ITEMS..................................              346        497      1,860
Income taxes...........................................   (6)        (94)      (126)      (318)
Minority interest......................................               (1)        (1)        (1)
                                                                 -------    -------    -------
PROFIT BEFORE EXTRAORDINARY ITEMS......................              251        370      1,541
Cumulative effect of accounting changes, net of income
  taxes................................................   (7)         --         --        (35)
                                                                 -------    -------    -------
NET INCOME.............................................              251        370      1,506
                                                                 =======    =======    =======
EARNINGS PER SHARE, BEFORE EXTRAORDINARY ITEMS.........             0.35       0.51       2.09
                                                                 =======    =======    =======
Cumulative effect of accounting changes, net of income
  taxes................................................               --         --      (0.04)
                                                                 -------    -------    -------
EARNINGS PER SHARE.....................................   (8)       0.35       0.51       2.05
                                                                 =======    =======    =======
Average number of shares (1,000).......................          720,247    722,000    735,917
                                                                 =======    =======    =======
Cash dividends per share...............................             0.18       0.08       0.12
                                                                 =======    =======    =======
</TABLE>

  The accompanying notes are an integral part of these Consolidated Financial
                                  Statements.

                                       F-4
<PAGE>   199

                      SONERA CORPORATION AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                        AS OF DECEMBER 31,
                                                                      -----------------------
                                                              NOTE    1998     1999     2000
                                                              ----    -----    -----    -----
                                                                        E        E        E
                                                                           (IN MILLIONS)
<S>                                                           <C>     <C>      <C>      <C>
ASSETS
FIXED ASSETS AND OTHER LONG-TERM INVESTMENTS................   (9)
Intangible assets...........................................             53       69      116
Property, plant and equipment
  Land......................................................             15       17       20
  Buildings.................................................            125      114      121
  Machinery and equipment...................................             70       95      119
  Telecommunications networks...............................            835      858      848
  Other tangible assets.....................................             32       45       54
  Advances paid and construction in progress................             46       30      103
                                                                      -----    -----    -----
                                                                      1,123    1,159    1,265
Long-term investments and receivables
  Investments in associated companies.......................  (10)    1,148    1,637    2,367
  Other shares and holdings.................................  (20)       54      154    2,370
  Long-term loans receivable................................             29       35       42
                                                                      -----    -----    -----
                                                                      1,231    1,826    4,779
                                                                      -----    -----    -----
  TOTAL FIXED ASSETS AND OTHER LONG-TERM INVESTMENTS........          2,407    3,054    6,160
                                                                      -----    -----    -----
CURRENT ASSETS
Inventories.................................................             22       36       40
Receivables
  Trade accounts receivable.................................            271      335      413
  Loans receivable..........................................              1       19    2,817
  Prepaid expenses and accrued income.......................             16       42      154
  Other receivables.........................................              4        8       34
                                                                      -----    -----    -----
                                                                        292      404    3,418
Cash and short-term investments
  Short-term investments....................................             36       77       68
  Cash and cash equivalents.................................             57       38       88
                                                                      -----    -----    -----
                                                                         93      115      156
                                                                      -----    -----    -----
  TOTAL CURRENT ASSETS......................................            407      555    3,614
                                                                      -----    -----    -----
TOTAL ASSETS................................................          2,814    3,609    9,774
                                                                      =====    =====    =====
</TABLE>

  The accompanying notes are an integral part of these Consolidated Financial
                                  Statements.

                                       F-5
<PAGE>   200

                      SONERA CORPORATION AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                        AS OF DECEMBER 31,
                                                                      -----------------------
                                                              NOTE    1998     1999     2000
                                                              ----    -----    -----    -----
                                                                        E        E        E
                                                                           (IN MILLIONS)
<S>                                                           <C>     <C>      <C>      <C>
SHAREHOLDERS' EQUITY AND LIABILITIES
SHAREHOLDERS' EQUITY........................................  (11)
Share capital...............................................            304      310      320
Share premium fund..........................................             13       13       14
Treasury shares.............................................             --       --      (28)
Additional paid-in capital..................................            511      505      505
Accumulated currency translation adjustment.................            (12)      55       85
Retained earnings...........................................            357      548      831
Net income for the year.....................................            251      370    1,506
                                                                      -----    -----    -----
                                                                      1,424    1,801    3,233
MINORITY INTEREST...........................................             12       14       16
                                                                      -----    -----    -----
  TOTAL SHAREHOLDERS' EQUITY AND MINORITY INTEREST..........          1,436    1,815    3,249
                                                                      -----    -----    -----
NON-CURRENT LIABILITIES
Long-term debt..............................................  (12)      788    1,124    1,842
Deferred tax liability......................................   (6)       76       95      139
Other long-term liabilities.................................  (13)       15       20       32
                                                                      -----    -----    -----
                                                                        879    1,239    2,013
CURRENT LIABILITIES
Current debt................................................  (12)      135      172    3,848
Current portion of long-term debt...........................  (12)       --       --      107
Advances received...........................................             16       11       15
Trade accounts payable......................................            187      194      298
Accrued expenses and prepaid income.........................            158      172      215
Other current liabilities...................................              3        6       29
                                                                      -----    -----    -----
                                                                        499      555    4,512
                                                                      -----    -----    -----
  TOTAL LIABILITIES.........................................          1,378    1,794    6,525
                                                                      -----    -----    -----
TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES..................          2,814    3,609    9,774
                                                                      =====    =====    =====
</TABLE>

  The accompanying notes are an integral part of these Consolidated Financial
                                  Statements.

                                       F-6
<PAGE>   201

                      SONERA CORPORATION AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                               YEAR ENDED DECEMBER 31,
                                                               ------------------------
                                                                1998     1999     2000
                                                               ------    ----    ------
                                                                 E        E        E
                                                                    (IN MILLIONS)
<S>                                                            <C>       <C>     <C>
OPERATING ACTIVITIES
Net income..................................................      251     370     1,506
Depreciation, amortization and write-downs on fixed
  assets....................................................      298     281       299
Gain from Aerial/VoiceStream merger.........................       --      --      (835)
Gain from sale of Turkcell shares...........................       --      --      (680)
Net loss (gain) on disposal of fixed assets and business
  operations................................................        4     (24)      (35)
Equity income in associated companies.......................      (59)   (110)     (121)
Dividends received from associated companies................        9      14        30
Deferred taxes..............................................       18      18        41
Effect of accounting changes................................       --      --        35
Other adjustments to cash...................................       (4)    (28)       (8)
Change in working capital, net of acquisitions and disposals
  Decrease in inventories...................................       (7)    (14)       (3)
  Increase in non-interest bearing receivables..............      (43)   (108)     (190)
  Increase in non-interest bearing liabilities..............       41      43       188
                                                               ------    ----    ------
CASH PROVIDED BY OPERATING ACTIVITIES.......................      508     442       227
INVESTING ACTIVITIES
Capital expenditures........................................     (351)   (338)     (430)
Acquisitions of subsidiaries, net of cash acquired..........       (2)     (9)      (20)
Investments in associated companies.........................     (860)   (266)   (1,195)
Investments in other shares and holdings....................      (36)   (135)     (902)
Proceeds from sale of fixed assets..........................       12       7         1
Proceeds from sale of subsidiaries, net of cash disposed....       --       2         9
Proceeds from sale of associated companies..................        3       2       770
Proceeds from sale of other shares and holdings.............       --      10         6
Decrease (increase) in long-term loans receivable...........        4      (1)       (4)
Decrease (increase) in current loans receivable.............       38      (2)   (2,815)
Decrease (increase) in short-term investments...............       66     (41)        8
                                                               ------    ----    ------
CASH USED IN INVESTING ACTIVITIES...........................   (1,126)   (771)   (4,572)
FINANCING ACTIVITIES
Withdrawals of long-term debt...............................      617     545     1,004
Repayments of long-term debt................................       --    (210)     (179)
Increase in current debt....................................      133      35     3,684
Equity issue................................................       14      --        --
Dividends paid..............................................     (132)    (61)      (87)
Repurchase of shares........................................       --      --       (28)
                                                               ------    ----    ------
CASH PROVIDED BY FINANCING ACTIVITIES.......................      632     309     4,394
Effect of exchange rate changes on cash and cash
  equivalents...............................................       (1)      1         1
                                                               ------    ----    ------
Net increase (decrease) in cash and cash equivalents........       13     (19)       50
Cash and cash equivalents at beginning of year..............       44      57        38
                                                               ------    ----    ------
CASH AND CASH EQUIVALENTS AT END OF YEAR....................       57      38        88
                                                               ======    ====    ======
</TABLE>

  The accompanying notes are an integral part of these Consolidated Financial
                                  Statements.

                                       F-7
<PAGE>   202

                      SONERA CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ACCOUNTING POLICIES

DESCRIPTION OF BUSINESS

     Sonera Corporation (the "Parent Company") and its subsidiaries (together,
"Sonera", the "Company" or the "Group") provide a wide range of
telecommunication services to residential and business customers, primarily in
Finland. Sonera's major lines of business include mobile communications
services, media communications and new services, fixed network domestic and
international voice and data services, equipment sales, construction and
maintenance services, and certain other services relating to the Group's
operations. Sonera currently generates approximately 95 percent of its
consolidated revenues from sales to customers in Finland. Sonera has also
significant minority shareholdings in mobile and fixed network
telecommunications operators abroad.

BASIS OF PRESENTATION

     The Consolidated Financial Statements include the financial statements of
Sonera Corporation and its subsidiaries. The predecessor entity of Sonera
Corporation was incorporated under the name of Telecom Finland Ltd on January 1,
1994, when the operations of Posts and Telecommunications of Finland, the
Finnish national postal and telecommunications authority, were separated into
Telecom Finland Ltd and Finland Post Ltd. Both companies were wholly-owned
subsidiaries of the state-owned management holding company PT Finland Ltd. On
July 1, 1998, PT Finland Ltd demerged into two state-owned management holding
companies, Sonera Group plc and Finland Post Group Ltd (the "Demerger"). On
September 30, 1999, Sonera Group plc was merged with its principal operating
subsidiary Sonera Ltd, and was renamed Sonera Corporation.

     The Consolidated Financial Statements for the year ended December 31, 1998
have been prepared by separating the telecommunications related businesses from
the audited consolidated financial statements of PT Finland Ltd, and presenting
the results of operations, financial position and cash flows of such businesses
as if they had formed a separately reporting consolidated group with the same
structure as that of Sonera subsequent to the Demerger, already during the first
six months of 1998. The accompanying Consolidated Income Statement for the year
ended December 31, 1998 includes allocations of certain corporate costs and
expenses of PT Finland Ltd. Although such costs may not necessarily be
indicative of the costs that would have been incurred by Sonera on a stand-alone
basis, management believes that the resulting amounts are reasonable.

     The Consolidated Financial Statements have been prepared in accordance with
Finnish generally accepted accounting principles ("Finnish GAAP"), as stipulated
in the Finnish Accounting Act 1336/1997. Finnish GAAP and accounting principles
adopted by Sonera differ in certain respects from accounting principles
generally accepted in the United States ("U.S. GAAP"). See Note 21 to the
Consolidated Financial Statements for a discussion of the principal differences
between Finnish GAAP and U.S. GAAP that would affect Sonera's consolidated net
income and shareholders' equity if U.S. GAAP had been applied instead of Finnish
GAAP in the preparation of the Consolidated Financial Statements.

     The Consolidated Financial Statements are presented in millions of euros,
except for share and per share amounts. The Consolidated Financial Statements
for the year ended December 31, 1998 were prepared in Finnish markka ("FIM"),
and have been restated into euros using the fixed exchange rate effective as of
January 1, 1999 which was E1.00 = FIM 5.94573. The Consolidated Financial
Statements for all periods presented depict the same trends as would have been
presented if the Company had continued to present consolidated financial
statements in FIM. However, the Consolidated Financial Statements of the Company
for periods prior to January 1, 1999 are not comparable to the financial
statements of other companies that currently report in euros and that have
restated their financial statements from a currency other than FIM.

     The Consolidated Financial Statements are prepared under the historical
cost convention. Estimates and assumptions used by management in preparing these
Consolidated Financial Statements were determined using the most recent and
accurate information available. Actual results could differ from those
estimates.

                                       F-8
<PAGE>   203
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. ACCOUNTING POLICIES (CONTINUED)

PRINCIPLES OF CONSOLIDATION

     The Consolidated Financial Statements include the accounts of Sonera
Corporation and those companies in which it holds, directly or indirectly
through subsidiaries, over 50 percent of the shares and voting rights.

     The companies acquired or established during the financial period have been
consolidated from the month of acquisition or formation. The companies disposed
of during the financial period have been consolidated up to the month of
disposal.

     All intercompany transactions and balances are eliminated as part of the
consolidation process. Minority interests in earnings and shareholders' equity
are presented separately in the income statement and balance sheet.

     Acquisitions of companies are accounted for by using the purchase method.
The cost of acquired shares is allocated to the fair values of acquired assets
and liabilities. The remaining difference is carried as goodwill on
consolidation and amortized over its estimated useful life, generally not
exceeding ten years.

     In April 2000, Sonera acquired all shares in Across Holding AB of Sweden.
Sonera paid for the acquisition by issuing 16,732,055 new shares to the sellers.
In June 2000, Sonera acquired all shares in iD2 Holding AB of Sweden. The
acquisition was paid for by issuing 4,802,431 new shares. Sonera has recorded
both transactions in accordance with the interpretation No. 1591/199 by the
Finnish Accounting Board. Therefore, under Finnish GAAP, Sonera has not recorded
goodwill from these acquisitions.

     The total number of shares issued in connection with Across and iD2
acquisitions was 21,534,486 and the fair value of shares issued, based on the
time of issuance, totaled E1,147 million. If fair value had been used to record
the transactions, Sonera would have recorded goodwill and a corresponding
increase in share premium fund totaling E1,136 million. Assuming a five-year
amortization period for goodwill, Sonera would have recorded amortization of
goodwill of E148 million for the year ended December 31, 2000.

     Earnings in companies in which Sonera has significant influence (associated
companies) are included in the consolidated accounts in accordance with the
equity method of accounting. Generally, Sonera is considered to have significant
influence when it holds 20 to 50 percent of the shares and voting rights.
Additionally, Aerial Communications, Inc. was treated earlier as an associated
company, even though Sonera's ownership was under 20 percent since Sonera had
significant influence in the company and had a right to increase its interest in
the company to 20 percent, at Sonera's option. In May 2000, Aerial merged with
VoiceStream Wireless Corporation, after which Sonera does not treat the merged
entity as an associated company. Any goodwill arising from the acquisition of
shares in associated companies is included in the carrying value of investments
in associated companies and amortized over estimated useful life, generally not
exceeding ten years.

     Shareholdings which are not treated as subsidiaries or associated companies
are carried at cost or at a written-down amount, and only dividends received are
included in the consolidated income statement.

FOREIGN CURRENCY TRANSLATION

     Transactions in foreign currencies are recorded at the rates of exchange
prevailing at the date of transaction. At the end of the accounting period,
unsettled foreign currency balances are translated at the closing rate on the
balance sheet date. Foreign exchange gains and losses on trade accounts
receivable and payable are credited or charged to revenues and operating
expenses, respectively. In relation to revenues and operating expenses, these
exchange gains and losses are insignificant. Other foreign exchange gains and
losses are recorded as financial income and expenses.

     All receivables and payables on December 31, 1998, which were denominated
in currencies of the euro zone were translated into Finnish markka at the fixed
exchange rates effective as of January 1, 1999, and the resulting exchange gains
and losses were recognized as realized gains and losses for the year ended
December 31, 1998.

                                       F-9
<PAGE>   204
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. ACCOUNTING POLICIES (CONTINUED)

     The income statements of foreign subsidiaries are translated at the average
exchange rates for the accounting period, and the balance sheets are translated
at the closing rate at the balance sheet date.

     All translation differences arising from the consolidation of foreign
subsidiaries and associated companies are credited or charged directly to
retained earnings.

DERIVATIVE FINANCIAL INSTRUMENTS

     The business operations of Sonera give rise to certain exposure to risks
related to interest rates and foreign currency. These risks are managed to
minimize their impact on Sonera's profitability and financial position.

     Sonera considers its derivative financial instruments to be hedging
instruments when certain criteria are met:

     -  For an interest rate derivative instrument to qualify as a hedge, the
        instrument must

       (a)   relate to an asset or a liability, or to a portfolio of assets and
             liabilities; and

       (b)   change the character of the interest rate by converting variable
             rate to a fixed rate or by converting fixed rate to a variable
             rate.

     -  For a foreign currency derivative instrument to qualify as a hedge, the
        instrument must

       (a)   be related to a foreign currency asset, liability or firm
             commitment, or a portfolio of assets, liabilities and firm
             commitments, the characteristics of which have been identified;

       (b)   involve the same currency as the hedged item; and

       (c)   reduce the risk of foreign currency exchange movements on Sonera's
             operations.

     Derivative financial instruments are not used for speculative purposes.

Interest rate swaps

     Interest rate swap agreements that are designated as hedges of a debt
obligation are accounted for on an accrual basis. That is, the interest payable
and interest receivable under the swap terms are accrued and recorded as an
adjustment to the interest expense of the designated liability.

     Amounts due from and payable to the counterparties of interest rate swaps
are recorded on an accrual basis at each reporting date based on amounts
computed by reference to the respective interest rate swap contract. Realized
gains and losses that occur from the early termination or expiration of
contracts are recorded in income over the remaining period of the original swap
agreement.

Forward exchange contracts and currency swaps

     Gains and losses on forward exchange contracts and currency swaps that are
designated and effective as hedges of firm commitments are deferred and
recognized in income or as adjustments of carrying amounts when the hedged
transaction occurs. The interest component determined at the inception of
contracts is accrued as interest income or expense over the contract term.

Interest rate and foreign currency options

     Gains and losses on interest rate and foreign currency options that are
designated and effective as hedges of firm commitments are deferred and
recognized in income or as adjustments of carrying amounts when the hedged
transaction occurs. Option premiums are recorded as an asset or liability and
amortized over the life of the option.

                                       F-10
<PAGE>   205
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. ACCOUNTING POLICIES (CONTINUED)

FIXED ASSETS AND OTHER LONG-TERM INVESTMENTS

     The balance sheet values of fixed assets are stated at historical cost,
less accumulated depreciation and amortization. Construction costs include
directly allocable costs and an appropriate allocation of material and
production overheads. Production overhead does not include general and
administrative expenses.

     Starting from the year ended December 31, 2000, interest expenses related
to construction in progress are capitalized on fixed assets and charged to
expense in coming years as a part of depreciation on fixed assets. The
cumulative effect of the change in accounting practice, E6 million (net of
deferred tax effect of E2 million), was recorded for the year ended December 31,
2000. Prior year financial statements have not been restated.

     The cost of assets received from Posts and Telecommunications of Finland
upon the incorporation of Telecom Finland Ltd on January 1, 1994 was equal to
the carrying value of transferred assets on the December 31, 1993 balance sheet
of the former government authority. The carrying values of assets transferred
did not exceed fair values of those assets on January 1, 1994.

     Depreciation and amortization is calculated on a straight-line basis over
the expected useful lives of the assets, except for land, which is not
depreciated. Estimated useful lives for various assets are:

<TABLE>
<S>                                                 <C>
Intangible rights...............................     3 - 10 years
Goodwill........................................     5 - 10 years
Other intangible assets.........................     3 - 10 years
Buildings.......................................    15 - 40 years
Machinery and equipment.........................     3 - 13 years
Telecommunications networks.....................     4 - 20 years
Other tangible assets...........................     3 - 10 years
</TABLE>

     Sonera reviews its fixed assets and long-term investments for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable, in which case the Company estimates the future
cash flows expected to result from the use of the asset and its eventual
disposition. If the sum of the expected future cash flows, on an undiscounted
basis, is less than the carrying amount of the asset, a write-down is recognized
in an amount by which the asset's carrying value exceeds the sum of the expected
future cash flows.

     Long-term investments and receivables include financial assets which are
intended to be held for over one year. Marketable equity securities are stated
at cost, or at lower market value if the impairment in value is deemed to be
permanent. Marketable debt securities are stated at cost when intended to be
held to maturity, or at the lower of cost or market when available for sale.

LEASED ASSETS

     Sonera leases certain equipment to its customers under capital lease terms.
These lease transactions are accounted for as a sale of asset and an incurrence
of an interest-bearing receivable. Sonera considers a lease agreement to qualify
as a capital lease when one or more of the following criteria are met:

     (a)   the lease term is equal to 75 percent or more of the estimated
           economic life of the leased equipment;

     (b)   the present value at the beginning of the lease term of the minimum
           lease payments is 90 percent or more of the fair value of the leased
           equipment;

     (c)   the lease contains a bargain purchase option; or

     (d)   the lease transfers ownership of the equipment to the lessee by the
           end of the lease term.

                                       F-11
<PAGE>   206
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. ACCOUNTING POLICIES (CONTINUED)

     Sonera does not currently hold any significant assets under capital lease
terms. Assets held under operating leases are not recorded on the balance sheet,
and the lease payments are charged to income as incurred.

INVENTORIES

     Inventories are stated at the lower of cost or net realizable value. Cost
is determined either using the first-in, first-out method or the average cost
method.

PREPAID/ACCRUED EXPENSES AND INCOME

     Prepaid expenses and accrued income mainly consist of accrued interest
income and financial fee income. Accrued expenses and prepaid income mainly
consist of accrued interest, income tax and payroll-related expenses.

CASH AND SHORT-TERM INVESTMENTS

     Cash and cash equivalents include cash on hand, cash in banks and in time
deposits with a maturity of less than three months, as well as other highly
liquid funds equivalent to cash money, with a maturity of less than three
months.

     Short-term investments include equity securities as well as time deposits
and other debt securities for which the intended holding period generally is
less than one year. Marketable debt and equity securities are stated at the
lower of cost or market.

REVENUES

     Revenues include revenue from services and goods sold, adjusted for
discounts granted, sales-related taxes and the effects of foreign exchange rate
differences.

     Revenues from connection charges (including the price of SIM cards) that
are received from the sale of new subscriptions are recognized at the time of
sale to the extent of direct costs incurred. Direct costs incurred in connection
with mobile connection revenues consist primarily of the first payment of
distributor commission, costs for credit check, cost of the SIM card, and the
cost of the printed new customer information package. For the fixed line
connection revenues, the direct costs consist primarily of installation work and
the cost of a printed telephone directory given to each new subscriber. To date
direct costs associated with connection fees (including the price of SIM cards)
have exceeded such revenues. Therefore, no connection revenues have been
deferred.

     Revenues from monthly subscription charges are recognized for the month
that they relate to. Traffic revenues and interconnection revenues are
recognized based on actual traffic.

     Other revenues are recognized when services are rendered, or when goods are
delivered to the customer, and the earnings process is complete. Sonera has no
significant long-term contract deliveries.

RESEARCH AND DEVELOPMENT

     All costs relating to research and development activities are expensed as
incurred. Research and development expenditure was approximately E52 million,
E64 million and E70 million for the years ended December 31, 1998, 1999 and
2000, respectively.

MAINTENANCE, REPAIRS AND RENEWALS

     Maintenance and repair costs are expensed as incurred. Costs from any major
improvement or renovation that extend the useful life of an asset are
capitalized as part of the carrying value of the asset. Costs from

                                       F-12
<PAGE>   207
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. ACCOUNTING POLICIES (CONTINUED)

leasehold improvements of rental premises are capitalized as intangible assets
and amortized over 10 years or, if shorter, over the lease term.

PENSION PLANS AND COVERAGE OF PENSION LIABILITIES

     The statutory pension benefits as well as certain additional pension
benefits for most of the personnel in Finland are funded through the PT Pension
Fund. Sonera is responsible for ensuring that its pension liabilities are
sufficiently funded at all times. On December 31, 2000, both statutory and
additional pension benefits were fully funded. Under the Finnish regulations,
the funding requirements are based on book value, not fair value, of the assets
held by the pension fund.

     Sonera makes monthly contributions to the PT Pension Fund at the end of
each month and records those contributions as expenses. Other than amounts
accrued for the next contribution payable, Sonera does not record liabilities
for pensions as the Company has transferred all such funds to the PT Pension
Fund.

     The PT Pension Fund is a multi-employer plan, established to fund pension
obligations of Sonera and Finland Post Group. Even though Sonera and Finland
Post do not have a common parent company after the Demerger on July 1, 1998,
there are no legal requirements for dividing the PT Pension Fund in two as long
as the Finnish State holds at least 50 percent of all shares in both companies.
However, Sonera and Finland Post are currently planning to divide the PT Pension
Fund in two. Since the split-up would result in the separation of plan assets in
relation to the respective shares of total liabilities, management estimates
that the split-up would not significantly change Sonera's pension obligations
and the funding status of those obligations. The PT Pension Fund has received an
advance ruling from the Finnish Central Tax Board, according to which the
split-up will not be considered a taxable transaction for the PT Pension Fund.

     The statutory pension liabilities of certain minor Finnish subsidiaries are
funded through pension insurance. Subsidiaries outside Finland have various
pension schemes in accordance with the local requirements and practices. The
schemes are generally funded through payments to insurance companies.

     As of December 31, 2000, the Chairman of the Board of Directors, the
President of the Parent Company and three members of the Management Group had a
right to retire after the age of 60, at the statutory 60 percent total pension.
Additionally, one member of the Management Group had a right to retire after the
age of 60 at the total pension of 66 percent. These additional pension benefits
have been funded through a group pension insurance. There are no significant
exceptions from the normal practices in the pension benefits of Managing
Directors of subsidiaries. However, certain Managing Directors have a right to
retire at the age of 63 to 64, based on the additional pension benefit
arrangement related to the departure from the Finnish State pension plan. These
additional pension benefits have been funded through the PT Pension Fund.

COMMISSIONS PAID TO DISTRIBUTORS

     Sonera pays the distributors of Sonera's mobile subscriptions a sign-up
commission per subscription. The commission received by the distributor is
divided into five payments, the timing of which are dependent, among other
things, on the accumulated traffic produced by the new subscriber and on the
timely payment of monthly subscription charges of the new subscriber.

     The first payment of commission is a fixed amount and is earned by the
distributor at the time of sale of a new subscription, and is charged to expense
accordingly.

     The second, third and fourth payments of commission are also fixed amounts.
However, they are earned by the distributor at specific points in time if the
subscription remains active. The expense for these payments is accrued ratably
over such periods of time.

                                       F-13
<PAGE>   208
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. ACCOUNTING POLICIES (CONTINUED)

     The fifth payment of commission is a fixed amount that is earned by the
distributor if a specific accumulation of traffic by the subscriber is achieved.
The fifth payment is accrued based on the actual traffic. If the accumulation of
traffic does not exceed the milestone the distributor receives no payment at
all.

     Once conditions for the payment have been met, amounts will be paid to the
distributor and are not subject to refund.

OTHER OPERATING INCOME AND EXPENSES

     Other operating income includes income from business activities outside
ordinary service production, such as rental income and gains from the sale of
fixed assets and other long-term investments, as well as fees charged on
collection of overdue receivables.

     Other operating expenses include expenses not directly related to the
production of services, such as expenses for marketing efforts, expenses for
research and development, and other expenses related to general administration.
Additionally, losses from the disposition of fixed assets and other long-term
investments are reported within other operating expenses.

     All advertising costs are expensed as incurred. Advertising expenses were
approximately E22 million, E37 million and E40 million for the years ended
December 31, 1998, 1999 and 2000, respectively.

PROVISIONS FOR CONTINGENT LOSSES

     Provisions are made for identified contingent losses of which the future
realization is probable and of which the amount can be reasonably estimated.
Provisions are reported as non-interest bearing liabilities in the balance
sheet. Sonera did not have any material provisions for contingent losses during
the years ended December 31, 1998, 1999 and 2000.

UNTAXED RESERVES

     In Finland and certain other countries, companies are allowed to reduce or
increase taxable income by charges or credits representing adjustments to
untaxed reserve accounts, provided that such amounts are reflected in the
company's financial statements and accumulated as untaxed reserves in the
balance sheet. The major part of Sonera's untaxed reserves relates to the
accumulated tax depreciation of telecommunications networks exceeding the
accumulated depreciation in financial statements.

     On consolidation, all allocations to untaxed reserves in the accounts of
individual Group companies are presented as retained earnings, net income and a
related deferred tax component on an aggregate basis. Under the Finnish
Companies Act, untaxed reserves presented as retained earnings are not included
when calculating the maximum amount of distributable funds.

INCOME TAXES

     Income taxes consist of current and deferred taxes. Current taxes in the
income statement include estimated taxes payable or refundable on tax returns
for the financial year, as well as adjustments to tax accruals related to
previous years.

     Deferred tax liabilities or assets are recognized for the future tax
consequences of events that have been recognized in financial statements or tax
returns, based on the tax laws and tax rates that have been enacted by the
balance sheet date. Deferred tax liabilities are recognized at their full
amounts, and deferred tax assets at estimated realizable amounts. The deferred
taxes in the income statement represent the net change during the year in
deferred tax liabilities and assets.

                                       F-14
<PAGE>   209
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. ACCOUNTING POLICIES (CONTINUED)

DIVIDENDS

     In Finland, dividends are generally only payable annually and only after
shareholder approval of the company's annual financial statements and of the
amount proposed by the board of directors.

     Dividends proposed by the Board of Directors have not been recorded as a
liability in the Consolidated Financial Statements. Only after the annual
general meeting has approved the annual financial statements and the amount of
dividends, the amount is deducted from retained earnings.

CONSOLIDATED STATEMENT OF CASH FLOWS

     The statement of cash flows presents the annual cash flows classified as
cash flows from operating, investing and financing activities, arriving at the
change in cash and cash equivalents for the period. The consolidated statement
of cash flows has been prepared in accordance with the indirect method by
adjusting net income to reconcile it with cash flow from operating activities.

2. OTHER OPERATING INCOME

     Other operating income consists of the following:

<TABLE>
<CAPTION>
                                                               YEAR ENDED DECEMBER 31,
                                                               ------------------------
                                                               1998     1999      2000
                                                               -----    -----    ------
                                                                   (IN E MILLIONS)
<S>                                                            <C>      <C>      <C>
Rental income...............................................      3        3         4
Gain from Aerial/VoiceStream merger(a)......................     --       --       835
Gains from sales of business operations and shares..........     --       --        --
  Belgian, Dutch and German voice businesses................      4       --        --
  P Plus Communications Limited (28.5% associated
     company)...............................................      1       --        --
  Mobicentrex business (100% subsidiary Abacus Solutions
     Oy)(b).................................................     --       15        --
  Axxon Telecom B.V. (40% associated company)...............     --        3        --
  Star Telecom International Holding Limited (4.5%).........     --        4        --
  Turkcell Iletisim Hizmetleri A.S. initial public
     offering(c)............................................     --       --       680
  HanseNet Telefongesellschaft mbH & Co. KG
     (associated company 50%)(d)............................     --       --        22
  Transmast Oy (associated company 40%)(e)..................     --       --        12
  Suomen Erillisverkot Oy (subsidiary)(f)...................     --       --        11
  Other gains from sales of business operations and
     shares.................................................     --        2         4
Gains from sales of fixed assets............................      2        1        --
Fees charged on collection of overdue receivables...........      9       11        13
Other items.................................................      5        6         8
                                                                ---      ---     -----
Total.......................................................     24       45     1,589
                                                                ===      ===     =====
</TABLE>

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

(a) On March 30, 2000, the United States Federal Communications Commission
    ("FCC") gave final approval to the merger of Aerial Communications, Inc.
    ("Aerial") with VoiceStream Wireless Corporation ("VoiceStream"). The merger
    was completed on May 4, 2000. After the merger and Sonera's earlier U.S.$500
    million investment in VoiceStream on February 28, 2000, Sonera's
    shareholding in VoiceStream was approximately 7.9 percent, on a fully
    diluted basis. Sonera discontinued accounting for Aerial under the equity
    method on the merger date, and Sonera's investment in VoiceStream is
    accounted for under the cost method. The cost basis of VoiceStream shares
    received in the merger is based on the fair value of the VoiceStream shares
    on the merger date. As a result, Sonera recorded a pre-tax non-cash gain of
    E835 million on the merger transaction for the second quarter of 2000. See
    also Note 22 to the Consolidated Financial Statements for unaudited
    subsequent events.

(b) In December 1999, Sonera sold its wholly-owned subsidiary Abacus Solutions
    Oy (Mobicentrex business), which is specialized in telephone exchange
    services for mobile communications, to the Swedish company Trio AB. In
    exchange for shares in Abacus Solutions
                                       F-15
<PAGE>   210
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. OTHER OPERATING INCOME (CONTINUED)

    Oy, Sonera received 21 percent of shares in Trio AB, and recorded a capital
    gain of E15 million on the transaction. Trio AB's share is quoted on the
    Stockholm Stock Exchange.

(c) In June-July 2000, the shareholders of Turkcell Iletisim Hizmetleri A.S.
    ("Turkcell") carried out an initial public offering of the company. Before
    the offering, Sonera purchased an additional interest of approximately 0.6
    percent in Turkcell, whereby Sonera's holding in the company was
    approximately 41.6 percent. In the offering, Sonera sold 10,246,468,483
    shares, which corresponds to approximately 10.3 percent of the Turkcell
    shares owned by Sonera prior to the offering. After the offering, Sonera
    holds approximately 37.3 percent in Turkcell. After the underwriting
    discount, Sonera's share of the sales proceeds from the offering totaled
    E735 million. Sonera recorded a gain of E680 million from the sale for the
    third quarter of 2000.

(d) In May 2000, Sonera sold its 50 percent holding in the German service
    provider HanseNet Telefongesellschaft mbH & Co. KG to the other partner of
    the joint venture. The gain from the transaction recorded for the second
    quarter of 2000 amounted to E22 million.

(e) In September 2000, Sonera sold to Fortum its 40 percent holding in Transmast
    Oy, which plans and installs mast structures and delivers base stations. A
    gain of E12 million was recorded for the third quarter of 2000.

(f)  In December 2000, Sonera sold 60 percent of its wholly owned subsidiary
     Suomen Erillisverkot Oy to the Finnish Ministry of Transport and
     Communications. Suomen Erillisverkot Oy has in its balance sheet the assets
     relating to closed radio network services and certain other network
     services used by the public safety authorities, the military and various
     other emergency and rescue services. A capital gain of E11 million was
     recorded for the fourth quarter of 2000.

3. OPERATING EXPENSES AND NUMBER OF PERSONNEL

     Information regarding operating expenses is as follows:

<TABLE>
<CAPTION>
                                                               YEAR ENDED DECEMBER 31,
                                                               -----------------------
                                                               1998     1999     2000
                                                               -----    -----    -----
                                                                   (IN E MILLIONS)
<S>                                                            <C>      <C>      <C>
Cost of sold equipment and materials........................     116      142      160
Services bought:
  Payments to other operators for use of networks...........     227      263      317
  Payments for other external services(a)...................     140      168      194
                                                               -----    -----    -----
                                                                 367      431      511
Personnel expenses:(b)
  Wages and salaries........................................     248      279      369
  Pension expenses..........................................      30       29       45
  Other personnel expenses..................................      31       32       31
                                                               -----    -----    -----
                                                                 309      340      445
Rental expenses.............................................      40       47       65
Other operating expenses:
  Losses from disposition of fixed assets and other
     long-term investments..................................       6        1       14
  Other operating expenses(c)...............................     222      265      404
                                                               -----    -----    -----
                                                                 228      266      418
                                                               -----    -----    -----
Total operating expenses....................................   1,060    1,226    1,599
                                                               =====    =====    =====
</TABLE>

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

(a) Other external services relate to the repair and maintenance of
    telecommunications network, and to other subcontracting services bought in
    the process of generating services provided to the customers.

(b) Personnel costs attributable to the construction of telecommunications
    networks have been capitalized as part of the carrying value of networks.
    Capitalized personnel costs totaled E17 million, E19 million and E16 million
    for the years ended December 31, 1998, 1999 and 2000, respectively. Fees and
    salaries paid to members of the Supervisory Board totaled E72 thousand, E72
    thousand and E70 thousand for the years ended December 31, 1998, 1999 and
    2000, respectively. Fees and salaries paid to Board of Directors totaled
    E108 thousand, E97 thousand and E469 thousand. Fees and salaries paid to the
    President and CEO of Sonera Corporation and the managing directors of
    subsidiaries totaled E2.5 million, E2.9 million and E4.2 million for the
    years ended December 31, 1998, 1999 and 2000, respectively.

(c) Other operating expenses include expenses not directly related to the
    production of services, such as expenses for marketing efforts, expenses for
    research and development, and other expenses related to the general
    administration.

                                       F-16
<PAGE>   211
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

3. OPERATING EXPENSES AND NUMBER OF PERSONNEL (CONTINUED)

     Number of personnel is as follows:

<TABLE>
<CAPTION>
                                                                   AS OF OR FOR THE
                                                               YEAR ENDED DECEMBER 31,
                                                               ------------------------
                                                               1998     1999      2000
                                                               -----    -----    ------
<S>                                                            <C>      <C>      <C>
Average number of personnel during the period...............   8,609    9,270    10,305
Number of personnel at the end of the period................   9,068    9,512    11,271
</TABLE>

4. DEPRECIATION, AMORTIZATION AND WRITE-DOWNS

     Depreciation, amortization and write-down expenses consist of the following
components:

<TABLE>
<CAPTION>
                                                               YEAR ENDED DECEMBER 31,
                                                               -----------------------
                                                               1998     1999     2000
                                                               -----    -----    -----
                                                                   (IN E MILLIONS)
<S>                                                            <C>      <C>      <C>
Depreciation and amortization
  Intangible rights.........................................      6        8       12
  Goodwill..................................................      3        7        5
  Other long-term expenses..................................      3        3        2
  Buildings.................................................      9        9        8
  Machinery and equipment...................................     29       34       43
  Telecommunications networks...............................    206      211      214
  Other tangible assets.....................................      5        9       15
                                                               ----     ----     ----
                                                                261      281      299
Write-downs
  Buildings.................................................      3       --       --
  Telecommunications networks...............................     34       --       --
                                                               ----     ----     ----
                                                                 37       --       --
                                                               ----     ----     ----
Total.......................................................    298      281      299
                                                               ====     ====     ====
</TABLE>

     As a consequence of a significant reduction in the number of subscribers to
Sonera's analog NMT services during the latter part of 1998, a write-down of E34
million on certain assets related to Sonera's NMT networks was recorded for the
year ended December 31, 1998.

                                       F-17
<PAGE>   212
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

5. FINANCIAL INCOME AND EXPENSES

     The components of financial income and expenses, net, are as follows:

<TABLE>
<CAPTION>
                                                               YEAR ENDED DECEMBER 31,
                                                               -----------------------
                                                               1998     1999     2000
                                                               -----    -----    -----
                                                                   (IN E MILLIONS)
<S>                                                            <C>      <C>      <C>
Dividend income.............................................      5       21       21
Interest income
  On long-term loans receivable.............................      3        4        6
  Other interest income.....................................      9       10       76
Other financial income......................................      2        6       28
Interest expense............................................    (19)     (40)    (155)
Capitalized interest........................................     --       --       20
Other financial expenses....................................     (1)      (1)      (5)
Exchange gains (losses).....................................     (1)      --       --
                                                                ---      ---     ----
Total.......................................................     (2)      --       (9)
                                                                ===      ===     ====
</TABLE>

     Dividend income includes dividends received from shareholdings which are
not accounted for as subsidiaries or associated companies. Dividend income
mainly consists of dividends received from Libancell S.A.L. for E3 million, E3
million and E4 million during the years ended December 31, 1998, 1999 and 2000,
respectively, and E2 million, E18 million and E17 million received from
investments in venture capital funds during the years ended December 31, 1998,
1999 and 2000, respectively.

     In 2000, Sonera adopted an accounting practice according to which interest
expenses related to construction in progress are capitalized in the balance
sheet and charged to expense in the coming years as part of depreciation on
fixed assets. Accumulated capitalization of interest expenses at December 31,
2000 totaled E41 million, of which E24 million has been capitalized on
telecommunications networks and E17 million on investments in associated
companies. Accumulated depreciation of capitalized amounts was E14 million, and
the carrying amount on the balance sheet of December 31, 2000 was E27 million.

6. INCOME TAXES

     The domestic and foreign components of profit before income taxes, minority
interest and extraordinary items are as follows:

<TABLE>
<CAPTION>
                                                                YEAR ENDED DECEMBER 31,
                                                                ------------------------
                                                                1998     1999      2000
                                                                -----    -----    ------
                                                                    (IN E MILLIONS)
<S>                                                             <C>      <C>      <C>
Finland.....................................................     313      435     1,125
Other countries.............................................      33       62       735
                                                                 ---      ---     -----
Total.......................................................     346      497     1,860
                                                                 ===      ===     =====
</TABLE>

     The components of income taxes are as follows:

<TABLE>
<CAPTION>
                                                                YEAR ENDED DECEMBER 31,
                                                                ------------------------
                                                                1998     1999      2000
                                                                -----    -----    ------
                                                                    (IN E MILLIONS)
<S>                                                             <C>      <C>      <C>
Current tax expense.........................................      76      108       277
Deferred tax expense........................................      18       18        41
                                                                 ---      ---     -----
Total.......................................................      94      126       318
                                                                 ===      ===     =====
</TABLE>

                                       F-18
<PAGE>   213
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6. INCOME TAXES (CONTINUED)

     The differences between income tax expense computed at Finnish statutory
tax rate (28 percent in 1998 and 1999 and 29 percent in 2000) and income tax
expense recorded in income statement are as follows:

<TABLE>
<CAPTION>
                                                                YEAR ENDED DECEMBER 31,
                                                                ------------------------
                                                                1998     1999      2000
                                                                -----    -----    ------
                                                                    (IN E MILLIONS)
<S>                                                             <C>      <C>      <C>
Hypothetical income tax expense at Finnish tax rate.........      97      139       539
Non-deductible expenses and tax exempt income...............      --       (7)     (215)
Write-downs on subsidiary shares and use of tax loss
  carryforwards.............................................      (5)      (1)      (27)
Operating losses outside Finland with no deferred tax
  benefit recognized........................................       7        5        24
Difference between Finnish tax rate and deferred tax rate
  for associated companies..................................      (5)     (12)       (7)
Difference between Finnish tax rate and tax rate abroad.....      --       --         3
Effect of goodwill amortization.............................      --       --         1
Change in Finnish tax rate on January 1, 2000...............      --        3        --
Other items.................................................      --       (1)       --
                                                                 ---      ---     -----
Income tax expense in the income statement..................      94      126       318
                                                                 ===      ===     =====
</TABLE>

     The components of net deferred tax asset (liability) in the balance sheet
consist of the following tax consequences from temporary differences:

<TABLE>
<CAPTION>
                                                                AS OF DECEMBER 31,
                                                               --------------------
                                                               1998    1999    2000
                                                               ----    ----    ----
                                                                 (IN E MILLIONS)
<S>                                                            <C>     <C>     <C>
Deferred tax assets
  Tax loss carryforwards....................................     15      37      57
  Less valuation allowance..................................    (15)    (29)    (56)
  Fixed assets..............................................     --      --       4
  Investments in associated companies.......................     17      17      --
  Accrued expenses..........................................      1       3      --
                                                               ----    ----    ----
                                                                 18      28       5
Deferred tax liabilities
  Property, plant and equipment.............................    (78)    (80)    (87)
  Investments in associated companies.......................    (15)    (41)    (49)
  Other items...............................................     (1)     (1)     (8)
                                                               ----    ----    ----
                                                                (94)   (122)   (144)
                                                               ----    ----    ----
Net deferred tax liability..................................    (76)    (94)   (139)
                                                               ====    ====    ====
</TABLE>

     Sonera had tax loss carryforwards, mainly attributable to foreign
subsidiaries, of E47 million, E110 million and E184 million on December 31,
1998, 1999 and 2000, respectively. Most of the tax loss carryforwards have no
expiration.

     Sonera has recognized a deferred tax asset for its tax loss carryforwards
and established a valuation allowance against this amount. That determination
was based upon an analysis of "more likely than not" criterion applied to each
tax jurisdiction. The Company determined the amount of the valuation allowance
based upon the weight of all available evidence, both positive and negative,
including consideration of reversing taxable temporary differences in each tax
jurisdiction as well as available tax planning strategies. The valuation
allowance

                                       F-19
<PAGE>   214
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6. INCOME TAXES (CONTINUED)

was established for tax loss carryforwards that exceeded the amount of reversing
taxable temporary differences in certain tax jurisdictions outside Finland due
to the following:

     -  history of operating losses generated by companies in those separate tax
        jurisdictions, primarily due to the start-up nature of the operations;

     -  lack of evidence that profits will be generated by those operations in
        the foreseeable future; and

     -  expenditures, which will result in further losses, to be made by those
        companies to develop media and new service businesses.

     Based on this information the Company determined that it is not "more
likely than not" that certain deferred tax assets will be realized related to
these tax loss carryforwards.

     Deferred tax liability has been provided for the undistributed earnings in
foreign associated companies because Sonera may not be able to control the
timing of dividend payments out of those earnings. The amount of deferred tax
liability is equal to the withholding tax burden of possible dividend payments,
the rate of which varies from country to country. Deferred tax liability has not
been provided on undistributed earnings of Finnish associated companies since
dividends between Finnish companies are effectively tax exempt.

     Deferred tax liability has not been provided on undistributed earnings of
foreign subsidiaries because such amounts would have been less than E1 million
for the years ended December 31, 1998, 1999 and 2000, respectively. As of
December 31, 1998, 1999 and 2000 Sonera had retained profits of E15 million, E17
million and E691 million, respectively, in its foreign subsidiaries. The
retained profits in foreign subsidiaries as of December 31, 2000 consisted
mainly of the retained profits in Sonera Holding B.V. and Sonera is able to
repatriate those retained earnings tax free.

7. EFFECT OF ACCOUNTING CHANGES

     The cumulative effect of changes in accounting practice is as follows:

<TABLE>
<CAPTION>
                                                                AS OF DECEMBER 31,
                                                               ---------------------
                                                               1998    1999    2000
                                                               ----    ----    -----
                                                                  (IN E MILLIONS)
<S>                                                            <C>     <C>     <C>
Change in Turkcell's equity accounting (net of deferred tax
  benefit of E4 million)....................................    --      --       (41)
Capitalized interest expenses (net of deferred tax expense
  of E2 million)............................................    --      --         6
                                                               ---     ---     -----
Total.......................................................    --      --       (35)
                                                               ===     ===     =====
</TABLE>

Equity accounting for Turkcell

     As of the beginning of 2000, Sonera changed the practice of equity
accounting for its holding in Turkcell in such a manner that Sonera's
consolidated financial statements for each quarter include the last available
quarterly financial statements of Turkcell. Previously, Sonera's consolidated
financial statements for each quarter have included a preliminary estimated
share of Turkcell's net income for the corresponding period.

     The accounting change was made in anticipation of the Turkcell initial
public offering and stock exchange listing, after which Sonera no longer has any
other information available for the preparation of its consolidated financial
statements than the information published by Turkcell simultaneously to all of
Turkcell shareholders.

     The cumulative effect of accounting change, an expense of E41 million,
consists of the reversal of Turkcell's equity income for the last quarter of
1999 that is included in Sonera's retained earnings (expense of E33 million); an
adjustment to reflect the final results of Turkcell's 1999 audited financial
statements (expense of E12 million); and the related deferred tax effect
(benefit of E4 million).

                                       F-20
<PAGE>   215
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

7. EFFECT OF ACCOUNTING CHANGES (CONTINUED)

     Sonera has not restated its prior-year consolidated financial statements
for the accounting change, and has recorded the cumulative effect of the
accounting change through the consolidated income statement for the first
quarter of 2000.

Capitalization of interest

     In the third quarter of 2000, Sonera adopted an accounting practice
according to which interest expenses related to construction in progress are
capitalized on fixed assets and charged to expense in the coming years as part
of depreciation on fixed assets.

     The cumulative effect of accounting change, income of E6 million, consists
of the accumulated capitalization of interest costs (income of E20 million); the
accumulated depreciation expense for the capitalized amounts (expense of E12
million); and the related deferred tax effect (expense of E2 million).

     Sonera has not restated its prior-year consolidated financial statements
for the accounting change, and has recorded the cumulative effect of the
accounting change through the consolidated income statement for the third
quarter of 2000.

8. EARNINGS PER SHARE

     Earnings per share amounts are calculated as follows:

<TABLE>
<CAPTION>
                                                                   YEAR ENDED DECEMBER 31,
                                                                -----------------------------
                                                                 1998       1999       2000
                                                                -------    -------    -------
<S>                                                             <C>        <C>        <C>
Profit before extraordinary items (in E millions)...........        251        370      1,541
Net income (in E millions)..................................        251        370      1,506
                                                                =======    =======    =======
Average number of shares issued and outstanding (in
  thousands)................................................    720,247    722,000    735,917
Earnings per share, before extraordinary items (E)..........       0.35       0.51       2.09
Cumulative effect of accounting changes, net of income taxes
  (E).......................................................         --         --      (0.04)
                                                                -------    -------    -------
Earnings per share (E)......................................       0.35       0.51       2.05
                                                                =======    =======    =======
</TABLE>

     Immediately after the Demerger in July, 1998, the Company had a total of
180,000,000 shares issued and outstanding. After two consecutive share splits
carried out in July and September 1998, the Company had a total of 720,000,000
shares issued and outstanding. Earnings per share amounts have been calculated
as if the number of shares had been 720,000,000 also for all the periods before
the Demerger and the share splits.

     The number of shares on December 31, 1998, 1999 and 2000 was 722,000,000,
722,000,000 and 743,534,486, respectively, which includes zero, zero and 550,000
treasury shares repurchased, respectively.

     In November 1998, the Company issued 2,000,000 new shares in an employee
offering. The weighted average number of shares for the years ended December 31,
1998, 1999 and 2000 was 720,246,575, 722,000,000 and 735,916,878, respectively.

     In May 1999 and July 2000, the Company issued employee bond loans with
warrants. The fully diluted weighted average number of shares for the years
ended December 31, 1999 and 2000 was 723,233,765 and 741,742,854. The diluted
earnings per share was E0.51 and E2.03 for the years ended December 31, 1999 and
2000, respectively.

     According to Finnish GAAP, earnings per share exclude extraordinary items.
For the years ended December 31, 1998 and 1999, no extraordinary items were
reported. For the year ended December 31, 2000, extraordinary items included the
cumulative effect of accounting changes.

                                       F-21
<PAGE>   216
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

9. FIXED ASSETS AND OTHER LONG-TERM INVESTMENTS

     Intangible assets consist of the following:

<TABLE>
<CAPTION>
                                                                 AS OF DECEMBER 31,
                                                                --------------------
                                                                1998    1999    2000
                                                                ----    ----    ----
                                                                  (IN E MILLIONS)
<S>                                                             <C>     <C>     <C>
Intangible rights...........................................     29      40      60
Goodwill....................................................      7      12      30
Other intangible assets.....................................     17      17      26
                                                                ---     ---     ---
Total.......................................................     53      69     116
                                                                ===     ===     ===
</TABLE>

     Intangible rights primarily consist of licenses, lease rights and patents.
Other intangible assets primarily relate to the costs of leasehold improvements
on rental premises.

     Changes in fixed assets and other long-term investments during the year
ended December 31, 2000 include the following:

<TABLE>
<CAPTION>
                                   HISTORICAL                     DISPOSALS     ACCUMULATED       CARRYING
                                    COST ON         CAPITAL          AND      DEPRECIATION ON     VALUE ON
                                   JANUARY 1,   EXPENDITURE AND     OTHER      DECEMBER 31,     DECEMBER 31,
                                      2000      OTHER ADDITIONS   DECREASES        2000             2000
                                   ----------   ---------------   ---------   ---------------   ------------
                                                                (IN E MILLIONS)
<S>                                <C>          <C>               <C>         <C>               <C>
Intangible rights...............        60              33            (1)            (32)             60
Goodwill........................        25              23            --             (18)             30
Other intangible assets.........        28              11            --             (13)             26
                                     -----           -----          ----          ------           -----
Total intangible assets.........       113              67            (1)            (63)            116

Land............................        17               3            --              --              20
Buildings.......................       157              15            --             (51)            121
Machinery and equipment.........       193              68            (1)           (141)            119
Telecommunications networks.....     1,972             208            (4)         (1,328)            848
Other tangible assets...........        62              26            (2)            (32)             54
Advances paid and construction
  in progress...................        30              94           (21)             --             103
                                     -----           -----          ----          ------           -----
Total property, plant and
  equipment.....................     2,431             414           (28)         (1,552)          1,265

Investments in associated
  companies.....................     1,637           1,344          (614)             --           2,367
Other shares and holdings.......       154           2,218            (2)             --           2,370
Long-term loans receivable......        35               8            (1)             --              42
                                     -----           -----          ----          ------           -----
Total long-term investments and
  receivables...................     1,826           3,570          (617)             --           4,779
                                     -----           -----          ----          ------           -----

Total fixed assets and other
  long-term investments.........     4,370           4,051          (646)         (1,615)          6,160
                                     =====           =====          ====          ======           =====
</TABLE>

                                       F-22
<PAGE>   217
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

10. INVESTMENTS IN ASSOCIATED COMPANIES

     Sonera's significant associated companies as of December 31, 2000 consist
of the following:

<TABLE>
<CAPTION>
                                                                           AS OF DECEMBER 31, 2000
                                                           FIRST       --------------------------------
                                          PERCENT OF      YEAR OF      COST OF    REMAINING    CARRYING
COMPANY NAME                              OWNERSHIP     ACQUISITION    SHARES     GOODWILL      VALUE
------------                              ----------    -----------    -------    ---------    --------
                                             (%)                               (IN E MILLIONS)
<S>                                       <C>           <C>            <C>        <C>          <C>
Turkcell Iletisim Hizmetleri
  A.S.(a).............................       37.3          1995          230          29         568
Fintur Holdings B.V.(b)...............       35.3          2000          136           6         123
Latvijas Mobilais Telefons SIA........       24.5          1991           --          --          23
UAB Omnitel...........................       27.5          1998           83          59          85
Pannon GSM Rt.........................       23.0          1993           72          48          75
ZAO North-West GSM....................       23.5          1993            4          --          15
Orla Siebzehnte Vermogens-verwaltung
  GmbH(c).............................       42.8          2000          913          --         908
AS Eesti Telekom......................       24.5          1992           20          --          55
Lattelekom SIA........................       44.1          1994          209         114         289
AB Lietuvos Telekomas.................       30.0          1998          238         123         211
</TABLE>

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

(a) Turkcell's shareholders raised the company's share capital in May 2000
    before the company's initial public offering. Sonera's portion of the
    increase in share capital amounted to E113 million. In June-July 2000,
    Turkcell's shareholders carried out the initial public offering of the
    company. After the offering, Sonera's shareholding in Turkcell is 37.3
    percent (41.0 percent on December 31, 1999).

(b) In January 2000, Turkcell and its principal shareholders, Sonera and the
    Cukurova Group, decided to establish a joint holding company named Fintur
    Holdings B.V. The company will develop and own Turkcell's stakes in GSM
    operators outside Turkey, and some of the previous subsidiaries of Turkcell
    and the Cukurova Group. Sonera acquired a 35 percent stake in Fintur by
    investing US$127 million (E136 million) in the company in May 2000.

(c) In September and December 2000, Sonera invested a total of E913 million in
    the share capital of Orla Siebzehnte Vermogensvervaltung GmbH in accordance
    with its 42.8 percent holding in the company. In addition, Sonera gave a
    shareholder loan of E2,719 million to the company, which paid for the
    license it had been awarded in the German UMTS auction using the funds it
    had received from shareholders.

     All companies in the above table are accounted for by using the equity
method of accounting. Sonera amortizes goodwill in its investments in associated
companies straight-line over estimated useful life, generally not exceeding ten
years.

     Differences between carrying and fair values of the publicly quoted
associated companies are presented in Note 18 to the Consolidated Financial
Statements.

                                       F-23
<PAGE>   218
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

10. INVESTMENTS IN ASSOCIATED COMPANIES (CONTINUED)

     Total investments in associated companies and the changes therein include
the following:

<TABLE>
<CAPTION>
                                                                YEAR ENDED DECEMBER 31,
                                                                -----------------------
                                                                1998     1999     2000
                                                                -----    -----    -----
                                                                    (IN E MILLIONS)
<S>                                                             <C>      <C>      <C>
Investments in associated companies at cost:
  Historical cost of shares on January 1....................      175    1,088    1,400
  Investments in associated companies.......................      918      319    1,195
  Transfers to other shares and holdings....................       --       --     (556)
  Disposals.................................................       (5)      (7)     (77)
                                                                -----    -----    -----
  Historical cost of shares on December 31..................    1,088    1,400    1,962
Equity adjustment to investments in associated companies:
  Accumulated equity adjustment on January 1................       31       60      237
  Translation difference....................................      (11)      70       28
  Dividends received during the year........................       (9)     (14)     (30)
  Transfers to other shares and holdings....................       --       --       68
  Disposals.................................................       (3)      11      (19)
  TietoEnator Corporation repurchase and retirement of
     shares.................................................       (5)      --       --
  Equity income in associated companies.....................       59      110      121
  Other changes.............................................       (2)      --       --
                                                                -----    -----    -----
  Accumulated equity adjustment on December 31..............       60      237      405
                                                                -----    -----    -----
Carrying value of investments in associated companies on
  December 31...............................................    1,148    1,637    2,367
                                                                =====    =====    =====
</TABLE>

     The following table presents certain summarized financial information for
Sonera's associated companies:

<TABLE>
<CAPTION>
                                                                    AS OF OR FOR THE
                                                                YEAR ENDED DECEMBER 31,
                                                                ------------------------
                                                                1998     1999      2000
                                                                -----    -----    ------
                                                                    (IN E MILLIONS)
<S>                                                             <C>      <C>      <C>
Revenues....................................................    1,845    4,077     4,981
Operating profit............................................      391      754       944
Profit before extraordinary items and taxes.................      223      501       786
Net income..................................................      204      456       690
Non-current assets..........................................    2,915    5,148    14,714
Current assets..............................................    1,001    1,686     1,908
Total assets................................................    3,916    6,834    16,622
Shareholders' equity........................................    1,344    3,018     5,541
Minority interest...........................................       --       14        52
Non-current liabilities.....................................    1,846    2,357     2,049
Current liabilities.........................................      726    1,445     8,980
</TABLE>

                                       F-24
<PAGE>   219
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

10. INVESTMENTS IN ASSOCIATED COMPANIES (CONTINUED)

     Sonera's share of net income and shareholders' equity are presented in the
Consolidated Income Statement and Consolidated Balance Sheet as follows:

<TABLE>
<CAPTION>
                                                                   AS OF OR FOR THE
                                                                YEAR ENDED DECEMBER 31,
                                                                -----------------------
                                                                1998     1999     2000
                                                                -----    -----    -----
                                                                    (IN E MILLIONS)
<S>                                                             <C>      <C>      <C>
Sonera's share of net income................................       94      188      187
Amortization of goodwill and other eliminations.............      (35)     (78)     (66)
                                                                -----    -----    -----
Equity income in associated companies.......................       59      110      121
                                                                =====    =====    =====
Sonera's share of shareholders' equity......................      474      913    1,987
Unamortized goodwill and other eliminations.................      674      724      380
                                                                -----    -----    -----
Carrying value of investments in associated companies.......    1,148    1,637    2,367
                                                                =====    =====    =====
</TABLE>

11. SHAREHOLDERS' EQUITY

     Changes in shareholders' equity for the years ended December 31, 1998, 1999
and 2000 are as follows:

<TABLE>
<CAPTION>
                                                                                                ACCUMULATED
                                     NUMBER OF                 SHARE               ADDITIONAL    CURRENCY
                                       SHARES        SHARE    PREMIUM   TREASURY    PAID-IN     TRANSLATION   RETAINED
                                    OUTSTANDING     CAPITAL    FUND      SHARES     CAPITAL     ADJUSTMENT    EARNINGS   TOTAL
                                   --------------   -------   -------   --------   ----------   -----------   --------   -----
                                   (IN THOUSANDS)                                 (IN E MILLIONS)
<S>                                <C>              <C>       <C>       <C>        <C>          <C>           <C>        <C>
January 1, 1998..................     180,000         303        --        --         511             2          496     1,312
Share splits.....................     540,000          --        --        --          --            --           --        --
Equity issue.....................       2,000           1        13        --          --            --           --        14
Dividends paid...................          --          --        --        --          --            --         (132)     (132)
Currency translation
  adjustment.....................          --          --        --        --          --           (14)          --       (14)
TietoEnator Corporation
  repurchase and retirement of
  shares.........................          --          --        --        --          --            --           (5)       (5)
Other changes....................          --          --        --        --          --            --           (2)       (2)
Net income for the year..........          --          --        --        --          --            --          251       251
                                      -------         ---       ---       ---         ---           ---        -----     -----
December 31, 1998................     722,000         304        13        --         511           (12)         608     1,424
Bonus issue......................          --           6        --        --          (6)           --           --        --
Dividends paid...................          --          --        --        --          --            --          (61)      (61)
Currency translation
  adjustment.....................          --          --        --        --          --            67           --        67
Other changes....................          --          --        --        --          --            --            1         1
Net income for the year..........          --          --        --        --          --            --          370       370
                                      -------         ---       ---       ---         ---           ---        -----     -----
December 31, 1999................     722,000         310        13        --         505            55          918     1,801
Equity issues....................      21,534          10         1        --          --            --           --        11
Dividends paid...................          --          --        --        --          --            --          (87)      (87)
Treasury shares repurchased......        (550)         --        --       (28)         --            --           --       (28)
Currency translation
  adjustment.....................          --          --        --        --          --            30           --        30
Net income for the year..........          --          --        --        --          --            --        1,506     1,506
                                      -------         ---       ---       ---         ---           ---        -----     -----
December 31, 2000................     742,984         320        14       (28)        505            85        2,337     3,233
                                      =======         ===       ===       ===         ===           ===        =====     =====
</TABLE>

Share capital and share premium fund

     Immediately after the Demerger on July 1, 1998, the Company had a total of
180,000,000 shares issued and outstanding, nominal value of FIM 10 each. Two
consecutive share splits were carried out in July and September 1998, after
which the Company had a total of 720,000,000 shares issued and outstanding,
nominal value of

                                       F-25
<PAGE>   220
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

11. SHAREHOLDERS' EQUITY (CONTINUED)

FIM 2.50 each (approximately E0.42 each). Share capital totaled FIM 1,800
million (E303 million) after the Demerger.

     In the employee offering carried out in November 1998, the Company issued
2,000,000 new shares for a price of FIM 40.50 (E6.81) each. The price of shares
issued to the employees was equal to 90 percent of the price at which the
Finnish State sold part of its shares to other investors at the same time. New
shares were registered on November 17, 1998. FIM 5 million (E0.8 million) of the
proceeds from the offering were recorded as share capital and FIM 76 million
(E12.8 million) were recorded to the share premium fund. On December 31, 1998,
the number of shares issued and outstanding was 722,000,000 and the amount of
share capital was FIM 1,805 million (E304 million).

     In January 1999, share capital was redenominated in euro and the nominal
value of shares was abolished. In May 1999, the accountable par value of the
share was increased to exactly 43 cents through a bonus issue by transferring
the corresponding amount from additional paid-in capital to share capital. On
December 31, 1999, the number of shares was 722,000,000 and share capital was
E310,460,000.

     In April 2000, Sonera acquired the entire share capital of Across Holding
AB of Sweden. Sonera paid for the acquisition by issuing 16,732,055 new shares
to the sellers. The share capital was increased by E8 million and E1 million was
recorded in additional paid-in capital. In June 2000, Sonera acquired the entire
share capital of iD2 Holding AB of Sweden. Sonera paid for the acquisition by
issuing 4,802,431 new shares to the sellers. The share capital was increased by
E2 million E0.3 million was recorded in additional paid-in capital. Sonera has
recorded both transactions in accordance with the interpretation No. 1591/1999
by the Finnish Accounting Board. That interpretation allows the acquirer to
record the equity issue and the cost of acquired shares at an amount equal to
the shareholders' equity of the acquired company at the time of acquisition. On
December 31, 2000, the total number of shares issued was 743,534,000 and share
capital was E319,720,000.

     Under the Company's Articles of Association, the Company's authorized share
capital may not be less than E309.6 million or more than E1,238.4 million. The
issued share capital may be increased or decreased within these limits through a
resolution by a general meeting of shareholders, without amendment to the
Articles of Association. On December 31, 2000, the Company's Board of Directors
held an authorization to issue a maximum of 18,465,514 shares. The authorization
was valid until March 21, 2001.

Treasury shares

     On March 22, 2000, the Annual General Meeting of Sonera Corporation
authorized the Board of Directors to repurchase a maximum of 14,440,000 Sonera
shares. The authorization was valid until March 22, 2001, and by virtue of the
authorization, shares can be repurchased with a view to using them as
consideration in acquisitions or when the company purchases assets related to
its business. By December 31, 2000, Sonera had repurchased 550,000 shares with
an accountable par of E236,500, and the shares constitute approximately 0.07
percent of the entire share capital. The shares were repurchased during May 2000
at an average price of E51.36 per share and a total price of E28 million.

Additional paid-in capital

     Additional paid-in capital is classified as unrestricted shareholders'
equity and can be used for dividend distribution or for other purposes resolved
by a general meeting of shareholders.

                                       F-26
<PAGE>   221
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

11. SHAREHOLDERS' EQUITY (CONTINUED)

Dividend payments

     Dividend payments for the year ended December 31, 1998 represent Sonera's
share of the cash dividends paid by PT Finland Ltd. The total cash dividend paid
by PT Finland Ltd to the Finnish State was E185 million during the year ended
December 31, 1998.

     As of January 1, 2000, Sonera has declared and paid dividends in euros.
Past dividends have been declared and paid in Finnish markka.

Distributable funds

     On a consolidated level, retained earnings include untaxed reserves which
the Finnish Companies Act classifies as undistributable earnings. On a
consolidated basis, the shareholders' equity available for distribution on
December 31 was as follows:

<TABLE>
<CAPTION>
                                                                 AS OF DECEMBER 31,
                                                               ----------------------
                                                               1998    1999     2000
                                                               ----    -----    -----
                                                                  (IN E MILLIONS)
<S>                                                            <C>     <C>      <C>
Retained earnings...........................................    608      918    2,337
Less untaxed reserves in retained earnings..................   (186)    (185)    (177)
Other undistributable retained earnings.....................     --       (1)      --
                                                               ----    -----    -----
Distributable retained earnings.............................    422      732    2,160
Accumulated currency translation adjustment.................    (12)      55       85
Additional paid-in capital..................................    511      505      505
Treasury shares.............................................     --       --      (28)
                                                               ----    -----    -----
Total distributable funds...................................    921    1,292    2,722
                                                               ====    =====    =====
</TABLE>

     The Finnish Companies Act restricts dividend distribution to the lower of
distributable funds of the Parent Company and distributable funds of the
Consolidated Balance Sheet. The distributable funds of the Parent Company Sonera
Corporation were E674 million, E1,139 million and E1,665 million on December 31,
1998, 1999 and 2000, respectively.

     Untaxed reserves in the consolidated retained earnings relate to
accelerated tax depreciations in Sonera's Finnish Group companies and consist of
the following:

<TABLE>
<CAPTION>
                                                                 AS OF DECEMBER 31,
                                                               ----------------------
                                                               1998    1999     2000
                                                               ----    -----    -----
                                                                  (IN E MILLIONS)
<S>                                                            <C>     <C>      <C>
Accelerated tax depreciation
  Intangible rights.........................................     4         5        8
  Other long-term expenses..................................     1         2        2
  Buildings.................................................    14        15       15
  Machinery and equipment...................................     9         5       (2)
  Telecommunications networks...............................   226       226      209
  Other tangible assets.....................................     5         8       17
                                                               ---     -----    -----
  Total accelerated tax depreciation........................   259       261      249
Deferred tax liability on untaxed reserves..................   (73)      (76)     (72)
                                                               ---     -----    -----
Untaxed reserves included in retained earnings..............   186       185      177
                                                               ===     =====    =====
</TABLE>

                                       F-27
<PAGE>   222
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

12. LONG-TERM AND CURRENT DEBT

     Long-term debt consists of the following on December 31:

<TABLE>
<CAPTION>
                                                                 AS OF DECEMBER 31,
                                                               ----------------------
                                                               1998    1999     2000
                                                               ----    -----    -----
                                                                  (IN E MILLIONS)
<S>                                                            <C>     <C>      <C>
From financial institutions:
  Due in 2001; E100 million syndicated term loan; variable
     interest rate based on LIBOR (5.20 percent on December
     31, 2000)..............................................   100       100      100
  Due in 2003; E50 million term loan; variable interest rate
     based on Euribor (5.26 percent on December 31, 2000)...    50        50       50
  Due in semiannual installments in 2002-2004; DEM 300
     million (E153 million) syndicated revolving credit
     facility; variable interest rate based on LIBOR........   153        --       --
  Due in semiannual installments in 2003-2005; DEM 1,000
     million (E511 million) syndicated revolving credit
     facility; variable interest rate based on LIBOR (5.19
     percent on December 31, 2000)..........................   419       380      200
  Due in 2008; E44 million term loan; variable interest rate
     based on LIBOR (5.33 percent on December 31, 2000).....    44        44       44
  Due in 2008; E42 million term loan; variable interest rate
     based on Euribor (5.33 percent on December 31, 2000)...    --        42       42
  Due in semiannual installments in 2003-2009; E200 million
     term loan;
     variable interest rate based on EIB reference rate
     (4.85 percent on
     December 31, 2000).....................................    --       200      200
  Due in varying amounts through 2003; subsidiary's U.S.$5
     million bank loan; variable interest rate based on
     LIBOR (6.68 percent on December 31, 2000)..............     4         5        5
  Due in 2001; subsidiary's U.S.$3.2 million bank loan;
     variable interest rate based on LIBOR (7.86 percent at
     December 31, 2000).....................................    --        --        3
  Other long-term loans from financial institutions drawn
     down by subsidiaries...................................     1         1        2
Euro Medium Term Notes (E2.0 billion long-term loan
  program):
  Due in 2009; E300 million Euro Medium Term Note; coupon
     interest 4.625 percent; issue price of the Note 99.272
     percent................................................    --       300      300
  Due in 2005; E1,000 million Euro Medium Term Note; coupon
     interest 5.625 percent; issue price of the Note 99.432
     percent................................................    --        --    1,000
Employee bond loans with warrants:
  Year 1999 employee bond loan with warrants; due in 2001;
     no interest............................................    --         2        2
  Year 2000 employee bond loan with warrants; due in 2002;
     no interest............................................    --        --        1
Pension loans...............................................    17        --       --
                                                               ---     -----    -----
Total.......................................................   788     1,124    1,949
                                                               ===     =====    =====
</TABLE>

     Interest rates presented in the above table do not include any effects from
the hedging measures. The DEM 300 million and DEM 1,000 million revolving credit
facilities carry a commitment fee of 0.0625 percent of the undrawn amount.

                                       F-28
<PAGE>   223
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

12. LONG-TERM AND CURRENT DEBT (CONTINUED)

     Maturities of long-term debt on December 31, 2000 are as follows:

<TABLE>
<CAPTION>
                                                         LOANS         EURO      EMPLOYEE
                                                          FROM        MEDIUM    BOND LOANS
                                                       FINANCIAL       TERM        WITH
                                                      INSTITUTIONS    NOTES      WARRANTS     TOTAL
                                                      ------------    ------    ----------    -----
                                                                     (IN E MILLIONS)
<S>                                                   <C>             <C>       <C>           <C>
Due in 2001........................................       105            --          2          107
2002...............................................         3            --          1            4
2003...............................................       131            --         --          131
2004...............................................       114            --         --          114
2005...............................................        73         1,000         --        1,073
Due thereafter.....................................       220           300         --          520
                                                          ---         -----        ---        -----
Total..............................................       646         1,300          3        1,949
                                                          ===         =====        ===        =====
</TABLE>

     Long-term borrowing is primarily arranged by Sonera Corporation, and, with
limited exceptions, individual subsidiaries may not enter into their own
financing arrangements.

     On February 6, 2001, Sonera issued a Floating Rate Note (FRN) of E500
million as part of its Euro Medium Term Note (EMTN) program. With the FRN,
Sonera diversifies its funding and replaces its existing short-term credit
facilities. The term of the FRN is 18 months.

Current debt

     Current debt amount of E135 million on December 31, 1998 primarily related
to the use of U.S.$400 million short-term revolving credit facility, which was
extended in December 1998 and was due in June 1999. On December 31, 1998, E118
million had been drawn down under the short-term facility. Current debt on
December 31, 1998 also included E17 million of short-term borrowings under the
domestic commercial paper programs. The average interest rate of Sonera's
short-term borrowings was 3.4 percent on December 31, 1998. There were no
interest rate hedging instruments related to current debt as of December 31,
1998.

     On December 31, 1999, current debt of E172 million consisted of E71 million
borrowings under the domestic commercial paper program; E100 million under the
Euro Commercial Paper program; and E1 million of other current debt. The average
interest rate of current debt was 4.3 percent on December 31, 1999 (3.4 percent
when the hedging effects are included).

     On December 31, 2000, current debt of E3,848 million consisted of
borrowings under a Term Loan Facility, for E3,250 million, due in November 2001;
E340 million under the Euro Commercial Paper program; and E258 million under a
domestic commercial paper program. The average interest rate of current debt was
5.48 percent on December 31, 2000 (5.43 percent when the hedging effects are
included).

     On December 31, 2000, Sonera's current liabilities of E4,512 million
exceeded the amount of current assets of E3,614 million. On December 31, 2000,
Sonera had E465 million of undrawn revolving credit facilities, a E700 million
of unused long-term bond-based credit facility as well as undrawn commercial
paper credit facilities amounting to E202 million.

     In March 2001, Sonera sold its 18.7 percent interest in TietoEnator for
E424 million. In May 2001, Sonera sold 3,300,000 shares in VoiceStream for E357
million and 1,100,000 shares in Powertel for E75 million. Additionally, on May
31, 2001, Sonera closed the sale of its remaining interest in VoiceStream and
Powertel to Deutsche Telekom, receiving E292 million cash and approximately 72
million Deutsche Telekom shares. Based on the Deutsche Telekom share price on
May 31, 2001 on the Frankfurt Stock Exchange, the total value of

                                       F-29
<PAGE>   224
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

12. LONG-TERM AND CURRENT DEBT (CONTINUED)

Deutsche Telekom shares received was approximately E1.8 billion. According to
the agreement between Sonera and Deutsche Telekom, Sonera can sell approximately
34.5 million Deutsche Telekom shares three months after the closing, and can
sell all shares six months after the closing.

     On June 18, 2001, Sonera agreed on a syndicated variable rate loan facility
of E1.33 billion. The maturity of the facility is three years and the drawn-down
amounts bear a variable interest rate based on Euribor. The long-term facility
will be used to partially refinance Sonera's E3.25 billion short-term facility
maturing on October 25, 2001. Sonera expects to repay the rest of the short-term
facility with sales proceeds from Deutsche Telekom shares, and from other sales
of non-core assets.

13. OTHER LONG-TERM LIABILITIES

     Other long-term liabilities consist of the following:

<TABLE>
<CAPTION>
                                                                 AS OF DECEMBER 31,
                                                                --------------------
                                                                1998    1999    2000
                                                                ----    ----    ----
                                                                  (IN E MILLIONS)
<S>                                                             <C>     <C>     <C>
Advances received...........................................      9      11      19
Provision for year 2000 costs...............................      4      --      --
Other long-term liabilities.................................      2       9      13
                                                                ---     ---     ---
Total.......................................................     15      20      32
                                                                ===     ===     ===
</TABLE>

     Advances received primarily relate to a cross-border finance
lease-leaseback agreement entered into in December 1998, and an advance received
from GTS Finance on behalf of its Russian subsidiary in 2000.

14. SUPPLEMENTAL CASH FLOW INFORMATION

     The following is a summary of non-cash financing and investing activities:

<TABLE>
<CAPTION>
                                                                     YEAR ENDED
                                                                    DECEMBER 31,
                                                                --------------------
                                                                1998    1999    2000
                                                                ----    ----    ----
                                                                  (IN E MILLIONS)
<S>                                                             <C>     <C>     <C>
Acquisitions of subsidiaries:
Non-cash assets acquired....................................      3      12      33
Less liabilities assumed....................................     (1)     (3)    (13)
                                                                ---     ---     ---
Cash paid, net of cash acquired.............................      2       9      20
                                                                ===     ===     ===
Disposals of subsidiaries:
Non-cash assets disposed of.................................     --       1       3
Liabilities disposed of.....................................     --      (2)     (5)
                                                                ---     ---     ---
Net non-cash liabilities sold...............................     --      (1)     (2)
                                                                ---     ---     ---
Gain on sale................................................     --       3      11
                                                                ---     ---     ---
Cash received from sale, net of cash disposed...............     --       2       9
                                                                ===     ===     ===
</TABLE>

     Cash paid for interest and income taxes is as follows:

<TABLE>
<CAPTION>
                                                                YEAR ENDED DECEMBER 31,
                                                                -----------------------
                                                                1998     1999     2000
                                                                -----    -----    -----
                                                                    (IN E MILLIONS)
<S>                                                             <C>      <C>      <C>
Interest paid...............................................     19        29       53
Income taxes paid...........................................     53       140      313
</TABLE>

                                       F-30
<PAGE>   225
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

14. SUPPLEMENTAL CASH FLOW INFORMATION (CONTINUED)

     Sonera's Consolidated Financial Statements include two non-cash
acquisitions made during the year ended December 31, 2000. On April 18, 2000,
Sonera acquired all shares in Across Holding AB of Sweden and paid for the
acquisition by issuing 16,732,055 new shares to the sellers. On June 27, 2000,
Sonera acquired all shares in iD2 Holding AB of Sweden and paid for the
acquisition by issuing 4,802,431 new shares to the sellers. The fair value of
purchase consideration was E897 million and E250 million for Across Holding and
iD2 Holding, respectively. Sonera has recorded both transactions in accordance
with the interpretation No. 1591/1999 by the Finnish Accounting Board. That
interpretation allows the acquirer to record the equity issue and the cost of
acquired shares at an amount equal to the shareholders' equity of the acquired
company at the time of acquisition. Accordingly, as a result of the two
transactions, Sonera's share capital was increased by E10 million and E1 million
was recorded in additional paid-in capital.

15. RELATED PARTY TRANSACTIONS

     Sonera has entered into technical assistance agreements with most of its
associated companies. Under these agreements, Sonera supplies those companies
with technical assistance relating to planning and constructing their networks,
as well as to operating and maintaining the networks.

     Summarized information for the transactions between Sonera and its
associated companies is as follows:

<TABLE>
<CAPTION>
                                                                    AS OF OR FOR THE
                                                                YEAR ENDED DECEMBER 31,
                                                                ------------------------
                                                                1998     1999      2000
                                                                -----    -----    ------
                                                                    (IN E MILLIONS)
<S>                                                             <C>      <C>      <C>
Long-term loans receivable..................................       1       11         7
Current loans receivable....................................      --        9     2,737
Trade accounts receivable...................................      10       13         7
Prepaid expenses and accrued income.........................       1        1       102
Other long-term liabilities.................................      --        4        --
Advances received...........................................      --        1        --
Trade accounts payable......................................      12       17         6
Accrued expenses and prepaid income.........................      --        1         1
Other current liabilities...................................      --        2        --
Fees charged from associated companies......................      24       28        24
Payments made for the services provided by associated
  companies.................................................      58       72        41
</TABLE>

     Current loans receivable on December 31, 2000 included loans receivable of
E2,719 million from Orla Siebzehnte Vermogensverwaltung GmbH. The company used
the funds received from its shareholders to pay for the license it had been
awarded in the German UMTS auction in August 2000. In addition to loan granted
to Orla, Sonera has invested E913 million in the share capital of Orla
Siebzehnte Vermogensverwaltung GmbH.

     Except for the equity transactions between Sonera and the Ministry of
Transport and Communications as a shareholder, transactions with the Finnish
State and other companies owned by the Finnish State only include services
provided and purchased by Sonera in the ordinary course of its business.
Management believes that these transactions are made on commercial terms similar
to those of Sonera's other customers or suppliers with the same size and
location.

     Sonera did not have any loans receivable from the management during the
periods presented.

                                       F-31
<PAGE>   226
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

16. COMMITMENTS AND CONTINGENT LIABILITIES

     Information regarding commitments and contingent liabilities is as follows:

<TABLE>
<CAPTION>
                                                                 AS OF DECEMBER 31,
                                                                --------------------
                                                                1998    1999    2000
                                                                ----    ----    ----
                                                                  (IN E MILLIONS)
<S>                                                             <C>     <C>     <C>
Mortgages to secure own borrowings..........................     17       1      --
Assets pledged
  To secure own commitments.................................      5       5       5
  To secure borrowings of associated companies(a)...........    131     184       8
Guarantees on behalf of associated companies
  For financing.............................................    118     103      85
  For other commitments.....................................      2      --      --
Guarantees on behalf of other companies
  Xfera Moviles S.A.(b).....................................     --      --     428
  Ipse 2000 S.p.A.(c).......................................     --      --     193
Commitment to acquire shares................................     17      20      --
Repurchase commitments......................................      1      --       3
Other commitments...........................................     --      --       3
</TABLE>

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

(a) Carrying values of the pledged shares in associated companies. The maximum
    liability according to the loan amounts secured totaled E244 million, E341
    million and under one million euros as of December 31, 1998, 1999 and 2000,
    respectively.

(b) Counterguarantees to bank guarantees of E428 million have been given by
    Sonera on behalf of Xfera Moviles S.A. The bank guarantees were given to the
    Spanish government to guarantee the fulfillment of commitments of Xfera
    related to its UMTS licence.

(c) Counterguarantees to bank guarantees of E193 million have been given by
    Sonera on behalf of Ipse 2000 S.p.A. The bank guarantees were given to the
    Italian government to guarantee the fulfillment of commitments of Ipse
    related to its UMTS licence.

     In December 1998, Sonera entered into a cross-border finance
lease-leaseback agreement under which Sonera leased some of its mobile
telecommunications network equipment ("Head Lease") to a group of U.S. equity
trusts which simultaneously leased the equipment back to Sonera ("Back Lease").
The ownership of the equipment, total book value of which was E151 million, E128
million and E96 million as of December 31, 1998, 1999 and 2000, respectively, is
retained with Sonera. Both the Head Lease receivables and the Back lease
obligations were settled at the inception of the lease agreements, and Sonera
received a net cash consideration of U.S.$11 million which is presented in the
balance sheet as an advance payment received and recognized in income as other
financial income over the lease term. No other cash payments are currently
expected to be made by Sonera under the lease agreements. The agreement is valid
for 15 years, but Sonera has an option to terminate the agreement after 11 years
after the inception of the agreement. There are no significant restrictions to
the use of the equipment under the agreement. Separate financial institutions
are taking care of the annual repayments received by the equity investors and
debt financiers that are participating in the agreement. The funds securing the
repayments to equity investors have been invested in U.S. Treasury and other
similar bonds, and a bank deposit has been made to secure the repayments of debt
financing. At the inception of the agreement, the total amount of funds invested
was U.S.$224 million.

     Sonera's 47.1 percent associated company Turkcell Holding A.S. has pledged
one fourth of its shares in Turkcell Iletisim Hizmetleri A.S. ("Turkcell") to
secure Turkcell's loan financing. Turkcell Holding owns 51 percent of Turkcell,
and Sonera's indirect ownership in Turkcell through Turkcell Holding is 24.0
percent. Additionally, Sonera has a direct ownership of 13.3 percent in Turkcell
shares which are not pledged.

                                       F-32
<PAGE>   227
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

16. COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)

     Sonera leases office and certain other space, land and equipment under
various noncancellable operating leases. Certain contracts include renewal
options for various periods of time. Minimum annual rental payments for
operating leases in effect on December 31, 2000 are as follows:

<TABLE>
<CAPTION>
                                                          AS OF
                                                      DECEMBER 31,
                                                          2000
                                                     ---------------
                                                     (IN E MILLIONS)
<S>                                                  <C>
Due in 2001........................................         52
2002...............................................         36
2003...............................................         27
2004...............................................         14
2005...............................................         13
Thereafter.........................................         53
                                                           ---
Total..............................................        195
                                                           ===
</TABLE>

17. LEGAL AND REGULATORY PROCEEDINGS

     Sonera is involved in a number of legal and regulatory proceedings mainly
relating to the interpretation of the Telecommunications Market Act, competition
law and consumer protection. Except for the proceedings described below, Sonera
is not involved in any legal, arbitration or regulatory proceedings the outcome
of which could be expected to have a material effect on Sonera's financial
position. See also Note 22 to the Consolidated Financial Statements for
unaudited subsequent events.

National roaming

     On September 23, 1998, Telia Finland Oy filed a complaint with the Finnish
Competition Authority ("FCA") against Sonera and Oy Radiolinja Ab. Telia Finland
requested the FCA to investigate whether Sonera and Radiolinja -- by pricing
national roaming in a manner that, according to Telia Finland, was unreasonable
and discriminative -- were engaged in an effort to restrict competition in the
GSM mobile network market. On January 12, 2000, the FCA issued a decision
maintaining that the pricing of national roaming applied by Sonera does not
require any measures maintaining that the pricing of national roaming applied by
Sonera does not require any measures by the FCA. In its decision, the FCA states
that Sonera does not, either alone or together with Radiolinja, have a dominant
market position in the access markets of national mobile networks. Telia Finland
has filed an appeal with the Finnish Competition Council against the decision
issued by the FCA. This appeal, however, concerns only Sonera. The case is still
pending at the Competition Council, and management is currently not in a
position to assess when the proceedings will be brought to a conclusion or the
final outcome of the proceedings.

Telia Finland/Swisscom AG service provider agreement

     On April 16, 1999, Telia Finland filed a complaint with the European
Commission (DG IV) claiming that Sonera and Radiolinja had abused their dominant
position in the mobile market in Finland by interfering with Telia Finland's
service provider agreement with Swisscom AG. On November 21, 2000, Sonera
received a supplementary submission to the complaint with the European
Commission to which Sonera submitted its observations on December 22, 2000.
Telia Finland's complaint with the European Commission is still pending, and
management is currently not in a position to assess when the proceedings will be
brought to a conclusion or the final outcome of the proceedings.

                                       F-33
<PAGE>   228
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

17. LEGAL AND REGULATORY PROCEEDINGS (CONTINUED)

Mobile network termination charges

     On November 20, 1998, Telia Finland filed a complaint with the
Telecommunications Administration Center ("TAC") about the termination charges
applied in Sonera's mobile networks. Telia Finland claimed that the termination
fees charged by Sonera are not reasonable related to actual costs and that the
fees are thus contrary to the interconnection decision issued by the Ministry of
Transport and Communications. During 1999, 2000 and 2001, Sonera has submitted a
number of statements to the TAC on the issue. See also Note 22 to the
Consolidated Financial Statements for unaudited subsequent events.

Leased lines

     The TAC is currently investigating pricing and discount policies of several
Finnish telecommunications operators with respect to their leased line
operations. Sonera received a request for information from the TAC on January
29, 1999, to which it duly responded providing the requested information. On
January 25, 2000, Telepohja Oy filed a complaint with the FCA requesting the FCA
to investigate whether Sonera is abusing its alleged dominant position in the
local telecommunications market of Sonera's traditional local network areas. The
complaints are still pending and management is currently not in a position to
assess when the proceedings will be brought to a conclusion or what the final
outcome of the proceedings will be.

SMS services

     In November 1999, MTV3-Tele Oy filed a complaint against Sonera with the
FCA claiming that the fees charged by Sonera for commercial SMS services (Short
Message Services) are excessive. Sonera's response to the complaint stated that
the SMS services it offers are reasonably priced and explained the division of
fees and costs between the service provider and the content provider. The
complaint is still pending and management is not currently in a position to
assess when the proceedings will be brought to a conclusion or what the final
outcome of the proceedings will be.

     On May 2, 2000, Televerkko Oy filed a complaint with the FCA against Sonera
claiming that Sonera is abusing its dominant market position in the market for
mobile services especially in connection with the pricing of its SMS services to
content providers. The FCA is investigating the pricing of Sonera's SMS services
as well as the cost to Sonera to provide SMS services to content providers.
Sonera submitted the requested information to the FCA on May 31, 2000.
Management is currently not in a position to predict with any certainty the
timing or likely outcome of the proceedings.

Other complaints

     On January 18, 2000, a complaint was filed with the FCA by Visual Data Oy,
related to the pricing of so-called subscriber identification data and the
access to various directories. On March 14, 2000, Satakunnan Markkinaporssi Oy
filed a complaint with the FCA on the same issue. On June 12, 2000, Visual Data
also filed a complaint on the issue with the TAC. The case is still pending both
at the TAC and the FCA, and management is not currently in a position to assess
when the proceedings will be brought to a conclusion or what the final outcome
of the proceedings will be.

Holding in TietoEnator Corporation

     As of December 31, 2000, Sonera had an 18.7 percent holding in TietoEnator
Corporation, one of the leading IT services providers in the Nordic countries.
The FCA conditioned its approval of the merger of Tieto Corporation and Enator
AB on Sonera's agreement to decrease by half its initial holding in TietoEnator
by June 11, 2001. In addition, Sonera gave up one of its two seats on
TietoEnator's Board of Directors at the

                                       F-34
<PAGE>   229
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

17. LEGAL AND REGULATORY PROCEEDINGS (CONTINUED)

company's annual general meeting of 2000. See also Note 22 to the Consolidated
Financial Statements for unaudited subsequent events.

Lattelekom exclusive rights

     In August 2000, Tilts Communications A/S, a 90 percent Danish subsidiary of
Sonera, started arbitration proceedings against the republic of Latvia under the
rules of the International Chamber of Commerce (ICC) in Paris. The reason for
initiating arbitration is the agreement signed in 1993 between the Republic of
Latvia and Tilts. According to this agreement, the Latvian fixed line operator,
Lattelekom SIA, in which Tilts owns 49% and the State of Latvia 51%, has
exclusive rights to provide basic fixed network services in Latvia until the end
of 2013. However, contrary to the agreement, the Republic of Latvia has made a
commitment to the World Trade Organization that Lattelekom's exclusive rights
would be revoked by January 1, 2003. A decision in the case is not expected
before 2002.

Tax matters

     During the past few years and especially during 2000, Sonera has undertook
significant incorporations of its operations and other restructurings of its
organization, to meet the requirements of the changing industry and evolving
businesses. Management believes that all transactions have been made in
compliance with the Finnish tax legislation and foreign tax regulations, when
applicable. Sonera has also requested for advance rulings for certain
significant transactions to have certainty over the applicable tax treatment of
such transactions. However, Sonera has not been tax audited for Finnish income
taxes for any of the fiscal years starting from 1994. Management is currently
unable to assess the timing or the likely outcome of an income tax audit in
Finland.

18. FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT

     The following table presents the carrying values and fair values for
financial instruments, using share prices and interest and exchange rates
current at the balance sheet date. While the contract amounts presented for
derivative instruments illustrate the scope of Sonera's hedging activities, they
do not necessarily represent amounts exchanged by the parties and, when
considered separately, are not a measure of Sonera's risk exposure. See Note 1
to the Consolidated Financial Statements for the accounting policies for
derivative financial instruments.
<TABLE>
<CAPTION>
                                AS OF DECEMBER 31, 1998                  AS OF DECEMBER 31, 1999
                         --------------------------------------   --------------------------------------
                         CONTRACT   CARRYING   FAIR    AVERAGE    CONTRACT   CARRYING   FAIR    AVERAGE
                          AMOUNT     VALUE     VALUE   MATURITY    AMOUNT     VALUE     VALUE   MATURITY
                         --------   --------   -----   --------   --------   --------   -----   --------
                               (IN E MILLIONS)         (MONTHS)         (IN E MILLIONS)         (MONTHS)
<S>                      <C>        <C>        <C>     <C>        <C>        <C>        <C>     <C>
Investments and loans:
Shares and holdings
  VoiceStream Wireless
    Corporation........                --        --                              --        --
  Aerial
    Communications,
    Inc................               153        70                             323       791
  Turkcell Iletisim
    Hizmetleri A.S.....               199       199                             382       382
  AB Lietuvos
    Telekomas..........               222       222                             232       232
  TietoEnator
    Corporation........                96       558                             130       893
  Powertel, Inc........                --        --                             119       250
  AS Eesti Telekom.....                --        --                              46       231
  724 Solutions Inc....                --        --                              21        21

<CAPTION>
                                AS OF DECEMBER 31, 2000
                         --------------------------------------
                         CONTRACT   CARRYING   FAIR    AVERAGE
                          AMOUNT     VALUE     VALUE   MATURITY
                         --------   --------   -----   --------
                               (IN E MILLIONS)         (MONTHS)
<S>                      <C>        <C>        <C>     <C>
Investments and loans:
Shares and holdings
  VoiceStream Wireless
    Corporation........              1,646     2,052
  Aerial
    Communications,
    Inc................                 --        --
  Turkcell Iletisim
    Hizmetleri A.S.....                568     2,695
  AB Lietuvos
    Telekomas..........                211       138
  TietoEnator
    Corporation........                139       473
  Powertel, Inc........                119       308
  AS Eesti Telekom.....                 55       186
  724 Solutions Inc....                 21       115
</TABLE>

                                       F-35
<PAGE>   230
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
18. FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (CONTINUED)
                                AS OF DECEMBER 31, 1998                  AS OF DECEMBER 31, 1999
                         --------------------------------------   --------------------------------------
                         CONTRACT   CARRYING   FAIR    AVERAGE    CONTRACT   CARRYING   FAIR    AVERAGE
                          AMOUNT     VALUE     VALUE   MATURITY    AMOUNT     VALUE     VALUE   MATURITY
                         --------   --------   -----   --------   --------   --------   -----   --------
                               (IN E MILLIONS)         (MONTHS)         (IN E MILLIONS)         (MONTHS)
<S>                      <C>        <C>        <C>     <C>        <C>        <C>        <C>     <C>
  Conduit Plc..........                --        --                              --        --
  Other shares and
    holdings...........               532       533                             538       551
Loans receivable.......                30        32                              54        61
Cash and short-term
  investments..........                93        93                             115       115
Long-term debt.........               788       793                           1,124     1,127
Current portion of
  long-term debt.......                --        --                              --        --
Current debt...........               135       135                             172       172
Derivative financial
  instruments:
Interest rate swaps
  Euribor..............    244         --        (3)      32        604           7       (15)     69
Purchased interest rate
  options
  Cap options,
    Euribor............     --         --        --       --        120           1         3      38
Forward selling of
  foreign exchange
  U.S.$................     39         --        (2)       2         43          (2)       (2)      2
  SEK..................      1         --        --       --         19          --        --       5
  GBP..................     --         --        --       --         --          --        --      --
  NOK..................     --         --        --       --         --          --        --      --
  HKD..................     14         --        --       --         --          --        --      --
  Other currencies.....      1         --        --       --         --          --        --      --
Forward buying of
  foreign exchange
  U.S.$................     --         --        --       --         61           3         2       2
  DEM..................    576         --        --       --         --          --        --      --
  ECU..................    194         (1)       --       --         --          --        --      --
  SEK..................     --         --        --       --         --          --        --      --
Currency swaps -- sell
  SEK..................      2         --        --        1         --          --        --      --

<CAPTION>
18. FINANCIAL INSTRUMEN  18. FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (CONTINUED)

                                AS OF DECEMBER 31, 2000
                         --------------------------------------
                         CONTRACT   CARRYING   FAIR    AVERAGE
                          AMOUNT     VALUE     VALUE   MATURITY
                         --------   --------   -----   --------
                               (IN E MILLIONS)         (MONTHS)
<S>                      <C>        <C>        <C>     <C>
  Conduit Plc..........                 20        28
  Other shares and
    holdings...........              1,958     1,956
Loans receivable.......              2,859     2,865
Cash and short-term
  investments..........                156       156
Long-term debt.........              1,842     1,848
Current portion of
  long-term debt.......                107       107
Current debt...........              3,848     3,848
Derivative financial
  instruments:
Interest rate swaps
  Euribor..............   2,103         36        36      48
Purchased interest rate
  options
  Cap options,
    Euribor............     200          1         1      24
Forward selling of
  foreign exchange
  U.S.$................      50          3         4       3
  SEK..................      48          1         1       3
  GBP..................      17         --        --       5
  NOK..................      16         --        --       1
  HKD..................      --         --        --      --
  Other currencies.....       9         --        --       6
Forward buying of
  foreign exchange
  U.S.$................     125        (12)      (14)      3
  DEM..................      --         --        --      --
  ECU..................      --         --        --      --
  SEK..................       3         --        --       1
Currency swaps -- sell
  SEK..................      --         --        --      --
</TABLE>

     Fair values of the publicly quoted shares are based on December 31 closing
prices. For other equity investments, fair value approximates the carrying
value.

     The fair values of loans receivable, debt and derivative instruments are
estimated using the expected future cash payments discounted at market interest
rates current at the balance sheet date. The carrying value of cash and
short-term investments approximates fair value.

     For the carrying values and fair values of derivative instruments, a
positive value represents asset and a negative value represents liability.

Derivative financial instruments

     Interest rate swaps and options (cap) relate to the hedging of interest
rate risk in respect of Sonera's long-term borrowings.

     Interest rate swaps as of December 31, 1998 consisted of 11 contracts with
an average maturity of 32 months (ranging from 19 to 57 months), where Sonera
paid fixed interest rate of 3.91 percent and received variable

                                       F-36
<PAGE>   231
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

18. FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (CONTINUED)

interest rate based on Libor (3.62 percent on December 31, 1998). At the time
that the swap contracts were entered into there were no cash requirements. The
difference between the interest rate to be received and paid is settled in cash
on a semiannual basis.

     Interest rate swaps as of December 31, 1999 consisted of 15 contracts with
an average maturity of 69 months (ranging from seven to 113 months). Swaps
hedging the long-term loan portfolio totaled E304 million, where Sonera pays
fixed interest rate of 4.07 percent and receives variable interest rate based on
Euribor (3.22 percent on December 31, 1999). Additionally, Sonera has swapped
its E300 million fixed rate Note (coupon interest 4.625 percent) into variable
interest rate with contracts where Sonera receives fixed interest rate of 4.625
percent and pays variable interest rate based on Euribor (3.69 percent on
December 31, 1999). At the time that the swap contracts were entered into there
were no cash requirements. The difference between the interest rate to be
received and paid is settled in cash on a semiannual basis.

     Interest rate swaps as of December 31, 2000 consisted of 23 contracts with
an average maturity of 48 months (ranging from seven to 98 months). Swaps
hedging the long-term loan portfolio totaled E803 million, where Sonera pays
fixed interest rate 4.69 percent and receives variable interest rate based on
Euribor (4.98 percent on December 31, 2000). Additionally, Sonera has swapped
its E300 million and E1,000 million fixed rate Notes (coupon interest 4.625
percent) into variable interest with contracts under which Sonera receives fixed
interest rate of 5.39 percent on average and pays variable interest rate based
on Euribor (5.35 percent on December 31, 2000). At the time that the swap
contracts were entered into there were no cash requirements. The difference
between the interest rate to be received and paid is settled in cash on a
semiannual basis.

     Interest rate options totaling E120 million as of December 31, 1999
consisted of five contracts with an average maturity of 38 months. The average
cap of the options was 4.63 percent and their reference rates were based on the
three or six month Euribor rate. The cash flows incurred at inception are
amortized over the term of each option.

     Interest rate options totaling E200 million as of December 31, 2000
consisted of seven contracts with an average maturity of 24 months. The average
cap of the options was 4.98 percent and their reference rates were based on the
three or six month Euribor rate. The cash flows incurred at inception are
amortized over the term of each option.

     Forward selling of foreign exchange relates to the hedging of Sonera's
trade accounts receivable and loans receivable in foreign currencies, and the
maturities of these derivative financial instruments ranged from two to five
months as of December 31, 1998, from zero to two months as of December 31, 1999
and from zero to 33 months as of December 31, 2000. At the time that the forward
contracts were entered into there were no cash requirements. Cash settlements of
the forward contracts will occur at maturity.

     Forward buying of foreign exchange primarily relates to the hedging of
Sonera's foreign currency loans, and, to a lesser extent, to the hedging of
accounts payable in foreign currencies. The maturities of these derivative
instruments were less than one month as of December 31, 1998, were two months as
of December 31, 1999, and ranged from zero to ten months as of December 31,
2000. Forward buying of ECU and German mark related to the hedging of long-term
loans drawn down in ECU and German mark during 1998. At the time that the
forward contracts were entered into there were no cash requirements. Cash
settlements of the forward contracts will occur at maturity.

     Sonera does not hold positions in derivative financial instruments for
speculative purposes.

                                       F-37
<PAGE>   232
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

18. FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (CONTINUED)

Management of interest rate and foreign exchange risks

     Sonera's business operations give rise to certain exposure to risks related
to interest rates and foreign exchange. These risks are managed to minimize
their impact on Sonera's profitability and financial position. The majority of
cash flows from Sonera's operations are in euros.

     Interest rate risks include the cash flow risk (changes in interest income
and expenses when interest rates change) and the price risk (changes in the
value of financial instruments when interest rates change). Sonera manages its
interest rate risks by diversifying its portfolio of investments and loans in
fixed and variable rate instruments, and by using interest rate swaps, interest
rate options and forward rate agreements.

     Changes in exchange rates between the euro and other currencies in which
Sonera has receivables, payables or other contractual items generate exchange
gains and losses to the Group's result (transaction risk). Under its financial
management policy, Sonera hedges all significant transaction risks with forward
foreign exchange contracts, currency swaps and currency options.

     Changes in exchange rates between the euro and foreign currencies in which
Sonera's foreign subsidiaries and associated companies report their results of
operations and shareholders' equity for inclusion in the Consolidated Financial
Statements generate translation differences to the consolidated shareholders'
equity (translation risk). The hedging decision for each case is determined by
taking into account the impact of hedging on the Group's result and cash flows,
as well as the circumstances in local currency and capital markets, including
the level of interest rates and the liquidity of the market. During the years
ended December 31, 1998, 1999 and 2000, Sonera did not hedge its translation
risks.

Management of credit risk

     Financial instruments involve a risk that the counterparties may be unable
to meet their contractual commitments. The investments in financial instruments,
including short-term investments of excess cash, long-term investments in debt
securities and loans receivable, as well as the use of derivative instruments,
are centrally managed in Sonera's Treasury function, and are limited to such
counterparties and amounts as are approved by the Board of Directors. In the
opinion of management, the counterparties of the Company's financial instruments
are credit worthy and no significant losses are expected from existing
contracts. In the normal course of business, no collateral is required by the
Company.

     The credit risk with respect to Sonera's trade receivables is diversified
both across a broad clientele of private individuals and among a large number of
companies operating in various fields. Exposure to credit loss and subscriber
fraud is monitored actively on a daily basis, including the processing of
current credit information on subscribers from third-party sources. Bad debt
expense in relation to consolidated revenues was 0.4 percent, 0.3 percent and
0.3 percent during the years ended December 31, 1998, 1999 and 2000,
respectively.

19. SEGMENTED INFORMATION

     Starting from the beginning of 2001, Sonera reports the following five
business segments: (1) Domestic Mobile Communications, (2) International Mobile
Communications, (3) Media Communications and New Services, (4) Sonera Telecom,
and (5) Other Operations. The principal changes from the previously reported
segments include (i) the division of former Mobile Communications into domestic
and international segments to increase transparency and to reflect revised
management responsibility, and (ii) the combining of the previously separate
segments Fixed Network Voice and Data, and Equipment Sales and Other Operations,
into Sonera Telecom, to reflect the management responsibility for the Sonera
Telecom entity, and to better reflect the closely interrelated operations of the
two previously separate reported segments. Sonera is also planning to
incorporate its

                                       F-38
<PAGE>   233
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

19. SEGMENTED INFORMATION (CONTINUED)

Sonera Telecom segment into a separate legal subgroup as of July 1, 2001.
Segment information for all periods presented has been restated to comply with
the revised reporting structure.

     Domestic Mobile Communications consists primarily of digital GSM and analog
NMT services in Finland. International Mobile Communications includes
significant minority shareholdings in providers of mobile telecommunications
services in Turkey, Germany, Italy, Spain, Norway, Hungary, the Baltic States,
United States, Russia and Lebanon. Media Communications and New Services
includes internet, directory, and other media businesses and new services based
on mobile communications. Sonera Telecom includes standard fixed network
domestic and international voice services, data services and leased lines,
equipment sales, construction and maintenance and certain other operations, as
well as significant minority shareholdings in providers of fixed network
telecommunications services in the Baltic States. Other operations consists
primarily of the Group's centralized services, corporate administration, and
certain minor business operations.

     The presentation of Sonera's business segments is based on management
accounts. Management accounts are monthly internal reports used by the chief
operating decision maker to evaluate segment performance and to make decisions
how to allocate resources to segments. In this process, various adjustments are
made in order to properly allocate the cost of internal services and certain
other administrative overhead expenses. Where a reliable measure exists, the
allocation is based on actual usage of capacity or services. For services that
depend on the number of employees, the allocation basis is the number of
personnel. For other internal services and administrative expenses, rational and
consistent allocation methods are used that are deemed to represent a fair
approximation of the actual use of services. Due to significant
interdependencies and overlaps among the operating units, the profitability
information shown for each operation may not be indicative of the amounts which
would have been reported if the operating units were operationally or legally
independent of one another.

     Intercompany sales consist of (i) services or goods sold to other business
segments for their use, and (ii) sales of services or goods for resale by
another business segment in cases where that another business segment has the
customer responsibility, and bears the risks and rewards of the revenue with an
outside customers.

     The accounting policies underlying the reported segment data are the same
as those described in Note 1 to the Consolidated Financial Statements.

                                       F-39
<PAGE>   234
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

19. SEGMENTED INFORMATION (CONTINUED)

     Financial information followed by Sonera's management is presented
separately for Sonera's business segments as of and for the years ended December
31, 1998, 1999 and 2000 as follows:

<TABLE>
<CAPTION>
                                                 AS OF OR FOR THE YEAR ENDED DECEMBER 31, 1998
                          --------------------------------------------------------------------------------------------
                          DOMESTIC   INTERNATIONAL      MEDIA
                           MOBILE       MOBILE         COMMUNI-
                          COMMUNI-     COMMUNI-      CATIONS AND    SONERA      OTHER
                          CATIONS       CATIONS      NEW SERVICES   TELECOM   OPERATIONS   ELIMINATIONS   CONSOLIDATED
                          --------   -------------   ------------   -------   ----------   ------------   ------------
                                                                (IN E MILLIONS)
<S>                       <C>        <C>             <C>            <C>       <C>          <C>            <C>
Sales to external
  customers............     756             2            115           728        22             --          1,623
Intercompany sales.....      70            --             12           219        --           (301)            --
                            ---           ---            ---         -----       ---           ----          -----
Total revenues.........     826             2            127           947        22           (301)         1,623
                            ===           ===            ===         =====       ===           ====          =====
Operating profit.......     223            (1)            14            53        --             --            289
Equity income in
  associated
  companies............      --            60             --            (7)        6             --             59
Unallocated amounts:
  Financial income and
    expenses, net......                                                                                         (2)
                                                                                                             -----
Consolidated profit
  before income taxes,
  minority interest and
  extraordinary
  items................                                                                                        346
                                                                                                             =====
Segment assets(a)......     482           533             28         1,216       119             --          2,378
Capital expenditures
  and investments in
  shares...............     166           396              6           615        66             --          1,249
Depreciation,
  amortization and
  write-downs..........     139            --              7           152        --             --            298
</TABLE>

                                       F-40
<PAGE>   235
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

19. SEGMENTED INFORMATION (CONTINUED)


<TABLE>
<CAPTION>
                                                 AS OF OR FOR THE YEAR ENDED DECEMBER 31, 1999
                          --------------------------------------------------------------------------------------------
                          DOMESTIC   INTERNATIONAL      MEDIA
                           MOBILE       MOBILE         COMMUNI-
                          COMMUNI-     COMMUNI-      CATIONS AND    SONERA      OTHER
                          CATIONS       CATIONS      NEW SERVICES   TELECOM   OPERATIONS   ELIMINATIONS   CONSOLIDATED
                          --------   -------------   ------------   -------   ----------   ------------   ------------
                                                                (IN E MILLIONS)
<S>                       <C>        <C>             <C>            <C>       <C>          <C>            <C>
Sales to external
  customers............     917              4           140           753        35             --          1,849
Intercompany sales.....      67             --            35           227        63           (392)            --
                            ---          -----           ---         -----       ---           ----          -----
Total revenues.........     984              4           175           980        98           (392)         1,849
                            ===          =====           ===         =====       ===           ====          =====
Operating profit.......     349             (4)          (60)          102        --             --            387
Equity income in
  associated
  companies............      --            121            (2)          (19)       10             --            110
Unallocated amounts:
  Financial income and
    expenses, net......                                                                                         --
                                                                                                             -----
Consolidated profit
  before income taxes,
  minority interest and
  extraordinary
  items................                                                                                        497
                                                                                                             =====
Segment assets(a)......     499          1,009            51         1,271       189             --          3,019
Capital expenditures
  and investments in
  shares...............     148            337            53           184        26             --            748
Depreciation and
  amortization.........     123             --            13           145        --             --            281
</TABLE>

<TABLE>
<CAPTION>
                                                 AS OF OR FOR THE YEAR ENDED DECEMBER 31, 2000
                          --------------------------------------------------------------------------------------------
                          DOMESTIC   INTERNATIONAL      MEDIA
                           MOBILE       MOBILE         COMMUNI-
                          COMMUNI-     COMMUNI-      CATIONS AND    SONERA      OTHER
                          CATIONS       CATIONS      NEW SERVICES   TELECOM   OPERATIONS   ELIMINATIONS   CONSOLIDATED
                          --------   -------------   ------------   -------   ----------   ------------   ------------
                                                                (IN E MILLIONS)
<S>                       <C>        <C>             <C>            <C>       <C>          <C>            <C>
Sales to external
  customers............    1,054             5            207          781        10             --          2,057
Intercompany sales.....       80            --             47          239        75           (441)            --
                           -----         -----           ----        -----       ---           ----          -----
Total revenues.........    1,134             5            254        1,020        85           (441)         2,057
                           =====         =====           ====        =====       ===           ====          =====
Operating profit.......      414         1,502           (335)         162         5             --          1,748
Equity income in
  associated
  companies............       --           120             (3)           3         1             --            121
Unallocated amounts:
  Financial income and
    expenses, net......                                                                                         (9)
                                                                                                             -----
Consolidated profit
  before income taxes,
  minority interest and
  extraordinary
  items................                                                                                      1,860
                                                                                                             =====
Segment assets(a)......      488         3,879            189        1,315       247             --          6,118
Capital expenditures
  and investments in
  shares...............      124         1,975            144          202       102             --          2,547
Depreciation and
  amortization.........      129            --             32          138        --             --            299
</TABLE>

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

(a) Segment assets include property, plant and equipment plus intangible assets,
    as well as investments in shares in associated companies and other minority
    shareholdings.
                                       F-41
<PAGE>   236
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

19. SEGMENTED INFORMATION (CONTINUED)

     The following table presents a reconciliation of the business segment
assets to Sonera's consolidated total assets:

<TABLE>
<CAPTION>
                                                                  AS OF DECEMBER 31,
                                                                -----------------------
                                                                1998     1999     2000
                                                                -----    -----    -----
                                                                    (IN E MILLIONS)
<S>                                                             <C>      <C>      <C>
Total assets for reportable segments........................    2,378    3,019    6,118
Long-term loans receivable..................................       29       35       42
Inventories.................................................       22       36       40
Receivables.................................................      292      404    3,418
Cash and short-term investments.............................       93      115      156
                                                                -----    -----    -----
Consolidated total assets...................................    2,814    3,609    9,774
                                                                =====    =====    =====
</TABLE>

     The majority of Sonera's revenues are generated in Finland. The components
of revenues by geographic area are as follows:

<TABLE>
<CAPTION>
                                                                YEAR ENDED DECEMBER 31,
                                                                -----------------------
                                                                1998     1999     2000
                                                                -----    -----    -----
                                                                    (IN E MILLIONS)
<S>                                                             <C>      <C>      <C>
Sales to customers in Finland...............................    1,549    1,766    1,958
Sales to customers outside Finland..........................       74       83       99
                                                                -----    -----    -----
Total.......................................................    1,623    1,849    2,057
                                                                =====    =====    =====
</TABLE>

     Information about Sonera's long-lived assets (property, plant and
equipment) by geographic area is as follows:

<TABLE>
<CAPTION>
                                                                  AS OF DECEMBER 31,
                                                                -----------------------
                                                                1998     1999     2000
                                                                -----    -----    -----
                                                                    (IN E MILLIONS)
<S>                                                             <C>      <C>      <C>
Finland.....................................................    1,102    1,138    1,224
Outside Finland.............................................       21       21       41
                                                                -----    -----    -----
Total.......................................................    1,123    1,159    1,265
                                                                =====    =====    =====
</TABLE>

20. SUBSIDIARIES, ASSOCIATED COMPANIES AND OTHER SHAREHOLDINGS

Group companies on December 31, 2000 were as follows:

<TABLE>
<CAPTION>
                                                                                                      NUMBER OF
                                                                                                   PERSONNEL AS OF
                                                                    SONERA'S        REVENUES        DECEMBER 31,
                                           DOMICILE               SHAREHOLDING      FOR 2000            2000
                                -------------------------------   ------------   ---------------   ---------------
                                                                      (%)        (IN E MILLIONS)
<S>                             <C>                               <C>            <C>               <C>
Parent Company:
Sonera Corporation............  Helsinki, Finland                                    1,268.5            3,224
Subsidiaries:
Across Holding AB(a)..........  Stockholm, Sweden                    100.0                --               --
Across Wireless AB(a).........  Stockholm, Sweden                    100.0              12.2              153
Across Wireless Asia
  Ltd.(a).....................  Hong Kong                            100.0                --                8
</TABLE>

                                       F-42
<PAGE>   237
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

20. SUBSIDIARIES, ASSOCIATED COMPANIES AND OTHER SHAREHOLDINGS (CONTINUED)


<TABLE>
<CAPTION>
                                                                                                      NUMBER OF
                                                                                                   PERSONNEL AS OF
                                                                    SONERA'S        REVENUES        DECEMBER 31,
                                           DOMICILE               SHAREHOLDING      FOR 2000            2000
                                -------------------------------   ------------   ---------------   ---------------
                                                                      (%)        (IN E MILLIONS)
<S>                             <C>                               <C>            <C>               <C>
Across Wireless Ltd(a)........  London, United Kingdom               100.0                --               --
Advanced Communication
  Research ACR Oy.............  Helsinki, Finland                    100.0                --               --
Bfree Oy(b)...................  Helsinki, Finland                    100.0                --               --
Comro Oy(b)...................  Helsinki, Finland                    100.0                --               --
Consaura Oy(b)................  Helsinki, Finland                    100.0               0.3               10
Dash Oy.......................  Helsinki, Finland                    100.0                --               --
Data-Info Oy..................  Helsinki, Finland                    100.0               4.1               10
EMCEC Oy......................  Helsinki, Finland                    100.0               1.8               30
Esdata A/S....................  Tallinn, Estonia                      70.0               0.8                9
Fleetadviser Oy(b)............  Helsinki, Finland                    100.0                --               --
Frontec Support and Operations
  AB(a).......................  Stockholm, Sweden                    100.0                --               --
Geddeholm CallCenter AB.......  Stockholm, Sweden                     91.0               3.0               83
Gesam Oy......................  Helsinki, Finland                    100.0                --               --
Helsingin Teollisuuskatu 13
  Oy..........................  Helsinki, Finland                    100.0               3.1               --
iD2 Holding AB(a).............  Stockholm, Sweden                    100.0                --               --
iD2 Technologies AB(a)........  Stockholm, Sweden                    100.0               2.9               88
iD2 Technologies Ltd(a).......  London, United Kingdom               100.0               0.9               --
Oy Infonet Finland Ltd........  Helsinki, Finland                     90.0              13.5               20
Intellitel Communications
  Oy..........................  Helsinki, Finland                     97.3               2.4               58
International Business
  Venturing IBV Oy............  Helsinki, Finland                    100.0                --               --
Intra Call Center S.A.(a).....  Amiens, France                        51.1               4.7              283
Ixone Oy(b)...................  Helsinki, Finland                    100.0                --               --
Konsona Oy(b).................  Helsinki, Finland                    100.0                --               --
Lippupalvelu Oy...............  Helsinki, Finland                     55.6               2.2               45
Mobinetti Oy..................  Helsinki, Finland                    100.0                --               --
Mspace Oy(c)..................  Helsinki, Finland                    100.0                --               --
Ovomix AB(d)..................  Stockholm, Sweden                     51.0                --               --
Payway Oy.....................  Helsinki, Finland                     67.0                --                7
Kiinteisto Oy Pietarsaaren
  Isokatu 8...................  Pietarsaari, Finland                  60.2                --               --
Phone Park AB.................  Stockholm, Sweden                     67.0               0.1               --
Primatel Ltd..................  Kuopio, Finland                      100.0             166.1            1,837
Paamies-kauppiaat Oy..........  Helsinki, Finland                     59.4               1.5                4
Reveko Telekom AS.............  Tallinn, Estonia                      55.0               1.7               20
Kiinteisto Oy Saajomaja.......  Helsinki, Finland                    100.0                --               --
Saimaan Tietotekno Oy(a)......  Imatra, Finland                      100.0               1.7               24
Simfocom Oy...................  Helsinki, Finland                    100.0                --               --
SmartTrust GmbH(e)............  Erfurt, Germany                      100.0                --               27
SmartTrust Pte Ltd(b).........  Singapore                            100.0                --               --
SmartTrust Systems Oy(b)......  Helsinki, Finland                    100.0                --               --
</TABLE>

                                       F-43
<PAGE>   238
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

20. SUBSIDIARIES, ASSOCIATED COMPANIES AND OTHER SHAREHOLDINGS (CONTINUED)


<TABLE>
<CAPTION>
                                                                                                      NUMBER OF
                                                                                                   PERSONNEL AS OF
                                                                    SONERA'S        REVENUES        DECEMBER 31,
                                           DOMICILE               SHAREHOLDING      FOR 2000            2000
                                -------------------------------   ------------   ---------------   ---------------
                                                                      (%)        (IN E MILLIONS)
<S>                             <C>                               <C>            <C>               <C>
Sonera 3G Holding B.V.(b).....  Capelle a/d Ijssel, Netherlands      100.0                --               --
Sonera Belgium n.v./s.a.......  Brussels, Belgium                    100.0               0.7               11
Sonera Carrier Networks Ltd...  Helsinki, Finland                    100.0             408.0              774
Sonera Corporation U.S........  Wilmington, DE, USA                  100.0                --               28
Sonera Deutschland GmbH.......  Dusseldorf, Germany                  100.0               2.9               43
Sonera Entrum Ltd.............  Helsinki, Finland                    100.0             404.4              892
Sonera France SAS.............  Paris, France                        100.0               0.2               --
Sonera Gateway Ltd(f).........  Helsinki, Finland                    100.0              58.3               21
Sonera Holding B.V............  Amsterdam, Netherlands               100.0                --                1
Sonera Hong Kong Ltd(g).......  Hong Kong                            100.0                --               11
Sonera Hungary Holding
  B.V.(b).....................  Capelle a/d Ijssel, Netherlands      100.0                --               --
Sonera Hungary Kft............  Budapest, Hungary                    100.0                --               --
Sonera Info Communications
  Oy(b).......................  Helsinki, Finland                    100.0               5.0              606
Sonera Innotele Oy............  Helsinki, Finland                    100.0              55.6               63
Sonera International
  n.v./s.a....................  Brussels, Belgium                    100.0                --               19
Sonera Italian Holding
  B.V.(b).....................  Capelle a/d Ijssel, Netherlands      100.0                --               --
Sonera Japan K.K.(b)..........  Tokyo, Japan                         100.0                --               --
Sonera Juxto Ltd(b)...........  Helsinki, Finland                    100.0              31.7              601
Sonera Living Oy(b)...........  Helsinki, Finland                     51.0                --               21
Sonera Media Holding
  B.V.(b).....................  Capelle a/d Ijssel, Netherlands      100.0               0.2               10
Sonera Plaza Nederland
  B.V.(h).....................  Capelle a/d Ijssel, Netherlands      100.0               8.0              178
Sonera Plaza Ltd(b)...........  Helsinki, Finland                    100.0              18.1              223
Sonera Plaza Finanssipalvelut
  Ltd(b)......................  Helsinki, Finland                     80.0                --               --
Sonera Plaza Incentives
  Ltd(b)......................  Helsinki, Finland                    100.0                --               --
Sonera Plaza Rahastopalvelut
  Ltd(b)......................  Helsinki, Finland                    100.0                --                4
ZAO Sonera Rus................  St. Petersburh, Russia               100.0              10.8               54
Sonera SmartTrust Holding
  B.V.(b).....................  Rotterdam, Netherlands               100.0                --               --
Sonera SmartTrust Ltd.........  London, United Kingdom               100.0                --               75
Sonera SmartTrust Ltd.........  Helsinki, Finland                    100.0               1.7              193
Sonera SmartTrust U.S.,
  Inc.(b).....................  Wilmington, DE, USA                  100.0                --               --
Sonera Solutions Ltd..........  Helsinki, Finland                    100.0             402.4              827
Sonera Sverige AB.............  Stockholm, Sweden                    100.0              45.5              149
Sonera Systems Ltd............  Helsinki, Finland                    100.0               4.1               10
Sonera Systems SIA............  Riga, Latvia                         100.0               0.3                4
Sonera Telecommunication
  Services Ltd Sirketi........  Istanbul, Turkey                     100.0               4.7               22
Sonera UK Limited.............  Middlesex, United Kingdom            100.0                --               --
Sonera Sweden Holding
  B.V.(b).....................  Capelle a/d Ijssel, Netherlands      100.0                --               --
Sonera Ventures Oy(b).........  Helsinki, Finland                    100.0                --               --
Sonera Zed Germany GmbH(b)....  Dusseldorf, Germany                  100.0                --               10
Sonera Zed Incentives Oy(b)...  Helsinki, Finland                    100.0                --               --
</TABLE>

                                       F-44
<PAGE>   239
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

20. SUBSIDIARIES, ASSOCIATED COMPANIES AND OTHER SHAREHOLDINGS (CONTINUED)


<TABLE>
<CAPTION>
                                                                                                      NUMBER OF
                                                                                                   PERSONNEL AS OF
                                                                    SONERA'S        REVENUES        DECEMBER 31,
                                           DOMICILE               SHAREHOLDING      FOR 2000            2000
                                -------------------------------   ------------   ---------------   ---------------
                                                                      (%)        (IN E MILLIONS)
<S>                             <C>                               <C>            <C>               <C>
Sonera Zed Italy srl.(b)......  Milan, Italy                         100.0                --               10
Sonera Zed Nederland
  B.V.(b).....................  Capelle a/d Ijssel, Netherlands      100.0                --               26
Sonera Zed Ltd(b).............  Helsinki, Finland                    100.0               7.0              134
Sonera Zed Philippines,
  Inc.(b).....................  Makati City, Philippines             100.0                --               --
Sonera Zed Singapore Pte
  Ltd.(b).....................  Singapore                            100.0                --               14
Sonera Zed Telekomunikasyon
  Hizmetleri Ve Reklamcilik
  Limited Sirketi(b)..........  Istanbul, Turkey                     100.0                --               --
Sonera Zed UK Limited(b)......  Middlesex, United Kingdom            100.0              43.3               77
Sonera Zed U.S., Inc.(b)......  Waltham, MA, USA                     100.0                --               48
Spectrum Co Ltd(a)............  London, United Kingdom                67.9                --               --
Systems Consultant Partners
  Oy..........................  Helsinki, Finland                    100.0                --               --
Tedasys Inc.(i)...............  Lahti, Finland                       100.0               0.9               28
Tele P AB(j)..................  Jarfalla, Sweden                      67.0                --               --
Oy Telecon Ltd................  Helsinki, Finland                    100.0                --               --
Telering Oy...................  Helsinki, Finland                    100.0              25.1              114
Telesol Oy....................  Helsinki, Finland                    100.0                --               --
Teletori Oy...................  Helsinki, Finland                    100.0                --               --
Telibra Oy....................  Helsinki, Finland                    100.0                --               --
Tilts Communications A/S......  Copenhagen, Denmark                   90.0               4.5                1
Tilts Communications SIA......  Riga, Latvia                          90.0                --               --
Unibase Ltd...................  Helsinki, Finland                    100.0              44.9               29
Witnet Oy(b)..................  Helsinki, Finland                    100.0                --               --
Revenues of sold
  subsidiaries................                                                          15.1               --
Intra-Group sales.............                                                      (1,038.4)              --
                                                                                    --------           ------
Total.........................                                                       2,056.5           11,271
                                                                                    ========           ======
</TABLE>

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

Shareholding also corresponds to Sonera's share of voting rights in each
subsidiary. Revenues are presented in accordance with Sonera's accounting
principles. Revenues for subsidiaries acquired during the year represent revenue
from the month of acquisition. Revenues for businesses incorporated during the
year represent revenue from the start of operations of the subsidiary.

<TABLE>
<S>                                                             <C>
Notes to the list of group companies:                           Changed to associated companies:
(a) The company was acquired in 2000.                           Suomen Erillisverkot Oy in December
(b) The company was established in 2000.                        2000.
(c) The company's name was changed in 2000; former name was     ZAO Sonic Duo in January 2000.
Smartum Oy.
(d) The company was acquired in 2000; name was changed in       Mergers:
    January 2001 to Sonera SmartTrust AB.                       MultiWeb B.V. merged into Sonera Plaza
(e) The company's name was changed in 2000; former name was     Nederland B.V. in January 2000.
SmartRing GmbH.                                                 SmartTrust GmbH merged into SmartRing
(f)  The company's name was changed in 2000; former name was    GmbH in January 2000.
Sonera Credit Ltd.
(g) Company's official name; business name is Sonera
SmartTrust Ltd (Hong Kong).
(h) The company's name was changed in 2000; former name was
Sonera Nederland B.V.
(i)  The company will merge with Sonera Corporation in 2001.
(j)  The company was changed from an associated company into
a subsidiary in 2000.
</TABLE>

                                       F-45
<PAGE>   240
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

20. SUBSIDIARIES, ASSOCIATED COMPANIES AND OTHER SHAREHOLDINGS (CONTINUED)

     Sonera's associated companies on December 31, 2000 were as follows:

<TABLE>
<CAPTION>
                                                                          SONERA'S
                                                                           DIRECT          EQUITY
                                                   DOMICILE             SHAREHOLDING    CONSOLIDATION
                                          --------------------------    ------------    -------------
                                                                            (%)           (%)
<S>                                       <C>                           <C>             <C>
Mobile network operators:
Turkcell Iletisim Hizmetleri A.S......    Istanbul, Turkey                  13.3            37.3
Fintur Holdings B.V.(a)...............    Rotterdam, Netherlands            35.3            35.3
AS EMT................................    Tallinn, Estonia                    --            24.5
Latvijas Mobilais Telefons SIA........    Riga, Latvia                      24.5            24.5
UAB Omnitel...........................    Vilnius, Lithuania                  --            27.5
Pannon GSM Rt.........................    Budapest, Hungary                 23.0            23.0
ZAO North-West GSM....................    St. Petersburg, Russia            23.5            23.5
Marabu Vermogensverwaltung GmbH(b)....    Frankfurt am Main, Germany          --            42.8
OpCo Mobile Services GmbH i.G.(b).....    Frankfurt am Main, Germany          --            42.8
ZAO Sonic Duo(c)......................    Moscow, Russia                    35.0            35.0
Broadband Mobile ASA(d)...............    Oslo, Norway                      50.0            50.0
Fixed network operators:
AS Eesti Telefon......................    Tallinn, Estonia                    --            24.5
Lattelekom SIA........................    Riga, Latvia                      44.1            44.1
AB Lietuvos Telekomas.................    Vilnius, Lithuania                  --            30.0
Other associated companies:
Certall Finland Oy....................    Helsinki, Finland                 36.8            36.8
Farmit Website Ltd....................    Helsinki, Finland                 33.3            33.3
Gilla S.p.A.(e).......................    Cagliari, Italy                   50.0            50.0
Hansapost Oy(f).......................    Helsinki, Finland                 20.0            20.0
IsoWorks Oy...........................    Helsinki, Finland                 50.0            50.0
Johtotieto Oy.........................    Helsinki, Finland                 33.3            33.3
Kasteam Oy............................    Helsinki, Finland                 35.0            35.0
Movere Oy.............................    Helsinki, Finland                 20.0            20.0
Next Era Productions AB...............    Kista, Sweden                     50.0            50.0
S-Kanava Oy(g)........................    Helsinki, Finland                 50.0            50.0
UAB Sontel............................    Vilnius, Lithuania                50.0            50.0
Springtoys Oy(h)......................    Helsinki, Finland                 20.0            20.0
Suomen Erillisverkot Oy(i)............    Helsinki, Finland                 40.0            40.0
Suomen Keltaiset Sivut Oy.............    Helsinki, Finland                 30.2            30.2
Suomen Numeropalvelu Oy...............    Helsinki, Finland                 40.0            40.0
Zoom HF(h)............................    Reykjavik, Iceland                31.6            31.6
Holding companies:
Amber Mobile Teleholding AB...........    Farsta, Sweden                    50.0            50.0
Amber Teleholding A/S.................    Copenhagen, Denmark               50.0            50.0
Baltic Tele AB........................    Stockholm, Sweden                 50.0            50.0
AS Eesti Telekom......................    Tallinn, Estonia                  24.5            24.5
Orla Siebzehnte Vermogensverwaltung
  GmbH(b).............................    Frankfurt am Main, Germany        42.8            42.8
Helsingin GSM-Palvelu Oy..............    Helsinki, Finland                 35.0            35.0
</TABLE>

                                       F-46
<PAGE>   241
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

20. SUBSIDIARIES, ASSOCIATED COMPANIES AND OTHER SHAREHOLDINGS (CONTINUED)


<TABLE>
<CAPTION>
                                                                          SONERA'S
                                                                           DIRECT          EQUITY
                                                   DOMICILE             SHAREHOLDING    CONSOLIDATION
                                          --------------------------    ------------    -------------
                                                                            (%)           (%)
<S>                                       <C>                           <C>             <C>
Russian Directories Holding Oy(f).....    Helsinki, Finland                 35.0            35.0
Turkcell Holding A.S..................    Istanbul, Turkey                  47.1            47.1
</TABLE>

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

Shareholding also corresponds to Sonera's share of voting rights in each
associated company. Associated companies are included in the Consolidated
Financial Statements in accordance with the equity method of accounting. "Equity
consolidation" indicates the share of net income and retained earnings that is
included in Sonera's Consolidated Financial Statements. Summarized financial
information for the associated companies is presented in Note 10 to the
Consolidated Financial Statements.

<TABLE>
<S>                                                             <C>
Notes to the list of associated companies:                      Associated companies sold:
  (a) The company was established with Cukurova Group and       HanseNet Telefongesellschaft mbH & Co. KG
      Turkcell in May 2000.                                     Transmast Oy
  (b) The company was established with Telefonica Moviles
      S.A. in September 2000.                                   Transferred to other shareholdings due to decrease
  (c) The company changed from subsidiary to associated         in holding percentage:
      company in January 2000.                                  TietoEnator Corporation
  (d) The company was established with Enitel ASA in August     Trio AB
  2000.                                                         724 Solutions Inc.
  (e) The company was established with Tiscali S.p.A. in        Aerial Communications, Inc. merged with VoiceStream
  February 2000.                                                Wireless Corporation (Sonera's ownership 7.9%).
  (f)  The company is being dissolved.
  (g) The company was established with SOK Corporation in
  June 2000.
  (h) The company's shares were acquired in 2000.
  (i)  The company changed from subsidiary to associated
       company in December 2000.
</TABLE>

                                       F-47
<PAGE>   242
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

20. SUBSIDIARIES, ASSOCIATED COMPANIES AND OTHER SHAREHOLDINGS (CONTINUED)

     Sonera's other shareholdings on December 31, 2000 were as follows:

<TABLE>
<CAPTION>
                                                                          SONERA'S         CARRYING
                                                    DOMICILE            SHAREHOLDING         VALUE
                                            ------------------------    ------------    ---------------
                                                                            (%)         (IN E MILLIONS)
<S>                                         <C>                         <C>             <C>
VoiceStream Wireless Corporation........    Bellevue, WA, USA                7.9             1,646
Ipse 2000 S.p.A.........................    Rome, Italy                     12.6               270
TietoEnator Corporation.................    Helsinki, Finland               18.7               139
Powertel, Inc...........................    West Point, GA, USA              8.9               119
Xfera Moviles S.A.......................    Madrid, Spain                   14.3                43
724 Solutions Inc.......................    Toronto, Ontario, Canada        16.4                21
Conduit Plc.............................    Dublin, Ireland                 10.0                20
Juniper Financial Corporation...........    Wilmington, DE, USA              7.6                17
PeopleSound.com Limited.................    London, United Kingdom           8.0                11
Cisco Systems Inc.......................    San Francisco, CA, USA            --                10
Phonetics Systems Ltd...................    Petach Tikva, Israel            12.7                 6
Indiqu, Inc.............................    San Diego, CA, USA                --                 5
Digia Oy................................    Helsinki, Finland               15.2                 7
Libancell S.A.L.........................    Beirut, Lebanon                 14.0                 4
Trio AB.................................    Stockholm, Sweden                8.1                 2
Investments in venture capital funds....                                                        37
Interests in satellite operations.......                                                         4
Housing and real estate.................                                                         4
Other shares and holdings...............                                                         5
                                                                                             -----
Total...................................                                                     2,370
                                                                                             =====
</TABLE>

                                       F-48
<PAGE>   243
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

21. DIFFERENCES BETWEEN FINNISH GAAP AND GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES IN THE UNITED STATES

     The accompanying Consolidated Financial Statements have been prepared in
accordance with Finnish GAAP, which differs in certain significant respects from
U.S. GAAP. The following is a summary of the adjustments to net income and
shareholders' equity that would have been required if U.S. GAAP had been applied
instead of Finnish GAAP in the preparation of the Consolidated Financial
Statements.

<TABLE>
<CAPTION>
                                                                 YEAR ENDED DECEMBER 31,
                                                                --------------------------
                                                                 1998      1999      2000
                                                                ------    ------    ------
                                                                     (IN E MILLIONS,
                                                                EXCEPT PER SHARE AMOUNTS)
<S>                                                             <C>       <C>       <C>
Net income under Finnish GAAP...............................      251       370     1,506
Adjustments to reconcile to U.S. GAAP:
(a)  Difference in depreciation method......................      (27)       25        25
(b)  Pensions...............................................        9        (2)        3
(c)  Write-down on NMT network assets.......................       33       (11)       (3)
(d)  Provisions for year 2000...............................       (7)       (4)       --
(e)  Investments in marketable securities...................       --        --        --
(f)  Capitalization of interest.............................       --        --        (8)
(g)  Associated companies...................................      (22)      (24)      117
(h)  Allowance for doubtful accounts........................       --        --        (1)
(i)  Employee bond loans with warrants......................       --       (16)      (66)
(j)  Business combinations..................................       --        --      (852)
(k)  Income taxes...........................................       --        --       (17)
                                                                -----     -----     -----
Net income under U.S. GAAP..................................      237       338       704
                                                                =====     =====     =====
(l)  Basic earnings per share and ADS.......................     0.33      0.47      0.96
                                                                =====     =====     =====
(l)  Diluted earnings per share and ADS.....................     0.33      0.47      0.95
                                                                =====     =====     =====
</TABLE>

<TABLE>
<CAPTION>
                                                                  AS OF DECEMBER 31,
                                                                -----------------------
                                                                1998     1999     2000
                                                                -----    -----    -----
                                                                    (IN E MILLIONS)
<S>                                                             <C>      <C>      <C>
Shareholders' equity under Finnish GAAP.....................    1,424    1,801    3,233
Adjustments to reconcile to U.S. GAAP:
(a)  Difference in depreciation method......................      (29)      (4)      21
(b)  Pensions...............................................       42       40       43
(c)  Write-down on NMT network assets.......................       33       22       19
(d)  Provisions for year 2000...............................        4       --       --
(e)  Investments in marketable securities...................       10      135      960
(f)  Capitalization of interest.............................        8        8       --
(g)  Associated companies...................................      (28)     (52)      65
(h)  Allowance for doubtful accounts........................       (2)      (2)      (3)
(i)  Employee bond loans with warrants......................       --       --       --
(j)  Business combinations..................................       --       --      284
(k)  Income taxes...........................................      (16)     (52)    (190)
                                                                -----    -----    -----
Shareholders' equity under U.S. GAAP........................    1,446    1,896    4,432
                                                                =====    =====    =====
</TABLE>

                                       F-49
<PAGE>   244
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

21. DIFFERENCES BETWEEN FINNISH GAAP AND GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES IN THE UNITED STATES (CONTINUED)

     Those differences that have a material effect on consolidated net income
and shareholders' equity are as follows:

(A) DIFFERENCE IN DEPRECIATION METHOD

     Under Finnish GAAP as of January 1, 1997, Sonera changed its depreciation
method for telecommunications networks from the declining-balance method to the
straight-line method. Management believes that the straight-line method provides
a better matching of depreciation expense with the revenues derived from the
utilization of such assets. Under the declining-balance method, the Company was
depreciating 25 percent to 40 percent of the asset balances per year. With the
change to the straight-line method the useful lives range from four to 20 years.
The effect of these changes has been applied on a prospective basis beginning on
January 1, 1997.

     Under U.S. GAAP, the Company has followed the straight-line method for all
periods since the Company's incorporation.

     The difference in depreciation method affects Sonera's annual depreciation
amounts under U.S. GAAP during years through 2003. Adjustments to net income
include an increase in depreciation expense of E27 million for the year ended
December 31, 1998, and a decrease in depreciation of E25 million and E25 million
for the years ended December 31, 1999 and 2000, respectively. Future adjustments
to Sonera's net income will include increases in depreciation expense of E13
million, E6 million and E2 million for the years ended December 31, 2001, 2002
and 2003, respectively.

(B) PENSIONS

     Most of Sonera's pension schemes are in accordance with Finnish conditions
and practices as Sonera's primary operations are in Finland.

     The statutory pension benefits for most of the personnel in Finland, as
well as certain voluntary additional pension benefits to a closed group of
employees, are funded through PT Pension Fund. These programs are primarily
defined benefit pension schemes with retirement, disability and certain other
income benefits based on years of service and a final average salary with the
Company. Sonera is responsible for ensuring that its statutory and additional
pension liabilities are sufficiently funded at all times, subject to the Finnish
requirements. The schemes are funded through monthly contributions to the PT
Pension Fund as determined by periodic actuarial calculations, with the
contributions charged to expense as made. The additional pension benefit scheme
has been closed to new employees as of January 1, 1994. Additionally, the
statutory pension benefits accrued with respect to Sonera's employees before the
separation of Sonera's current operations from the Finnish State on January 1,
1994 are covered by the Finnish State pension plans, and do not create any
liability to Sonera. Contributions paid to the PT Pension Fund by Sonera
totalled E42 million, E41 million and E55 million during the years ended
December 31, 1998, 1999 and 2000, respectively.

     The PT Pension Fund was originally established to fund the pension
obligations of PT Finland and continues to be used to fund the pension
obligations of both Sonera and Finland Post Group Ltd ("Finland Post"). Even
though Sonera and Finland Post do not have a common parent company after the
Demerger, there are no legal requirements for dividing the PT Pension Fund in
two, as long as the Finnish State holds at least 50 percent of all shares in
both Sonera and Finland Post. However, Sonera and Finland Post are currently
planning to divide the PT Pension Fund in two. Since the split-up would result
in a separation of plan assets in relation to respective shares of total
liabilities, management estimates that the split-up would not significantly
change Sonera's pension

                                       F-50
<PAGE>   245
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

21. DIFFERENCES BETWEEN FINNISH GAAP AND GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES IN THE UNITED STATES (CONTINUED)

obligations and the funding status of those obligations. The PT Pension Fund has
received an advance ruling from the Finnish Central Tax Board, according to
which the split-up will not be considered a taxable transaction for the PT
Pension Fund.

     Certain minor Finnish subsidiaries are not participating employers in the
PT Pension Fund and the statutory pension benefits of these subsidiaries are
funded through pension insurance. These insurance payments were less than E0.2
million for each of the years ended December 31, 1998, 1999 and 2000.

     Sonera's subsidiaries outside Finland have various pension schemes in
accordance with the local requirements and practices. The schemes are are
generally funded through payments to insurance companies. Sonera's policy for
funding its defined benefit plans is to satisfy local statutory funding
requirements. Pension expenses recorded by Sonera's foreign subsidiaries totaled
E1.1 million, E1.7 million and E4.9 million for the years ended December 31,
1998, 1999 and 2000, respectively.

     Under U.S. GAAP, the determination of pension expense for defined benefit
pension plans is made pursuant to Statement of Financial Accounting Standard
("SFAS") No. 87, "Employers' Accounting for Pensions." SFAS 87 is more
prescriptive than Finnish GAAP in that it requires the use of a specific
actuarial method (the projected unit credit method). Also under SFAS 87, under
certain circumstances, a minimum liability is recorded with a corresponding
intangible asset and/or reduction of shareholders' equity for plans that are
underfunded.

     Pension benefits for Sonera employees and former employees are provided
from three sources. Those sources are the Finnish Employees' Pension Act
("TEL"), which consists of non-disability pension obligations ("TEL Pension")
and future disability pensions ("TEL Disability"), and a voluntary plan. The TEL
is a national pension system in which all Finnish private sector employers
participate.

     An essential feature of TEL is that only the TEL Disability pension is
funded in advance. The TEL Pension is financed as a pay-as-you-go pension. The
pay-as-you-go costs of an employer do not depend on the pensions paid to the
former employees of Sonera. Instead, the yearly premium depends on the wages of
the current workforce and is a certain percentage of these wages. In TEL an
employer does not have a direct responsibility for the TEL Pension. Sonera
insures its TEL Pension obligation with a pension fund. Premiums are determined
on a statutory basis. The TEL Pension is comparable to the U.S. concept of a
multiemployer plan and is treated as such by Sonera. The TEL Pension premium
payments made by Sonera during the years ended December 31, 1998, 1999 and 2000
were E32 million, E39 million and E48 million, respectively.

     Sonera participates in the PT Pension Fund, a pension foundation separate
from Sonera, for its TEL Disability and voluntary plan obligations. The PT
Pension Fund was originally established to fund the pension obligations of PT
Finland and, after the demerger of Sonera and Finland Post, it continues to fund
the obligations of both companies. Sonera and Finland Post are currently looking
into plans to split up the PT Pension Fund in two. The principles of the
split-up are regulated by Finnish Pension legislation. The calculation of
Sonera's SFAS 87 obligations, the TEL Disability and voluntary plan, have been
made in accordance with such legislation.

     The funding of the PT Pension Fund is subject to Finnish regulations that
require the contributions to be calculated using specific actuarial methods and
assumptions. These methods and assumptions are different from those specified
under SFAS 87. In particular, under the Finnish regulations, contributions are
determined in a way that the fund maintains 100 percent solvency. For this
purpose, plan assets are measured by book value, not fair value, and the
discount rate that is used to determine the funding level is relatively low.
Accordingly, when the funded status is calculated under SFAS 87, an apparently
overfunded situation is often the result.

                                       F-51
<PAGE>   246
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

21. DIFFERENCES BETWEEN FINNISH GAAP AND GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES IN THE UNITED STATES (CONTINUED)

     The accounting for pension plans in accordance with Finnish GAAP is
different from the accounting and disclosure requirements of SFAS 87 and SFAS
No. 132, "Employers' Disclosure About Pensions and Other Postretirement
Benefits." In respect of Sonera's benefit obligations funded through the PT
Pension Fund, the SFAS 132 disclosure is as follows:

<TABLE>
<CAPTION>
                                                                      AS OF OR FOR THE
                                                                   YEAR ENDED DECEMBER 31,
                                                                 ---------------------------
                                                                 1998       1999       2000
                                                                 -----      -----      -----
                                                                       (IN E MILLIONS)
<S>                                                              <C>        <C>        <C>
Change in projected benefit obligation ("PBO")
  PBO at the start of the year..............................       53         75        101
  Service cost..............................................        7          9         12
  Interest cost.............................................        4          5          7
  Actuarial loss............................................       13          6         --
  Amendments loss...........................................       --          8         --
  Benefits paid.............................................       (2)        (2)        (2)
                                                                  ---        ---        ---
  PBO at the end of the year................................       75        101        118
                                                                  ===        ===        ===
Change in plan assets
  Fair value of the assets at the start of the year.........       98        116        167
  Actual return on plan assets..............................       10         51        (14)
  Employer contribution.....................................       10          2          6
  Benefits paid.............................................       (2)        (2)        (2)
                                                                  ---        ---        ---
  Fair value of assets at the end of the year...............      116        167        157
                                                                  ===        ===        ===
Funded status...............................................       41         66         39
Unrecognized transition asset...............................      (15)       (12)        (9)
Unrecognized net actuarial loss (gain)......................       16        (22)         6
Unrecognized prior service cost.............................       --          8          7
                                                                  ---        ---        ---
Net amount recognized.......................................       42         40         43
                                                                  ===        ===        ===
</TABLE>

     For the purposes of the U.S. GAAP balance sheet, the net amount recognized
is recorded as prepaid benefit cost. There is no accrued benefit liability or
intangible asset recorded in respect of Sonera's benefit obligations.

<TABLE>
<CAPTION>
                                                                      AS OF OR FOR THE
                                                                   YEAR ENDED DECEMBER 31,
                                                                 ---------------------------
                                                                 1998       1999       2000
                                                                 -----      -----      -----
                                                                             (%)
<S>                                                              <C>        <C>        <C>
Weighted average assumptions
  Discount rate at the end of the year......................     5.50       5.80       5.80
  Expected return on plan assets for the year...............     6.25       6.00       7.20
  Rate of expected compensation increase at the end of the
     year...................................................     4.00       4.00       4.00
</TABLE>

                                       F-52
<PAGE>   247
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

21. DIFFERENCES BETWEEN FINNISH GAAP AND GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES IN THE UNITED STATES (CONTINUED)

     Components of net periodic benefit costs are as follows:

<TABLE>
<CAPTION>
                                                                YEAR ENDED DECEMBER 31,
                                                                -----------------------
                                                                1998     1999     2000
                                                                -----    -----    -----
                                                                    (IN E MILLIONS)
<S>                                                             <C>      <C>      <C>
Service cost................................................       7        9       12
Interest cost...............................................       4        5        7
Expected return on plan assets..............................      (7)      (8)     (12)
Amortization of transition asset for the period.............      (3)      (3)      (3)
Recognized net actuarial loss...............................      --        1       (1)
                                                                 ---      ---      ---
Total net periodic benefit cost.............................       1        4        3
                                                                 ===      ===      ===
</TABLE>

     For U.S. GAAP purposes, Sonera would be required to adopt the provisions of
SFAS 87 on January 1, 1989 and the cumulative adjustment of the effect of the
transition to SFAS 87 would be amortized on a prospective basis over the average
remaining service period of active employees. It was not considered practical
for Sonera to compute its pension liabilities as of January 1, 1989.
Accordingly, the transition to SFAS 87 was computed as at December 31, 1996,
resulting in a transition asset of E44 million. An adjustment was made to record
E23 million of the transition asset as an increase of U.S. GAAP shareholders'
equity at that date, based on the ratio of the years elapsed from the effective
date of SFAS 87 and December 31, 1996 to the remaining service period of
employees expected to receive benefits. The amortization of the remaining
transition asset will continue through the year 2003.

     For U.S. GAAP purposes, Sonera has recognized a decrease of E9 million and
E3 million in its benefit costs for the years ended December 31, 1998 and 2000,
respectively, and an increase of E2 million in its benefit costs for the year
ended December 31, 1999. These adjustments were determined by comparing the
contributions recorded under Finnish GAAP with the amounts that would have been
recorded if the provisions of SFAS 87 were applied in the Consolidated Financial
Statements.

     The PT Pension Fund's assets consist of investments in cash, short-term and
long-term debt securities, loans receivable, equity securities, real estate and
housing. As of December 31, 1998, loans receivable included a E17 million loan
granted to Sonera. The loan was backed by a mortgage and was due in one
installment in 2002. Sonera repaid the loan prematurely in May 1999. The PT
Pension Fund did not have any other loans receivable from Sonera, or from
Sonera's associated companies, during the periods presented.

     The assets of the PT Pension Fund also include investments in Sonera shares
with a fair value of E19 million, E88 million and E25 million as of December 31,
1998, 1999 and 2000, respectively (of which E5 million, E26 million and E7
million, respectively, would have been included in Sonera's plan assets
according to SFAS 87), and investments in shares in TietoEnator Corporation,
which was Sonera's 26.8 percent and 20.3 percent associated company as of
December 31,1998 and 1999, respectively, with a fair value of E10 million and
E33 million respectively (of which E3 million and E9 million, respectively,
would have been included in the SFAS 87 plan assets).

(C) WRITE-DOWN ON NMT NETWORK ASSETS

     Under Finnish GAAP, an impairment to long-lived assets is recognized when
it is probable that the carrying value of the asset is not recoverable from the
future cash flows derived from the use of such asset. Under Finnish GAAP, it is
permissible to allocate certain assets which are commonly used by several
operations in determining whether an impairment exists. If during a subsequent
period the write-down proves to be partly or entirely unjustified, the
unjustified portion of the write-down must be reversed and recognized to income
for that period.
                                       F-53
<PAGE>   248
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

21. DIFFERENCES BETWEEN FINNISH GAAP AND GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES IN THE UNITED STATES (CONTINUED)

     As a consequence of a significant reduction in the number of subscribers to
Sonera's analog NMT services during the latter part of 1998, a write- down of
E34 million on certain specifically identified and allocated assets related to
Sonera's NMT networks was recorded under Finnish GAAP for the year ended
December 31, 1998.

     Under SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of," an impairment of an asset would be
required if the undiscounted cash flows derived from that asset were less than
the carrying value of such asset. The amount of the write-down (impairment loss)
would be the difference between fair value of the asset and its carrying value
in the financial statements. In addition, under U.S. GAAP, a reversal of an
impairment loss is not permitted. SFAS 121 does not allow allocations of assets
nor cash flows and should be examined at the lowest level for which there are
identifiable cash flows that are largely independent of the cash flows of other
groups of assets.

     Therefore, U.S. GAAP treatment is to reverse this write-down and accelerate
the useful life of the specifically identified assets. For the year ended
December 31, 1998, reversal of the write-down would result in a reduction of
write-down of E34 million, increase in depreciation expense of E1 million and a
decrease in accumulated depreciation of E33 million. For the year ended December
31, 1999, the reversal of the write-down would result in an increase in
depreciation expense of E11 million and a decrease in accumulated depreciation
of E22 million. For the year ended December 31, 2000, the reversal of the
write-down would result in an increase in depreciation expense of E3 million and
a decrease in accumulated depreciation of E19 million.

     The carrying value of the specifically identified NMT network assets was
E26 million, E3 million and zero as of December 31, 1998, 1999 and 2000,
respectively. The remaining useful lives of the specifically identified assets
as of December 31, 1998 ranged from two to seven years before the SFAS 121
analysis, and from two to three years after the analysis. The impact of the
change in useful lives was immaterial.

(D) PROVISION FOR YEAR 2000

     As allowed by Finnish GAAP, Sonera recorded a provision to cover all major
incremental expenses incurred from its year 2000 compliance program, which
included all necessary inspection, adjustment, replacement and testing work
carried out on Sonera's data systems and other telecommunications network
equipment.

     Based on the first estimate, a provision of E8 million was recorded during
the year ended December 31, 1996. Additional provisions of E5 million and E2
million were recorded during the years ended December 31, 1997 and 1998,
respectively, resulting in a total cost provision of E15 million. Actual
expenses charged against the provision were E2 million, E9 million and E4
million during the years ended December 31, 1997, 1998 and 1999, respectively,
and the remaining balance of the provision was zero as of December 31, 1999.

     Under U.S. GAAP, costs related to the year 2000 compliance program would
have been charged to expense when incurred.

(E) INVESTMENTS IN MARKETABLE SECURITIES

     Sonera accounts for its investments in marketable securities at the lower
of cost or market value, except for debt securities to be held to maturity which
are stated at amortized cost.

     SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," requires that all investments in equity securities with readily
determinable fair values and all debt securities be classified into three
categories and accounted for as follows:

     -  Debt securities in which the company has the intent and ability to hold
        to maturity are classified as "held-to-maturity" securities and are
        reported at amortized cost;

                                       F-54
<PAGE>   249
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

21. DIFFERENCES BETWEEN FINNISH GAAP AND GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES IN THE UNITED STATES (CONTINUED)

     -  Debt and equity securities which are bought and held principally for the
        purpose of short-term selling are classified as "trading" securities and
        reported at fair value, with unrealized gains and losses included in
        earnings; and

     -  Debt and equity securities not classified as either "held-to-maturity"
        securities or "trading" securities are classified as
        "available-for-sale" securities and reported at fair value, with
        unrealized gains and losses excluded from earnings and reported, net of
        applicable taxes, in a separate component of shareholders' equity.

     Information regarding Sonera's short-term investments is as follows:

<TABLE>
<CAPTION>
                                                                                                  TOTAL
                                                    TIME        MARKETABLE         OTHER       SHORT-TERM
                                                  DEPOSITS    DEBT SECURITIES    SECURITIES    INVESTMENTS
                                                  --------    ---------------    ----------    -----------
                                                                      (IN E MILLIONS)
<S>                                               <C>         <C>                <C>           <C>
As of December 31, 1998
  Cost..........................................     17               4              15             36
  Unrealized gains..............................     --              --              --             --
                                                    ---             ---             ---            ---
  Fair value....................................     17               4              15             36
                                                    ===             ===             ===            ===
As of December 31, 1999
  Cost..........................................     72               4               1             77
  Unrealized gains..............................     --              --              --             --
                                                    ---             ---             ---            ---
  Fair value....................................     72               4               1             77
                                                    ===             ===             ===            ===
As of December 31, 2000
  Cost..........................................     39              29              --             68
  Unrealized gains..............................     --              --              --             --
                                                    ---             ---             ---            ---
  Fair value....................................     39              29              --             68
                                                    ===             ===             ===            ===
</TABLE>

     There were no unrealized losses on marketable debt securities as of
December 31, 1998, 1999 and 2000. During the periods presented, there were no
material sales of short-term investments.

     Original maturities of Sonera's short-term investments as of December 31,
2000 are as follows:

<TABLE>
<CAPTION>
                                                                    AS OF
                                                              DECEMBER 31, 2000
                                                              -----------------
                                                               (IN E MILLIONS)
<S>                                                           <C>
Less than one year..........................................          67
Over one year...............................................           1
                                                                     ---
Total short-term investments................................          68
                                                                     ===
</TABLE>

                                       F-55
<PAGE>   250
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

21. DIFFERENCES BETWEEN FINNISH GAAP AND GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES IN THE UNITED STATES (CONTINUED)

     Information regarding Sonera's marketable equity securities, which are
reported as long-term investments, is as follows:

<TABLE>
<CAPTION>
                                                               AS OF DECEMBER 31, 1998
                                                   ------------------------------------------------
                                                           UNREALIZED   UNREALIZED   WRITE-   FAIR
                                                   COST      GAINS        LOSSES     DOWNS    VALUE
                                                   -----   ----------   ----------   ------   -----
                                                                   (IN E MILLIONS)
<S>                                                <C>     <C>          <C>          <C>      <C>
Star Telecom International Holding Limited......      15       --           --        (12)        3
Enator AB.......................................      31        9           --         --        40
Other marketable equity securities..............      --        1           --         --         1
                                                   -----      ---          ---        ---     -----
Total marketable equity securities..............      46       10           --        (12)       44
                                                   =====      ===          ===        ===     =====
</TABLE>

<TABLE>
<CAPTION>
                                                               AS OF DECEMBER 31, 1999
                                                   ------------------------------------------------
                                                           UNREALIZED   UNREALIZED   WRITE-   FAIR
                                                   COST      GAINS        LOSSES     DOWNS    VALUE
                                                   -----   ----------   ----------   ------   -----
                                                                   (IN E MILLIONS)
<S>                                                <C>     <C>          <C>          <C>      <C>
Powertel, Inc...................................     119      131           --         --       250
Other marketable equity securities..............      --        4           --         --         4
                                                   -----      ---          ---        ---     -----
Total marketable equity securities..............     119      135           --         --       254
                                                   =====      ===          ===        ===     =====
</TABLE>

<TABLE>
<CAPTION>
                                                               AS OF DECEMBER 31, 2000
                                                   ------------------------------------------------
                                                           UNREALIZED   UNREALIZED   WRITE-   FAIR
                                                   COST      GAINS        LOSSES     DOWNS    VALUE
                                                   -----   ----------   ----------   ------   -----
                                                                   (IN E MILLIONS)
<S>                                                <C>     <C>          <C>          <C>      <C>
VoiceStream Wireless Corporation................   1,646      406           --         --     2,052
TietoEnator Corporation.........................     179      294           --         --       473
Powertel, Inc...................................     119      189           --         --       308
724 Solutions Inc...............................      48       67           --         --       115
Conduit Plc.....................................      20        8           --         --        28
Cisco Systems, Inc..............................      10       --           (4)        --         6
Other marketable equity securities..............       5       --           --         --         5
                                                   -----      ---          ---        ---     -----
Total marketable equity securities..............   2,027      964           (4)        --     2,987
                                                   =====      ===          ===        ===     =====
</TABLE>

     Sonera received 4.5 percent of all shares in Star Telecom International
Holding Limited ("Star Telecom") in connection with the sale of its 28.5 percent
interest in P Plus Communications Limited to Star Telecom in February 1998.
Subsequently during 1998, Sonera recorded a write-down on Star Telecom's shares
based on a significant drop in the market quotation of Star Telecom's share on
the Hong Kong Stock Exchange. Sonera sold its shares in Star Telecom in June
1999, and recorded a gain of E4 million from the sale.

     In June 2000, a former associated company TietoEnator Corporation was
changed to be accounted under cost method because Sonera was no longer deemed to
have significant influence over the operations of TietoEnator. The shares in
TietoEnator were sold in March 2001 and Sonera recorded a gain of E286 million
on the sale under Finnish GAAP. Under U.S. GAAP, the gain was E246 million. See
also Note 21 (g) to the Consolidated Financial Statements.

     On March 30, 2000, the United States Federal Communications Commission
("FCC") gave final approval to the merger of Aerial Communications, Inc.
("Aerial") with VoiceStream Wireless Corporation ("VoiceStream"). The merger was
completed on May 4, 2000. After the merger and Sonera's earlier

                                       F-56
<PAGE>   251
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

21. DIFFERENCES BETWEEN FINNISH GAAP AND GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES IN THE UNITED STATES (CONTINUED)

U.S.$500 million investment in VoiceStream on February 28, 2000, Sonera's
shareholding in VoiceStream was approximately 7.9 percent, on a fully diluted
basis. Sonera discontinued accounting for Aerial under the equity method on the
merger date, and Sonera's investment in VoiceStream is accounted for under the
cost method. The cost basis of VoiceStream shares received in the merger is
based on the fair value of the VoiceStream shares on the merger date. As a
result, Sonera recorded a pre-tax gain of E835 million on the merger transaction
for the second quarter of 2000.

     On July 24, 2000, the Board of Directors of VoiceStream announced that it
had entered into a merger agreement with Deutsche Telekom AG. For each
VoiceStream share, Deutsche Telekom offered 3.2 Deutsche Telekom shares and
U.S.$ 30 in cash, subject to certain adjustments. The majority of VoiceStream
shareholders, including Sonera, accepted the offer. See also Note 22 to the
Consolidated Financial Statements for unaudited subsequent events.

     Sonera acquired a 9.1 percent interest in Powertel, Inc. in September 1999.
Powertel is a provider of GSM-based PCS services in selected markets in the
south-eastern part of the United States. In May 2000, Sonera agreed that it
would make an additional investment of U.S.$200 million in Powertel. Of the
total amount, Sonera invested U.S.$125 million directly in Powertel, raising its
holding in Powertel to approximately 11.8 percent, on a fully diluted basis. In
addition, Sonera acquired a 30.1 percent holding in Eliska Wireless Ventures I,
Inc. for U.S.$75 million. Eliska shares are convertible into approximately one
million Powertel shares. These agreements entitle Sonera to raise its holding in
Powertel to approximately 13.5 percent (fully diluted), which corresponds to
approximately 7.4 million shares. The arrangements were seen to completion and
the purchase prices paid in January 2001.

     In August 2000, Sonera decided for its part to accept Deutsche Telekom's
offer to purchase Powertel shares. Deutsche Telekom committed itself for paying
2.6353 Deutsche Telekom shares for each Powertel share. See also Note 22 to the
Consolidated Financial Statements for unaudited subsequent events.

     Sonera acquired its original 22 percent interest in 724 Solutions Inc. in
August 1999 and accounted for its investment under equity method for the year
ended December 31, 1999. After the initial public offering by 724 Solutions Inc.
in February 2000, Sonera's 6.4 million shares represented an approximately 18
percent interest in 724 Solutions. In February 2001, 724 Solutions acquired
Tantau Software Inc. and paid the purchase price by using its own shares. As a
result of this acquisition, Sonera's holding in 724 Solutions decreased to 11.4
percent.

     Sonera acquired 12.5 percent in Conduit Plc in May 2000. In June 2000, the
company had an initial public offering, and was listed on the Neuer Markt of the
Frankfurt Stock Exchange in Germany. Except for a 15 percent over-allotment
option, the offering was in the form of a primary issue of shares by Conduit.
Therefore, after the offering, Sonera's interest in Conduit was diluted to 9.98
percent.

     In February 2000, Sonera received return on one of its venture capital
investments in the form of shares in Cisco Systems, Inc. The fair value of
shares received was E10 million at the date of receipt and E6 million on
December 31, 2000.

     The above information does not include marketable equity securities that
Sonera holds in respect of its associated companies. Such associated companies
are included in the Consolidated Financial Statements in accordance with the
equity method of accounting. See also Note 18 to the Consolidated Financial
Statements for the disclosure of fair value of all equity investments.

(F) CAPITALIZATION OF INTEREST

     Under Finnish GAAP, interest costs may be capitalized on construction of
fixed assets that are constructed for an entity's own use, provided that the
capitalized interest cost relates to debt financing attributable to the

                                       F-57
<PAGE>   252
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

21. DIFFERENCES BETWEEN FINNISH GAAP AND GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES IN THE UNITED STATES (CONTINUED)

construction of such assets. Prior to January 1, 2000 the Company did not
capitalize interest on self-constructed assets, but adopted a new accounting
practice during the year ended December 31, 2000. The effect of this change in
accounting principles under Finnish GAAP was an income of E6 million (net of
deferred tax expense of E2 million) for the year ended December 31, 2000.

     Under U.S. GAAP, capitalization of interest on assets constructed for an
entity's own use is required based upon the weighted average capital
expenditures on self-constructed assets.

     Adjustments for the net income on U.S. GAAP basis include capitalized
interest costs for E2 million and E2 million for the years ended December 31,
1998 and 1999, respectively. Accumulated capitalization of interest costs prior
to January 1, 1998 would have been E16 million. Net income under U.S. GAAP also
includes adjustment in the depreciation expense for the capitalized interest,
totaling E2 million and E2 million for the years ended December 31, 1998 and
1999, respectively. Accumulated depreciation expense prior to January 1, 1998
would have been E8 million. Starting as of January 1, 2000, Finnish GAAP
accounting complies with U.S. GAAP, and the U.S. GAAP adjustment in net income
for the year ended 31, 2000 consists of the reversal of the accounting change
recorded in Finnish GAAP net income.

(G) ASSOCIATED COMPANIES

     Under Finnish GAAP, financial statements of associated companies are
restated, when possible, to comply with the accounting principles used in the
Consolidated Financial Statements. For the purposes of Sonera's Consolidated
Financial Statements, associated companies report their financial statements to
Sonera using accounting principles that are materially consistent with either
U.S. GAAP or IAS.

     Under U.S. GAAP, net income and shareholders' equity of associated
companies are restated to comply with U.S. GAAP for the purpose of inclusion in
the Consolidated Financial Statements. U.S. GAAP differences principally relate
to capitalized interest, income taxes and restructuring charges.

Change in equity accounting for Turkcell

     As of the beginning of 2000, Sonera changed the practice of equity
accounting for its holding in Turkcell Iletisim Hizmetleri A.S. ("Turkcell") in
such a manner that Sonera's consolidated financial statements for each quarter
include the last available and final quarterly financial statements of Turkcell.
Previously, under Finnish GAAP, Sonera's consolidated financial statements for
each quarter have included a preliminary estimated share of Turkcell's net
income for the corresponding period.

     The accounting change was made in anticipation of the Turkcell initial
public offering and stock exchange listing, after which Sonera no longer has any
other information available for the preparing of its financial statements than
the information published by Turkcell simultaneously to all of Turkcell
shareholders.

     Under Finnish GAAP, Sonera has not restated the Consolidated Financial
Statements for the accounting change, and has recorded the cumulative effect of
the accounting change through the consolidated income statement for its first
quarter interim financial statements of 2000. For U.S. GAAP, the Company adopted
this change for the year ended December 31, 1999 and has restated the 1998 net
income and shareholders' equity under U.S. GAAP to reflect this change. The
impact on 1998 net income and shareholders' equity was a reduction of E20
million and E24 million, respectively. The impact on 1999 net income and
shareholders' equity was a reduction E21 million and E45 million, respectively.
Starting as of January 1, 2000, Finnish GAAP accounting complies with U.S. GAAP,
and the U.S. GAAP adjustment for the year ended December 31, 2000 consists of
the reversal of the accounting change of E45 million expense recorded in Finnish
GAAP net income.

                                       F-58
<PAGE>   253
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

21. DIFFERENCES BETWEEN FINNISH GAAP AND GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES IN THE UNITED STATES (CONTINUED)

Gain on shares in 724 Solutions Inc.

     In February 2000, 724 Solutions Inc. completed an initial public offering
whereby 724 Solutions issued 6.9 million shares for U.S.$26 per share. The net
proceeds received by 724 Solutions from this transaction were approximately
U.S.$167 million. Sonera acquired its original 22 percent interest in 724
Solutions in August 1999, and accounted for its investment under equity method
for the year ended December 31, 1999. After the offering, Sonera accounted for
its 18 percent investment under cost method since Sonera was no longer deemed to
have significant influence over the operations of 724 Solutions. Under Finnish
GAAP, Sonera has not recognized any gain from the decrease in its interest in
724 Solutions, and the carrying value of E21 million under the equity method
prior to the initial public offering has been established as the cost basis of
Sonera's investment in 724 Solutions.

     For its U.S. GAAP financial statements, Sonera has recorded a gain of E27
million from 724 Solutions initial public offering, according to the SEC Staff
Accounting Bulletin No. 51, "Accounting for Sales of Stock by a Subsidiary"
("SAB 51"). The gain is recorded in the income statement and it establishes a
new cost basis of E48 million under U.S. GAAP for Sonera's investment in 724
Solutions.

Gain on shares in TietoEnator Corporation

     In May 2000, TietoEnator Corporation completed a directed issue whereby
TietoEnator issued 1,039,102 shares to shareholders of Oy Visual Systems
Limited, acquiring 80 percent of Visual Systems. In June 2000, TietoEnator
implemented a public offer to the shareholders of Entra Data AB and completed a
directed issue whereby TietoEnator issued 4,186,320 shares, acquiring 44 percent
of Entra Data. After the transactions, Sonera's holding in TietoEnator was 18.7
percent, and Sonera accounted for its investment under cost method since Sonera
was no longer deemed to have significant influence over the operations of
TietoEnator. Under Finnish GAAP, Sonera has not recognized any gain from the
decrease in its interest in TietoEnator, and the carrying value of E139 million
under the equity method prior to the directed issues has been established as the
cost basis of Sonera's investment in TietoEnator. See also Note 22 of the
Consolidated Financial Statements for unaudited subsequent events.

     For its U.S. GAAP financial statements, Sonera has recorded a gain of E40
million from the TietoEnator directed issues, in accordance with SAB 51. The
gain is recorded in the income statement and it establishes a new cost basis of
E179 million under U.S. GAAP for Sonera's investment in TietoEnator.

(H) ALLOWANCE FOR DOUBTFUL ACCOUNTS

     Under Finnish GAAP, the Company uses the direct write-off method for bad
debts. Amounts are generally written off directly to accounts receivable after
90 days after the due date.

     Under U.S. GAAP, an allowance for doubtful accounts is established for
estimated bad debts included in accounts receivable. Sonera continuously
evaluates the collectibility of accounts receivable, and has established a
valuation allowance for U.S. GAAP based on the Company's past experience.

                                       F-59
<PAGE>   254
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

21. DIFFERENCES BETWEEN FINNISH GAAP AND GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES IN THE UNITED STATES (CONTINUED)

     Changes in allowance for doubtful accounts are as follows:

<TABLE>
<CAPTION>
                                                                YEAR ENDED DECEMBER 31,
                                                                -----------------------
                                                                1998     1999     2000
                                                                -----    -----    -----
                                                                    (IN E MILLIONS)
<S>                                                             <C>      <C>      <C>
Balance of allowance at beginning of year...................       2        2        2
Additions...................................................       3        3        4
Deductions..................................................      (3)      (3)      (3)
                                                                 ---      ---      ---
Balance of allowance at end of year.........................       2        2        3
                                                                 ===      ===      ===
</TABLE>

(I) EMPLOYEE BOND LOANS WITH WARRANTS

Year 1999 option scheme

     In April 1999, Sonera's Annual General Meeting passed a resolution about an
option scheme concerning Sonera's personnel. The bond loan with warrants was
subscribed by a total of 5,326 persons, or about 60 percent of Sonera's
personnel. The subscriptions were approved by the Board of Directors on May 27,
1999. Of the total bond loan amount of E2.5 million, approximately E1.6 million
was directed at the personnel, and the remainder was directed at Sonera's
wholly-owned subsidiary Telibra Oy, which may later offer its loan with warrant
certificates to persons employed by Sonera or to persons to be recruited. The
bond part of the loan with warrants carried no interest and was repaid on June
1, 2001.

     Warrant certificates A associated with the loan entitle to subscription of
Sonera's shares from June 1, 2001 to June 30, 2005, and warrant certificates B
from June 1, 2003 to June 30, 2005. Altogether the warrants entitle to
subscription of a maximum of 15,000,000 new shares. After the dividend paid on
April 3, 2001, the share subscription price is E15.11 with warrant certificates
A and E27.87 with warrant certificates B. For both warrant certificates A and B,
the subscription price will be reduced by the amount of per share dividends paid
before the subscription of shares.

     The subscription rights can be exercised with warrant certificates A
provided that:

     (i)   Sonera's cumulative earnings per share (under Finnish GAAP) during
           January 1, 1999 through December 31, 2000 is at least E0.84;

     (ii)   Sonera's operating profit in relation to revenues (under Finnish
            GAAP) is at least 15 percent, on the average, during January 1, 1999
            through December 31, 2000; and

     (iii)  the employee does not leave Sonera before June 1, 2001 (for other
            than retirement).

     The subscription rights can be exercised with warrant certificates B
provided that:

     (i)   Sonera's cumulative earnings per share (under Finnish GAAP) during
           January 1, 1999 through December 31, 2002 is at least E2.02;

     (ii)   Sonera's operating profit in relation to revenues (under Finnish
            GAAP) is at least 15 percent, on the average, during January 1, 1999
            through December 31, 2002; and

     (iii)  the employee does not leave Sonera before June 1, 2003 (for other
            than retirement).

     For the Company's top management, exercise of the warrants is also
contingent upon Sonera's share price development that exceeds the reference
index for a peer group of companies.

                                       F-60
<PAGE>   255
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

21. DIFFERENCES BETWEEN FINNISH GAAP AND GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES IN THE UNITED STATES (CONTINUED)

     Management is currently not able to determine whether the performance
measures will be met for warrants B. The earnings per share performance
condition, the operating profit performance condition, and the top management
index condition of warrants A have been met.

     On June 1, 2001, warrants A were listed on the Helsinki Exchanges. After
the listing, an employee can also sell warrants A on the Helsinki Exchanges, at
a price determined by public quotes.

Year 2000 option scheme

     On March 22, 2000, the Annual General meeting decided on a bond loan with
warrants of 2000 to be offered to the Group's entire personnel. The bond loan
with warrants was subscribed for by a total of 6,700 persons during the
subscription period from May 15 to June 30, 2000. On July 24, 2000, the Board of
Directors of Sonera Corporation approved the subscriptions totaling about 16.1
million warrants. The share subscription price with these warrants is E72,90
which was approved by the Annual General Meeting on March 21, 2001.

     The warrants do not entitle their holders to subscribe the shares if the
trading price of the Company's share in Helsinki Exchanges does not exceed the
reference index when the subscription period begins. The index determined for
the Company's top management in connection with the 1999 bond loan with warrants
will be applied to the 2000 bond loan with warrants for the entire personnel,
using the same calculation rules. The index comparison for the 2000 bond loan
with warrants began on April 1, 1999, and it will end on the last day of the
fiscal year preceding commencement of exercise of the warrants.

     A maximum of 20,000,000 shares may be subscribed for on the basis of this
bond loan with warrants, and the share subscription period will begin stepwise
on November 2, 2002; May 2, 2003; and May 2, 2004; ending on May 31, 2008 for
all warrants allocated during 2000. The portion of the bond loan with warrants
that was not granted in the initial subscription in May-June 2000 can be later
offered to persons employed by by Sonera or to persons to be recruited by
Sonera.

     Management is currently not able to determine whether the index performance
measures will be met.

Option schemes for Sonera Corporation's subsidiaries

     Sonera Corporation's subsidiaries Sonera SmartTrust Ltd, Sonera Zed Ltd and
Sonera Plaza Ltd have decided on option schemes in compliance with the decision
made by the Board of Directors of Sonera Corporation. The option schemes of each
company may dilute Sonera Corporation's holding in said subsidiary by a maximum
of 15 percentage. Warrants are allocated in two stages. In the first stage in
December 2000, warrants were allocated to the management and key persons of
these subsidiaries. In the second stage, warrants will be allocated to other
employees of the subsidiaries.

     The period for share subscription based on the exercise of warrants will
begin at each company one year after the commencement of public trading in the
subsidiary's shares and will end for Sonera Zed's warrants by December 31, 2010,
at the latest, and for Sonera SmartTrust's and Sonera Plaza's warrants by
January 31, 2011, at the latest. Of the warrants for management and key
employees, 50 percent will entitle their holders to subscribe for subsidiary's
shares at a predetermined price. Those warrants are marked with letters A1, B1
and C1. The subscription price for warrants A1, B1 and C1 were based on an
estimate made by an independent external party of the subsidiaries' fair values
at the time of introducing the option scheme. The remaining 50 percent of top
management's and key employees' warrants, as well as all the warrants intended
to be allocated to the rest of the personnel will entitle their holders to
subscribe for the subsidiary's shares at a price which is used as the sale price
to retail investors in each subsidiary's planned initial public offering and/or
sale of shares. Those warrants are marked with A2, B2 and C2.

                                       F-61
<PAGE>   256
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

21. DIFFERENCES BETWEEN FINNISH GAAP AND GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES IN THE UNITED STATES (CONTINUED)

     The maximum warrant amounts of subsidiaries are as follows:

<TABLE>
<CAPTION>
                                                         MANAGEMENT
                                                          AND KEY        OTHER
                                                         EMPLOYEES     PERSONNEL       TOTAL
                                                         ----------    ----------    ----------
<S>                                                      <C>           <C>           <C>
Sonera SmartTrust Ltd................................    19,876,560    19,876,560    39,753,120
Sonera Zed Ltd.......................................     8,205,975     8,205,975    16,411,950
Sonera Plaza Ltd.....................................     1,919,550     1,919,550     3,839,100
</TABLE>

     The warrant amounts allocated in the first stage and their dilutive effect
is as follows:

<TABLE>
<CAPTION>
                                                                    AMOUNT OF
                                                             STOCK OPTIONS ALLOCATED
                                                             -----------------------
                                                             MANAGEMENT
                                                              AND KEY        OTHER
                                                             EMPLOYEES     PERSONNEL    DILUTION
                                                             ----------    ---------    --------
<S>                                                          <C>           <C>          <C>
Sonera SmartTrust Ltd....................................    9,179,538         --          3.46%
Sonera Zed Ltd...........................................    5,153,166...      --          4.71%
Sonera Plaza Ltd.........................................    1,071,984         --          4.19%
</TABLE>

     The allocated option amounts include equal amounts of series A1, B1, C1,
A2, B2 and C2 options.

     See also Note 22 to the Consolidated Financial Statements for unaudited
subsequent events.

Compensation cost of option schemes

     Under Finnish GAAP, Sonera will not record any compensation expense in
respect of the warrants to its income statement. For U.S. GAAP, Sonera has
elected to account for the warrants using the fair value method of accounting
prescribed by SFAS No. 123, "Accounting for Stock-Based Compensation." Imputed
interest cost has not been accounted for the bond part of the 1999 and 2000
loans with warrants under Finnish GAAP and under U.S. GAAP since the amount
would be immaterial.

Compensation cost of year 1999 option scheme

     The Company granted 4.75 million warrant certificates A and 4.75 million
warrant certificates B on May 27, 1999. On the date of valuation, the fair value
of one warrant certificate A and B was E9.64 and E12.96, respectively. The total
fair value of all warrant certificates A and B on the date of valuation was E46
million and E62 million, respectively. For the years ended December 31, 1999 and
2000, compensation expense of E16 million and E66 million, respectively, was
charged to income under U.S. GAAP for warrant certificates A and B.

                                       F-62
<PAGE>   257
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

21. DIFFERENCES BETWEEN FINNISH GAAP AND GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES IN THE UNITED STATES (CONTINUED)

     The assumptions used in calculating the fair value of warrant certificates
A and B, at the respective dates of valuation, of the year 1999 option scheme
were as follows:

<TABLE>
<CAPTION>
                                                                  A        B
                                                                -----    -----
<S>                                                             <C>      <C>
Exercise price (E)..........................................    15.32    28.08
Expected life of warrant (years)............................        5     4.75
Fair market value of underlying share (E)...................    18.85    28.55
Expected volatility of underlying share (percent)...........       45       45
Expected dividends on share (percent).......................      0.5      0.5
Risk-free interest rate for expected term (percent).........     4.00     4.84
</TABLE>

Compensation cost of year 2000 option scheme

     The Company granted 16.1 million warrant certificates on July 24, 2000. On
the date of valuation, the fair value of one warrant certificate A, B and C was
E0.45, E0.34 and E0.17, respectively. The total fair value of all warrant
certificates A, B and C on the date of valuation was E2.3 million, E1.7 million
and E1.7 million, respectively. For the year ended December 31, 2000, no
compensation cost could be estimated on the option scheme, because the exercise
price of warrants was not determined before the Annual General Meeting of March
21, 2001. The compensation expense will be recorded for the periods starting
from March 22, 2001 and ending for warrant certificates A, B and C on November
2, 2002, May 2, 2003 and May 2, 2004, respectively.

     The assumptions used in calculating the fair value of warrant certificates
A, B and C, at the date of valuation, of the year 2000 option scheme were as
follows:

<TABLE>
<CAPTION>
                                                                  A        B        C
                                                                -----    -----    -----
<S>                                                             <C>      <C>      <C>
Exercise price (E)..........................................    72.90    72.90    72.90
Expected life of warrant (years)............................      5.6      5.1      4.1
Fair market value of underlying share (E)...................     9.90     9.90     9.90
Expected volatility of underlying share (percent)...........       45       45       45
Expected dividends on share (percent).......................      0.5      0.5      0.5
Risk-free interest rate for expected term (percent).........     4.63     4.63     4.63
</TABLE>

Compensation cost of Sonera SmartTrust option scheme

     Sonera SmartTrust allocated approximately 9.2 million warrant certificates
on December 22, 2000. On the date of valuation, the fair value of one warrant
certificate A1, B1 and C1 was E3.39, E3.16 and E2.90, respectively. The total
fair value of all warrant certificates A1, B1 and C1 on the date of valuation
was E10.4 million, E9.7 million and E8.9 million, respectively.

     For the year ended December 31, 2000, no compensation expense on Sonera
SmartTrust warrants was recorded because the exercise of warrants is contingent
upon the initial public offering of the subsidiary. Management is currently not
able to determine whether or when the initial public offering of the subsidiary
will take place. If the initial public offering does not take place by December
31, 2002, the warrants A1, B1 and C1 will be redeemed by the subsidiary. The
redemption price will be based on an estimate made by an independent external
party of the subsidiary's fair value. However, the warrants will not be redeemed
if the independent external party determines that the general market conditions
or the status of the subsidiary did not provide for an initial public offering
by that date.

                                       F-63
<PAGE>   258
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

21. DIFFERENCES BETWEEN FINNISH GAAP AND GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES IN THE UNITED STATES (CONTINUED)

     The assumptions used in calculating the fair value of warrant certificates
A1, B1 and C1, at the date of valuation, by Sonera SmartTrust were as follows:

<TABLE>
<CAPTION>
                                                                 A1       B1       C1
                                                                -----    -----    -----
<S>                                                             <C>      <C>      <C>
Exercise price (E)..........................................     6.20     6.20     6.20
Expected life of warrant (years)............................      7.2      6.2      5.2
Fair market value of underlying share (E)...................     6.20     6.20     6.20
Expected volatility of underlying share (percent)...........       45       45       45
Expected dividends on share (percent).......................       --       --       --
Risk-free interest rate for expected term (percent).........     4.85     4.85     4.85
</TABLE>

     Fair value could not be calculated for warrants A2, B2 and C2, because
their exercise price has not been determined yet. The exercise price will be the
same as the price that is used as the sale price to retail investors in the
subsidiary's planned initial public offering and/or sale of shares.

     See also Note 22 to the Consolidated Financial Statements for unaudited
subsequent events.

Compensation cost of Sonera Zed option scheme

     Sonera Zed allocated approximately 5.2 million warrant certificates on
December 22, 2000. On the date of valuation, the fair value of one warrant
certificate A1, B1 and C1 was E0.50, E0.46 and E0.42, respectively. The total
fair value of all warrant certificates A1, B1 and C1 on the date of valuation
was E0.9 million, E0.8 million and E0.7 million, respectively.

     For the year ended December 31, 2000, no compensation expense on Sonera Zed
warrants was recorded because the exercise of warrants is contingent upon the
initial public offering of the subsidiary. Management is currently not able to
determine whether or when the initial public offering of the subsidiary will
take place. If the initial public offering does not take place by December 31,
2002, the warrants A1, B1 and C1 will be redeemed by the subsidiary. The
redemption price will be based on an estimate made by an independent external
party of the subsidiary's fair value. However, the warrants will not be redeemed
if the independent external party determines that the general market conditions
or the status of the subsidiary did not provide for an initial public offering
by that date.

     The assumptions used in calculating the fair value of warrant certificates
A1, B1 and C1, at the date of valuation, by Sonera Zed were as follows:

<TABLE>
<CAPTION>
                                                                 A1       B1       C1
                                                                -----    -----    -----
<S>                                                             <C>      <C>      <C>
Exercise price (E)..........................................     0.91     0.91     0.91
Expected life of warrant (years)............................      7.1      6.1      5.1
Fair market value of underlying share (E)...................     0.91     0.91     0.91
Expected volatility of underlying share (percent)...........       45       45       45
Expected dividends on share (percent).......................       --       --       --
Risk-free interest rate for expected term (percent).........     4.85     4.85     4.85
</TABLE>

     Fair value could not be calculated for warrants A2, B2 and C2, because
their exercise price has not been determined yet. The exercise price will be the
same as the price that is used as the sale price to retail investors in the
subsidiary's planned initial public offering and/or sale of shares.

                                       F-64
<PAGE>   259
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

21. DIFFERENCES BETWEEN FINNISH GAAP AND GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES IN THE UNITED STATES (CONTINUED)

Compensation cost of Sonera Plaza option scheme

     Sonera Plaza allocated approximately 1.1 million warrant certificates on
December 22, 2000. On the date of valuation, the fair value of one warrant
certificate A1, B1 and C1 was E10.23, E9.53 and E8.75, respectively. The total
fair value of all warrant certificates A1, B1 and C1 on the date of valuation
was E6.7 million, E6.2 million and E5.7 million, respectively.

     For the year ended December 31, 2000, no compensation expense on Sonera
Plaza warrants was recorded because the exercise of warrants is contingent upon
the initial public offering of the subsidiary. If the initial public offering
does not take place by December 31, 2002, the warrants A1, B1 and C1 will be
redeemed by the subsidiary. The redemption price will be based on an estimate
made by an independent external party of the subsidiary's fair value. However,
the warrants will not be redeemed if the independent external party determines
that the general market conditions or the status of the subsidiary did not
provide for an initial public offering by that date.

     The assumptions used in calculating the fair value of warrant certificates
A1, B1 and C1, at the date of valuation, by Sonera Plaza were as follows:

<TABLE>
<CAPTION>
                                                                 A1       B1       C1
                                                                -----    -----    -----
<S>                                                             <C>      <C>      <C>
Exercise price (E)..........................................    18.69    18.69    18.69
Expected life of warrant (years)............................      7.2      6.2      5.2
Fair market value of underlying share (E)...................    18.69    18.69    18.69
Expected volatility of underlying share (percent)...........       45       45       45
Expected dividends on share (percent).......................       --       --       --
Risk-free interest rate for expected term (percent).........     4.85     4.85     4.85
</TABLE>

     Fair value could not be calculated for warrants A2, B2 and C2, because
their exercise price has not been determined yet. The exercise price will be the
same as the price that is used as the sale price to retail investors in the
subsidiary's planned initial public offering and/or sale of shares.

     See also Note 22 to the Consolidated Financial Statements for unaudited
subsequent events.

(J) BUSINESS COMBINATIONS

     On April 18, 2000, Sonera acquired all shares in Across Holding AB of
Sweden ("Across"). Across Wireless AB, the principal operating subsidiary of
Across, offers wireless Internet-based service platforms which make it possible,
for example, to manage applications and terminals over a mobile network. The
company has a customer base comprising over 50 mobile communications operators.
For the year ended December 31, 1999, the consolidated revenues of Across
amounted to E9 million, and the consolidated operating loss was E7 million.
Sonera paid for the acquisition by issuing 16,732,055 new shares to the sellers.

     On June 27, 2000, Sonera acquired all shares in iD2 Holding AB of Sweden
("iD2"). iD2 Technologies AB, the principal operating subsidiary of iD2,
provides secure authentication solutions based on PKI (Public Key
Infrastructure) and "smart card" technology for the Internet. The company has
several strategic partners, and a customer base comprising over 150 companies.
For the year ended December 31, 1999, the consolidated revenues of iD2 were E4
million, and the consolidated operating loss was E6 million. Sonera paid for the
acquisition by issuing 4,802,431 new shares to the sellers.

     The operations of Across and iD2 have been integrated into Sonera
SmartTrust, a wholly-owned subsidiary of Sonera.

                                       F-65
<PAGE>   260
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

21. DIFFERENCES BETWEEN FINNISH GAAP AND GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES IN THE UNITED STATES (CONTINUED)

     Under Finnish GAAP, Sonera has recorded both transactions in accordance
with the interpretation No. 1591/ 1999 by the Finnish Accounting Board. That
interpretation allows the acquiror to record the equity issue and the cost of
acquired shares at an amount equal to the shareholders' equity of the acquiree
at the time of acquisition. Therefore, under Finnish GAAP, Sonera has not
recorded goodwill from the acquisitions. Compared with the pooling method of
accounting, which is also allowed, but not required, under Finnish GAAP when
certain conditions are met, the interpretation No. 1591/1999 by the Finnish
Accounting Board does not allow the restatement of historical consolidated
financial statements to include financial statements of the acquired entity
prior to the acquisition date.

     Under U.S. GAAP, both transactions are accounted for under the purchase
method of accounting. Accordingly, the fair value of purchase consideration was
E897 million and E250 million for Across and iD2, respectively. Based on
analyses of the acquired net assets, E50 million has been allocated to
identified intangible assets of Across and E6 million to identified intangible
assets of iD2. An amount of E0.5 million relating to an in-process research and
development project of iD2 has been written off immediately, with the other
allocated amounts being amortized over their estimated useful lives, ranging
from one to five years.

     The transactions resulted in goodwill of E861 million and E243 million for
Across and iD2, respectively. The amortization period for goodwill is five years
for both acquisitions.

     As of December 31, 2000, management saw clear indications in the market
values of the publicly listed comparables of Sonera SmartTrust that there may be
an impairment in the carrying value of goodwill arisen from the Across and iD2
acquisitions. At the same time, Sonera was also in the process of updating the
strategy and the business plan of Sonera SmartTrust. As a result of the update
it also became evident that the future cash flow expectations of Sonera
SmartTrust are significantly lower than what they were at the time of completing
the acquisitions of Across and iD2 in April and June 2000, respectively.
Reflecting the revised business plan and assumptions to the valuation
methodologies that were originally used for the acquisitions, Sonera performed
an impairment test for all assets of Sonera SmartTrust, including goodwill paid
for Across and iD2 acquisitions, at the combined Sonera SmartTrust entity level,
since that is the lowest level of operations that has cash flows largely
independent of other operations. The impairment test did not support ultimate
recoverability of the total carrying value of assets, including goodwill,
indicating that an impairment loss must be recognized as of December 31, 2000.
Sonera has estimated that the aggregate fair value of goodwill and identified
intangible assets, based on discounted estimated future cash flows of Sonera
SmartTrust, was E300 million as of December 31, 2000. Accordingly, an impairment
loss of E704 million was recorded for the year ended December 31, 2000, to
reduce the carrying value of goodwill and identified intangible assets down to
their estimated fair value. No impairment loss was recorded on property, plant
and equipment on a pro rata basis, since the amount would have been immaterial.
Sonera will amortize the remaining carrying value of goodwill and identified
intangible assets over their remaining useful lives, approximately 4.5 years for
goodwill and ranging from approximately 0.5 to 4.5 years for identified
intangible assets.

     Under Finnish GAAP, there was no impairment loss, as there was no goodwill
recorded from the acquisitions.

                                       F-66
<PAGE>   261
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

21. DIFFERENCES BETWEEN FINNISH GAAP AND GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES IN THE UNITED STATES (CONTINUED)

     Pro forma consolidated income statement information for Sonera, Across and
iD2 in accordance with U.S. GAAP for the years ended December 31, 1999 and 2000
is as follows:

<TABLE>
<CAPTION>
                                                                 1999      2000
                                                                ------    ------
                                                                (IN E MILLIONS,
                                                                EXCEPT PER SHARE
                                                                    AMOUNTS)
<S>                                                             <C>       <C>
Revenues....................................................    1,862     2,077
Profit before income taxes, minority interest and changes in
  accounting principle......................................      225       948
Net income..................................................       98       613
Basic earnings per share and ADS............................     0.13      0.82
Diluted earnings per share and ADS..........................     0.13      0.82
</TABLE>

     The purchase price of E905 million for Across and E250 million for iD2 were
allocated as follows:

<TABLE>
<CAPTION>
                                                                ACROSS     ID2
                                                                -------    ----
                                                                (IN E MILLIONS)
<S>                                                             <C>        <C>
Current assets..............................................       13        6
Property, plant and equipment...............................       --        1
Identified intangible assets................................       50        6
Goodwill....................................................      861      243
Less:
Current liabilities.........................................       (5)      (4)
Deferred tax liability......................................      (14)      (2)
                                                                  ---      ---
Total purchase price........................................      905      250
                                                                  ===      ===
</TABLE>

     The purchase prices also include fees and costs directly allocable to the
acquisitions, amounting to E8 million for Across and under E1 million for iD2.

(K) INCOME TAXES

     This item represents the deferred tax effects of the adjustments to
reconcile to U.S. GAAP.

                                       F-67
<PAGE>   262
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

21. DIFFERENCES BETWEEN FINNISH GAAP AND GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES IN THE UNITED STATES (CONTINUED)

(L) EARNINGS PER SHARE

     Earnings per share for Finnish GAAP purposes is described in Note 8 to the
Consolidated Financial Statements. Under both Finnish GAAP and U.S. GAAP,
earnings per share is based upon the weighted average number of shares
outstanding.

<TABLE>
<CAPTION>
                                                                YEAR ENDED DECEMBER 31,
                                                        ---------------------------------------
                                                           1998          1999          2000
                                                        -----------   -----------   -----------
                                                           (IN EUROS, EXCEPT SHARE AMOUNTS)
<S>                                                     <C>           <C>           <C>
Finnish GAAP:
Earnings per share, before extraordinary items........         0.35          0.51          2.09
Cumulative effect of accounting changes, net of income
  taxes...............................................           --            --         (0.04)
                                                        -----------   -----------   -----------
Earnings per share....................................         0.35          0.51          2.05
                                                        ===========   ===========   ===========
Diluted earnings per share............................         0.35          0.51          2.03
                                                        ===========   ===========   ===========
U.S. GAAP:
Basic earnings per share and ADS......................         0.33          0.47          0.96
                                                        ===========   ===========   ===========
Diluted earnings per share and ADS....................         0.33          0.47          0.95
                                                        ===========   ===========   ===========
Finnish GAAP and U.S. GAAP:
Weighted average shares...............................  720,246,575   722,000,000   735,916,878
Effect of dilutive securities: employee bond loans
  with warrants.......................................           --     1,505,767     5,825,976
                                                        -----------   -----------   -----------
Diluted weighted average shares.......................  720,246,575   723,505,767   741,742,854
                                                        ===========   ===========   ===========
</TABLE>

(M) COMPREHENSIVE INCOME

     According to SFAS No. 130, "Reporting Comprehensive Income," comprehensive
income generally encompasses all changes in shareholders' equity, except those
arising from transactions with owners. The Company's comprehensive income
differs from net income only by amount of the foreign currency translation
differences credited or charged to shareholders' equity for the period.

                                       F-68
<PAGE>   263
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

21. DIFFERENCES BETWEEN FINNISH GAAP AND GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES IN THE UNITED STATES (CONTINUED)

     Comprehensive income and accumulated other comprehensive income under
Finnish GAAP for the years ended December 31, 1998, 1999 and 2000 are as
follows:

<TABLE>
<CAPTION>
                                                                                 ACCUMULATED OTHER
                                                                COMPREHENSIVE      COMPREHENSIVE
                                                                   INCOME             INCOME
                                                                -------------    -----------------
                                                                         (IN E MILLIONS)
<S>                                                             <C>              <C>
Balance at January 1, 1998..................................                              2
  Net income in accordance with Finnish GAAP................          251
  Foreign currency translation adjustment...................          (14)              (14)
                                                                    -----               ---
  Comprehensive income for the year.........................          237
                                                                    =====
Balance at December 31, 1998................................                            (12)
                                                                                        ===
  Net income in accordance with Finnish GAAP................          370
  Foreign currency translation adjustment...................           67                67
                                                                    -----               ---
  Comprehensive income for the year.........................          437
                                                                    =====
Balance at December 31, 1999................................                             55
                                                                                        ===
  Net income in accordance with Finnish GAAP................        1,506
  Foreign currency translation adjustment...................           30                30
                                                                    -----               ---
  Comprehensive income for the year.........................        1,536
                                                                    =====
Balance at December 31, 2000................................                             85
                                                                                        ===
</TABLE>

(N) SEGMENTED INFORMATION

     In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 131, "Disclosures About Segments of an Enterprise and Related Information."
SFAS 131 established standards for reporting information about operating
segments in annual financial statements and interim financial reports to
shareholders. The Company adopted the provisions of SFAS 131 effective December
31, 1998.

     See Note 19 to the Consolidated Financial Statements for the information
for each reportable business segment.

(O) ACCOUNTING STANDARDS RECENTLY ISSUED

COSTS OF COMPUTER SOFTWARE FOR INTERNAL USE

     During January 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use" ("SOP 98-1"), which is
effective for all fiscal years beginning after December 15, 1998. Under SOP
98-1, computer software costs that are incurred in the preliminary project stage
are expensed as incurred. Once specific capitalization criteria have been met,
external direct cost of materials and service consumed in developing or
obtaining internal-use computer software, certain personnel costs, and interest
costs incurred when developing computer software for internal use are
capitalized. Such capitalized costs are amortized over the estimated useful life
of the software. Training costs and data conversion costs are generally expensed
as incurred. The Company has implemented SOP 98-1 effective as of January 1,
1999. The implementation did not have an impact on the Consolidated Financial
Statements of Sonera.

                                       F-69
<PAGE>   264
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

21. DIFFERENCES BETWEEN FINNISH GAAP AND GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES IN THE UNITED STATES (CONTINUED)

COSTS OF START-UP ACTIVITIES

     The AICPA issued Statement of Position 98-5, "Reporting on the Cost of
Start-Up Activities" ("SOP 98-5") in April 1998 which is effective for fiscal
periods beginning after December 15, 1998. SOP 98-5 provides guidance on the
financial reporting of start-up costs and organization costs. It requires costs
of start-up activities and organization costs to be expensed as incurred. The
implementation did not have an impact on the Consolidated Financial Statements
of Sonera.

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

     In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement, as amended by SFAS No. 137
and 138, establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts (collectively referred to as derivatives), and for hedging activities.
It requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. This statement, as amended, is effective for all fiscal quarters
of fiscal years beginning after June 15, 2000.

     Sonera has adopted SFAS 133 from the beginning of its 2001 fiscal year. As
of January 1, 2001, the Company classified for U.S. GAAP purposes all of its
derivative instruments into four categories, for which the accounting will be as
follows:

     -  For "fair value hedges," gains and losses from derivative hedging
        instruments are recorded in earnings each reporting period. In addition,
        gains and losses on the hedged item are recognized in earnings. If gains
        and losses from the derivative hedging instrument and the related hedged
        item do not offset, the difference (the ineffective portion of the
        hedge) is recognized currently in earnings.

     -  For "cash flow hedges," the effective portion of the gain or loss from
        the derivative hedging instrument is accumulated in other comprehensive
        income ("OCI") and recognized in earnings during the period that the
        hedged forecasted transaction impacts earnings. The ineffective portion
        of the gain or loss from the derivative hedging instrument is recognized
        in earnings immediately.

     -  For "foreign currency hedges of a net investment in a foreign
        operation," the effective portion of the gain or loss from the hedging
        instrument is reported in other comprehensive income. The ineffective
        portion of the gain or loss from the derivative hedging instrument is
        recognized in earnings immediately.

     -  For all other hedges, gains and losses from derivative hedging
        instruments are recorded in earnings each reporting period. Other hedges
        do not qualify for the special hedge accounting treatment under SFAS
        133.

                                       F-70
<PAGE>   265
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

21. DIFFERENCES BETWEEN FINNISH GAAP AND GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES IN THE UNITED STATES (CONTINUED)

     As the result of adopting SFAS 133, Sonera will record the following
transition adjustments on January 1, 2001:

<TABLE>
<CAPTION>
                                                    BEFORE INCOME TAX EFFECTS    NET OF INCOME TAX EFFECTS
                                                    --------------------------   --------------------------
                                                     TRANSITION    TRANSITION     TRANSITION    TRANSITION
                                                     ADJUSTMENT    ADJUSTMENT     ADJUSTMENT    ADJUSTMENT
                                                    TO EARNINGS      TO OCI      TO EARNINGS      TO OCI
                                                    ------------   -----------   ------------   -----------
                                                         (IN E MILLIONS)              (IN E MILLIONS)
       <S>                                          <C>            <C>           <C>            <C>

       Fair value hedges.........................        (8)            --            (6)            --

       Cash flow hedges..........................        --              1            --              1

       Foreign currency hedges of a net
         investment in a foreign operation.......        --             --            --             --

       Other hedges..............................         2             --             1             --
                                                        ---            ---           ---            ---

       Total.....................................        (6)             1            (5)             1
                                                        ===            ===           ===            ===
</TABLE>

Fair value hedges

     As of January 1, 2001, Sonera's fair value hedges related to its long-term
Euro Medium Term Note (EMTN) bond loans. Sonera has swapped these fixed interest
rate bond loans into variable interest rate.

<TABLE>
<CAPTION>
                                                                 AS OF DECEMBER 31, 2000
                                                       --------------------------------------------
                                                       CONTRACT    CARRYING     FAIR
                                                        AMOUNT      VALUE      VALUE     DIFFERENCE
                                                       --------    --------    ------    ----------
                                                                     (IN E MILLIONS)
<S>                                                    <C>         <C>         <C>       <C>
EMTN bond loan, due in 2009(a).....................       (300)       (310)      (292)       18
Interest rate swap, due in 2009....................        150           3         (6)       (9)
Interest rate swap, due in 2009....................        150           3         (6)       (9)
                                                                                            ---
Subtotal...........................................                                          --
                                                                                            ---
EMTN bond loan, due in 2005(a).....................     (1,000)     (1,045)    (1,063)      (18)
Interest rate swap, due in 2005....................        500          14         19         5
Interest rate swap, due in 2005....................        500          14         19         5
                                                                                            ---
Subtotal...........................................                                          (8)
                                                                                            ---
Total..............................................                                          (8)
                                                                                            ===
</TABLE>

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

(a) In this disclosure, carrying values of EMTN bond loans also include the
    accrued interest.

     Under SFAS 133, both the hedged fixed-rate bond loans and the related
interest rate swaps are measured at fair value, with the gains and losses
recorded in earnings each reporting period. Previously, these loans and swaps
were not measured at fair value. Therefore, Sonera will record a net transition
adjustment loss of E6 million (net of related deferred tax benefit of E2
million) in net income under U.S. GAAP for the year ended December 31, 2001.

                                       F-71
<PAGE>   266
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

21. DIFFERENCES BETWEEN FINNISH GAAP AND GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES IN THE UNITED STATES (CONTINUED)

Cash flow hedges

     As of January 1, 2001, Sonera's cash flow hedges related to its long-term
bank loans which had a total carrying amount of E436 million. Sonera has swapped
these variable interest rate loans into fixed interest rate.

<TABLE>
<CAPTION>
                                                                   AS OF DECEMBER 31, 2000
                                                         -------------------------------------------
                                                         CONTRACT    CARRYING    FAIR
                                                          AMOUNT      VALUE      VALUE    DIFFERENCE
                                                         --------    --------    -----    ----------
                                                                       (IN E MILLIONS)
<S>                                                      <C>         <C>         <C>      <C>
Interest rate swaps, varying maturities..............      409          --          1          1
</TABLE>

     Under SFAS 133, the effective portion of the gain or loss from the hedging
instrument is accumulated in other comprehensive income and recognized in
earnings during the period that the hedged forecasted transaction impacts
earnings. The ineffective portion of the gain or loss from the derivative
hedging instrument is recognized in earnings immediately. Sonera will record a
net transition adjustment gain of E1 million (net of related deferred tax
benefit of E0.3 million) in accumulated other comprehensive income under U.S.
GAAP for the year ended December 31, 2001.

Foreign currency hedges of a net investment in a foreign operation

     As of January 1, 2001, Sonera had no foreign currency hedges of its net
investments in foreign operations.

Other hedges

     Sonera's policy is to use derivatives only for hedging purposes, as defined
in its financial management policy approved by Board of Directors, and not to
enter into derivative contracts for speculative or trading purposes. However,
hedges of a net interest rate exposure or hedges of a net foreign currency
exposure do not qualify for the special hedge accounting treatment under SFAS
133.

     Sonera's policy is to have, at all times, approximately 70 percent of its
net interest-bearing debt in variable interest rate and approximately 30 percent
in fixed interest rate. As the amount of Sonera's net interest-bearing debt
varies over time, dynamic hedging measures are needed to maintain the targeted
interest rate profile.

     Sonera's policy is to hedge all significant items in its foreign currency
transaction exposure, consisting of foreign currency receivables, payables, and
firm commitments. Sonera does not include forecasted transactions in its foreign
currency exposure definition. Sonera hedges its foreign currency exposure
separately for each currency and on a net exposure basis. However, foreign
currency loans receivable and interest-bearing debt are usually hedged with
separately designated derivative instruments.

                                       F-72
<PAGE>   267
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

21. DIFFERENCES BETWEEN FINNISH GAAP AND GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES IN THE UNITED STATES (CONTINUED)


<TABLE>
<CAPTION>
                                                                  AS OF DECEMBER 31, 2000
                                                        -------------------------------------------
                                                        CONTRACT    CARRYING    FAIR
                                                         AMOUNT      VALUE      VALUE    DIFFERENCE
                                                        --------    --------    -----    ----------
                                                                      (IN E MILLIONS)
<S>                                                     <C>         <C>         <C>      <C>
Hedges of net interest rate exposure after fair
  value and cash flow hedges
  Interest rate swaps...............................       394          --         3           3
  Interest rate cap options.........................       200           1         1          --
Hedges of foreign currency exposure
  Forward exchange purchases hedging current debt in
     U.S.$..........................................       118         (12)      (14)         (2)
  Forward exchange sales hedging intercompany and
     other loans receivable, various currencies.....      (140)          5         6           1
Hedges of net foreign currency exposure, various
  currencies
  Forward exchange purchases........................         7          --        --          --
  Forward exchange sales............................        (3)         --        --          --
                                                                                            ----
Total...............................................                                           2
                                                                                            ====
</TABLE>

     Under SFAS 133, gains and losses from these derivative instruments are
recorded in earnings each reporting period. Previously, Sonera did not measure
interest rate derivatives at fair value. Therefore, Sonera will record a net
transition adjustment gain of E2 million (net of related deferred tax expense of
E1 million) in net income under U.S. GAAP for the year ended December 31, 2001.

     Gains and losses from foreign currency forward exchange contracts were
previously recorded in earnings for the portion of changes in spot exchange
rates. The interest rate component was determined only at the inception of the
contract and was accrued as income or expense over the contract term. Under SFAS
133, forward exchange contracts are measured at fair value also for the interest
rate component, and all changes in fair value are recorded in earnings.
Therefore, Sonera will record a net transition adjustment loss of E1 million
(net of related deferred tax benefit of E0.3 million) in net income under U.S.
GAAP for the year ended December 31, 2001.

     There are certain differences in presenting the carrying values and
calculating fair values of financial instruments between SFAS 133 and Finnish
GAAP. The carrying values and fair values presented in Note 18 to the
Consolidated Financial Statements have been calculated according to Finnish
GAAP. Starting from January 1, 2001, Sonera will change the presentation of
carrying values and fair values to comply with SFAS 133 also under Finnish GAAP.

22. SUBSEQUENT EVENTS (UNAUDITED)

     On February 20, 2001, Standard & Poor's lowered Sonera Corporation's
long-term credit rating to "single-A-minus" from "single-A" and the short-term
rating to "A-2" from "A-1." In addition, Standard & Poor's placed Sonera on the
creditwatch surveillance list.

     On March 1, 2001, Sonera sold all shares that it held in TietoEnator
Corporation, and received E424 million in sales proceeds. Sonera recorded a gain
of E286 million on the sale under Finnish GAAP.

     On April 30, 2001, Sonera's 42.8 percent owned German UMTS associated
company, Orla Siebzehnte Vermogensverwaltung GmbH, signed a GPRS/GSM roaming
agreement with E-plus of Germany. With this agreement, Orla will be able to
offer German customers GPRS services, and later offer these customers UMTS
services.

                                       F-73
<PAGE>   268
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

22. SUBSEQUENT EVENTS (UNAUDITED) (CONTINUED)

     On May 3, 2001, Moody's lowered Sonera Corporations's long-term credit
rating to "Baa2" from "A2" and the short-term rating to "Prime-2" from
"Prime-1." In addition, Moody's kept the ratings on review for possible further
downgrade.

     On May 4, 2001, Sonera announced that it will sell to Song Networks AB part
of the business of Sonera Sverige AB. The price of the deal is approximately 200
million Swedish kronas (E21 million), subject to certain adjustments. Sonera
Sverige AB will in the future focus on the provision of Sonera Carrier Networks
Ltd's services to its present and future operator customers in Sweden.

     On May 29, 2001, Sonera announced that its Dutch subsidiary, Sonera
PlazaNederland B.V., will sell its internet access services via cable networks
to PrimaCom Netherlands Holding B.V. The sale didn't include Sonera Plaza
Netherland's other services.

     On May 9, 2001, Sonera sold 17.4 percent of its VoiceStream shares for E357
million. On May 22, 2001, Sonera sold 17.1 percent of its Powertel shares for
E75 million. On May 31, 2001, Sonera completed the sale of VoiceStream and
Powertel shares to Deutsche Telekom ("DT") according to agreements made in 2000.
For its remaining VoiceStream shares on May 31, 2001, Sonera received
approximately 58 million DT shares and E292 million cash. For its remaining
Powertel shares on May 31, 2001, Sonera received approximately 14 million DT
shares. Therefore, the overall proceeds from VoiceStream and Powertel during May
2001 totaled approximately E725 million in cash and 72 million DT shares. Based
on the DT share price on the Frankfurt Stock Exchanges on May 31, 2001, the
market value of the DT shares was approximately E1.8 billion. For the second
quarter of 2001, Sonera will record a gain of approximately E595 million from
the sales of VoiceStream and Powertel shares. In accordance with the terms of
the agreement on the sale of VoiceStream and Powertel shares, Sonera is not
entitled to sell the DT shares it received as consideration for three months
from the closing of the deal on May 31, 2001. From three months to six months
after the closing, Sonera is entitled to sell approximately 34.5 million DT
shares. After six months from the closing, there are no sales restrictions.

     On May 16, 2001, Turkcell decided to increase the company's share capital
by approximately U.S.$200 million by allowing the current shareholders to
participate in the rights issue by subscribing for new shares at their nominal
value according to their share of ownership. On June 8, 2001, the Board of
Directors of Sonera decided to participate in the Turkcell's rights issue.
Sonera's pro rata participation in the rights issue will represent approximately
U.S.$75 million. On May 24, 2001, Yapi ve Kredi Bankasi A.S. (part of the
Cukurova Group), a shareholder of Turkcell and one of the largest Turkish banks,
has committed to provide a cash loan facility up to U.S.$100 million to Turkcell
over the next twelve months. Additionally, on May 28, 2001, Ericsson
Telekomunikasyon A.S., the main GSM equipment supplier of Turkcell, has agreed
that it will defer its collections from Turkcell over the next twelve months.
Based on Turkcell's interim financial statements as of March 31, 2001, Turkcell
was in breach of certain of its covenants attached to its bank loans. If the
lenders were to demand immediate repayment of these bank loans, it would trigger
a cross-default to Turkcell's other indebtedness, which would have a material
adverse effect on Turkcell's financial condition. Turkcell has fully informed
the lenders of the defaults and is working with them to prepare a waiver letter.
Turkcell also expects to begin renegotiating the covenants with the lenders
shortly. Turkcell does not expect the lenders to accelerate repayments under the
bank loan facilities, and is currently not aware of any plans by the lenders to
require such accelerated repayments. Turkcell Holding A.S., in which Sonera
holds a 47.1 percent interest, has pledged one fourth of its shares in Turkcell
to secure Turkcell's bank loan facilities. As of March 31, 2001, Sonera had
guarantees outstanding for the amount of E32 million in relation to Turkcell's
debt. Based on the actions taken by Turkcell, Sonera does not currently expect
that the pledge of shares or any guarantees would result in a material adverse
impact on Sonera's financial position or results of operations.

     On June 5, 2001, Germany's telecommunications regulator, RegTP, announced
that it will permit mobile telephone operators to share their infrastructure for
the development of third generation UMTS networks. This

                                       F-74
<PAGE>   269
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

22. SUBSEQUENT EVENTS (UNAUDITED) (CONTINUED)

will permit Sonera's 42.8 percent associated company Orla Siebzehnte
Vermogensverwaltung GmbH to achieve significant savings in network investments
and expenses, as well as accelerate the rollout of UMTS networks in Germany.

     On June 11, 2001, the President and CEO of Sonera, Mr. Kaj-Erik Relander
announced that he will resign as of August 1, 2001. Before a new President and
CEO is appointed and begins in office, Sonera's Board of Directors appointed Mr.
Aimo Eloholma as acting President and CEO as of August 1, 2001, and Mr. Kim
Ignatius as acting Deputy CEO as of August 1, 2001.

     On June 18, 2001, Sonera signed a syndicated variable rate loan facility of
E1.33 billion with an international group of banks. The term of the loan is
three years with final maturity in 2004. The annual interest rate of the loan is
based on Sonera's long-term credit ratings, and is currently Euribor plus 1.25
percent. With the loan, Sonera replaces its short-term credit facilities,
reduces its refinancing risk, and balances the maturity distribution of its
debt.

     On June 21, 2001, Sonera announced changes to the stock option plans of its
wholly-owned subsidiaries Sonera Plaza Ltd and Sonera SmartTrust Ltd. Sonera
considers that the existing plans do not function as originally intended in the
changed market situation. Sonera Plaza's stock option plan will be replaced with
Sonera's Group level plans of year 2000 and, partly, of year 1999. As part of
the adjustment of Sonera's services strategy, Sonera has also decided that it
abandons the plan to have Sonera Plaza publicly listed. Sonera's wholly owned
subsidiary Sonera SmartTrust Ltd will have a new 2001 option plan for the
subsidiary's employees. The personnel of SmartTrust can participate in only one
of the SmartTrust plans, either in the existing 2000 or the new 2001 plan. The
combined dilution effect of the 2000 and 2001 plans together may not exceed 15
percent of Sonera's holding in SmartTrust. The 2001 options can be exercised
when (i) the initial public offering of the subsidiary takes place, or (ii)
Sonera sells a significant stake of SmartTrust in a cash deal. The exercise
period with the 2001 options will end on November 30, 2008. The exercise price
of the 2001 options is E0.933 per share which is based on the estimated current
market capitalization of E250 million for SmartTrust, determined on the basis of
an international reference group. The exercise price for the 2000 options is
currently E6.20 per share. The 2001 options will vest on a quarterly basis so
that 1/20 of the total granted amount will vest after each quarter, and after 5
years of the grant date, all options are vested.

Resolutions by the Annual General Meeting

     In accordance with the proposal made by the Board of Directors (the
"Board"), the Annual General Meeting of Sonera Corporation held on March 21,
2001 resolved that a dividend of E0.09 per share will be paid for the 2000
fiscal year. The dividend was paid on April 3, 2001.

     Tapio Hintikka was elected Chairman of Sonera Corporation's Board of
Directors, and Jussi Lansio was elected Vice Chairman. Jorma Laakkonen, Eva
Liljeblom, Roger Talermo, Esa Tihila and Tom von Weymarn were elected members of
the Board of Directors. On April 5, 2001, Tapani Vaahtokivi was appointed the
employee representative on the Board of Directors of the Company, and Kari
Vilkman to be his deputy. The employee representative has the right to attend,
speak and, with certain limitations, also to vote in Board meetings.

     The Annual General Meeting decided to abolish the Supervisory Board of the
Company.

     The Annual General Meeting authorized the Board of Directors to decide on
the repurchase of the Company's own shares. The authorization is valid for one
year after the resolution of the Annual General Meeting, i.e. until March 21,
2002. The maximum number of shares that can be repurchased by virtue of the
authorization is 2,000,000 altogether, i.e. approximately 0.3 percent of the
share capital. Shares can be repurchased with a view to using them as
consideration when the company acquires assets related to its business,

                                       F-75
<PAGE>   270
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

22. SUBSEQUENT EVENTS (UNAUDITED) (CONTINUED)

as consideration in potential acquisitions acquisitions or other arrangements or
for hedging against social security costs resulting from the personnel's stock
options, or with a view to conveying them in a manner and scope decided on by
the Board of Directors or to invalidating them. The shares will be purchased on
the Helsinki Exchanges at the market price they have in public trade at the time
of the purchase.

     The Annual General Meeting authorized the Board of Directors to decide on
the conveyance of the repurchased shares. The authorization is valid for one
year after the resolution of the Annual General Meeting, i.e. until March 21,
2002.

     In accordance with the proposal made by the Board of Directors, the Annual
General Meeting confirmed that the share subscription price related to the
option scheme of 2000 is E72,90. The Annual General Meeting did not adopt the
proposal of the Board of Directors concerning the introduction of the 2001
option scheme.

Legal and regulatory proceedings

     In January 2001, Sonera purchased a 16.7 percent holding in Loimaan Seudun
Puhelin Oy, a local fixed line telephone company operating in the southwestern
part of Finland. In February 2001, Sonera raised its holding to 24.1 percent.
The overall purchase price was approximately E25 million. The transactions are
subject to the approval of the competition authority. In December 2000, Loimaan
Seudun Puhelin acquired a majority interest in Turun Puhelin Oy, a local fixed
line telephone company operating in the city of Turku in southwestern Finland.

     In connection with Sonera's termination of the director's agreement between
Sonera Corporation and Mr. Harri Vatanen, former CEO of Sonera SmartTrust,
Sonera initiated legal proceedings on March 2, 2001 in Finland to confirm that
the technology agreement concluded between him and Sonera in 1998 is legally
binding and in force and that Sonera has fulfilled its obligations under such
agreement. Sonera has commenced this action in order to protect its interests in
light of the termination of Mr. Vatanen's employment. Mr. Vatanen has brought a
claim in the United States against Sonera and certain of its subsidiaries, for
rescission of the technology agreement, misrepresentation and fraud in relation
to entering into the agreement and certain other related claims, including,
among other things, award of compensatory damages in an unspecified amount.
Sonera continues to pursue the legal proceedings initiated by it in Finland and
disputes both the jurisdiction of a U.S. court in the matter and the claims
brought by Mr. Vatanen.

     In April 2001, Mr. Murray L. Swanson, the former managing director of
Sonera's wholly-owned subsidiary Sonera Corporation U.S., brought a complaint in
the United States against Sonera, alleging breach of contract and fraudulent
inducement in relation to the employment agreement entered into between him and
Sonera Corporation U.S. in 1998. Mr. Swanson claims that Sonera has failed to
fulfill its obligations under the employment agreement and that Sonera has made
false representations in relation thereto. He seeks, among other things,
recovery of his alleged damages, which he states are in excess of U.S.$75
million, and punitive damages in an unspecified amount. Sonera has denied any
basis for liability on its part and intends to vigorously defend against his
complaint.

     On April 24, 2001, the Telecommunications Administration Centre ("TAC")
issued a decision on the complaint filed by Telia Finland Oy in November 1998 in
relation to the interconnection fees applied by Sonera's domestic mobile
communications. The TAC came to the conclusion that the interconnection fees
applied by Sonera's domestic mobile communications were not reasonable in
relation to actual costs. Thus the TAC is the opinion that Sonera has priced its
interconnection fees contrary to the Telecommunications Market Act and obliges
Sonera to revise its fees. On May 25, 2001, Sonera announced that it has filed
an appeal with the Administrative Court of Helsinki against the decision issued
by the TAC. Sonera does not approve of the TAC's involvement in the
interconnection fees applied by Sonera, and believes that the interconnection
pricing should be based on commercially negotiated solutions. Sonera concluded
new commercial interconnection agreements with Telia on June 21, 2001 and with
Radiolinja on June 28, 2001. Sonera will continue commercial negotiations on
interconnection agreements with the other mobile operators in the market.

                                       F-76
<PAGE>   271

         UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
                     OF SONERA CORPORATION AND SUBSIDIARIES
                      AS OF AND FOR THE THREE MONTHS ENDED
                            MARCH 31, 2000 AND 2001

                                       F-77
<PAGE>   272

                      SONERA CORPORATION AND SUBSIDIARIES

           UNAUDITED CONDENSED CONSOLIDATED INTERIM INCOME STATEMENTS

<TABLE>
<CAPTION>
                                                                     THREE MONTHS ENDED
                                                                         MARCH 31,
                                                                ----------------------------
                                                                   2000             2001
                                                                -----------      -----------
                                                                     E                E
                                                                (IN MILLIONS, EXCEPT SHARES,
                                                                   PER SHARE AMOUNTS AND
                                                                        PERCENTAGES)
<S>                                                             <C>              <C>
REVENUES....................................................          487              525
Other operating income......................................            9              291
Operating expenses:
  Cost of services and goods................................         (154)            (165)
  Personnel expenses........................................          (96)            (137)
  Other operating expenses..................................          (84)            (130)
                                                                  -------          -------
Total operating expenses....................................         (334)            (432)
Depreciation and amortization(1)............................          (72)             (84)
                                                                  -------          -------
OPERATING PROFIT............................................           90              300
Equity income in associated companies.......................           20              (38)
Financial income and expenses...............................            3              (17)
                                                                  -------          -------
PROFIT BEFORE INCOME TAXES, MINORITY INTEREST AND
  EXTRAORDINARY ITEMS.......................................          113              245
Income taxes................................................          (31)             (81)
Minority interest...........................................            1                1
                                                                  -------          -------
PROFIT BEFORE EXTRAORDINARY ITEMS...........................           83              165
Cumulative effect of accounting change, net of income
  taxes(2)..................................................          (41)              --
                                                                  -------          -------
NET INCOME..................................................           42              165
                                                                  =======          =======
Average number of shares (1,000 shares)(3)..................      722,000          742,984
                                                                  =======          =======
EARNINGS PER SHARE, BEFORE EXTRAORDINARY ITEMS..............         0.12             0.22
Cumulative effect of accounting change, net of income
  taxes.....................................................        (0.06)              --
                                                                  -------          -------
EARNINGS PER SHARE(3).......................................         0.06             0.22
                                                                  =======          =======
EBITDA(4)...................................................          162              384
Significant non-recurring income and expenses...............            4              282
Comparable EBITDA...........................................          158              102
Comparable EBITDA-to-revenues (%)...........................           32               19
</TABLE>

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

(1) In April and June 2000, Sonera recorded the acquisitions of Across and iD2,
    respectively, in accordance with the interpretation No. 1591/1999 by the
    Finnish Accounting Board. If fair value had been used to record the
    transactions, Sonera would have recorded amortization of goodwill of E17
    million for January-March 2001 (no amortization for January-March 2000 and
    E852 million for the full year 2000). Amortization amounts give effect to
    the impairment loss of E704 million recorded under U.S. GAAP for the year
    ended December 31, 2000. See also Note 21(j) to the Consolidated Financial
    Statements for the year ended December 31, 2000, included elsewhere in this
    document.

(2) For the three months ended March 31, 2000, the change in accounting
    principles included the cumulative effect of E41 million expense from the
    change in the equity method accounting for Turkcell.

(3) The average number of shares, diluted with the employee bond loan with
    warrants, was 729,168 thousand and 743,262 thousand for the three months
    ended March 31, 2000 and 2001, respectively. The diluted earnings per share
    was E0.06 and E0.22 for the three months ended March 31, 2000 and 2001,
    respectively.

(4) EBITDA is defined as operating profit before depreciation and amortization.

    The accompanying notes are an integral part of these Unaudited Condensed
                   Consolidated Interim Financial Statements.

                                       F-78
<PAGE>   273

                      SONERA CORPORATION AND SUBSIDIARIES

            UNAUDITED CONDENSED CONSOLIDATED INTERIM BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                             AS OF
                                                              ------------------------------------
                                                              MARCH 31,   DECEMBER 31,   MARCH 31,
                                                                2000          2000         2001
                                                              ---------   ------------   ---------
                                                                  E            E             E
                                                                         (IN MILLIONS)
<S>                                                           <C>         <C>            <C>
FIXED ASSETS AND OTHER LONG-TERM INVESTMENTS
Intangible assets..........................................        71          116           106
Property, plant and equipment..............................     1,154        1,265         1,278
Long-term investments and receivables......................     2,346        4,779         5,013
                                                                -----        -----        ------
Total......................................................     3,571        6,160         6,397
CURRENT ASSETS
Inventories................................................        39           40            49
Short-term loans receivable................................        23        2,817         2,781
Other current receivables..................................       420          601           566
Cash and short-term investments............................       305          156           270
                                                                -----        -----        ------
Total......................................................       787        3,614         3,666
                                                                -----        -----        ------
TOTAL ASSETS...............................................     4,358        9,774        10,063
                                                                =====        =====        ======
SHAREHOLDERS' EQUITY.......................................     1,773        3,233         3,330
MINORITY INTEREST..........................................        15           16            15
NON-CURRENT LIABILITIES
Long-term debt.............................................     1,804        1,842         2,560
Other long-term liabilities................................       102          171           121
                                                                -----        -----        ------
Total......................................................     1,906        2,013         2,681
CURRENT LIABILITIES
Current debt...............................................       189        3,848         3,264
Current portion of long-term debt..........................        --          107           107
Other current liabilities..................................       475          557           666
                                                                -----        -----        ------
Total......................................................       664        4,512         4,037
                                                                -----        -----        ------
TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES.................     4,358        9,774        10,063
                                                                =====        =====        ======
</TABLE>

    The accompanying notes are an integral part of these Unaudited Condensed
                   Consolidated Interim Financial Statements.

                                       F-79
<PAGE>   274

                      SONERA CORPORATION AND SUBSIDIARIES
       UNAUDITED CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                  THREE MONTHS
                                                                ENDED MARCH 31,
                                                                ----------------
                                                                 2000      2001
                                                                ------    ------
                                                                  E         E
                                                                 (IN MILLIONS)
<S>                                                             <C>       <C>
OPERATING ACTIVITIES
Net income..................................................       42       165
Gain from sale of TietoEnator shares........................       --      (286)
Depreciation and amortization...............................       72        84
Change in working capital and other items...................      (40)       62
                                                                -----     -----
CASH PROVIDED BY OPERATING ACTIVITIES.......................       74        25
INVESTING ACTIVITIES
Capital expenditures........................................      (64)      (82)
Investments in shares.......................................     (519)     (400)
Proceeds from sale of shares and fixed assets...............        5       424
Change in loans receivable and other items..................      (98)      (75)
                                                                -----     -----
CASH USED IN INVESTING ACTIVITIES...........................     (676)     (133)
FINANCING ACTIVITIES
Change in long-term debt....................................      679       718
Change in current debt......................................       17      (583)
                                                                -----     -----
CASH PROVIDED BY FINANCING ACTIVITIES.......................      696       135
Effect of exchange rate changes on cash and cash
  equivalents...............................................        1        --
                                                                -----     -----
Net increase in cash and cash equivalents...................       95        27
Cash and cash equivalents at beginning of year..............       38        88
                                                                -----     -----
CASH AND CASH EQUIVALENTS AT END OF PERIOD..................      133       115
                                                                =====     =====
</TABLE>

    The accompanying notes are an integral part of these Unaudited Condensed
                   Consolidated Interim Financial Statements.

                                       F-80
<PAGE>   275

                      SONERA CORPORATION AND SUBSIDIARIES
     NOTES TO UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION

     The Unaudited Condensed Consolidated Interim Financial Statements for the
three months ended March 31, 2000 and 2001 have been prepared in accordance with
Finnish GAAP on a basis consistent with Sonera's Consolidated Financial
Statements for the year ended December 31, 2000. For the purposes of these
Unaudited Condensed Consolidated Interim Financial Statements, certain
information and disclosures normally included in annual financial statements
prepared in accordance with Finnish GAAP have been condensed or omitted. In the
opinion of the management, all adjustments considered necessary, consisting of
normal and recurring accruals, to present fairly the consolidated financial
position and results of operations for such interim periods have been made.

     The information in the Unaudited Condensed Consolidated Interim Financial
Statements presented herein is based on Sonera's first quarter 2001 unaudited
interim report which Sonera released on April 25, 2001.

     These Unaudited Condensed Consolidated Interim Financial Statements should
be read in conjunction with Sonera's Consolidated Financial Statements for the
year ended December 31, 2000 included elsewhere in this document.

     Finnish GAAP and accounting principles adopted by Sonera differ in certain
respects from U.S. GAAP. See Note 21 to the Consolidated Financial Statements
for the year ended December 31, 2000 included elsewhere in this document.

     See also Note 22 to the Consolidated Financial Statements for the year
ended December 31, 2000 included elsewhere in this document for certain
unaudited subsequent events after March 31, 2001.

2. EQUITY INCOME IN ASSOCIATED COMPANIES

<TABLE>
<CAPTION>
                                                                  THREE MONTHS
                                                                ENDED MARCH 31,
                                                                ----------------
                                                                2000       2001
                                                                -----      -----
                                                                (IN E MILLIONS)
<S>                                                             <C>        <C>
Turkcell Iletisim Hizmetleri A.S............................      33        (10)
Fintur Holdings B.V.........................................      --        (28)
Aerial Communications, Inc..................................     (12)        --
Orla Siebzehnte Vermogensverwaltung GmbH and Broadband
  Mobile ASA................................................      --         (2)
Other mobile operators......................................       9         11
Fixed network operators.....................................      12          6
Service providers...........................................      (1)        --
Other associated companies..................................       2         --
Amortization of goodwill....................................     (23)       (15)
                                                                 ---        ---
Total.......................................................      20        (38)
                                                                 ===        ===
</TABLE>

                                       F-81
<PAGE>   276
                      SONERA CORPORATION AND SUBSIDIARIES
     NOTES TO UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
                                  (CONTINUED)

3. FINANCIAL INCOME AND EXPENSES

<TABLE>
<CAPTION>
                                                                  THREE MONTHS
                                                                ENDED MARCH 31,
                                                                ----------------
                                                                2000       2001
                                                                -----      -----
                                                                (IN E MILLIONS)
<S>                                                             <C>        <C>
Dividend income.............................................      14         --
Interest income.............................................       4         51
Interest expenses...........................................     (17)       (83)
Capitalized interest expenses...............................      --         15
Other financial income and expenses.........................       1          1
Exchange rate gains and losses..............................       1         (1)
                                                                 ---        ---
Total.......................................................       3        (17)
                                                                 ===        ===
</TABLE>

4. COMMITMENTS AND CONTINGENT LIABILITIES

     Information regarding commitments and contingent liabilities is as follows:

<TABLE>
<CAPTION>
                                                                          AS OF
                                                                -------------------------
                                                                DECEMBER 31,    MARCH 31,
                                                                    2000          2001
                                                                ------------    ---------
                                                                     (IN E MILLIONS)
<S>                                                             <C>             <C>
Assets pledged
  To secure own commitments.................................          5              4
  To secure borrowings of associated companies..............          8             --
Guarantees on behalf of associated companies for
  financing.................................................         85             80
Guarantees on behalf of other companies
  Guarantees on behalf of Xfera Moviles S.A.................        428            428
  Guarantees on behalf of Ipse 2000 S.p.A...................        193            193
Minimum operating lease payments............................        195            201
Other commitments...........................................          6              5
</TABLE>

     Information regarding derivative financial instruments is as follows:

<TABLE>
<CAPTION>
                                                                                          AS OF
                                                                                       DECEMBER 31,
                                                            AS OF MARCH 31, 2001           2000
                                                         ---------------------------   ------------
                                                         CONTRACT   CARRYING   FAIR        FAIR
                                                          AMOUNT     VALUE     VALUE      VALUE
                                                         --------   --------   -----   ------------
                                                                      (IN E MILLIONS)
<S>                                                      <C>        <C>        <C>     <C>
Forward foreign exchange contracts....................      149         1         1         (9)
Interest rate swaps...................................    2,283         6        20         36
Purchased interest rate options.......................      300         1         1          1
</TABLE>

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

Derivative instruments are used in hedging foreign exchange and interest rate
risks.

                                       F-82
<PAGE>   277
                      SONERA CORPORATION AND SUBSIDIARIES
     NOTES TO UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
                                  (CONTINUED)

5. SEGMENTED INFORMATION

     Financial information followed by Sonera's management is presented
separately for Sonera's business segments for the three months ended March 31,
2000 and 2001 as follows:

<TABLE>
<CAPTION>
                                                                THREE MONTHS
                                                              ENDED MARCH 31,
                                                              ----------------
                                                               2000      2001
                                                              ------    ------
                                                              (IN E MILLIONS)
<S>                                                           <C>       <C>
REVENUES
Domestic Mobile Communications..............................    264       290
International Mobile Communications.........................     --         2
Media Communications and New Services.......................     51        63
Sonera Telecom
  Domestic Voice Services...................................     65        59
  International Voice Services..............................     29        34
  Data Services.............................................     44        39
  Leased Lines..............................................     10        15
  Equipment Sales...........................................     25        29
  Construction and Maintenance..............................      4         3
  Sales to other segments and other products................     66        66
                                                               ----      ----
  Subtotal..................................................    243       245
Other Operations............................................     23        31
Intra-Group sales...........................................    (94)     (106)
                                                               ----      ----
The Group...................................................    487       525
                                                               ====      ====
EBITDA
Domestic Mobile Communications..............................    132       144
International Mobile Communications.........................     (6)       (3)
Media Communications and New Services.......................    (31)      (89)
Sonera Telecom..............................................     63        59
Other Operations(a).........................................      4       273
                                                               ----      ----
The Group...................................................    162       384
                                                               ====      ====
OPERATING PROFIT
Domestic Mobile Communications..............................    102       113
International Mobile Communications.........................     (6)       (4)
Media Communications and New Services.......................    (36)     (100)
Sonera Telecom..............................................     26        26
Other Operations(a).........................................      4       265
                                                               ----      ----
The Group...................................................     90       300
                                                               ====      ====
</TABLE>

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

(a) Includes a gain of E286 million from the sale of Sonera's 18.7 percent
    interest in TietoEnator Corporation on March 1, 2001.

                                       F-83
<PAGE>   278

                      CONSOLIDATED FINANCIAL STATEMENTS OF
        TURKCELL ILETISIM HIZMETLERI ANONIM SIRKETI AND ITS SUBSIDIARIES
                      AS OF DECEMBER 31, 1999 AND 2000 AND
              FOR THE YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000

                                       F-84
<PAGE>   279

                          INDEPENDENT AUDITORS' REPORT

To the Board of Directors of
Turkcell Iletisim Hizmetleri Anonim Sirketi

     We have audited the accompanying consolidated balance sheets of Turkcell
Iletisim Hizmetleri Anonim Sirketi and its subsidiaries (the "Company") as of
December 31, 1999 and 2000, and the related consolidated statements of
operations, changes in shareholders' equity and comprehensive income, and cash
flows for each of the years in the three-year period ended December 31, 2000.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

     We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Turkcell
Iletisim Hizmetleri Anonim Sirketi and its subsidiaries as of December 31, 1999
and 2000, and the results of their operations and their cash flows for each of
the years in the three-year period ended December 31, 2000 in conformity with
accounting principles generally accepted in the United States.

     Without qualifying our opinion, as also discussed in Note 28, we draw your
attention to the fact that significant economic difficulties have emerged in
Turkey during the year 2000 and subsequent to December 31, 2000. These include,
but are not limited to, a steep decline in prices of domestic debt and equity
securities and increasing rates on government and corporate borrowings. In an
attempt to overcome the liquidity crisis in the banking system, on February 21,
2001, the government allowed Turkish Lira to float freely. This caused a 28%
devaluation of the Turkish Lira against the US Dollar during the first day of
flotation. As of the date of this report the Turkish Lira has devalued
significantly against major foreign currencies as compared to the related
currency exchange rates ruling as of December 31, 2000. Such devaluation against
the US Dollar has been 45%. The financial condition of the Company and its
future operations and cash flows could be adversely affected by continued
economic difficulty. Management is unable to predict the extent, severity or
duration of the current economic difficulties nor quantify what impact it may
have on the current financial position or future operations and cash flows of
the Company. The consolidated financial statements referred to above do not
include any adjustments, which may be necessary as a result of these economic
difficulties.

     The consolidated financial statements referred to above have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
2, at December 31, 2000, current liabilities exceeded current assets by
approximately $55.8 million and based on the Company's consolidated financial
statements as of and for the three month period ended March 31, 2001, the
Company is in breach of one of the covenants contained in the 1998 and 1999 bank
facilities that may raise substantial doubt about its ability to continue as a
going concern. Management's plans in regard to these matters are also described
in Note 2. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.

KPMG Cevdet Suner Denetim ve
Yeminli Mali Musavirlik A.S.
April 26, 2001, except Notes 2 and 28 which are as of May 29, 2001
Istanbul, Turkey

                                       F-85
<PAGE>   280

        TURKCELL ILETISIM HIZMETLERI ANONIM SIRKETI AND ITS SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS
                         AT DECEMBER 31, 1999 AND 2000

                       (IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                                                   1999          2000
                                                                ----------    ----------
<S>                                                             <C>           <C>
ASSETS
CURRENT ASSETS
  Cash and cash equivalents (Note 5)........................    $  248,729    $  363,365
  Trade receivables and accrued income, net (Note 6)........       251,456       325,636
  Due from related parties ( Notes 3 and 7).................         4,966       113,860
  Inventories (Note 3)......................................         8,303        16,402
  Prepaid expenses (Note 9).................................         9,584        22,484
  Deferred tax assets (Notes 3 and 18)......................        11,995            --
  Other current assets ( Notes 3 and 8).....................        31,861        44,476
                                                                ----------    ----------
     Total current assets...................................       566,894       886,223
ADVANCES TO RELATED PARTIES (Note 3)........................         3,100         1,020
PREPAID EXPENSES (Note 9)...................................         5,670        11,765
INVESTMENTS (Notes 3 and 10)................................        70,055        60,068
FIXED ASSETS, net (Notes 3 and 11)..........................     1,070,970     1,762,168
CONSTRUCTION IN PROGRESS (Note 12)..........................       375,878       233,299
INTANGIBLES, net (Notes 3 and 13)...........................       707,364       892,995
OTHER LONG TERM ASSETS (Note 3).............................        51,370        37,382
                                                                ----------    ----------
                                                                $2,851,301    $3,884,920
                                                                ==========    ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
  Short term borrowings (Note 14)...........................    $  374,240    $  438,081
  Trade payables (Note 15)..................................       153,494       208,890
  Due to related parties (Notes 3 and 16)...................        10,581         2,811
  Taxes payable (Notes 3 and 18)............................            16            --
  Deferred tax liabilities (Notes 3 and 18).................            --        21,103
  Other current liabilities and accrued expenses (Note
     17)....................................................       194,595       271,194
                                                                ----------    ----------
     Total current liabilities..............................       732,926       942,079
LONG TERM BORROWINGS (Note 19)..............................     1,247,629     1,600,676
LONG TERM LEASE OBLIGATIONS (Notes 3 and 20)................        41,244        34,472
RETIREMENT PAY LIABILITY (Note 3)...........................         1,660         3,545
DEFERRED TAX LIABILITIES (Notes 3 and 18)...................         3,575         3,491
MINORITY INTEREST (Note 3)..................................         4,298            12
OTHER LONG TERM LIABILITIES.................................            --         5,838
SHAREHOLDERS' EQUITY
  Common stock
  Par value one thousand TL; authorized, issued and
     outstanding 87,250,000,000 shares in 1999 and
     240,000,000,000 shares in 2000 (Note 21)...............       210,953       458,239
  Advances for common stock.................................           299           141
  Legal reserves............................................         2,026             5
  Accumulated other comprehensive loss (Note 3).............        (2,873)       (1,049)
  Retained earnings.........................................       609,564       837,471
                                                                ----------    ----------
Total liabilities and shareholders' equity..................       819,969     1,294,807
                                                                ----------    ----------
COMMITMENTS AND CONTINGENCIES (Note 26).....................    $2,851,301    $3,884,920
                                                                ==========    ==========
</TABLE>

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

                                       F-86
<PAGE>   281

        TURKCELL ILETISIM HIZMETLERI ANONIM SIRKETI AND ITS SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS
              FOR THE YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000

                       (IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                                  1998              1999              2000
                                             ---------------   ---------------   ---------------
<S>                                          <C>               <C>               <C>
Revenues (Notes 3 and 22).................          $721,614        $1,580,822        $2,224,940
Direct cost of revenues (Note 3)..........          (295,122)         (679,404)       (1,197,175)
                                             ---------------   ---------------   ---------------
  Gross profit............................           426,492           901,418         1,027,765
General and administrative expenses (Note
  23).....................................           (47,588)         (103,706)         (187,878)
Selling and marketing expenses (Note
  24).....................................           (83,025)         (223,740)         (414,250)
                                             ---------------   ---------------   ---------------
  Operating income........................           295,879           573,972           425,637
Income from related parties, net (Note
  25).....................................             4,514             1,334             2,450
Interest income...........................            18,727            31,787            94,654
Interest expense (Note 3).................           (72,879)         (143,068)         (251,174)
Other income, net.........................             2,206             3,137             9,703
Equity in net income (loss) of
  unconsolidated investees (Notes 3 and
  10).....................................             7,427            (8,205)          (31,645)
Gain on sale of affiliates (Note 10)......                --                --            44,244
Minority interest (Note 3)................            (1,614)              176              (316)
Translation loss (Note 3).................           (23,016)          (98,336)          (21,953)
                                             ---------------   ---------------   ---------------
  Income before taxes.....................           231,244           360,797           271,600
Income tax (expense) benefit (Notes 3 and
  18).....................................           (19,254)            8,282           (43,693)
                                             ---------------   ---------------   ---------------
  Net income..............................          $211,990          $369,079          $227,907
                                             ===============   ===============   ===============
Basic and diluted earnings per common
  share (Notes 3 and 21)..................          $0.00099          $0.00159          $0.00098
                                             ===============   ===============   ===============
Weighted average number of common shares
  outstanding (Notes 3 and 21)............   213,971,252,700   231,755,868,131   233,386,099,934
                                             ---------------   ---------------   ---------------
</TABLE>

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

                                       F-87
<PAGE>   282

        TURKCELL ILETISIM HIZMETLERI ANONIM SIRKETI AND ITS SUBSIDIARIES

         CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY AND
                              COMPREHENSIVE INCOME
              FOR THE YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000

                       (IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
                                                                                                                   ACCUMULATED
                                       COMMON STOCK                                                                   OTHER
                                --------------------------   ADVANCES FOR    LEGAL     COMPREHENSIVE   RETAINED   COMPREHENSIVE
                                    SHARES         AMOUNT    COMMON STOCK   RESERVES      INCOME       EARNINGS   INCOME (LOSS)
                                ---------------   --------   ------------   --------   -------------   --------   -------------
<S>                             <C>               <C>        <C>            <C>        <C>             <C>        <C>
BALANCES AT JANUARY 1, 1998...   20,290,697,674   $ 87,960          --           16                     30,505        1,601
Issuance of common stock......   52,755,813,954    100,799
Advances for increase in
 common stock.................                                  19,310
Transfer to legal reserves....                                                1,527                     (1,527)
Comprehensive income:
 Net income...................                                                            211,990      211,990
                                                                                          -------
 Other comprehensive loss:
   Translation adjustment.....                                                             (1,540)                   (1,540)
                                                                                          -------
Comprehensive income..........                                                            210,450
                                ---------------   --------     -------       ------       =======      -------       ------
BALANCES AT DECEMBER 31,
 1998.........................   73,046,511,628    188,759      19,310        1,543                    240,968           61
Advances for increase in
 common stock.................                                   3,183
Issuance of common stock......   14,203,488,372     22,194     (22,194)
Transfer to legal reserves....                                                  483                       (483)
Comprehensive income:
 Net income...................                                                            369,079      369,079
                                                                                          -------
 Other comprehensive loss:
 Translation adjustment.......                                                             (2,934)                   (2,934)
                                                                                          -------
Comprehensive income..........                                                            366,145
                                ---------------   --------     -------       ------       =======      -------       ------
BALANCES AT DECEMBER 31,
 1999.........................   87,250,000,000    210,953         299        2,026                    609,564       (2,873)
Issuance of common stock......  152,750,000,000    247,286        (158)
Sale of affiliates............                                               (2,021)        2,873                     2,873
                                                                                          -------
Comprehensive income:
 Net income...................                                                            227,907      227,907
                                                                                          -------
 Other comprehensive loss:
 Translation adjustment.......                                                             (1,049)                   (1,049)
                                                                                          -------
Comprehensive income..........                                                            229,731
                                ---------------   --------     -------       ------       =======      -------       ------
BALANCES AT DECEMBER 31,
 2000.........................  240,000,000,000   $458,239         141            5                    837,471       (1,049)
                                ===============   ========     =======       ======                    =======       ======

<CAPTION>

                                    TOTAL
                                SHAREHOLDERS'
                                   EQUITY
                                -------------
<S>                             <C>
BALANCES AT JANUARY 1, 1998...        120,082
Issuance of common stock......        100,799
Advances for increase in
 common stock.................         19,310
Transfer to legal reserves....             --
Comprehensive income:
 Net income...................        211,990
 Other comprehensive loss:
   Translation adjustment.....         (1,540)
Comprehensive income..........
                                  -----------
BALANCES AT DECEMBER 31,
 1998.........................        450,641
Advances for increase in
 common stock.................          3,183
Issuance of common stock......             --
Transfer to legal reserves....             --
Comprehensive income:
 Net income...................        369,079
 Other comprehensive loss:
 Translation adjustment.......         (2,934)
Comprehensive income..........
                                  -----------
BALANCES AT DECEMBER 31,
 1999.........................        819,969
Issuance of common stock......        247,128
Sale of affiliates............            852
Comprehensive income:
 Net income...................        227,907
 Other comprehensive loss:
 Translation adjustment.......         (1,049)
Comprehensive income..........
                                  -----------
BALANCES AT DECEMBER 31,
 2000.........................      1,294,807
                                  ===========
</TABLE>

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

                                       F-88
<PAGE>   283

        TURKCELL ILETISIM HIZMETLERI ANONIM SIRKETI AND ITS SUBSIDIARIES

              CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS
                     ENDED DECEMBER 31, 1998, 1999 AND 2000

                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                  1998        1999         2000
                                                                --------    ---------    ---------
<S>                                                             <C>         <C>          <C>
OPERATING ACTIVITIES:
Net income..................................................    $211,990    $ 369,079    $ 227,907
Adjustments to reconcile net income to net cash provided by
  operating activities:
  Depreciation and amortization.............................      70,951      141,023      299,632
  Provision for retirement pay liability....................         423          905        1,898
  Provision for inventories.................................         (70)          --           --
  Provision for doubtful receivables........................      26,187       39,816       83,143
  Provision for income taxes................................          72          (77)         520
  Equity in net (income) loss of unconsolidated investees...      (7,427)       8,205       31,645
  Gain on sale of affiliates................................          --           --      (44,244)
  Deferred taxes............................................      10,003       (7,277)      30,982
CHANGES IN ASSETS AND LIABILITIES:
  Trade receivables.........................................     (97,427)    (112,253)    (166,550)
  Due from related parties..................................       4,679       (1,213)     (82,201)
  Inventories...............................................      (2,209)      (4,270)      (8,332)
  Prepaid expenses..........................................      (2,205)      (8,868)     (18,995)
  Other current assets......................................      (2,674)      (2,814)     (18,707)
  Advances to related parties...............................      35,794       (2,338)       2,080
  Other long term assets....................................      (1,249)       1,077       (3,422)
  Due to related parties....................................      (1,561)       5,999       (6,815)
  Accrued income............................................     (37,126)     (50,225)       3,828
  Accrued expense, net......................................      55,406       83,626       12,258
  Trade payables............................................      24,871     (100,146)     (66,042)
  Loss contingency..........................................     (11,000)          --           --
  Other current liabilities.................................      10,932       27,724       63,206
  Other long term liabilities...............................          --           --        5,838
                                                                --------    ---------    ---------
    Net cash provided by operating activities...............     288,360      387,973      347,629
                                                                --------    ---------    ---------
INVESTING ACTIVITIES:
  Additions to fixed assets.................................    (152,171)    (756,321)    (824,680)
  Reductions in (additions to) construction in progress.....    (115,875)     (38,831)      40,447
  Additions to intangibles..................................    (547,730)    (178,324)    (192,593)
  Investments in investees..................................     (39,422)     (10,922)      (4,698)
                                                                --------    ---------    ---------
    Net cash used for investing activities..................    (855,198)    (984,398)    (981,524)
FINANCING ACTIVITIES:
  Proceeds from issuance of and advances for common stock...     120,109        3,183      247,128
  Increase in minority interest.............................       2,599        1,594          327
  Proceeds from issuance of long and short term debt........     823,360      955,311    1,018,869
  Payment on long and short term debt.......................    (312,669)    (169,668)    (526,840)
  Net decrease (increase) in debt issuance expenses.........     (28,418)     (40,132)      10,762
  Payment on lease obligations..............................      (3,347)      (6,022)      (7,712)
  Increase in lease obligations.............................      38,671        6,969        5,997
                                                                --------    ---------    ---------
    Net cash provided by financing activities...............     640,305      751,235      748,531
                                                                --------    ---------    ---------
  Net increase in cash......................................      73,467      154,810      114,636
  Cash at the beginning of year.............................      20,452       93,919      248,729
                                                                --------    ---------    ---------
  Cash at the end of period.................................    $ 93,919    $ 248,729    $ 363,365
                                                                ========    =========    =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid...............................................    $ 38,561    $ 101,832    $ 163,610
Taxes paid..................................................          21           93           16
Non-cash investing activities --
  Accrued capital expenditures..............................     111,517      109,655      132,885
  Sale and purchase of investments..........................          --           --       90,000
Non-cash financing activities --
  Issuance of common shares subscribed and paid-up in
    1998....................................................          --       19,011           --
</TABLE>

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

                                       F-89
<PAGE>   284

        TURKCELL ILETISIM HIZMETLERI ANONIM SIRKETI AND ITS SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999 AND 2000 AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1999
                                    AND 2000

    (AMOUNTS IN THOUSANDS OF US DOLLARS UNLESS OTHERWISE STATED EXCEPT SHARE
                                    AMOUNTS)

(1) BUSINESS:

     Turkcell Iletisim Hizmetleri Anonim Sirketi (Turkcell -- Parent company)
was incorporated on October 5, 1993. It is engaged in establishing and operating
a Global System for Mobile Communications (GSM) network in Turkey. Turkcell and
Turk Telekomunikasyon A.S. (Turk Telekom), a state owned organization of Turkey,
were parties to a revenue sharing agreement signed in 1993 which set forth the
terms related to the construction and operating phases of GSM network (the
Revenue Sharing Agreement). In accordance with this agreement, Turk Telekom
contracted with subscribers, performed billing and collection and assumed
collection risks, while Turkcell made related GSM network investments. The
Revenue Sharing Agreement covered a period of 15 years commencing in 1993. Turk
Telekom and Turkcell shared revenues billed for subscription fees, monthly fixed
fees and outgoing calls, at a ratio of 67.1% and 32.9%, respectively. In
addition, Turkcell received 10% of revenues billed for incoming calls. On April
27, 1998, Turkcell signed a license agreement (the License Agreement or License)
with the Ministry of Transport and Communications of Turkey (the Turkish
Ministry). In accordance with the License Agreement, Turkcell was granted a 25
year GSM license for a license fee of $500,000. The License Agreement permits
Turkcell to operate as a stand-alone GSM operator and free it from some of the
operating constraints, which were stated in the Revenue Sharing Agreement. Under
the License, Turkcell collects all of the revenue generated from the operations
of its GSM network and pays the Undersecretariat of Treasury (the Turkish
Treasury) an ongoing license fee equal to 15% of its gross revenue. Turkcell
also continues to build and operate its GSM network and is authorized to, among
other things, set its own tariffs within certain limits, charge peak and
off-peak rates, offer a variety of service and pricing packages, issue invoices
directly to subscribers, collect payments and deal directly with subscribers.

     As of December 31, 2000, Kibris Mobile Telekomunikasyon Limited Sirketi
(Kibris Telekom), Global Bilgi Pazarlama Danisma ve Cagri Servisi Hizmetleri
A.S. (Global), Corbuss Kurumsal Telekom Servis Hizmetleri A.S (Corbuss),
Turktell Bilisim Servisleri A.S (Turktell), Hayat Boyu Egitim A.S (Hayat) and
Kibrisonline Limited Sirketi (Kibrisonline) (the subsidiaries) are consolidated
subsidiaries, owned 99.99%, 99.99% 99.25%, 99.95%, 65% and 50%, respectively, by
Turkcell or the subsidiaries.

     Kibris Telekom was incorporated on March 25, 1999 for the purpose of
constructing and operating a GSM network in Northern Cyprus. Kibris Telekom and
the Ministry of Prosperity and Transportation of the Turkish Republic of
Northern Cyprus were parties to a revenue sharing agreement, which covers a
period of 10.5 years commencing on March 25, 1999. According to the Revenue
Sharing Agreement, revenues billed for subscription fees, monthly fixed fees,
incoming and outgoing calls are shared at a ratio of 50% between the parties. At
December 31, 2000, the share capital of Kibris Telekom was fully paid in cash by
the amount of $20,166.

     Global was incorporated on October 1, 1999 for the purpose of establishing
databases and call centers, and publishing and distributing telephone
directories. At December 31, 2000, the share capital of Global was fully paid in
cash by the amount of $9,124.

     Corbuss and Turktell were incorporated on June 13, 2000 for the purpose of
rendering services related to information technologies such as Wireless
Application Protocol (WAP) and Value Added GSM Services (VAS). At December 31,
2000, Corbuss' and Turktell's paid-in capital are $1,387 and $365, respectively.

     Hayat was incorporated on June 7, 2000 to provide educational digital
broadcasting services for children. As of December 31, 2000, the paid-in capital
of Hayat is $5.

     Kibrisonline was incorporated on July 10, 2000 to provide internet
services. At December 31, 2000, the paid-in capital of Kibrisonline is $0.003.

     As of December 31, 2000, Fintur Holdings B.V. (Fintur), Bilisim ve Egitim
Teknolojileri A.S. (Bilisim), Digikids Interaktif Cocuk Programlari Yapimciligi
ve Yayinciligi A.S. (Digikids) and Siber Egitim ve Iletisim

                                       F-90
<PAGE>   285
        TURKCELL ILETISIM HIZMETLERI ANONIM SIRKETI AND ITS SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1999 AND 2000 AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1999
                                    AND 2000

    (AMOUNTS IN THOUSANDS OF US DOLLARS UNLESS OTHERWISE STATED EXCEPT SHARE
                                    AMOUNTS)

(1) BUSINESS (CONTINUED)

Teknolojileri A.S. (Siber Egitim), Mapco Internet ve Iletisim Hizmetleri
Pazarlama A.S. (Mapco) and Platco Internet ve Iletisim Altyapi Hizmetleri A.S.
(Platco) are equity investees.

     As of December 31, 2000, Fintur is an equity investee of the Company. In
November 1999, the articles of association of Fintur have been amended in order
to reflect a change in the company's operations (described in Note 10) and an
increase in the share capital from Dutch Guilders 250 thousand to Euro 500
thousand. On February 11, 2000 Fintur became a wholly owned subsidiary of
Turkcell. After the Fintur restructuring in June (described below and in Note
10), the Company's ownership in Fintur decreased to 25%. At December 31, 2000,
the share capital of Fintur was paid fully in cash by the amount of $360,007.

     On May 31, 2000, the Company contributed its 51% interest in GSM
Kazakhstan, the Kazakstani GSM network operator, and on June 5, 2000, the
Company contributed its entire 87% interest in Azertel, the company that holds a
64.3% interest in Azercell Telekom B.M., the Azeri GSM network operator, and
also contributed its 99.92% ownership interest in Gurtel, the company that owns
a 78% interest in Geocell, the Georgian GSM network operator, its 66% interest
in Moldcell, the Moldavian GSM network operator, and its entire 100% interest in
Digital Platform, its digital television distribution subsidiary, to Fintur by
decreasing its 100% ownership in Fintur to 25% in exchange for its investments
in the other businesses, assets and cash which have been contributed into Fintur
by Cukurova Group and Sonera Group companies (Note 10).

     Bilisim, Digikids and Siber Egitim were incorporated on July 24, July 14,
and September 4, 2000, respectively. Bilisim will engage in providing
educational services through internet, Digikids will provide entertainment
services for children via internet and television and Siber Egitim will provide
educational services through television and internet. At December 31, 2000, the
ownership interest of Turkcell and the subsidiaries in Bilisim, Digikids and
Siber Egitim are 50%, 25% and 40%, respectively. At December 31, 2000, the
paid-in capital of Digikids and Siber Egitim are $456 and $374, respectively,
and share capital of Bilisim was unpaid.

     Mapco and Platco were incorporated on November 14, 2000 to provide internet
services through any means of wireless communication. At December 31, 2000, the
ownership interest of Turkcell and the subsidiaries in Mapco and Platco are 45%.
At December 31, 2000, Mapco's and Platco's paid-in capital are $1,207 and $675,
respectively.

     As of December 31, 1999, Azertel Telekomunikasyon Yatirim ve Dis Ticaret
A.S. (Azertel), Gurtel Telekomunikasyon Yatirim ve Dis Ticaret A.S. (Gurtel),
Kibris Telekom, Digital Platform Iletisim Hizmetleri A.S. (Digital Platform),
Moldcell S.A. (Moldcell) and Global (the subsidiaries) were consolidated
subsidiaries, owned 87.50%, 99.92%, 99.99%, 99.99%, 66% and 99.20%,
respectively, by Turkcell or the subsidiaries.

     Azertel was incorporated on May 9, 1996. Azertel and the Ministry of
Communication of Azerbaijan (the Azerbaijan Ministry) are parties to an
agreement which sets forth the terms related to the construction and operating
phases of a GSM network in Azerbaijan. In accordance with this agreement,
Azercell Telecom MMM (Azercell), a company engaged in establishing and operating
a GSM network in Azerbaijan, was founded in Azerbaijan. Its shares are owned by
Azertel (64.3%) and the Azerbaijan Ministry (35.7%). Related investments are
being made by Azertel and the required operating license and permissions are
being provided by the Azerbaijan Ministry as capital contributions. The
operating license is valid for 20 years commencing in 1997 and can be extended
for periods of 10 years upon written application by Azercell.

     Gurtel was incorporated on November 11, 1996 and owns 78% of the shares of
Geocell Limited (Geocell), a company founded in Georgia and engaged in
establishing and operating a GSM network in Georgia. Other shareholders of
Geocell are Georgian shareholders, namely Cellcom Limited (20%), and Mobilcom 97
Limited (2%). The articles of association of Geocell state the conditions
related to the construction and operating phases

                                       F-91
<PAGE>   286
        TURKCELL ILETISIM HIZMETLERI ANONIM SIRKETI AND ITS SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1999 AND 2000 AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1999
                                    AND 2000

    (AMOUNTS IN THOUSANDS OF US DOLLARS UNLESS OTHERWISE STATED EXCEPT SHARE
                                    AMOUNTS)

(1) BUSINESS (CONTINUED)

of the GSM network. In accordance with the articles of association, related
investments are being made by Gurtel and the operating license is being provided
by Georgian shareholders as capital contributions. The term of existence of
Geocell is 10 years, corresponding to the duration of the license period, which
commenced in 1997. The term of existence and the duration of the license period
will be automatically renewed for an additional 10 years unless a "major
decision" (as described in the articles of association) is taken by the
shareholders. Afterwards, the operating license period can be extended for
periods of 10 years upon "major decisions" taken by the shareholders.

     Gurtel also owns 45% of the shares of Digital Hizmetler Pazarlama A.S.
(Digital Pazarlama), a company incorporated on July 19, 1999 for the purpose of
providing and marketing the television program distribution services of Digital
Platform.

     Moldcell was incorporated on October 19, 1999, for the purpose of
constructing and operating a GSM network in Moldavia. As of December 31, 1999,
the other shareholders of Moldcell were Accent Electronic S.A. (Accent-23%) and
Graham & Levintsa (11%), both Moldavian entities. On November 5, 1999, Moldcell
obtained a license to install and operate a GSM network in the Republic of
Moldavia, for a period of 15 years. On December 1, 1999, Turkcell and Accent
signed an agreement to increase the share capital of Moldcell to the equivalent
of $10,000 in Moldavian Lei, and simultaneously, Turkcell's participation would
increase from 66% to 77% by acquisition of 11% shares from Graham & Levintsa. In
accordance with this agreement, Accent would contribute the administrative
building valued at $600, security services valued at $500 and consulting support
valued at $200 as initial part of the share increase, and Turkcell would
establish the GSM network. Moldcell commenced its GSM operations in April 2000.

     Digital Platform was incorporated on March 10, 1999 for the purpose of
broadcasting, and purchasing, selling and leasing of communication equipment and
satellite lines. Digital Platform delivers DTH (Direct to Home) television
programme distribution services, and it began operations in April 2000.

     As of December 31, 1999, TOO -- GSM Kazakhstan AOA (GSM Kazakhstan) was an
equity investee. GSM Kazakhstan was incorporated on June 1, 1998 as a wholly
owned subsidiary of AO Kazakhtelecom, the Kazakhstan monopoly fixed-line
telecommunications company owned and controlled by Kazkommerstbank (a
state-owned bank). GSM Kazakhstan is engaged in establishing and operating a GSM
network in Almaty and parts of the northwest region of Kazakhstan. In an auction
arranged by the Kazakh Government in June 1998, GSM Kazakhstan obtained a
general license for 15 years at a cost of $67,500 to provide mobile telephone
services in accordance with GSM standards. On September 29, 1998, Turkcell
signed an agreement with AO Kazakhtelecom and acquired 51% ownership interest in
GSM Kazakhstan in consideration for $25,000.

(2) FINANCIAL POSITION AND BASIS OF PREPARATION OF FINANCIAL STATEMENTS:

     Turkcell and the subsidiaries (the Company) maintain their books of account
and prepare their statutory financial statements in their local currencies and
in accordance with local commercial practice and tax regulations applicable in
the countries where they are resident. The accompanying consolidated financial
statements are based on these statutory records, with adjustments and
reclassifications for the purpose of fair presentation in accordance with
accounting principles generally accepted in the United States. The financial
statements as of December 31, 1999 and 2000 and for each of the years in the
three-year period ended December 31, 2000 present the consolidated financial
position and consolidated results of operations of the Company.

     At December 31, 2000, current liabilities exceeded current assets by
$55,856. Also, based on the Company's consolidated financial statements as of
and for the three month period ended March 31, 2001, the Company is in

                                       F-92
<PAGE>   287
        TURKCELL ILETISIM HIZMETLERI ANONIM SIRKETI AND ITS SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1999 AND 2000 AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1999
                                    AND 2000

    (AMOUNTS IN THOUSANDS OF US DOLLARS UNLESS OTHERWISE STATED EXCEPT SHARE
                                    AMOUNTS)

(2) FINANCIAL POSITION AND BASIS OF PREPARATION OF FINANCIAL STATEMENTS:
(CONTINUED)

breach of one of the covenants contained in the 1998 and 1999 bank facilities
(Note 28). These matters may raise substantial doubt about the Company's ability
to continue as a going concern. The consolidated financial statements referred
to above have been prepared assuming that the Company will continue as a going
concern. Management's plans to continue as a going concern include increasing
its share capital, refinancing existing borrowings, obtaining additional
borrowings, to defer payments of existing or future debts and renegotiating of
the covenants. On May 16, 2001, it was resolved to increase Turkcell's share
capital by TL 236.2 trillion (equivalent to $209,860 at May 16, 2001) (Note 28).
On May 24, 2001, Yapi ve Kredi Bankasi A.S., a shareholder and one of the
largest Turkish banks, has committed to provide a cash loan facility up to
$100,000 to the Company over the next twelve months. On May 28, 2001, Ericsson
Telekomunikasyon A.S., the main supplier of GSM network equipment and related
services, (Notes 15, 27 and 28), has agreed that, at the request of the Company,
it will defer its collections from the Company resulting from the Company's
purchases of GSM network equipment and related services over the next twelve
months. Management expects to begin renegotiation of the covenants with the
lenders in July 2001. Management does not expect the agent to accelerate
repayment of the outstanding amounts under the 1998 and 1999 bank facilities,
and, as of May 28, 2001, management is not aware of any lenders instructing the
agent to accelerate repayment. Accordingly, the consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.

     In its statutory financial statements prepared in accordance with local
commercial and tax regulations, Turkcell has generated negative cash flows and
losses from operating activities as of December 31, 1999 and 2000. Interest
expense and exchange losses associated with financing the business have
contributed to the negative cash flows and operating losses as well as tax
saving accounting treatments applied by Turkcell in its statutory financial
statements. In accordance with Turkish commercial legislation, Turkcell is
required to maintain certain minimum levels of shareholders' equity in its
statutory financial statements. In connection with the recapitalization as
described in Note 21, Turkcell has met those minimum requirements.

(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

     Significant accounting policies followed in the preparation of the
consolidated financial statements referred to above are set out below:

(A) REVENUE AND EXPENSE RECOGNITION

Revenues:

     Communication fees include all types of postpaid revenues from incoming and
outgoing calls, additional services and prepaid revenues. Communication fees are
recognized at the time the services are rendered.

     Monthly fixed fees represent a fixed amount charged to postpaid subscribers
on a monthly basis without regard to the level of usage. Fixed fees are
recognized on a monthly basis when billed.

     Subsequent to the acquisition of the License and through the third quarter
of 2000, subscription fees, simcard and prepaid simcard sales were recognized
upon initial entry of a new subscriber into the GSM system only to the extent of
direct costs. Excess subscription fees, simcard and prepaid simcard sales, if
any, were deferred and amortized over the estimated effective customer life.
Subsequent to March 2000 subscription fees were no longer charged to customers.

     The Securities and Exchange Commission issued Staff Accounting Bulletin No.
101, "Revenue Recognition in Financial Statements" (SAB 101), on December 3,
1999. SAB 101 provides additional guidance on the application of existing
generally accepted accounting principles to revenue recognition in financial
statements.

                                       F-93
<PAGE>   288
        TURKCELL ILETISIM HIZMETLERI ANONIM SIRKETI AND ITS SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1999 AND 2000 AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1999
                                    AND 2000

    (AMOUNTS IN THOUSANDS OF US DOLLARS UNLESS OTHERWISE STATED EXCEPT SHARE
                                    AMOUNTS)

(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)

SAB 101 establishes more clearly defined revenue recognition criteria than
previously existing accounting pronouncements, and specifically addresses
revenue recognition requirements for non-refundable fees, such as activation
fees, collected by a company upon entering into an arrangement with a
subscriber, such as an arrangement to provide telecommunication services. SAB
101 is effective for the last quarter of fiscal years beginning after December
15, 1999. The Company adopted SAB 101 effective October 1, 2000. The adoption of
SAB 101 did not have a material impact on the Company's consolidated financial
position or results of operations.

     Subsequent to the adoption of SAB 101 the Company defers revenues
associated with simcard sales and corresponding equal amount of the related
costs and amortizes the revenues and expenses over the estimated subscriber
life.

Expenses:

     Direct costs of revenues mainly include transmission fees, base station
rents, depreciation and amortization charges and technical, repair and
maintenance expenses directly related to services rendered.

     Direct cost of subscription fees, simcard and prepaid simcard sales include
activation fees paid to dealers, certain customer acquisition costs, cost of
simcard sales and simcard subsidies. Selling and marketing and general and
administrative costs are charged to expenses as incurred.

(B) PRINCIPLES OF CONSOLIDATION

     As of December 31, 2000, the consolidated financial statements include the
accounts of Turkcell and six (1999: six) majority owned subsidiaries.
Investments in Fintur, Digikids, Bilisim, Siber Egitim, Mapco and Platco (1999:
GSM Kazakhstan, Azercell, Digital Pazarlama and Geocell) are included under the
equity method of accounting (Note 10).

     The major principles of consolidation are as follows:

     -- All significant intercompany balances and transactions have been
        eliminated in consolidation.

     -- Minority interest in net assets and net income of the consolidated
        subsidiaries are separately classified in the consolidated balance
        sheets and consolidated statements of operations.

(C) PRINCIPLES OF TRANSLATION OF THE FINANCIAL STATEMENTS INTO US DOLLARS

     Turkcell and the subsidiaries record transactions in their local
currencies, which represent their functional currency. Transactions denominated
in foreign currencies are recorded at the exchange rates prevailing at the date
of the transactions. Assets and liabilities denominated in foreign currencies
are converted into Turkish Lira at the exchange rates ruling at balance sheet
date, with the resulting exchange differences recognized in the determination of
net income.

     Financial statements of Turkcell, Kibriis Telekom, Corbuss, Turktell,
Hayat, Kibrisonline and Global (1999: Turkcell, Azertel, Gurtel, Kibris Telekom,
Digital Platform and Global) have been translated into US Dollars the reporting
currency, in accordance with the relevant provisions of Statement of Financial
Accounting Standard (SFAS) No. 52 "Foreign Currency Translation" as applied to
entities in highly inflationary economies. Accordingly, revenues, costs, capital
and nonmonetary assets and liabilities are translated at historical exchange
rates while monetary assets and liabilities are translated at the exchange rates
prevailing at balance sheet dates.

                                       F-94
<PAGE>   289
        TURKCELL ILETISIM HIZMETLERI ANONIM SIRKETI AND ITS SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1999 AND 2000 AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1999
                                    AND 2000

    (AMOUNTS IN THOUSANDS OF US DOLLARS UNLESS OTHERWISE STATED EXCEPT SHARE
                                    AMOUNTS)

(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)

All foreign exchange adjustments resulting from translation of the financial
statements into US Dollars are included in the determination of net income, as
"Translation loss".

     Digikids, Bilisim, Siber Egitim, Mapco, Platco and Fintur (1999: GSM
Kazakhstan, Azercell, Geocell, and Digital Pazarlama) are unconsolidated
subsidiaries accounted for under the equity method of accounting. Financial
statements of these companies (1999: Azercell) have been translated into US
Dollars, the reporting currency of the Company, in accordance with the relevant
provisions of SFAS No. 52 as applied in highly inflationary economies. All
foreign exchange adjustments resulting from translation of the financial
statements of Fintur (1999: Azercell) into US Dollars are included in a separate
section of shareholders' equity titled "Accumulated other comprehensive loss".

(D) FIXED ASSETS AND INTANGIBLES

     Fixed assets and intangibles are stated at cost. Leases of plant and
equipment under which the Company assumes substantially all the risks and the
rewards incidental to ownership are classified as finance leases. Other leases
are classified as operating leases.

     Finance leases are recognized in the balance sheet by recording an asset
and liability equal to the present value of minimum lease payments at the
inception of the lease. Capitalized finance leases are depreciated over the
estimated useful life of the asset or the lease term where appropriate. Lease
liabilities are reduced by repayments of principal, while the interest charge
component of the lease payment is charged to income.

     Depreciation and amortization is provided using straight-line method at
rates established based on the estimated economic lives of the related assets.
The annual rates used approximate the estimated economic lives of the related
assets and are as follows:

<TABLE>
<S>                                              <C>
Buildings......................................            4.0%
Machinery and equipment........................   12.5% - 25.0%
Furniture, fixture and equipment...............   20.0% - 25.0%
Motor vehicles.................................   20.0% - 25.0%
Leasehold improvements.........................           20.0%
Intangibles....................................      4% - 12.5%
</TABLE>

     Major renewals and betterments are capitalized and depreciated/amortized
over the remaining useful lives of the related assets. Maintenance, repairs and
minor renewals are expensed as incurred.

     When assets are otherwise disposed of, the costs and the related
accumulated depreciation/amortization are removed from the accounts and
resulting gain or loss is reflected in net income.

(E) INVENTORIES

     Inventories are stated at the lower of cost or market. Cost is determined
using the weighted average method. At December 31, 1999 and 2000, inventories
consisted of simcards and scratch cards (finished goods) amounting to $8,303 and
$16,402, respectively.

(F) INCOME TAXES

     Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying

                                       F-95
<PAGE>   290
        TURKCELL ILETISIM HIZMETLERI ANONIM SIRKETI AND ITS SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1999 AND 2000 AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1999
                                    AND 2000

    (AMOUNTS IN THOUSANDS OF US DOLLARS UNLESS OTHERWISE STATED EXCEPT SHARE
                                    AMOUNTS)

(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)

amounts of existing assets and liabilities and their respective tax bases and
operating loss and tax credit carryforwards. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
The Company's deferred tax assets and liabilities have been remeasured into US
Dollars in accordance with the provisions of SFAS No. 109 and the transaction
gains and losses that result from such remeasurement have been included within
the translation loss in the consolidated financial statements.

(G) USE OF ESTIMATES

     Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with accounting principles generally accepted in the United States.
Actual amounts could differ from those estimates. Significant estimates and
assumptions include the depreciable lives of fixed assets and intangibles,
amounts reflected as allowances for doubtful receivables and valuation
allowances on deferred tax assets.

(H) TRANSACTIONS WITH RELATED PARTIES

     For reporting purposes, investee companies and their shareholders,
shareholders of Turkcell and the subsidiaries and the companies that the
shareholders have a relationship with are considered to be related parties.

(I) IMPAIRMENT OF LONG-LIVED ASSETS

     The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of, on
January 1, 1996. The Company assesses impairment of its long-lived assets and
intangibles wherever facts or circumstances indicate the carrying amounts may
not be recoverable. The Company compares the carrying value of such assets to
the estimated future undiscounted cash flows attributable to such assets. If the
sum of the expected cash flows (undiscounted and without charges) is less than
the carrying amount of the asset, the Company recognizes an impairment loss on
the assets. There was no such impairment in any of the periods presented in the
consolidated financial statements.

(J) EARNINGS PER SHARE

     The Company adopted SFAS No. 128, Earnings Per Share. In accordance with
this statement, basic earnings per share is computed by dividing net earnings by
the weighted average number of common shares outstanding. Diluted earnings per
share do not differ from basic earnings per share for all periods presented, as
the Company has no common stock equivalents. The weighted average number of
common shares outstanding and earnings per share information have been
retroactively restated to reflect the recapitalization as described in Note 21.

(K) COMPREHENSIVE INCOME

     The Company adopted SFAS No. 130, Reporting Comprehensive Income, which
requires the presentation of comprehensive income and its components in a full
set of financial statements. Comprehensive income generally encompasses all
changes in shareholders' equity (except those arising from transactions with
owners) and includes net income (loss), net unrealized capital gains or losses
on available for sale securities and foreign currency translation adjustments.
The Company's comprehensive income differs from net income applicable to common
shareholders only by the amount of the foreign currency translation adjustment
charged to shareholders'

                                       F-96
<PAGE>   291
        TURKCELL ILETISIM HIZMETLERI ANONIM SIRKETI AND ITS SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1999 AND 2000 AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1999
                                    AND 2000

    (AMOUNTS IN THOUSANDS OF US DOLLARS UNLESS OTHERWISE STATED EXCEPT SHARE
                                    AMOUNTS)

(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)

equity for the period. Comprehensive income for the years ended December 31,
1998, 1999 and 2000 were $210,450, $366,145 and $209,321 respectively.

(L) SEGMENT REPORTING

     The Company adopted SFAS No. 131, Disclosures About Segments of an
Enterprise and Related Information. This statement requires that companies
disclose segment data based on how management makes decisions about allocating
resources to segments and measuring their performance. It also requires
entity-wide disclosures about the products and services an entity provides, the
material countries in which it holds assets and reports revenues and its major
customers.

(M) DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

     In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities, as amended. SFAS
No. 133 is effective for all fiscal quarters of fiscal years beginning after
June 15, 2000. This statement establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts (collectively referred to as derivatives), and for hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and measure these
instruments at fair value. As of December 31, 2000, the Company did not have any
freestanding or embedded derivatives. Management believes that the adoption of
SFAS 133 will not have a material impact on the company's consolidated financial
position or results of operations.

(N) ACCOUNTING FOR COMPUTER SOFTWARE

     In January 1998, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" (SOP 98-1). The Company adopted
SOP 98-1 effective January 1, 1999. The adoption of SOP 98-1 did not have a
material impact on the Company's consolidated financial statements.

(O) REPORTING ON THE COSTS OF START-UP ACTIVITIES

     The AICPA issued Statement of Position 98-5, "Reporting on the Costs of
Start-up Activities" ("SOP 98-5") in April 1998. SOP 98-5 provides guidance on
the financial reporting of start-up costs and organization costs. It requires
costs of start-up activities and organization costs to be expensed as incurred.
The Company adopted SOP 98-5 effective January 1, 1999. The adoption of SOP 98-5
did not have a material impact on the Company's consolidated financial
statements.

(P) RETIREMENT PAY LIABILITY

     Under the terms of the existing labor law in Turkey, the Company is
required to make lump-sum payments to employees who have completed one year of
service and whose employments are terminated without due course, or who retire,
are called up for military service or die. Such payments are calculated on the
basis of 30 days' pay maximum approximately $0.87 per year of employment at the
rate of pay applicable at the date of retirement or termination.

                                       F-97
<PAGE>   292
        TURKCELL ILETISIM HIZMETLERI ANONIM SIRKETI AND ITS SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1999 AND 2000 AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1999
                                    AND 2000

    (AMOUNTS IN THOUSANDS OF US DOLLARS UNLESS OTHERWISE STATED EXCEPT SHARE
                                    AMOUNTS)

(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)

(Q) DEFERRED FINANCING COST

     Certain financing costs associated with the borrowings of funds are
deferred. Deferred financing costs are recorded in other current assets
($24,701) and other long-term assets ($36,288) in the accompanying consolidated
balance sheet at December 31, 2000 (1999: $21,066 and $50,685). These assets are
amortized over the terms of the related borrowings as an adjustment to interest
expense in the accompanying statements of operations.

(R) RECLASSIFICATIONS

     Certain prior year amounts have been reclassified to conform with the 2000
presentation.

(4) FAIR VALUE OF FINANCIAL INSTRUMENTS:

     The Company's financial instruments consist of cash and cash equivalents,
trade receivables and accrued income, short and long term borrowings and trade
payables.

     The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:

(A) CASH AND CASH EQUIVALENTS, TRADE RECEIVABLES AND ACCRUED INCOME AND TRADE
PAYABLES

     The carrying amounts approximate fair value because of the short maturity
of those instruments.

(B) SHORT AND LONG TERM BORROWINGS

(i)  Bank facilities: The carrying amount approximates fair value because the
     interest rate varies based on the London interbank offer rates.

(ii) Loans under the Issuer Credit Agreement: The fair value is estimated based
     on the quoted market prices.

(iii) Other long term borrowings: For other long term borrowings, a reasonable
      estimate of fair value could not be made because they are unique in nature
      and no information is readily available.

(iv) Other short term bank loans and overdrafts: The carrying amount
     approximates fair value because of the short maturity of those instruments.

     The estimated fair values of the Company's financial instruments at
December 31, 1999 and 2000 are as follows:

<TABLE>
<CAPTION>
                                                      1999                        2000
                                            ------------------------    ------------------------
                                             CARRYING                    CARRYING
                                              AMOUNT      FAIR VALUE      AMOUNT      FAIR VALUE
                                            ----------    ----------    ----------    ----------
<S>                                         <C>           <C>           <C>           <C>
Cash and cash equivalents...............    $  248,729    $  248,729    $  363,365    $  363,365
Trade receivables and accrued income....       251,456       251,456       325,636       325,636
Short term borrowings
  Practicable to estimate fair value....       324,572       324,572       393,813       393,813
  Not practicable.......................        49,668            --        44,268            --
Trade payables..........................       153,494       153,494       208,890       208,890
Long term borrowings
  Practicable to estimate fair value....    $1,172,852    $1,213,622    $1,470,167    $1,436,917
  Not practicable.......................        74,777            --       130,509            --
</TABLE>

                                       F-98
<PAGE>   293
        TURKCELL ILETISIM HIZMETLERI ANONIM SIRKETI AND ITS SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1999 AND 2000 AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1999
                                    AND 2000

    (AMOUNTS IN THOUSANDS OF US DOLLARS UNLESS OTHERWISE STATED EXCEPT SHARE
                                    AMOUNTS)

(5) CASH AND CASH EQUIVALENTS:

     Cash and cash equivalents of $248,729 and $363,365 at December 31, 1999 and
2000, respectively, consist of cash on hand, demand deposits at banks and time
deposits at banks with an initial term of less than one month. For purposes of
the statements of cash flows, the Company considers all highly liquid debt
instruments with initial maturities of one month or less to be cash equivalents.

     At December 31, 2000, cash and cash equivalents amounting to $234,939
(1999: $55,384) were deposited in the banks which are owned and controlled by
Cukurova Holding A.S., a shareholder of the Company.

(6) TRADE RECEIVABLES AND ACCRUED INCOME, NET:

     At December 31, 1999 and 2000, the breakdown of trade receivables and
accrued income is as follows:

<TABLE>
<CAPTION>
                                                                  1999        2000
                                                                --------    --------
<S>                                                             <C>         <C>
Receivables from subscribers................................    $167,796    $339,312
Receivable from Turk Telekom................................      52,889      26,083
Accounts and checks receivable..............................       2,755      19,556
                                                                --------    --------
                                                                 223,440     384,951
Accrued service income......................................      90,942      86,754
Allowance for doubtful receivables..........................     (62,926)   (146,069)
                                                                --------    --------
                                                                $251,456    $325,636
                                                                ========    ========
</TABLE>

     The Company has a receivable from Turk Telekom at December 31, 1999 and
2000, which represents amounts that are due from Turk Telekom under the
Interconnection Agreement (Note 26). The Interconnection Agreement provides that
Turk Telekom will pay Turkcell for Turk Telekom's fixed-line subscribers' calls
to Turkcell's GSM subscribers.

     The accrued service income represents revenues accrued for subscriber calls
(air-time) which have not been billed. Due to the volume of subscribers, there
are different billing cycles; accordingly, an accrual is made at each period end
to accrue revenues for services rendered but not yet billed.

     Accounts and cheques receivable represent amounts due from dealers and
roaming receivables.

     Movements in the allowance for doubtful receivables were as follows:

<TABLE>
<CAPTION>
                                                                 1999        2000
                                                                -------    --------
<S>                                                             <C>        <C>
Beginning balance...........................................    $23,110    $ 62,926
Provision for doubtful receivables..........................     61,209      98,979
Write-offs..................................................         --          --
Effect of change in exchange rate...........................    (21,393)    (15,836)
                                                                -------    --------
Ending balance..............................................    $62,926    $146,069
                                                                =======    ========
</TABLE>

     As a result of earthquakes in the Marmara Region on August 17 and November
12, 1999, all communication companies in Turkey decided to defer the collection
of their receivables from subscribers living in the Marmara Region (Sakarya,
Kocaeli, Bolu and suburbs) until February 29, 2000. The Company charges no
interest on these receivables. Such receivables amounted to $4,268 as of
December 31, 2000 (1999: $5,830). The Company provided an allowance for the full
amount of such receivables and also other doubtful receivables identified based
upon past experience in its consolidated financial statements.

                                       F-99
<PAGE>   294
        TURKCELL ILETISIM HIZMETLERI ANONIM SIRKETI AND ITS SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1999 AND 2000 AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1999
                                    AND 2000

    (AMOUNTS IN THOUSANDS OF US DOLLARS UNLESS OTHERWISE STATED EXCEPT SHARE
                                    AMOUNTS)

(7) DUE FROM RELATED PARTIES:

     As of December 31, 1999 and 2000, the balance comprised:

<TABLE>
<CAPTION>
                                                                 1999       2000
                                                                ------    --------
<S>                                                             <C>       <C>
A-Tel Pazarlama ve Servis Hizmetleri A.S. (A-Tel)...........    $1,280    $ 36,069
Asli Gazetecilik ve Matbaacilik A.S. (Asli Gazetecilik).....        --      20,585
Fintur......................................................        --      18,926
Azertel.....................................................        --       9,745
ER-TEL Erdem Telekominikasyon Elektronik ve Bilgi
  Islem Sanayi ve Ticaret A.S. (Er-Tel).....................        --       6,806
Digital Platform............................................        --       3,005
Sonera Corporation Inc......................................        --       3,225
Gurtel......................................................        --       2,187
Mobicom Bilgi Iletisim Hizmetleri A.S. (Mobicom)............       303       2,175
Cukurova Investment N.V. (Cukurova Investment)..............        --       1,787
Azercell....................................................       938       1,647
Moldcell....................................................        --       1,214
Mapco.......................................................        --       1,116
Geocell.....................................................       517         754
Pamukbank T.A.S (Pamukbank).................................        --         678
Platco......................................................        --         547
GSM Kazakhstan..............................................        --         533
Murat Vargi Komunikasyon Sistemleri Holding A.S (M.V.
  Holding)..................................................        --         460
Superonline Uluslararasi Elektronik Bilgilendirme ve
  Haberlesme Hizmetleri A.S. (Superonline)..................        --         469
GT Mobile Limited (GT Mobile)...............................        --         362
Cukurova Holding A.S (Cukurova Holding).....................        --         335
Digital Hizmetler Pazarlama A.S. (Digital Pazarlama)........       693          --
Other.......................................................     1,235       1,235
                                                                ------    --------
                                                                $4,966    $113,860
                                                                ======    ========
</TABLE>

     Due from A-Tel mainly resulted from simcard and prepaid card sales and
advances given for hand-set subsidies provided by A-Tel in certain campaigns
started by this company (Note 25).

     Due from Asli Gazetecilik resulted from advances given for making space and
airtime reservations for advertisements on television stations, radio stations,
newspapers and magazines owned by Cukurova Group (Note 25).

     Due from Fintur resulted from advances given for share capital increase
(Note 10).

     Due from Azertel resulted from the payment made to the Azerbaijan Ministry
for the 1997 profit guarantee.

     Due from Er-Tel mainly resulted from advances given for campaigns started
by this company.

     Due from Digital Platform mainly resulted from receivables from call center
revenues and advances given for sponsorships (Note 25).

     Due from Sonera Corporation Inc., Cukurova Investment, Pamukbank, M.V.
Holding and Cukurova Holding resulted from the allocation of certain expenses
made on behalf of these shareholders during the public offering.

                                      F-100
<PAGE>   295
        TURKCELL ILETISIM HIZMETLERI ANONIM SIRKETI AND ITS SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1999 AND 2000 AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1999
                                    AND 2000

    (AMOUNTS IN THOUSANDS OF US DOLLARS UNLESS OTHERWISE STATED EXCEPT SHARE
                                    AMOUNTS)

(7) DUE FROM RELATED PARTIES: (CONTINUED)

     Due from Gurtel resulted from the equipment sales made to Geocell.

     Due from Mobicom resulted from rents paid by Turkcell on behalf of this
company.

     Due from Azercell resulted from roaming receivables and consultancy
services given to this company.

     Due from Moldcell resulted from legal consultancy expenses made on behalf
of this company.

     Due from Mapco and Platco resulted from the consultancy expenses made on
behalf of these companies.

     Due from Geocell mainly resulted from sales of GSM equipment (Note 25).

     Due from Superonline resulted from receivables from call center revenues.

     Due from GSM Kazakhstan resulted from training and consultancy expenses
made on behalf of this company.

     Due from GT Mobile resulted from legal consultancy and travel expenses
incurred on behalf of this company.

(8) OTHER CURRENT ASSETS:

     At December 31, 1999 and 2000, the balance comprised:

<TABLE>
<CAPTION>
                                                                 1999       2000
                                                                -------    -------
<S>                                                             <C>        <C>
Deferred financing costs (Note 3)...........................    $21,066    $24,701
Prepaid taxes...............................................        421      6,722
Advances to suppliers.......................................      3,553      4,413
Value added tax receivable..................................      2,513      1,439
Blocked deposits (Note 21)..................................      1,720        156
Other.......................................................      2,588      7,045
                                                                -------    -------
                                                                $31,861    $44,476
                                                                =======    =======
</TABLE>

(9) PREPAID EXPENSES:

     At December 31, 1999 and 2000, balances comprised prepaid rent, insurance
and maintenance expenses.

                                      F-101
<PAGE>   296
        TURKCELL ILETISIM HIZMETLERI ANONIM SIRKETI AND ITS SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1999 AND 2000 AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1999
                                    AND 2000

    (AMOUNTS IN THOUSANDS OF US DOLLARS UNLESS OTHERWISE STATED EXCEPT SHARE
                                    AMOUNTS)

(10) INVESTMENTS:

     At December 31, 1999 and 2000, investments in associated companies were as
follows:

<TABLE>
<CAPTION>
                                                                 1999       2000
                                                                -------    -------
<S>                                                             <C>        <C>
Fintur......................................................    $    --    $58,679
Mapco.......................................................         --        785
Platco......................................................         --        450
Siber.......................................................         --        154
Azercell....................................................     40,157         --
GSM Kazakhstan..............................................     12,874         --
Geocell.....................................................     16,707         --
Digital Pazarlama...........................................        317         --
                                                                -------    -------
                                                                $70,055    $60,068
                                                                =======    =======
</TABLE>

     At December 31, 1999, Turkcell's ownership interest in GSM Kazakhstan was
51%, Azertel's ownership interest in Azercell was 64.3% and Gurtel's ownership
interests in Digital Pazarlama and Geocell were 45% and 78%, respectively.
Investments in GSM Kazakhstan, Azercell, Digital Pazarlama and Geocell were
accounted for under the equity method of accounting.

     GSM Kazakhstan and Azercell were not consolidated because their articles of
association include certain provisions restricting the Company's control over
operating and financial affairs and giving minority shareholders certain
substantive participating rights.

     In connection with the Fintur transaction (described below), Turkcell
contributed its 99.99% interest in Gurtel and effectively its 78% interest in
Geocell to Fintur in June 2000. Once contributed, the Company's interest in
Geocell was effectively reduced to approximately 20% through the Company's
ownership interest in Fintur. Given this, and on the basis that the Company's
control of its current 78% interest in Geocell was temporary, as of December 31,
1999, the Company has accounted for its investment in Geocell under the equity
method of accounting.

     At the Board of Directors Meeting of Turkcell held on April 28, 1999, it
was agreed to form a holding company in The Netherlands. The new holding
company, would mainly engage in participating in the capital and management of
companies providing communication, internet, multi-media and data transfer
services. On February 11, 2000, the Company paid Euro 120 thousand and
capitalized a 100% owned subsidiary, Fintur. Subsequently, a decision was made
with Cukurova Holding A.S., Cukurova Investments and Yapi Kredi (collectively
"Cukurova Group") and Sonera Group companies to jointly own Fintur where it was
agreed to increase share capital of Fintur to $360,000 and affect the following
business combination:

     Sonera Corporation Inc. contributed $127,100 in cash to Fintur in exchange
for approximately 35% of the equity in Fintur. Cukurova Holding A.S. contributed
$48,000 of its interests in three corporations (100% of Topaz, 80% of Mobicom
and 80% of Verinet Uydu Haberlesme Sanayi ve Ticaret A.S.) to Fintur in exchange
for 12.7% of the equity in Fintur and $2,400 in cash. Cukurova Investments
contributed $70,000 of its interest in one corporation (50% of Superonline) to
Fintur in exchange for 7.6% of the equity in Fintur and $42,700 in cash. Yapi
Kredi contributed $72,000 worth of its interest in two corporations (50% of
Superonline and 10% of Mobicom) to Fintur in exchange for 19.4% of the equity in
Fintur and $2,000 in cash.

     The Company contributed to Fintur (i) its 87% interest in Azertel, the
company that holds a 64.3% interest in Azercell Telekom B.M., the Azeri GSM
network operator, (ii) its 99.92% interest in Gurtel, the company that

                                      F-102
<PAGE>   297
        TURKCELL ILETISIM HIZMETLERI ANONIM SIRKETI AND ITS SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1999 AND 2000 AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1999
                                    AND 2000

    (AMOUNTS IN THOUSANDS OF US DOLLARS UNLESS OTHERWISE STATED EXCEPT SHARE
                                    AMOUNTS)

(10) INVESTMENTS: (CONTINUED)

owns a 78% interest in Geocell, the Georgian GSM network operator and (iii) its
100% interest in Digital Platform, its digital television distribution
subsidiary. The Company also contributed its 51% interest in GSM Kazakhstan, the
Kazakstani GSM network operator and its 66% interest in Moldcell, the Moldavian
GSM network operator. In exchange for the contribution to Fintur of its
interests in these businesses, Turkcell acquired a 25% interest in Fintur, with
a fair value of $90,000. The Company is accounting for its interest in Fintur
under the equity method as from the date of the restructuring. As a result of
the Fintur restructuring, the Company recognized the gain on sale of affiliates
of $44,244 (excluding related tax expense of approximately $16,600) in June 2000
based upon 75% of the book value of its interest in the businesses contributed
to Fintur ($31,000 at 75% equalling $23,300) and 75% of the fair value of its
interest in Fintur ($90,000 at 75% equalling $67,500).

     At December 31, 2000, the Company's ownership interest in Fintur, Digikids,
Bilisim, Siber Egitim, Mapco and Platco were 25%, 25%, 50%, 40%, 45%, and 45%,
respectively. Investments in Digikids, Bilisim, Siber Egitim, Mapco, Platco and
Fintur were accounted for under the equity method of accounting.

     At the Board of Directors meeting held on October 11, 2000, it was resolved
that the Company will contribute Euro 38.4 million to the share capital increase
of Fintur. As of December 31, 2000, the Company has paid $18,926 to Fintur as
advances for such share capital increase (Note 7).

     At the Board of Directors meeting held on December 13, 2000, it was
resolved that the Company will acquire 500,000 shares of Mapco and 500,000
shares of Platco owned by Superonline with a par value of TL one million each
for TL 500 billion (equivalent to $744 as of December 31, 2000) each. After the
acquisition, the ownership interest of the Company in Mapco and Platco will
increase to 70%.

     Aggregate summarized financial information of Azercell, Geocell and GSM
Kazakhstan for the year ended December 31, 1998, and of Azercell, Geocell, GSM
Kazakhstan and Digital Pazarlama as of and for the year ended December 31, 1999,
and Azercell, Geocell, GSM Kazakhstan and Digital Pazarlama for the five month
period ended May 31, 2000, and of Fintur, Mapco, Platco, Bilisim, Digikids and
Siber Egitim as of and for the seven-month period ended December 31, 2000 are as
follows:

<TABLE>
<CAPTION>
                                                                  1999        2000
                                                                --------    --------
<S>                                                             <C>         <C>
Current assets..............................................    $ 26,936    $162,915
Noncurrent assets...........................................     199,524     738,193
                                                                --------    --------
Total assets................................................     226,460     901,108
                                                                ========    ========
Current liabilities.........................................      47,846     482,704
Noncurrent liabilities......................................      70,840     183,479
Shareholders' equity........................................     107,774     234,925
                                                                --------    --------
                                                                $226,460    $901,108
                                                                ========    ========
</TABLE>

<TABLE>
<CAPTION>
                                                                         MAY 31,    DECEMBER 31,
                                                    1998       1998       2000          2000
                                                   -------    -------    -------    ------------
<S>                                                <C>        <C>        <C>        <C>
Revenues.......................................    $52,892     63,628     36,601       118,727
Direct cost of revenues........................    (17,482)   (34,749)   (20,127)     (127,495)
Income (loss) before taxes.....................     15,850    (13,415)     2,421      (118,734)
Net income (loss)..............................     13,461    (15,426)       806      (123,242)
</TABLE>

                                      F-103
<PAGE>   298
        TURKCELL ILETISIM HIZMETLERI ANONIM SIRKETI AND ITS SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1999 AND 2000 AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1999
                                    AND 2000

    (AMOUNTS IN THOUSANDS OF US DOLLARS UNLESS OTHERWISE STATED EXCEPT SHARE
                                    AMOUNTS)

(10) INVESTMENTS: (CONTINUED)

     $806 represents the net income for the five months ended May 31, 2000 of
equity method investees which were contributed to Fintur.

(11) FIXED ASSETS, NET:

     As of December 31, 1999 and 2000, the analysis of fixed assets is as
follows:

<TABLE>
<CAPTION>
                                                         USEFUL LIVES       1999          2000
                                                         ------------    ----------    ----------
<S>                                                      <C>             <C>           <C>
Operational fixed assets:
  Base terminal stations.............................       8 years      $  528,182    $  801,252
  Mobile switching center/Base station controller....       8 years         436,832       785,571
  Mini links.........................................       8 years         110,760       177,522
  Supplementary system...............................       8 years          23,200        31,066
  Broadcasting equipment.............................       4 years             176            --
  Call center equipment..............................       5 years              52         6,257
  GSM services equipment.............................       8 years              --        46,008
                                                                         ----------    ----------
                                                                          1,099,202     1,847,676
  Accumulated depreciation...........................                      (175,035)     (360,253)
                                                                         ----------    ----------
Operational fixed assets, net........................                       924,167     1,487,423
Non-operational fixed assets:
  Land...............................................                         2,681           531
  Buildings..........................................      25 years          82,310       161,667
  Furniture, fixture and equipment...................     4-5 years          68,062       120,084
  Motor vehicles.....................................     4-5 years           7,655         8,354
  Leasehold improvements.............................       5 years          14,060        47,964
                                                                         ----------    ----------
                                                                            174,768       338,600
  Accumulated depreciation...........................                       (27,965)      (63,855)
                                                                         ----------    ----------
  Non-operational fixed assets, net..................                       146,803       274,745
                                                                         ----------    ----------
                                                                         $1,070,970    $1,762,168
                                                                         ==========    ==========
</TABLE>

     Total amount of interest capitalized on fixed assets during the years ended
December 31, 1998, 1999 and 2000 amounted to $5,014, $5,377 and $7,267,
respectively. Such capitalized interest is depreciated over the useful lives of
the related fixed assets.

     At December 31, 1999 and 2000, total fixed assets acquired under finance
leases amounted to $43,672 and $62,580, respectively. Depreciation of these
assets amounted to $1,321, $4,020 and $3,044 for the years ended December 31,
1998, 1999 and 2000, respectively, and is included with depreciation expense.

     Operational and non-operational fixed assets in the amounts of TL 68
trillion ($101,164) and TL 36 trillion ($54,518), respectively, have been
pledged by the Tax Office against the potential liability of VAT on Upfront
Licence Fee (Note 26).

                                      F-104
<PAGE>   299
        TURKCELL ILETISIM HIZMETLERI ANONIM SIRKETI AND ITS SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1999 AND 2000 AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1999
                                    AND 2000

    (AMOUNTS IN THOUSANDS OF US DOLLARS UNLESS OTHERWISE STATED EXCEPT SHARE
                                    AMOUNTS)

(12) CONSTRUCTION IN PROGRESS:

     At December 31, 1999 and 2000, construction in progress consisted of
expenditures in GSM and non-operational items and is as follows:

<TABLE>
<CAPTION>
                                                                  1999        2000
                                                                --------    --------
<S>                                                             <C>         <C>
Turkcell -- Phase 7 Plus....................................    $164,326    $     --
Turkcell -- Phase 7.........................................     115,611          --
Turkcell -- Phase 8.........................................          --     202,093
Turkcell -- IN Project......................................      15,536          --
Digital Platform -- broadcasting equipment..................      14,197          --
Turkcell -- SDH Project.....................................      12,178      13,812
Kibris Telekom -- GSM network...............................         839         514
Turkcell -- other projects..................................       6,944      11,080
Non-operational items.......................................      46,247       5,800
                                                                --------    --------
                                                                $375,878    $233,299
                                                                ========    ========
</TABLE>

     As of December 31, 1999, expenditures for non-operational items mainly
represented the cost of three buildings for Turkcell's departments and regional
offices in Istanbul, Ankara and Izmir acquired under finance leases. Also
included in non-operational construction in progress are costs related to
reconstruction and renovation of these buildings. With the completion of
construction except one regional office in Istanbul, and placement of assets in
service they are transferred from construction in progress to fixed assets and
depreciation commenced during the year 2000.

(13) INTANGIBLES, NET:

     As of December 31, 1999 and 2000, intangibles consisted of the following:

<TABLE>
<CAPTION>
                                                            USEFUL LIVES      1999        2000
                                                            ------------    --------    ---------
<S>                                                         <C>             <C>         <C>
Turkcell -- License (Notes 1 and 26)....................      25 years      $500,000    $ 500,000
Moldcell -- License.....................................      15 years         4,800           --
Computer software.......................................       8 years       266,342      525,856
Transmission lines......................................      10 years         9,639       12,134
                                                                            --------    ---------
                                                                             780,781    1,037,990
Accumulated amortization................................                     (73,417)    (144,995)
                                                                            --------    ---------
                                                                            $707,364    $ 892,995
                                                                            ========    =========
</TABLE>

     The increase in computer software is principally due to expansion of the
GSM network. Amortization of computer software amounted to $8,660, $20,124, and
$50,483 for the years ended December 31, 1998, 1999 and 2000, respectively.

                                      F-105
<PAGE>   300
        TURKCELL ILETISIM HIZMETLERI ANONIM SIRKETI AND ITS SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1999 AND 2000 AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1999
                                    AND 2000

    (AMOUNTS IN THOUSANDS OF US DOLLARS UNLESS OTHERWISE STATED EXCEPT SHARE
                                    AMOUNTS)

(14) SHORT TERM BORROWINGS:

     At December 31, 1999 and 2000, short-term borrowings comprised the
following:

<TABLE>
<CAPTION>
                                                                  1999        2000
                                                                --------    --------
<S>                                                             <C>         <C>
Current portion of long term borrowings (Note 19)...........    $374,119    $437,490
Other short-term bank loans and overdrafts..................         121         591
                                                                --------    --------
                                                                $374,240    $438,081
                                                                ========    ========
</TABLE>

(15) TRADE PAYABLES:

     As of December 31, 1999 and 2000, the balance represented an amount due to
Ericsson Telekomunikasyon A.S. of $109,655 and $132,885, respectively, resulting
from fixed asset purchases, site preparation and other services, and amounts due
to other suppliers totalling $43,839 and $76,005, respectively, arising in the
ordinary course of business.

     Turkcell is party to a series of supply agreements with Ericsson
Telekomunikasyon A.S. (Ericsson Turkey) (collectively, the Supply Agreements)
under which Ericsson Turkey has agreed to supply Turkcell with an installed and
operating GSM network, spare parts, training and documentation. The Supply
Agreements also give Turkcell a non-exclusive restricted software License for
GSM software. Under the Supply Agreements, Ericsson Radio Systems AB (Ericsson
Sweden) guarantees all of Ericsson Turkey's obligations to Turkcell.

     Turkcell also entered into a GSM service agreement with Ericsson Sweden
under which Ericsson Sweden supplies Turkcell with the following system
services: trouble report handling service, hardware service, consultation
service and emergency service. This agreement expired on December 31, 1998 but
contains successive one-year automatic renewals unless terminated by either
party in writing no later than six months prior to the expiration of the then
current term, but not beyond December 31, 2005. As of December 31, 2000, the
agreement was automatically extended through December 31, 2001.

(16) DUE TO RELATED PARTIES:

     As of December 31, 1999 and 2000, due to related parties comprised:

<TABLE>
<CAPTION>
                                                                 1999       2000
                                                                -------    ------
<S>                                                             <C>        <C>
Asli Gazetecilik............................................    $ 4,407    $   --
Aksam Pazarlama ve Dis Ticaret A.S..........................        534        52
Hobim Bilgi Islem Hizmetleri A.S. (Note 25).................        312       415
KVK (Note 25)...............................................      2,554     1,076
Bilka Bilgi Kaynak ve Iletisim A.S. (Note 21)...............      1,720        --
Other.......................................................      1,054     1,268
                                                                -------    ------
                                                                $10,581    $2,811
                                                                =======    ======
</TABLE>

     Due to Asli Gazetecilik resulted from purchase of a non-operational
building from this company.

     Due to Aksam Pazarlama Dis Ticaret A.S. resulted from advertisements
published in its newspaper.

     Due to KVK resulted from simcard subsidies and activation fees.

     Due to Hobim resulted from the invoice printing services rendered by this
company.

                                      F-106
<PAGE>   301
        TURKCELL ILETISIM HIZMETLERI ANONIM SIRKETI AND ITS SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1999 AND 2000 AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1999
                                    AND 2000

    (AMOUNTS IN THOUSANDS OF US DOLLARS UNLESS OTHERWISE STATED EXCEPT SHARE
                                    AMOUNTS)

(17) OTHER CURRENT LIABILITIES AND ACCRUED EXPENSES:

At December 31, 1999 and 2000, the balance comprised:

<TABLE>
<CAPTION>
                                                                  1999        2000
                                                                --------    --------
<S>                                                             <C>         <C>
Taxes and withholdings......................................    $ 35,403    $ 75,769
License fee accrual -- The Turkish Treasury.................      31,108      60,330
Accrued interest on borrowings..............................      24,302      54,505
Deferred income.............................................       5,274      26,267
Interconnection accrual -- Turk Telekom (Note 26)...........       5,769      24,781
Selling and marketing expense accruals......................      10,255      11,454
Lease obligations -- short term portion (Note 20)...........       7,630      10,612
Roaming expense accrual.....................................       2,728       2,052
Accrued interest on lease obligations.......................       1,190       1,241
Treasury Share accrual......................................      51,900          --
Other expense accruals......................................      19,036       4,183
                                                                --------    --------
                                                                $194,595    $271,194
                                                                ========    ========
</TABLE>

     As explained in Note 26, Treasury Share accrual at December 31, 1999
represents unpaid license fee equal to 15% of value added tax on gross revenues
and accrued interest on this balance. The amount was paid on March 24, 2000.

     In accordance with the License Agreement (Notes 1 and 26), Turkcell pays
the Turkish Treasury an ongoing license fee equal to 15% of its gross revenue.
The balances of $31,108 and $60,330 represent the fee accrual for the months of
December 1999, and November and December 2000, respectively.

     Interconnection accrual at December 31, 1999 represents amounts payable
under the Interconnection Agreement (Note 26). The Interconnection Agreement
requires that Turkcell pay Turk Telekom for Turkcell's GSM subscribers' calls to
Turk Telekom's fixed-line subscribers.

     Interconnection accrual at December 31, 2000 represents additional amounts
accrued which resulted from modification of the calculation method by Turk
Telekom (Note 26).

(18) TAXES ON INCOME:

     The income tax benefit (charge) is attributable to income/loss from
continuing operations and consists of:

<TABLE>
<CAPTION>
                                                                   YEAR ENDED DECEMBER 31,
                                                                ------------------------------
                                                                  1998       1999       2000
                                                                --------    ------    --------
<S>                                                             <C>         <C>       <C>
Current tax charge..........................................    $   (110)   $  (69)   $ (6,290)
Deferred tax benefit (charge)...............................     (19,144)    8,351     (37,403)
                                                                --------    ------    --------
Income tax benefit (charge).................................    $(19,254)   $8,282    $(43,693)
                                                                ========    ======    ========
</TABLE>

                                      F-107
<PAGE>   302
        TURKCELL ILETISIM HIZMETLERI ANONIM SIRKETI AND ITS SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1999 AND 2000 AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1999
                                    AND 2000

    (AMOUNTS IN THOUSANDS OF US DOLLARS UNLESS OTHERWISE STATED EXCEPT SHARE
                                    AMOUNTS)

(18) TAXES ON INCOME (CONTINUED)

     The amounts computed by applying the statutory income tax rate of 33
percent (1998: 44 percent; 1999: 33 percent) of Turkey where the Company has its
operations differed from pre-tax income from continuing operations as a result
of the following:

<TABLE>
<CAPTION>
                                                                 YEAR ENDED DECEMBER 31,
                                                           -----------------------------------
                                                             1998         1999         2000
                                                           ---------    ---------    ---------
<S>                                                        <C>          <C>          <C>
Computed "expected" tax expense........................    $(101,747)   $(119,063)   $ (89,787)
Non taxable translation gain...........................       77,750      122,512       56,742
Investment tax credit..................................       58,420      169,528      135,327
Change in valuation allowance..........................      (44,909)    (159,260)    (133,009)
Other..................................................       (8,768)      (5,435)     (12,966)
                                                           ---------    ---------    ---------
Income tax benefit (expense)...........................    $ (19,254)   $   8,282    $ (43,693)
                                                           =========    =========    =========
</TABLE>

     The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31, 1999 and
2000 are presented below:

<TABLE>
<CAPTION>
                                                                  1999        2000
                                                                --------    --------
<S>                                                             <C>         <C>
Deferred tax assets:
  Accrued expenses..........................................    $ 47,657    $  8,000
  Accounts and other receivables (principally due to
     allowance for doubtful accounts) and other.............       1,089      19,233
  Net operating loss carryforwards..........................       9,273      42,370
  Tax credit carryforwards..................................     215,854     349,653
                                                                --------    --------
  Gross deferred tax assets.................................     273,873     419,256
  Less: Valuation allowances................................    (206,483)   (339,422)
                                                                --------    --------
  Net deferred tax assets...................................      67,390      79,384
Deferred tax liabilities:
  Fixed assets and intangibles, principally due to financial
     leases, differences in depreciation and amortization,
     and capitalization of interest and foreign exchange
     loss for tax purposes..................................     (56,984)    (78,751)
  Other.....................................................      (1,986)    (25,677)
                                                                --------    --------
Total deferred tax liabilities..............................     (58,970)   (104,428)
                                                                --------    --------
  Net deferred tax assets (liabilities).....................    $  8,420    $(24,594)
                                                                ========    ========
</TABLE>

     At December 31, 2000, net operating loss carryforwards are as follows:

<TABLE>
<CAPTION>
YEAR                                                             AMOUNT     EXPIRATION DATE
----                                                            --------    ---------------
<S>                                                             <C>         <C>
1997........................................................    $ 14,783         2002
1999........................................................    $  8,013         2004
2000........................................................    $105,316         2005
</TABLE>

     Non taxable translation gain results from translation of Turkish Lira
denominated non-monetary assets and liabilities to the US Dollar, the functional
and reporting currency, in accordance with the relevant provisions of SFAS No.
52 as applied to entities in highly inflationary economies (as discussed in note
3). Under SFAS

                                      F-108
<PAGE>   303
        TURKCELL ILETISIM HIZMETLERI ANONIM SIRKETI AND ITS SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1999 AND 2000 AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1999
                                    AND 2000

    (AMOUNTS IN THOUSANDS OF US DOLLARS UNLESS OTHERWISE STATED EXCEPT SHARE
                                    AMOUNTS)

(18) TAXES ON INCOME (CONTINUED)

No. 109, such translation gains and losses between the tax and book basis of
related assets and liabilities do not give rise to temporary differences. Such
amounts are primarily attributable to translation gain resulting from the
translation of Turkish Lira denominated fixed assets and intangibles into the US
Dollar.

     In 1993, 1997 and 2000, the Undersecretariat of Treasury approved
investment incentive certificates for a program of capital expenditures by
Turkcell and its subsidiaries in GSM and call center operations. Such incentives
entitle the Company to a 100% exemption from customs duty on imported machinery
and equipment and an investment tax benefit of 100% on qualifying expenditures.
The investment tax benefit takes the form of deductions for corporation tax
purposes, but such deductions are subject to withholding tax at the rate of
19.8% (1999: 16.5%). Investment incentive certificates provide for tax benefits
on cumulative purchases of up to approximately $2,696,133 in qualifying
expenditures, as defined in the certificates. As of December 31, 2000, the
Company had incurred cumulative qualifying expenditures of approximately
$2,648,886 (1999: $1,308,208), resulting in tax credit carryforwards under the
certificates of approximately $349,653 (1999: $215,854), net of foreign exchange
translation losses. Such tax credits can be carried forward indefinitely. The
certificates are denominated in Turkish Lira. However, approximately $2,633,287
of qualifying expenditures through December 31, 2000 (1999: $1,230,046) under
such certificates is indexed against future inflation for a period of three
years.

     The Company establishes valuation allowances in accordance with the
provisions of SFAS No. 109. The Company continually reviews the adequacy of the
valuation allowance based on changing conditions in the market place in which
the Company operates and its projections of future taxable income, among other
factors. Management believes that currently, based on a number of factors,
including a history of statutory tax losses, its limited operating history, the
continuing increase in competition, political and economic uncertainty within
Turkey and in certain neighbouring countries, and other factors, the available
objective evidence creates sufficient uncertainty regarding the realizability of
its net operating loss carryforwards and tax credit carryforwards which are not
expected to be utilised in the year 2001. Accordingly, a valuation allowance of
approximately $339,422 is recorded as of December 31, 2000 (1999: $206,483) for
such amounts. The valuation allowance at December 31, 1999 and December 31, 2000
has been allocated between current and non-current deferred tax assets on a pro
rata basis in accordance with the provisions of SFAS No. 109. Management
believes that it is more likely than not that the net deferred tax asset of
approximately $79,834 as of December 31, 2000 (1999: $67,390) will be realized
through reversal of taxable temporary differences. Changes in valuation
allowances mainly result from changes in management's projections on
recoverability of certain deferred tax assets.

     As a result of the Fintur business combination (Note 10), the Company has
recorded a gain on sale of affiliates in its local statutory books of TL 31.2
trillion (approximately $46,427 using the December 31, 2000 exchange rate),
which is taken into account in the current tax calculation for the year ended
December 31, 2000. For statutory purposes, the Company can elect to treat the
gain on sale of affiliates as a transfer to share capital as opposed to
recognizing the gain, provided the Board of Directors makes an election for such
transfer prior to the filing of the statutory tax returns on or about April 30,
2001. Under such circumstances, TL 23.8 trillion of the gain would be subject to
a 16.5% withholding tax, and the remaining TL 7.4 trillion gain would be subject
to 33% corporation tax. At the Board of Directors Meeting held on October 11,
2000, it was resolved that TL 23.8 trillion of the gain has been transferred to
share capital.

                                      F-109
<PAGE>   304
        TURKCELL ILETISIM HIZMETLERI ANONIM SIRKETI AND ITS SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1999 AND 2000 AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1999
                                    AND 2000

    (AMOUNTS IN THOUSANDS OF US DOLLARS UNLESS OTHERWISE STATED EXCEPT SHARE
                                    AMOUNTS)

(19) LONG TERM BORROWINGS:

     At December 31, 1999 and 2000, long-term borrowings comprised:

<TABLE>
<CAPTION>
                                                                   1999          2000
                                                                ----------    ----------
<S>                                                             <C>           <C>
1998 Bank Facility..........................................    $  455,000    $  270,000
Loan under the 1999 Issuer Credit Agreement.................       400,000       400,000
1999 Bank Facility..........................................       332,500       488,889
Loan under the 1998 Issuer Credit Agreement.................       300,000       300,000
Akbank T.A.S (Akbank).......................................            --       250,000
Garanti Bankasi A.S -- Malta (Garanti)......................            --       150,000
Turkiye Vakiflar Bankasi T.A.O (Vakifbank)..................            --       100,000
London Forfaiting Company...................................        53,700        25,900
Nordbanken -- Stockholm (Nordbanken)........................        43,639        34,198
BB Aval GmbH (BB Aval)......................................        20,350        10,175
AB Svensk Exportcredit (AB Svensk)..........................         6,756         4,504
KFW-BNP.....................................................         5,003            --
Yapi Kredi Bankasi-Bahrain (Yapi Kredi).....................         4,800         4,500
                                                                ----------    ----------
                                                                 1,621,748     2,038,166
Less: Current portion of long term borrowings...............      (374,119)     (437,490)
                                                                ----------    ----------
                                                                $1,247,629    $1,600,676
                                                                ==========    ==========
</TABLE>

     The Company has short and long term credit lines with local and foreign
banks. At December 31, 2000, unused credit lines do not exist (1999: $311,542).
In the years ended December 31, 1999 and 2000, the average amounts outstanding
were $1,016,033 and $1,744,191, respectively.

1998 BANK FACILITY

     In April 1998, the Company obtained a $575,000 bank facility of which
$270,000 (1999: $455,000) was outstanding at December 31, 2000. The bank
facility was obtained to pay the license fee to the Turkish Ministry, to provide
working capital to the Company, to finance capital expenditures and to refinance
amounts previously borrowed by the Company.

    REPAYMENTS AND INTEREST RATES:  $75,000 of the bank facility will be due in
    a single instalment on September 24, 2001, and the remaining outstanding
    balance will be payable in three quarterly instalments commencing on March
    26, 2001. The interest rate varies between the one, two, three or six month
    London interbank offer rate for US Dollar deposits (Libor) plus 2.125% and
    Libor plus 3.250% per annum in respect of the tranches.

    SECURITY:  The bank facility is secured by a first pledge of 22.86% of the
    outstanding shares of the Company under a pledge agreement conferring rights
    to sell such shares and to voting and dividends if an event of default has
    occurred and is continuing. The pledge will be released in stages according
    to certain performance criteria.

    The bank facility provides for a pledge of the Company's bank accounts,
    receivables and all relevant insurance policies. There will also be a
    restriction over the Company's existing assets to the extent permitted by
    applicable laws. The bank facility also provides for a negative pledge on
    all assets of the Company.

                                      F-110
<PAGE>   305
        TURKCELL ILETISIM HIZMETLERI ANONIM SIRKETI AND ITS SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1999 AND 2000 AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1999
                                    AND 2000

    (AMOUNTS IN THOUSANDS OF US DOLLARS UNLESS OTHERWISE STATED EXCEPT SHARE
                                    AMOUNTS)

(19) LONG TERM BORROWINGS: (CONTINUED)

    COVENANTS:  The bank facility includes customary affirmative and negative
    covenants, including restrictions on the ability of the Company to incur
    additional indebtedness; to pay certain dividends; to make certain other
    material restricted payments, investments and loans; to create liens; to
    give guarantees; to enter into material transactions with affiliates; to
    merge, consolidate or transfer substantially all of their respective assets;
    to engage in material asset sales outside the ordinary course of business;
    to impose restrictions on the ability of the Company's subsidiaries to pay
    dividends or make certain payments to the Company; and to make capital
    expenditures.

    Affirmative covenants include reporting requirements, corporate existence,
    scope of business activities, payment of taxes, maintenance of properties
    and insurance, inspection rights, compliance with laws and hedging of
    liabilities.

    Also, the bank facility includes certain financial covenants for Turkcell
    with respect to maintaining certain leverage, interest and debt service
    coverage ratios as well as maintaining a minimum net worth of at least
    $100,000 at the closing of the bank facility and increasing for specified
    periods thereafter to $1,000,000 from and after December 31, 2000.

    In addition, the shareholders of the Company have entered into an agreement
    with the lenders pursuant to which they have agreed that, among other
    things, the shareholders will maintain specified levels of ownership of the
    Company; Sonera Corporation Inc. and Cukurova Group have agreed to specific
    limitations on dispositions by them of equity capital of the Company; Sonera
    Corporation Inc. and Cukurova Group have agreed not to sell or agreed to
    sell or grant options on any equity securities in the Company for specified
    periods after completion of syndication and drawdown of the bank facility
    and completion of related financings; the shareholders and certain other
    parties that have guaranteed indebtedness of the Company shall enter into
    intercreditor agreements with the Facility Agent and the Lenders to, among
    other things, subordinate their claims as guarantor, agree to certain
    arrangements regarding the payment of that guaranteed debt, and, as to a
    shareholder that has pledged shares of the Company to Yapi ve Kredi Bankasi
    A.S., permitting such pledgee to enforce such pledges without any
    requirement to take action against the Company; and the shareholders shall
    make certain equity investments in the Company required by an additional
    investment incentive certificate obtained by the Company.

LOAN UNDER THE 1998 ISSUER CREDIT AGREEMENT

     Turkcell entered into a loan agreement in 1998 (the 1998 Issuer Credit
Agreement) with Cellco Finance N.V. (Cellco -- the Issuer), a limited liability
company incorporated on January 27, 1998 under the laws of the Netherlands
Antilles, in connection with the issuance by Cellco of $300,000 15% Senior
Subordinated Notes due 2005 (the Notes).

     Under the 1998 Issuer Credit Agreement, the Issuer has loaned to Turkcell
$300,000. Pursuant to such loan, the net proceeds of the Notes were transferred
to Turkcell and Turkcell was deemed to have borrowed the difference between
$300,000 and the amount actually advanced to the Issuer as a financing fee.

     Under the 1998 Issuer Credit Agreement, Turkcell issued a note to evidence
the loan from the Issuer (the Loan Note) under which amounts are payable by
Turkcell to the Issuer in order that the Issuer, upon receipt of such amounts,
is able to satisfy its obligations on the Notes.

     Turkcell and Cellco have agreed, for the benefit of all holders of the
Notes, that they would file a registration statement to register the exchange
offer under the Securities Act of 1933 for 15% Senior Subordinated Notes of
Cellco (the Old Notes) secured by an assignment of Cellco's right, title and
interest in and to the Issuer Credit

                                      F-111
<PAGE>   306
        TURKCELL ILETISIM HIZMETLERI ANONIM SIRKETI AND ITS SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1999 AND 2000 AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1999
                                    AND 2000

    (AMOUNTS IN THOUSANDS OF US DOLLARS UNLESS OTHERWISE STATED EXCEPT SHARE
                                    AMOUNTS)

(19) LONG TERM BORROWINGS: (CONTINUED)

Agreement with terms substantially identical to the terms of the 15% Senior
Subordinated Exchange Notes (the New Notes) of Cellco. A registration statement
for the exchange offer was declared effective on October 14, 1999.

     The proceeds from the Old Notes were lent by Cellco to Turkcell pursuant to
the Issuer Credit Agreement. Turkcell used the proceeds of the Old Notes,
together with a loan in the amount of $305,000 borrowed under the 1998 Bank
Facility, to (i) refinance $575,000 of indebtedness incurred under a credit
facility used to finance the payment of the license fee paid to the Treasury
under the License Agreement and for certain capital expenditures, (ii) pay a
$12,000 financing fee to Cellco in an amount equal to Cellco's expenses incurred
in connection with the issuance of the Old Notes and (iii) pay other expenses
incurred in connection with the issuance of the Old Notes and the Bank Facility.

     Turkcell did not receive any cash proceeds from the issuance of the New
Notes. The Old Notes surrendered in exchange for the New Notes were retired and
cancelled and can not be reissued.

    PRINCIPAL, MATURITY AND INTEREST:  The Notes are limited in aggregate amount
    to $400,000, $300,000 of which was issued in the offering, and $100,000 of
    which may be offered from time to time in the future subject to certain
    limitations and restrictions. In the event of such a future offering, the
    notes offered thereby would have the same terms as the Notes. The Notes
    mature at par on August 1, 2005, which is also the maturity date of the loan
    under the 1998 Issuer Credit Agreement. The Notes and also the loan under
    the 1998 Issuer Credit Agreement are payable as to principal (and premium,
    if any), interest, additional amounts, if any, and additional interest, if
    any. Interest on the Old Notes and also the loan under the 1998 Issuer
    Credit Agreement accrues at the rate of 15% per annum from their date of
    original issuance and is payable semi-annually on each February 1 and August
    1 commencing on February 1, 1999, to the persons who are registered holders
    at the close of business on the January 15 and July 15 immediately preceding
    the applicable interest payment date. Each New Note shall bear interest from
    the last day on which interest was paid in respect of the Old Note for which
    such New Note was exchanged.

    The 1998 Issuer Credit Agreement specifies that Turkcell will pay any
    amounts to Cellco in order that Cellco, upon receipt of such amounts, is
    able to satisfy its obligations on the Notes.

    REDEMPTION:  The Notes are redeemable, at the option of Cellco, in whole at
    any time or in part from time to time, on and after August 1, 2002, upon not
    less than 30 nor more than 60 days' notice at the following redemption
    prices (expressed as percentages of the principal amount thereof) if
    redeemed during the twelve-month period commencing on August 1, 2002 of the
    year set forth below, plus, in each case, accrued and unpaid interest
    thereon, if any, and additional amounts, if any, and additional interest, if
    any, to the date of redemption.

<TABLE>
<CAPTION>
    YEAR                                                           PERCENTAGE
    ----                                                           ----------
    <S>                                                            <C>

    2002........................................................     107.50%

    2003........................................................     103.75%

    2004 and thereafter.........................................     100.00%
</TABLE>

    The Notes may also be redeemed, in whole but not in part, at the Issuer's
    option, upon not less than 30 nor more than 60 days' notice at a redemption
    price equal to 100% of the principal amount, plus accrued interest to the
    redemption date, if any, if, as a result of any amendment to, or change in,
    the laws (or any rules or regulations thereunder) of the Netherlands
    Antilles or the Republic of Turkey or any political subdivision or taxing
    authority thereof or therein or any amendment to or change in any official
    interpretation or application

                                      F-112
<PAGE>   307
        TURKCELL ILETISIM HIZMETLERI ANONIM SIRKETI AND ITS SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1999 AND 2000 AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1999
                                    AND 2000

    (AMOUNTS IN THOUSANDS OF US DOLLARS UNLESS OTHERWISE STATED EXCEPT SHARE
                                    AMOUNTS)

(19) LONG TERM BORROWINGS: (CONTINUED)

    of such laws or rules or regulations or any execution of or amendment to any
    treaty affecting taxation to which the Netherlands Antilles or the Republic
    of Turkey is a party, which amendment or change or execution is effective on
    or after the date of the Indenture, either the Issuer with respect to the
    Notes or Turkcell with respect to the 1998 Issuer Credit Agreement has
    become or will become obligated to pay additional amounts, on the next date
    on which any amount would be payable with respect to the Notes or under the
    1998 Issuer Credit Agreement, and such obligation can not be avoided by the
    use of reasonable measures available to the Issuer or Turkcell, as the case
    may be; provided, however, that (1) no such notice of redemption may be
    given earlier than 60 days prior to the earliest date on which the Issuer or
    Turkcell, as the case may be, would be obligated to pay such additional
    amounts were a payment in respect of the Notes or the 1998 Issuer Credit
    Agreement then due, and (2) at the time such notice of redemption is given,
    such obligation to pay additional amounts remains in effect.

    SECURITY:  The Notes are general obligations of Cellco secured by an
    assignment of Cellco's right, title and interest in and to the 1998 Issuer
    Credit Agreement and are subordinated in right of payment to all future
    senior indebtedness. Borrowings under the 1998 Issuer Credit Agreement are
    general unsecured obligations of Turkcell and are subordinated in right of
    payment to all existing and future senior indebtedness. There is no
    collateral for the obligations of Turkcell under the 1998 Issuer Credit
    Agreement.

    COVENANTS:  The Indenture governing the Notes and the 1998 Issuer Credit
    Agreement each contains certain covenants that limit the ability of the
    Issuer and the Company and its unconsolidated subsidiaries to, among other
    things, incur additional indebtedness, pay dividends or make certain other
    restricted payments, consummate certain asset sales, enter into certain
    transactions with related parties, incur liens, impose restrictions on the
    ability of a subsidiary to pay dividends and make certain payments to the
    Company or the Issuer, merge, or consolidate with any other person, or sell,
    assign, transfer, lease, convey or otherwise dispose of all or substantially
    all of the assets of the Issuer or the Company.

1999 BANK FACILITY

     Turkcell entered into a further $550,000 senior amortizing term loan
facility agreement dated November 24, 1999 between, among others, Deutsche Bank
AG London, J.P. Morgan Securities Ltd. and Credit Suisse First Boston, as
co-arrangers, other lenders, and Deutsche Bank AG London, as facilities agent,
EKN agent as security agent. At December 31, 2000, $488,889 (1999: $332,500) of
the 1999 bank facility was outstanding. The following is a summary description
of the principal terms of the 1999 bank facility, most of which are identical or
substantially the same as in the 1998 bank facility.

     The 1999 bank facility provides for, subject to certain terms and
conditions, credit facilities to Turkcell in six tranches:

     -  an amortizing term loan facility, known as the tranche A facility, in
        the amount of $175,000, 100% guaranteed for political risks and
        commercial risks by Exportkreditnamnden, the Swedish Export Credits
        Guarantee Board or EKN,

     -  an amortizing term loan facility, known as the tranche B facility, in
        the maximum amount of up to $175,000, guaranteed by EKN for political
        risks only,

     -  an amortizing term loan facility, known as the tranche C facility, in
        the amount of $78,598, guaranteed by EKN for political risks only,

                                      F-113
<PAGE>   308
        TURKCELL ILETISIM HIZMETLERI ANONIM SIRKETI AND ITS SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1999 AND 2000 AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1999
                                    AND 2000

    (AMOUNTS IN THOUSANDS OF US DOLLARS UNLESS OTHERWISE STATED EXCEPT SHARE
                                    AMOUNTS)

(19) LONG TERM BORROWINGS: (CONTINUED)

     -  an amortizing term loan facility, known as the tranche D facility, in
        the amount of $95,000, guaranteed by Finnvera Plc for political risks
        only.

     -  an amortizing term loan facility, known as the tranche E facility, in
        the amount of $5,000,

     -  an amortizing term loan facility, known as the tranche F facility, in
        the amount of $21,402, and guaranteed by Steadfast Insurance Company for
        political risks only.

     The proceeds of any Advance under tranches A, B, C, D, E and F must be used
for payment of up to 85% of the aggregate purchase price for goods and services
sourced from Sweden pursuant to an equipment supply contract with Ericsson.

     The interest rate varies between Libor plus 1.00% and Libor plus 3.50% per
annum in respect of the tranches.

     Turkcell is required to pay to the Lenders under the 1999 bank facility a
commitment fee, payable quarterly in arrears, equal to 0.375% per annum on the
daily aggregate undrawn, uncancelled amount available under the tranche A
facility and 0.75% per annum on the daily aggregate undrawn, uncancelled amount
available under the tranche B facility and tranches C, D, and F facilities and
1% under the tranche E facility.

     Turkcell will from time to time pay certain arrangement and agency fees in
connection with the 1999 bank facility, as separately agreed.

     All term loans are repayable in eight equal semi-annually instalments
commencing March 30, 2001, with the final instalment due on September 30, 2004.

     Turkcell will be required to make certain mandatory prepayments.

    SECURITY:  Indebtedness of Turkcell under the 1999 bank facility is secured
    by first ranking pledge of 22.86% of the shares of Turkcell. The 1999 bank
    facility provides for a pledge of the Company's bank accounts and insurance
    policies. The 1999 bank facility also provides a charge over substantially
    all of the existing assets of Turkcell (including without limitation any
    trademarks, brand names, databases and other intellectual property rights of
    Turkcell), and a security interest in certain contractual rights.

    Lenders under the 1999 bank facility share in the security package on an
    equal basis and rank equally with the lenders under the 1998 bank facility,
    as well as with certain swap counterparties to Turkcell and lenders of
    additional indebtedness to the extent described in relation to the 1998 bank
    facility.

    COVENANTS:  The 1999 bank facility also provides for a negative pledge on
    all assets of Turkcell, and Geocell and Azercell for so long as such
    companies are not directly or indirectly owned by Fintur Holdings B.V. as
    described below and of any material subsidiaries of Turkcell (Fintur
    Holdings B.V. is deemed not to be a subsidiary for purposes of the 1999 bank
    facility), regardless of Turkcell's ultimate ownership percentage in Fintur
    Holdings B.V. In addition to negotiated minor exceptions, Turkcell is,
    however, allowed to encumber its assets to secure certain additional
    indebtedness or swap agreements provided that the lender or swap
    counterparties under such agreements enter into the security sharing
    arrangements described above and such security meets certain requirements.

    In addition, the existing shareholders of Turkcell have severally agreed,
    among other things, to maintain certain specified levels of ownership in
    Turkcell, to limit on the transfer of equity capital in Turkcell by
    specified shareholders and to subordinate any claims (by way of
    reimbursement, subrogation or otherwise) against Turkcell as direct or
    indirect guarantors of certain existing indebtedness of Turkcell.

                                      F-114
<PAGE>   309
        TURKCELL ILETISIM HIZMETLERI ANONIM SIRKETI AND ITS SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1999 AND 2000 AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1999
                                    AND 2000

    (AMOUNTS IN THOUSANDS OF US DOLLARS UNLESS OTHERWISE STATED EXCEPT SHARE
                                    AMOUNTS)

(19) LONG TERM BORROWINGS: (CONTINUED)

    All security granted by Turkcell and its shareholders is required to be
    released under certain circumstances after December 31, 2001 following
    repayment in full of the 1998 bank facility, after which the negative pledge
    generally would apply to Turkcell and its subsidiaries, subject only to
    negotiated de minimis exceptions.

    Under the 1999 bank facility, Turkcell is required to meet the same
    financial tests as under the 1998 bank facility.

    The 1999 bank facility also contains certain covenants which, among other
    things, limit the incurrence of additional debt, the giving of guarantees,
    the making of loans, the payment of dividends, the repurchase or redemption
    of shares, the creation of liens, subordination of the debt under the 1999
    bank facility, transactions with affiliates, asset sales, acquisitions,
    mergers and consolidations, changes in business, capital expenditures and
    the imposition of restrictions on the ability of Turkcell's subsidiaries to
    pay dividends or make payments to Turkcell.

    As under the 1998 bank facility Turkcell is permitted to transfer some or
    all of its overseas investments to Fintur Holdings B.V. in return for the
    issue of shares in that company along with a subsequent investment in Fintur
    Holdings B.V. of $25 million.

    In addition, Turkcell will be permitted to make annual investments,
    acquisitions, loans or guarantees; in years 1999 and 2000, of $100 million
    each with a sub-limit for non-Turkish investment of up to $25 million, and
    in subsequent years, of up to the greater of $100 million per annum with a
    sub-limit for non-Turkish investments of $50 million or 50% of excess cash
    flow (less dividends paid) with a sub-limit for non-Turkish investments of
    10% of excess cash flow. Investments or acquisitions above these limits will
    be permitted only from additional equity or subordinated debt.

    Turkcell also affirmatively covenants to perform certain undertakings,
    including but not limited to reimbursing the Lenders for fees associated
    with EKN, and not agreeing to any alteration of any agreement that would
    have the effect of shortening the payment date or increasing the amount due
    under certain indebtedness of Turkcell.

    The lenders under the 1999 bank facility may waive compliance with any of
    the representations, warranties, covenants, events of default and other
    provisions of the 1999 bank facility and may agree with Turkcell to amend
    such representations, warranties, covenants, events of default and other
    provisions without notice.

LOAN UNDER THE 1999 ISSUER CREDIT AGREEMENT

     On December 22, 1999, the Company entered into an Issuer Credit Agreement
(the 1999 Issuer Credit Agreement) with Cellco in connection with the issuance
by Cellco of US$400,000 12 3/4% Senior Notes due 2005 ("the Senior Notes").

     Under the 1999 Issuer Credit Agreement, Cellco has loaned to Turkcell
US$400,000. Pursuant to such loan, the net proceeds of the Senior Notes were
transferred to Turkcell and Turkcell was deemed to have borrowed the differences
of US$12,000 (representing the Senior Notes financing costs) between US$400,000,
and the amount actually advanced to Cellco as a financing fee.

     Under the 1999 Issuer Credit Agreement, Turkcell issued a note to evidence
the loan from Cellco (the Loan Note) under which amounts are payable by Turkcell
to Cellco in order that Cellco, upon receipt of such amounts, is able to satisfy
its obligations on the Senior Notes.

                                      F-115
<PAGE>   310
        TURKCELL ILETISIM HIZMETLERI ANONIM SIRKETI AND ITS SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1999 AND 2000 AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1999
                                    AND 2000

    (AMOUNTS IN THOUSANDS OF US DOLLARS UNLESS OTHERWISE STATED EXCEPT SHARE
                                    AMOUNTS)

(19) LONG TERM BORROWINGS: (CONTINUED)

     Turkcell and Cellco had agreed, for the benefit of all holders of the
Senior Notes, that, after the issuance of the Senior Notes, they would file a
registration statement to register an exchange offer under the Securities Act of
1933 for 12 3/4% Senior Notes of Cellco (the Old Senior Notes) secured by an
assignment of Cellco's right, title and interest in and to the Issuer Credit
Agreement with terms substantially identical to the terms of the 12 3/4% Senior
Exchange Notes (the New Senior Notes) of Cellco. A registration statement for
the exchange offer was declared effective on July 11, 2000. The exchange was
completed on August 14, 2000.

    PRINCIPAL, MATURITY AND INTEREST:  The Senior Notes are limited in aggregate
    amount to US$500,000, US$400,000 of which was issued in the offering, and
    US$100,000 of which may be offered from time to time in the future subject
    to certain limitations and restrictions. In the event of such a future
    offering, the notes offered thereby would have the same terms as the Senior
    Notes. The Senior Notes mature at par on August 1, 2005, which is also the
    maturity date of the loan under the 1999 Issuer Credit Agreement dated
    December 22, 1999. The Senior Notes and also the loan under the 1999 Issuer
    Credit Agreement dated December 22, 1999 are payable as to principal (and
    premium, if any), interest, additional amounts, if any, and additional
    interest, if any. Interest on the Senior Notes and also the loan under the
    1999 Issuer Credit Agreement, accrues at the rate of 12 3/4% per annum from
    their date of original issuance and is payable semi-annually on each
    February 1 and August 1 commencing on February 1, 2000, to the persons who
    are registered holders at the close of business on the January 15 and July
    15 immediately preceding the applicable interest payment date.

    REDEMPTION:  The Senior Notes may be redeemed, at any time, or from time to
    time, on or prior to December 1, 2002, if Turkcell opts to use the net cash
    proceeds of one or more equity offerings to make prepayments under the 1999
    Issuer Credit Agreement. Cellco is required to use any such prepayments to
    redeem up to 35% of (1) the aggregate principal amount of Senior Notes
    originally issued in the offering plus (2) any additional Senior Notes
    issued after the issue date at a redemption price equal to 112 3/4% of the
    principal amount thereof plus accrued interest thereon, if any, to the date
    of redemption; provided that at least 65% of (1) the aggregate principal
    amount of Senior Notes originally issued in the offering plus (2) any
    additional Senior Notes issued after the issue date remains outstanding
    immediately after any such redemption. The Senior Notes may also be
    redeemed, in whole but not in part, at Cellco's option, upon not less than
    30 nor more than 60 days' notice at a redemption price equal to 100% of the
    principal amount, plus accrued interest to the redemption date, if any, if,
    as a result of any amendment to, or change in, the laws (or any rules or
    regulations thereunder) of the Netherlands Antilles or the Republic of
    Turkey or any political subdivision or taxing authority thereof or therein
    or any amendment to or change in any official interpretation or application
    of such laws or rules or regulations or any execution of or amendment to any
    treaty affecting taxation to which The Netherlands Antilles or the Republic
    of Turkey is a party, which amendment or change or execution is effective on
    or after the date of the Indenture, either Cellco with respect to the Senior
    Notes or Turkcell with respect to the 1999 Issuer Credit Agreement has
    become or will become obligated to pay additional amounts, on the next date
    on which any amount would be payable with respect to the Senior Notes or
    under the 1999 Issuer Credit Agreement, and such obligation can not be
    avoided by the use of reasonable measures available to Cellco or Turkcell,
    as the case may be; provided, however, that (1) no such notice of redemption
    may be given earlier than 60 days prior to the earliest date on which Cellco
    or Turkcell, as the case may be, would be obligated to pay such additional
    amounts were a payment in respect of the Senior Notes or the 1999 Issuer
    Credit Agreement then due, and (2) at the time such notice of redemption is
    given, such obligation to pay additional amounts remains in effect.

    SECURITY:  The Senior Notes are general obligations of Cellco secured by an
    assignment of Cellco's right, title and interest in and to the 1999 Issuer
    Credit Agreement. The payment of all obligations under the 1999

                                      F-116
<PAGE>   311
        TURKCELL ILETISIM HIZMETLERI ANONIM SIRKETI AND ITS SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1999 AND 2000 AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1999
                                    AND 2000

    (AMOUNTS IN THOUSANDS OF US DOLLARS UNLESS OTHERWISE STATED EXCEPT SHARE
                                    AMOUNTS)

(19) LONG TERM BORROWINGS: (CONTINUED)

    Issuer Credit Agreement is senior in right of payment to the prior payment
    of all obligations on subordinated indebtedness of Turkcell.

    COVENANTS:  The Indenture governing the Senior Notes and the 1999 Issuer
    Credit Agreement each contain certain covenants that limit the ability of
    Cellco and Turkcell and its consolidated and unconsolidated subsidiaries to,
    among other things, incur additional indebtedness, pay dividends or make
    certain other restricted payments, consummate certain asset sales, enter
    into certain transactions with related parties, incur liens, impose
    restrictions on the ability of a subsidiary to pay dividends and make
    certain payments to Turkcell and its consolidated subsidiaries or Cellco,
    merge or consolidate with any other person, or sell, assign, transfer,
    lease, convey or otherwise dispose of all or substantially all of the assets
    of Turkcell and its consolidated subsidiaries or Cellco.

AKBANK

     On November 9, 2000 and December 5, 2000, Turkcell has signed two loan
agreements with Akbank amounting to $200 million for expenditures in GSM Phase 8
and $50 million as working capital. The loans amounting to $200 million and $50
million will be repaid in four equal semi-annual instalments, starting from May
9, 2002 and June 5, 2002, respectively, and bear interest at Libor plus 5.25%
per annum.

GARANTI

     On November 22, 2000, Turkcell has signed a loan agreement with Garanti
amounting to $150 million for expenditures in GSM Phase 8. The loan will be
repaid in four equal semi-annual instalments, starting from June 21, 2002, and
bears interest at Libor plus 5.3% per annum.

VAKIFBANK

     Borrowings of $100 million from Vakifbank have been obtained for Turkcell's
expenditures in GSM Phase 8 and, at December 31, 2000, bear an interest at
11.95% per annum. As of December 31, 2000, such borrowings will be repaid in
seven equal quarterly instalments starting from June 24, 2002.

OTHER BANK FINANCING FACILITIES

     On January 19, 2000, Kibris Telekom has signed a loan agreement with Yapi
Kredi amounting to $4.5 million for investment financing purposes. The loan will
be repaid in three annual instalments starting from January 24, 2001, and bears
interest at 7% per annum.

     Borrowings from London Forfaiting Company have been obtained for Turkcell's
expenditures in GSM Phase 3 and Phase 4B and Phase 4C and, at December 31, 2000,
bear interest at between 6.4625% and 10.3075% (1999: 6.1113% and 10.3075%) per
annum. As of December 31, 2000, borrowings related to Phase 3 will be repaid in
one instalment on March 31, 2001; borrowings related to Phase 4B will be repaid
in two equal semi-annual instalments, starting from April 18, 2000; and
borrowings related to Phase 4C will be repaid in three equal semi-annual
instalments, starting from February 20, 2001.

     Borrowings from Nordbanken have been obtained for Turkcell's expenditures
in GSM Phase 1B and Phase 2 and, at December 31, 2000, bear interest at between
5.8763% and 7.3569% (1999: 6.1438% and 6.5363%) per annum. As of December 31,
2000, borrowings related to Phase 1B will be repaid in six equal semi-annual
instalments equally, starting from January 31, 2001; initial borrowings related
to Phase 2 will be repaid in seven

                                      F-117
<PAGE>   312
        TURKCELL ILETISIM HIZMETLERI ANONIM SIRKETI AND ITS SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1999 AND 2000 AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1999
                                    AND 2000

    (AMOUNTS IN THOUSANDS OF US DOLLARS UNLESS OTHERWISE STATED EXCEPT SHARE
                                    AMOUNTS)

(19) LONG TERM BORROWINGS: (CONTINUED)

equal semi-annual instalments, starting from May 30, 2001; and additional
borrowings related to Phase 2 will be repaid in eight equal semi-annual
instalments, starting from March 31, 2001.

     Borrowings from BB Aval have been obtained for Turkcell's expenditures in
GSM Phase 4A and, at December 31, 2000, bear interest at between 6.7948% and
9.9160% (1999: 6.7948% and 8.8813%) per annum. As of December 31, 2000, initial
borrowings will be repaid in two equal semi-annual instalments, starting from
January 17, 2001 and additional borrowings will be repaid in two equal
semi-annual instalments, starting from February 16, 2001.

     Borrowings from AB Svensk have been obtained for Turkcell's expenditures in
GSM Phase 0/1A and, at December 31, 2000, bear interest at 7.18% (1999: 6.5488%)
per annum. As of December 31, 2000, borrowings will be repaid in four equal
semi-annual instalments, starting from June 3, 2001.

     The future maturities of long-term borrowings as of December 31, 2000 are
as follows:

<TABLE>
<CAPTION>
YEARS
-----
<S>                                                             <C>
2001........................................................    $  437,490
2002........................................................       381,772
2003........................................................       390,807
2004........................................................       128,097
2005........................................................       700,000
                                                                ----------
                                                                $2,038,166
                                                                ==========
</TABLE>

     Generally, long-term borrowings are collateralized by bank letters of
guarantee and sureties of the Company's shareholders.

(20) LONG TERM LEASE OBLIGATIONS:

     Future minimum finance lease payments as of December 31, 2000 are:

<TABLE>
<CAPTION>
YEARS
-----
<S>                                                             <C>
2001........................................................    $ 18,141
2002........................................................      12,950
2003........................................................      12,949
2004........................................................      12,318
2005........................................................          --
Thereafter..................................................       9,617
                                                                --------
Total minimum lease payments................................      65,975
Less: Amount representing interest..........................     (20,891)
Less: Current instalments of obligations under finance
  leases (Note 17)..........................................     (10,612)
                                                                --------
                                                                $ 34,472
                                                                ========
</TABLE>

(21) COMMON STOCK:

     At December 31, 2000, common stock represented 240,000,000,000
(1999:43,000,000) authorized, issued and fully paid shares with a par value of
one thousand (1999: one million) Turkish Lira each. Following a stock split
discussed in the following paragraphs, the number of shares has been restated
retroactively.
                                      F-118
<PAGE>   313
        TURKCELL ILETISIM HIZMETLERI ANONIM SIRKETI AND ITS SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1999 AND 2000 AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1999
                                    AND 2000

    (AMOUNTS IN THOUSANDS OF US DOLLARS UNLESS OTHERWISE STATED EXCEPT SHARE
                                    AMOUNTS)

(21) COMMON STOCK (CONTINUED)

     During the year ended December 31, 1999, $3,183 was collected as advances
for share capital increase from the shareholders. As of December 31, 1999,
shares increased to 43,000,000 by issuance of 7,000,000 common shares, and,
accordingly, $22,194 of advances are recorded as common stock.

     On February 9, 2000, the Board of Directors of Turkcell proposed a
1000-for-1 stock split of the Company's 43 million issued and outstanding shares
of common stock. Upon consummation of the stock split, on May 29, 2000, the
Company's issued and outstanding common stock increased to 43 billion shares
with a nominal value of one thousand Turkish Lira each.

     On March 8, 2000, the Board of Directors of Turkcell resolved to increase
the authorized and paid in share capital (as adjusted for the proposed
1000-for-1 stock split) from 43 billion to 240 billion shares, with an adjusted
nominal value per share of one thousand Turkish Lira, through the issuance of
new shares. The shares would be issued to existing shareholders through a "bonus
share" distribution of newly issued shares in proportion to their shareholding
in the Company prior to the public offering for no consideration, and through a
rights issue. Shares issued under the rights issue would be issued for cash
based on the adjusted nominal value per share. The increase in authorized and
paid-in share capital was approved by the shareholders at the annual general
meeting on May 3, 2000. On May 29, 2000, the Company issued approximately 44.3
billion newly issued shares through distribution to existing shareholders.
Accordingly, all share amounts and per share figures reflected in the Company's
historical financial statements have been retroactively restated.

     The total effect of restatements in number of shares are as follows:

<TABLE>
<CAPTION>
                                                                 DECEMBER 31,
                                              --------------------------------------------------
                                                   1998              1999              2000
                                              --------------    --------------    --------------
<S>                                           <C>               <C>               <C>
Historical number of shares...............        36,000,000        43,000,000        43,000,000
After 1000-for-1 stock split..............    36,000,000,000    43,000,000,000    43,000,000,000
After bonus share distribution............    80,250,000,000    87,250,000,000    87,250,000,000
</TABLE>

     Additionally, on May 29, 2000, the Company issued 152.75 billion new shares
through the rights issue in exchange for TL 152.75 trillion (approximately
$247,000) in cash, and the number of shares increased to 240,000,000,000.

     On July 10, 2000, the Company registered with the US Securities and
Exchange Commission under the Securities Act of 1933, the offering of
25,102,963,000 shares in the form of ordinary shares and American Depository
Shares (ADS), each ADS representing 250 ordinary shares. The ordinary shares are
listed on Istanbul Stock Exchange and the ADS's are listed on the New York Stock
Exchange. 24,000,000,000 ordinary shares and ADS's were sold to the public by
the Selling Shareholders on July 11, 2000 and 1,102,963,000 ordinary shares and
ADS's were sold on August 10, 2000. The Company did not issue any new shares
directly to the public in connection with this offering. Furthermore, the
Company did not receive any proceeds from sale of shares by the Selling
Shareholders to the public.

                                      F-119
<PAGE>   314
        TURKCELL ILETISIM HIZMETLERI ANONIM SIRKETI AND ITS SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1999 AND 2000 AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1999
                                    AND 2000

    (AMOUNTS IN THOUSANDS OF US DOLLARS UNLESS OTHERWISE STATED EXCEPT SHARE
                                    AMOUNTS)

(21) COMMON STOCK (CONTINUED)

     The following table sets forth the computation of basic and diluted
earnings per share:

<TABLE>
<CAPTION>
                                                        YEAR ENDED DECEMBER 31,
                                        --------------------------------------------------------
                                              1998                1999                2000
                                        ----------------    ----------------    ----------------
<S>                                     <C>                 <C>                 <C>
Numerator:
Net income...........................   $        211,990    $        369,079    $        227,907
Denominator:
Weighted average shares restated as
  described above....................     67,835,152,766      85,619,768,197      87,250,000,000
Rights issue shares..................    146,136,099,934     146,136,099,934     146,136,099,934
Basic and diluted weighted average
  shares.............................    213,971,252,700     231,755,868,131     233,386,099,934
Basic and diluted net income per
  share..............................   $        0.00099    $        0.00159    $        0.00098
</TABLE>

     The weighted number of average shares has been adjusted to retroactively
reflect the bonus share element of the rights issue described above based upon
management's best estimate of the fair value of the shares on the date of
issuance.

     Bilka Bilgi Kaynak ve Iletisim A.S. (Bilka, a shareholder) claimed that it
was deprived of the right to participate in the Company's capital increase in
1998 and that, as a result, its shareholding in Turkcell was diluted in
contravention of its rights. Bilka asserted that it made timely payment of the
subscription price of the shares to be issued as part of such capital increase,
and instituted an action against Turkcell in a Turkish court to enjoin issuance
of Bilka's allotment of shares to other shareholders.

     As of December 31, 1999, the corresponding payments made by Bilka for the
1998 capital increase in the amount of $1,720, which have been held as blocked
deposits in banks, were shown in due to shareholders and other current assets.

     On May 23, 2000, the Board of Directors of Turkcell resolved to settle the
dispute among the Company, Bilka and some of the Company's shareholders and to
sign a settlement agreement with Bilka. On May 23, 2000, the settlement
agreement was registered by the court; Bilka withdrew its claims and lawsuits
were terminated. As a result of this settlement, the shareholders that acquired
the disputed Bilka shares agreed to transfer an aggregate of 2,178,411,331
shares (as adjusted to give retroactive effect to the 1000-for-one stock split
and the bonus share issue effected in May 2000) to Bilka.

     After the agreement, Bilka paid $1,825 for 2,178,411,331 shares, $1,579 of
this amount funded by amounts blocked previously.

     At the Board of Directors meeting held on October 11, 2000, it was resolved
to increase Turkcell's registered share capital to TL 500 trillion from TL 240
trillion.

                                      F-120
<PAGE>   315
        TURKCELL ILETISIM HIZMETLERI ANONIM SIRKETI AND ITS SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1999 AND 2000 AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1999
                                    AND 2000

    (AMOUNTS IN THOUSANDS OF US DOLLARS UNLESS OTHERWISE STATED EXCEPT SHARE
                                    AMOUNTS)

(22) REVENUES:

     For the years ended December 31, 1998, 1999 and 2000, revenues consisted of
the following:

<TABLE>
<CAPTION>
                                                            1998          1999          2000
                                                         ----------    ----------    ----------
<S>                                                      <C>           <C>           <C>
Communication fees...................................    $  581,227    $1,372,465    $1,973,829
Monthly fixed fees...................................       105,725       186,838       214,545
Simcard sales........................................         7,901        18,137        28,131
Call center revenues (Note 25).......................            --            --         6,339
Subscription fees....................................        26,761         3,382            67
Other................................................            --            --         2,029
                                                         ----------    ----------    ----------
                                                         $  721,614    $1,580,822    $2,224,940
                                                         ==========    ==========    ==========
</TABLE>

(23) GENERAL AND ADMINISTRATIVE EXPENSES:

     General and administrative expenses consisted of repair and maintenance,
insurance, consulting, payroll, travel, project, rent, training and bad debt
provision expenses.

(24) SELLING AND MARKETING EXPENSES:

     Selling and marketing expenses mainly consisted of advertising and
promotional expenses.

                                      F-121
<PAGE>   316
        TURKCELL ILETISIM HIZMETLERI ANONIM SIRKETI AND ITS SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1999 AND 2000 AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1999
                                    AND 2000

    (AMOUNTS IN THOUSANDS OF US DOLLARS UNLESS OTHERWISE STATED EXCEPT SHARE
                                    AMOUNTS)

(25) RELATED PARTY TRANSACTIONS:

     For the years ended December 31, 1998, 1999 and 2000, significant
transactions with the related parties were as follows:

<TABLE>
<CAPTION>
                                                               1998        1999        2000
                                                             --------    --------    --------
<S>                                                          <C>         <C>         <C>
PURCHASES FROM ERICSSON TELEKOMUNIKASYON A.S.
  GSM equipment..........................................    $291,372    $756,980    $717,933
  Site preparation services..............................      37,827      90,257     181,675
  Custom expenses........................................         884       1,545       2,259
  Computer hardware......................................          --          49          --
  Computer software......................................          --          28          --
PURCHASES FROM ERICSSON RADIO COMMUNICATION LTD.
  GSM equipment..........................................       6,417          --          --
PURCHASES FROM ERICSSON TELEKOMUNIKASYON A.S.
  Construction...........................................          --       4,794          --
CHARGES FROM ERICSSON TELEKOMUNIKASYON A.S.
  Repair, maintenance and technical support..............       7,646      15,631      27,739
SALES TO AZERCELL
  GSM equipment, simcard and others......................      18,672         100         223
CHARGES TO AZERCELL
  Technical advisory services............................       1,413       1,299       1,396
SALES TO A-TEL
  Simcard and prepaid card sales.........................          --       8,383     132,457
CHARGES FROM A-TEL
  Dealer activation fees and simcard subsidies...........          --       3,660      43,859
SALES TO DIGITAL PLATFORM
  Call center revenues...................................          --          --       1,673
CHARGES FROM DIGITAL PLATFORM
  Reimbursement of the costs of its free subscriptions to
     Turkcell subscribers................................          --          --       7,203
CHARGES FROM ASLI GAZETECILIK
  Advertisement services.................................          --      15,351      18,929
CHARGES FROM SONERA CORPORATION INC.
  Technical advisory services............................         853       1,478       1,188
CHARGES FROM KVK
  Dealer activation fees and simcard subsidies...........       9,571      72,806      49,179
CHARGES FROM HOBIM BILGI ISLEM HIZMETLERI A.S.
  Invoicing service......................................          --       3,842       4,503
CHARGES FROM SUPERONLINE
  Contribution to advertising expenses and internet
     services rendered...................................          --          --       1,810
SALES TO SUPERONLINE
  Call center revenues...................................          --          --       3,007
</TABLE>

     In 2000, 1999 and during most of 1998, Ericsson Telekomunikasyon A.S. and
Ericsson Radio Communications Ltd. were no longer related parties; the above
information is given for comparison purposes (Note 15).

                                      F-122
<PAGE>   317
        TURKCELL ILETISIM HIZMETLERI ANONIM SIRKETI AND ITS SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1999 AND 2000 AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1999
                                    AND 2000

    (AMOUNTS IN THOUSANDS OF US DOLLARS UNLESS OTHERWISE STATED EXCEPT SHARE
                                    AMOUNTS)

(25) RELATED PARTY TRANSACTIONS: (CONTINUED)

     The Company makes certain sales to Azercell consisting principally of GSM
equipment and simcards. For the years ended December 31, 1998, 1999 and 2000,
total cost of such sales was $16,019, $65 and $198, respectively.

     Turkcell has agreements or protocols with several of its shareholders,
unconsolidated subsidiaries and affiliates of the shareholders. The Company's
management believes that all such agreements or protocols are on terms that are
at least as advantageous to the Company as would be available in transactions
with third parties.

     The significant agreements are as follows:

FINANCIAL LEASE AGREEMENTS WITH YAPI KREDI FINANSAL KIRALAMA A.S.

     Turkcell has entered into a finance lease with Yapi Kredi Finansal Kiralama
A.S. (Yapi Kredi Leasing), an affiliate of Yapi ve Kredi Bankasi A.S., a
shareholder of the Company, for the new headquarters building it began to occupy
in early 1998. The purchase price of the building, and Turkcell's outstanding
lease obligation at December 31, 2000 were $14,129 and $4,316 (1999: $14,129 and
$6,114), respectively. Turkcell may purchase the building at the end of the
lease period for a nominal purchase price.

     In addition, Turkcell has entered into a lease with Yapi Kredi Leasing for
a building in Ankara for regional offices. The purchase price of the building
was $16,400, and Turkcell's outstanding lease obligation at December 31, 2000
was $13,677 (1999: $15,160). Turkcell may purchase the building at the end of
the lease period for a nominal purchase price.

PAMUKLEASE PAMUK FINANSAL KIRALAMA A.S.

     Turkcell has entered into five leases with Pamuklease Pamuk Finansal
Kiralama A.S. (formerly Interlease Inter Finansal Kiralama A.S.), a Cukurova
Group Company, for Turkcell's departments and regional offices in Istanbul,
Ankara and Izmir. The purchase price of the buildings, and Turkcell's
outstanding lease obligation at December 31, 2000 were $32,672 and $27,051
(1999: $24,752 and $22,471), respectively. Turkcell may purchase the building at
the end of the lease period for a nominal purchase price.

A-TEL

     A-Tel is a 50-50 joint venture of KVK and of a third party media company
(Sabah). A-Tel acts as the only dealer of Turkcell for Muhabbet Kart (a prepaid
card), and receives dealer activation fees and simcard subsidies for the sale of
Muhabbet Kart. Turkcell entered into campaigns with A-Tel, whereby Sabah
publishes coupons for readers in its newspaper, and those readers who collect a
certain number of coupons are entitled to free phones with Muhabbet Kart. A-Tel
activates these prepaid cards and receives simcard subsidies from Turkcell.

DIGITAL PLATFORM

     Turkcell has made a protocol with Digital Platform for sponsorship of its
pay-per-view channels. Digital Platform's pay-per-view system has been launched
in September 2000. Turkcell is sponsor of some films broadcasted in the
pay-per-view channels.

     Turkcell has entered into an advertising campaign with Digital Platform for
free distribution of DTH system equipment and free subscription for one year by
Digital Platform to selected 100,000 Turkcell subscribers, who generate average
call revenues at or above approximately USD 80/month to Turkcell. Digital
Platform delivers to such selected subscribers DTH system equipment and annual
services in aggregate worth of $116.50 (full) per

                                      F-123
<PAGE>   318
        TURKCELL ILETISIM HIZMETLERI ANONIM SIRKETI AND ITS SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1999 AND 2000 AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1999
                                    AND 2000

    (AMOUNTS IN THOUSANDS OF US DOLLARS UNLESS OTHERWISE STATED EXCEPT SHARE
                                    AMOUNTS)

(25) RELATED PARTY TRANSACTIONS: (CONTINUED)

subscriber for free, and Turkcell bears such costs for advertising purposes.
Currently, this campaign is for Istanbul area only, and is expected to reach to
100,000 subscribers.

ASLI GAZETECILIK

     Asli Gazetecilik is a company of the Cukurova Group which owns newspapers
called Aksam and Gunes and various magazines. Cukurova Group has also its TV
(Show TV) and radio (Show FM, Alem FM, etc) stations. Asli Gazetecilik places
the advertisements of Turkcell in these newspapers and magazines and on the TV
and radio stations.

TECHNICAL ASSISTANCE AGREEMENT WITH SONERA CORPORATION INC.

     Turkcell has entered into a technical assistance agreement with Sonera
Corporation Inc., a former shareholder of the Company and an affiliate of Sonera
Holding BV, a current shareholder of the Company. Sonera Corporation Inc. has
supplied Turkcell with technical assistance on questions relating to the system:
(i) the network project and (ii) the operation and maintenance assistance
project. Under the network project, Sonera Corporation Inc. supplies Turkcell
with technical assistance relating to planning and construction services, site
management and organization and supervision of the construction and installation
work of the equipment supplier. Under the operation and maintenance assistance
project, Sonera Corporation Inc. provides technical assistance on the planning,
building up, facilitating, training and tutoring of business and technical
departments.

AGREEMENTS WITH KVK MOBIL TELEFON SISTEMLERI TICARET A.S.

     One of the principal importers of handsets and vendors of SIM cards to
Turkcell's subscribers is KVK Mobil Telefon Sistemleri Ticaret A.S. (KVK), a
Turkish company controlled by three individuals who are affiliated with the
Company's shareholders. The Company has entered into several agreements with KVK
in the form of advertisement support protocols each lasting for periods of one
to two months pursuant to which KVK must place Turkcell advertisements in
newspapers.

AGREEMENTS WITH HOBIM BILGI ISLEM HIZMETLERI A.S.

     In relation to the License Agreement, Turkcell has entered into an invoice
printing agreement with Hobim Bilgi Islem Hizmetleri A.S. (Hobim), an affiliate
of Cukurova Holding A.S., a shareholder of the Company, pursuant to which Hobim
will provide Turkcell with monthly invoice printing services for Turkcell's
subscribers. The service includes the printing of all invoices, the provision of
envelopes and the mailing of the invoices to the subscribers. In addition, Hobim
must enclose, in the billing invoice mailing envelopes, any supplemental
information, advertisements, promotions or brochures requested by Turkcell. The
initial term of the agreement is one year from the date of execution by the
parties and the agreement will be extended if either party fails to give
three-months prior notice to the other party of termination.

TECHNICAL ASSISTANCE AND MANAGEMENT SUPPORT AGREEMENT WITH AZERCELL

     Turkcell has entered into a technical assistance and management support
agreement with Azercell. In accordance with the agreement, Turkcell supplies
Azercell (i) technical assistance in planning, implementation, operation and
management of the GSM system and upgrading the system software, and (ii)
management support in billing and information technology, marketing, finance,
collection and reporting.

                                      F-124
<PAGE>   319
        TURKCELL ILETISIM HIZMETLERI ANONIM SIRKETI AND ITS SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1999 AND 2000 AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1999
                                    AND 2000

    (AMOUNTS IN THOUSANDS OF US DOLLARS UNLESS OTHERWISE STATED EXCEPT SHARE
                                    AMOUNTS)

(25) RELATED PARTY TRANSACTIONS: (CONTINUED)

AGREEMENT WITH SUPERONLINE

     Turkcell and Superonline have entered into an agreement to provide mutual
services to each other. According to the agreement, Superonline provides dealer
automation services, web hosting services, internet access services, high speed
circuit switched data services, wireless application protocol services and
unified messaging services. Against the services provided by Superonline,
Turkcell provides space to Superonline on base station sites to install servers
and equipments to increase the performance of the system infrastructure of
Superonline.

(26) COMMITMENTS AND CONTINGENCIES:

GUARANTEES

     As of December 31, 2000, the Company is contingently liable in respect of
bank letters of guarantee obtained from Interbank A.S. and Yapi ve Kredi Bankasi
A.S. and given to Emlak Bankasi A.S. amounting to $5,833 (1999: $20,089), Turk
Telekom amounting to nil (1999: $275), the Turkish Ministry amounting to $5,000
(1999: $5,000) and customs authorities, private companies and other public
organizations amounting to $38,606 (1999: $48,471). Also, the Company is
contingently liable in an amount of $73,759 in respect of guarantees given to
Banque Nationale de Paris, Webster Bank and BNP Dresdner Bank for the loans
obtained by Digital Platform in order to finance the purchase of set-top boxes
and in an amount of $15,000 in respect of the guarantee given to Yapi Kredi for
the bank letter of guarantee obtained by Superonline.

LICENSE AGREEMENT

     On April 27, 1998, Turkcell signed a license agreement (the License
Agreement or License) with the Turkish Ministry. In accordance with the License
Agreement, Turkcell was granted a 25 year GSM license for a license fee of
$500,000. The License Agreement permits Turkcell to operate as a standalone GSM
operator and free it from some of the operating constraints which were stated in
the Revenue Sharing Agreement. Under the License, Turkcell collects all of the
revenue generated from the operations of its GSM network and pays the Turkish
Treasury an ongoing license fee equal to 15% of Turkcell's gross revenue.
Turkcell also continues to build and operate its GSM network and is authorized
to, among other things, set its own tariffs within certain limits, charge peak
and off-peak rates, offer a variety of service and pricing packages, issue
invoices directly to subscribers, collect payments and deal directly with
subscribers.

     The License contains a number of requirements, including requirements
regarding the build-out, operation, quality and coverage of Turkcell's GSM
network, prohibitions on anti-competitive behaviour and compliance with national
and international GSM standards. Turkcell may incur significant penalties for
delays in meeting these coverage requirements. Failure to meet any requirement
in the License, or the occurrence of extraordinary unforeseen circumstances, can
also result in revocation of the License, including the surrender of the GSM
network without compensation, or limitation of Turkcell's rights thereunder, or
could otherwise adversely affect Turkcell's regulatory status. Certain
conditions of the License Agreement are as follows:

    COVERAGE:  The License Agreement requires that Turkcell meets certain
    coverage and technical criteria. Accordingly, Turkcell must attain
    geographical coverage of 50% and 90% of the population of Turkey with
    certain exceptions within three years and five years, respectively, of the
    License's effective date.

    SERVICE OFFERINGS:  The License Agreement requires that Turkcell provide
    certain services which, in addition to general GSM services, include free
    emergency calls and technical assistance for subscribers, free call
    forwarding to police and other public emergency services, receiver-optional
    short messages, video text

                                      F-125
<PAGE>   320
        TURKCELL ILETISIM HIZMETLERI ANONIM SIRKETI AND ITS SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1999 AND 2000 AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1999
                                    AND 2000

    (AMOUNTS IN THOUSANDS OF US DOLLARS UNLESS OTHERWISE STATED EXCEPT SHARE
                                    AMOUNTS)

(26) COMMITMENTS AND CONTINGENCIES: (CONTINUED)

    access, fax capability, calling and connected number identification and
    restrictions, call forwarding, call waiting, call hold, multi-party and
    third-party conference calls, billing information and barring of a range of
    outgoing and incoming calls.

    SERVICE QUALITY:  In general, Turkcell must meet all the technical standards
    of the GSM MoU as determined and updated by the European Telecommunications
    Standards Institute and Secretariat of the GSM MoU. Service quality
    requirements include that call blockage cannot exceed 5% and unsuccessful
    calls cannot exceed 2%. The Turkish Ministry has the right to monitor
    Turkcell's service standards, compile information and take action to
    guarantee subscriber rights.

    TARIFFS:  The License Agreement regulates Turkcell's ability to determine
    its tariffs for GSM services. Accordingly, after consultation with Turkcell
    and consideration of tariffs applied abroad for similar services, the
    Turkish Ministry sets the initial tariffs in Turkish Lira and US Dollar.
    Thereafter, the License provides that the Turkish Ministry will adjust the
    maximum tariffs at least every six months or, if necessary, more frequently.
    Turkcell is free to set its own tariffs up to the maximum tariffs.

    RIGHTS OF THE TURKISH MINISTRY, SUSPENSION AND TERMINATION:  The License is
    not transferable without the approval of the Turkish Ministry. In addition,
    the License Agreement gives the Turkish Ministry certain monitoring rights
    and access to Turkcell's technical and financial information and allows for
    inspection rights, and gives certain rights to suspend operations under
    certain circumstances. Also, Turkcell is obliged to submit financial
    statements, contracts and investment plans to the Turkish Ministry.

    The Turkish Ministry may suspend Turkcell's operations for a limited or an
    unlimited period if necessary for the purpose of public security and
    national defence. During the period of suspension, the Turkish Ministry may
    operate Turkcell's GSM network. Turkcell is entitled to any revenues
    collected during such period and the Licensee's term will be extended by the
    period of any suspension.

    The Turkish Ministry may terminate the License upon a bankruptcy ruling
    against Turkcell by a competent court or a bankruptcy compromise decision
    that is not reversed or dismissed within 90 days after notice from the
    Turkish Ministry; or upon Turkcell's failure to perform its obligations
    under the License Agreement where such failure is not cured within 90 days
    after notice from the Turkish Ministry; or if Turkcell operates outside the
    allocated frequency ranges and fails to terminate such operations within 90
    days after notice from the Turkish Ministry; or if Turkcell fails to pay
    amounts payable under the License within 90 days. In the event of
    termination by the Turkish Ministry, Turkcell must deliver the entire GSM
    network to the Turkish Ministry. Finally, if the Turkish Ministry terminates
    the License for Turkcell's failure to perform its obligations under the
    License, Turkcell must surrender the performance guarantee.

    In the event of a termination of the License, Turkcell's rights to use
    allocated frequencies and to operate the GSM network cease. Upon the
    scheduled expiration of the License Agreement without renewal, Turkcell must
    transfer to the Turkish Ministry (or any organization designated by the
    Turkish Ministry), without consideration, the network management center, the
    gateway exchanges and central subscription system, including related
    technical equipment, immovables and installations essential for the
    operation of the network.

    Any revocation or limitation of, or failure to renew, the License, or
    failure to renew the License upon commercially reasonable terms would have a
    material adverse effect on the consolidated financial position, results of
    operations, or liquidity of the Company.

                                      F-126
<PAGE>   321
        TURKCELL ILETISIM HIZMETLERI ANONIM SIRKETI AND ITS SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1999 AND 2000 AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1999
                                    AND 2000

    (AMOUNTS IN THOUSANDS OF US DOLLARS UNLESS OTHERWISE STATED EXCEPT SHARE
                                    AMOUNTS)

(26) COMMITMENTS AND CONTINGENCIES: (CONTINUED)

INTERCONNECTION AGREEMENT WITH TURK TELEKOM

     On April 24, 1998, Turkcell and Turk Telekom entered into an
interconnection agreement (the Interconnection Agreement) providing for the
interconnection of Turkcell's GSM network with Turk Telekom's fixed line
network. The Interconnection Agreement will terminate automatically upon the
expiry of the License period or on termination of the License Agreement by the
Turkish Ministry or for any other reason.

     There can be no assurance that Turkcell or Turk Telekom can or will be able
to perform their respective obligations under the Interconnection Agreement. In
the event that Turk Telekom were to fail to perform its obligations under the
Interconnection Agreement, depending on the nature of the failure, the result
could be interference with Turkcell's ability to provide high quality service to
its subscribers. Rates under the Interconnection Agreement are fixed for two
years and thereafter subject to renegotiation. The failure of Turk Telekom to
perform its obligations under the Interconnection Agreement; or the failure by
Turk Telekom to make payments to the Company under the Interconnection Agreement
because of insolvency or otherwise; or any significant rate changes could have a
material adverse effect on the consolidated financial position, results of
operations, or liquidity of the Company.

     Call Tariffs:  Turkcell pays Turk Telekom a net amount of 1.4 cents per
minute for local traffic and a net amount of 2.5 cents per minute for
metropolitan and long distance traffic switched from Turkcell to Turk Telekom.

INTERCONNECTION AGREEMENT WITH TELSIM

     Turkcell and Telsim Mobil Telekomunikasyon Hizmetleri A.S. (Telsim) entered
into an interconnection agreement dated October 4, 1999. Under the Telsim
interconnection agreement, each party agreed, among other things, to permit the
interconnection of its network with the other's network to enable calls to be
transmitted to, and received from, the GSM system operated by each party in
accordance with technical specifications set out in the interconnection
agreement.

     The Telsim interconnection agreement establishes understandings between the
parties relating to a number of key operational areas, including call traffic
management, and also contemplates that Turkcell and Telsim will agree to the
contents of various manuals that will set forth in detail additional
specifications concerning matters which are not specifically covered in the
Telsim interconnection agreement. These matters include quality and performance
standards, interconnection interfaces and other technical, operational, and
procedural aspects of interconnection.

     Under the Telsim interconnection agreement, Turkcell and Telsim agree to
permit each other to utilize Turk Telekom's premises as well as any transmission
equipment located in public areas such as coach terminals, airports, sea ports,
shopping and other trade centers and other indoor infrastructure that is
allocated to either Turkcell or Telsim.

     Payments:  The Telsim interconnection agreement provides for the payment of
fees by Turkcell to Telsim for the interconnection services provided by Telsim.
A number of the provisions of the Telsim interconnection agreement address
matters concerning billing and payment of bills for services rendered under the
Telsim interconnection agreement. Each party is required to record certain call
information and to provide that information to the other party. Each party is
responsible for invoicing the other party on a monthly basis.

     Call Tariffs:  Turkcell pays Telsim a net amount of 1.4 cents per minute
for local traffic and a net amount of 2.5 cents per minute for metropolitan and
long distance traffic switched from Turkcell to Telsim.

                                      F-127
<PAGE>   322
        TURKCELL ILETISIM HIZMETLERI ANONIM SIRKETI AND ITS SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1999 AND 2000 AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1999
                                    AND 2000

    (AMOUNTS IN THOUSANDS OF US DOLLARS UNLESS OTHERWISE STATED EXCEPT SHARE
                                    AMOUNTS)

(26) COMMITMENTS AND CONTINGENCIES: (CONTINUED)

     The Telsim interconnection agreement will remain in force for the period of
the License period unless one of the parties serves a three-month termination
notice to the other party.

LEGAL PROCEEDINGS

     The Company is involved in various claims and legal actions arising in the
ordinary course of business described below.

Dispute on Treasury Share

     Article 5 of the License Agreement defines the gross revenues as the total
of subscription fees, monthly fixed fees and communication fees including all
taxes, duties, fees and funds thereon, and Article 8 defines the monthly payment
to the Turkish Treasury to be computed as 15% of the monthly gross revenues
(Treasury Share). Turkcell management and its legal counsel interpreted the
taxes, duties, fees and funds, being those except value added tax (VAT),
education fund and frequency usage and transmission fee, which are all billed to
and collected from subscribers via monthly invoices and then paid to related
government authorities. Since Turkcell acted as an intermediary of related
government authorities to collect these duties, funds, fees and taxes and since
there is no comparable example in other license agreements signed in Turkey,
Turkcell management and its legal counsel did not interpret the description of
gross revenue as including such funds, fees and taxes and accordingly did not
pay 15% of such collections from subscribers to the Turkish Treasury starting
from the date of the License Agreement.

     On November 8, 1999, the Turkish Ministry notified Turkcell and Telsim, the
other GSM network operator in Turkey, that the Supreme Court (the Danistay) had
decided by the majority of the votes of its members that the interpretation of
the Turkish Ministry was correct, and that from November 1999 onwards the
license fee should have been calculated according to the Turkish Treasury's
method.

     On November 18, 1999, the Turkish Treasury notified Turkcell, by referral
to the decision of the Danistay and the letter of the Turkish Ministry, that the
license fees should retroactively be recalculated from the date of the License
Agreement, April 27, 1998, and paid to the Turkish Treasury applying the legal
interest rate on the unpaid balance over the period these should have been paid.

     The cumulative amount of VAT, education fund, and frequency usage and
transmission fees from April 27, 1998 until December 31, 1999 was $264,126 and
15% of this amount, being $7,482 for the year ended December 31, 1998 and
$32,137 for the year ended December 31, 1999, represented the unpaid Treasury
Share. The legal interest rate as applied on the unpaid balance resulted in
$12,536 interest for the year ended December 31, 1998 and $15,424 for the year
ended December 31, 1999. On November 30, 1999, Turkcell initiated an
administrative suit at the Danistay against the Turkish Ministry and the Turkish
Treasury. On December 29, 1999, Turkcell obtained an injunction to prevent the
Turkish Treasury from collecting the license fee with respect to the disputed
amounts. The Turkish Ministry and the Turkish Treasury have appealed the
granting of the injunction. On February 16, 2000, the Danistay lifted the
injunction with respect to the license fee payable on collections of VAT but
upheld the injunction in respect of the education fund and frequency usage and
transmission fees. Subsequent to the Danistay's decision on February 16, 2000,
the Turkish Ministry and the Turkish Treasury filed a challenge to the
Danistay's decision to uphold the injunction with respect to the education fund
and frequency usage and transmission fees, which was rejected on April 21, 2000.
On March 24, 2000, Turkcell paid $57,163, out of which $51,900 relates to year
1999 and before, as Treasury Share on VAT and its accrued late payment interest.
Accordingly, as of December 31, 1999, the Company accrued for $30,844 Treasury
Share on VAT and $21,056 interest on this account and charged to statement of
operations for the year

                                      F-128
<PAGE>   323
        TURKCELL ILETISIM HIZMETLERI ANONIM SIRKETI AND ITS SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1999 AND 2000 AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1999
                                    AND 2000

    (AMOUNTS IN THOUSANDS OF US DOLLARS UNLESS OTHERWISE STATED EXCEPT SHARE
                                    AMOUNTS)

(26) COMMITMENTS AND CONTINGENCIES: (CONTINUED)

then ended. Turkcell has continued to pursue its claim to recover the $57,163
payment and filed a challenge against the Danistay's decision to lift the
injunction concerning VAT on March 27, 2000 which was rejected on April 21,
2000.

     The Treasury Share on education fund, frequency usage and transmission fees
as of December 31, 1999 and 2000 are $9,769 and $24,157, respectively. Had the
Danistay ruled in favour of the Turkish Treasury then the cumulative legal
interest, as applied from April 27, 1998, as of December 31, 1999 and 2000 would
result in $7,847 and $16,801, respectively. Consequently, unpaid Treasury Share
amounts with respect to the education fund, frequency usage and transmission
fees, including interest amounted to $17,616 and $40,958 as of December 31, 1999
and 2000, respectively. Turkcell has not recorded any accrual for these amounts,
since the management and its legal counsel are of the opinion that the Turkish
Ministry and the Turkish Treasury will not pursue their claims for these amounts
any further and if they did the Company and its legal counsel believe it will
prevail with respect to payment of the Treasury Share on education fund,
frequency usage and transmission fees.

Dispute on VAT on License Fee:

     On May 4, 2000, Turkcell received a notice from the Istanbul Bogazici Tax
Office of the Turkish Ministry of Finance, or the Tax Office, asserting
deficiencies in VAT declarations for the month of April 1998. The Tax Office
claimed that Turkcell should have paid VAT on the $500 million upfront license
fee paid to the Turkish Treasury. The notice stated that, based on calculations
made by the Tax Office on February 29, 2000, Turkcell should have paid TL 18.6
trillion VAT (equivalent to $27,735 as of December 31, 2000) on the upfront
license fee in April 1998. The Tax Office has also imposed late interest charges
equal to TL 48.1 trillion (equivalent to $71,557 as of December 31, 2000) and a
penalty fee of TL 37.3 trillion (equivalent to $55,470 as of December 31, 2000).
The Tax Office's position is premised on its view that the License was not
transferred or sold to the Company but leased for a period of 25 years.
Accordingly, the Tax Office claimed that under Turkish law, VAT should be paid
on the upfront license fee and that the Company should pay the VAT because the
lessor, the Turkish Ministry, is not a registered tax-payer.

     The Tax Office also instituted a sequestration process to secure its claim
in the total amount of TL 104 trillion (equivalent to $154,762 as of December
31, 2000). Accordingly, Turkcell has replied to the Tax Office on May 17, 2000
and declared the fixed assets in the total amount of TL 104 trillion to be
pledged. These fixed assets have been pledged by the Tax Office as security of
this potential liability. On March 21, 2001, pledge on the fixed assets has been
removed.

     If the Tax Office prevails in this case, Turkcell will have a payable to
the Tax Office for the amount of VAT which will be offset by a VAT recoverable
in the same amount and will not result in cash outflow from Turkcell for the VAT
payment. However, as of December 31, 2000, the interest charge on the unpaid VAT
of $87,920 and the penalty fee of $55,470 would have to be paid. Management
believes that the Company has meritorious defenses against the Tax Office's
claims.

     Turkcell has filed a petition in the Tax Court to challenge all
deficiencies as ruled by the Tax Office of the Turkish Ministry of Finance. The
Tax Court has rejected the claim and Turkcell has appealed the case.

     Although the case is still pending at the Danistay, the Tax Office
requested on March 16, 2001 that Turkcell pay VAT on the upfront license fee as
well as the late payment interest on the unpaid VAT and the penalty fee. While
continuing the court challenge the Company established a payment schedule for
such amounts. In accordance with the payment schedule, Turkcell is required to
pay VAT on the upfront license fee amounting to TL 18.6 trillion (equivalent to
$27,735 and $18,501 as of December 31, 2000 and March 16, 2001, respectively),

                                      F-129
<PAGE>   324
        TURKCELL ILETISIM HIZMETLERI ANONIM SIRKETI AND ITS SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1999 AND 2000 AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1999
                                    AND 2000

    (AMOUNTS IN THOUSANDS OF US DOLLARS UNLESS OTHERWISE STATED EXCEPT SHARE
                                    AMOUNTS)

(26) COMMITMENTS AND CONTINGENCIES: (CONTINUED)

the outstanding interest charge amounting to TL 60.7 trillion (equivalent to
$90,417 and $60,315 as of December 31, 2000 and March 16, 2001, respectively)
and a penalty fee amounting to TL 9.3 trillion (equivalent to $13,867 and $9,251
as of December 31, 2000 and March 16, 2001, respectively). On March 16, 2001,
Turkcell paid $21,280 of which $18,501 was for VAT on the upfront license fee
and $2,779 was for outstanding interest charges. The remaining TL 67.3 trillion
(equivalent to $66,787 as of March 16, 2001) was to be payable in fifteen
monthly instalments starting March 30, 2001. The first instalment was for TL 5.4
trillion (equivalent to $5,313 as of March 16, 2001) and the remaining
instalments were to be in equal amounts of TL 4.4 trillion (equivalent to $4,391
as of March 16, 2001).

     On March 21, 2001, the Company also provided a bank letter of guarantee
from Yapi ve Kredi Bankasi to the Tax Office amounting to TL 68.0 trillion
(equivalent to $70,005 as of March 21, 2001).

     On April 12, 2001, the Istanbul Fifth Tax Court reduced the outstanding
interest charge from TL 60.7 trillion to TL 11.1 trillion (equivalent to $16,558
and $11,045 as of December 31, 2000 and March 16, 2001, respectively).

     In addition to the foregoing, the Company did not pay any VAT on the
ongoing license fees paid to the Turkish Treasury since this was also not stated
in the License Agreement at the time the License was acquired. There can be no
assurance that the Tax Office will not claim that Turkcell should have paid VAT
on the Treasury Share. Cumulative Treasury Share paid since April 28, 1998,
(including the additionally paid Treasury Share on VAT, as described above) is
TL 352.7 trillion (equivalent to $525,106 as of December 31, 2000) as of
December 31, 2000. The VAT rate was 15% for all years until December 1999 and
increased to 17% thereafter. In the event that the Tax Office were to require
payments for VAT, interest and penalty charges would also be computed on such
balance. The Company and its legal counsel believe that if such claim is
asserted, the Company will prevail. Therefore, Turkcell has not recorded any
accrual for the unpaid interest and penalties on VAT on the Treasury Share.

Dispute on Monthly Fixed Fees:

     As of March 31, 2001, Turkcell was involved in 7,484 (December 31, 2000:
7,249) legal proceedings with individual subscribers demanding that Turkcell
stops charging monthly fixed fees and reimburse such fees already paid by them.
As of March 31, 2001, 1,651 (December 31, 2000: 1,510) of such cases by
subscribers were either rejected by the local courts or transferred to the
Consumer Court for final decision, 3,604 (December 31, 2000: 3,063) of them were
decided on in favour of Turkcell, 9 (December 31, 2000: 8) of them were decided
against Turkcell and 2,220 (December 31, 2000: 2,668) appeals were pending. The
monthly fixed payment is expressly contemplated under the License Agreement. In
addition, the Company's subscription agreements with its postpaid customers as
approved by the Ministry of Transportation allow the Company to charge monthly
fixed fees and the postpaid customers agree to pay the fees in the subscription
agreements they sign with the Company.

     Further, the License Agreement requires the Company to include the monthly
fixed payment in computing the amount of fees payable to the Treasury under the
License. The Telecommunications Law also allows for the charging of fixed fees.
Accordingly, the Company believes that it is correctly charging and collecting
this monthly fixed fee.

Dispute on Turk Telekom Interconnection Fee:

     Turk Telekom notified Turkcell on February 14, 2000 that it was modifying
the method by which it calculates the interconnection fee that it pays to
Turkcell. Turk Telekom believes that it should be permitted to

                                      F-130
<PAGE>   325
        TURKCELL ILETISIM HIZMETLERI ANONIM SIRKETI AND ITS SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1999 AND 2000 AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1999
                                    AND 2000

    (AMOUNTS IN THOUSANDS OF US DOLLARS UNLESS OTHERWISE STATED EXCEPT SHARE
                                    AMOUNTS)

(26) COMMITMENTS AND CONTINGENCIES: (CONTINUED)

deduct from the revenues used to determine the interconnection fee, the 15%
"fund" payment that it pays to the Treasury and a 2.5% payment that it pays to
the Turkish Radio and Television Institution, which is a payment that Turk
Telekom was required to make during 2000 only. Based on this position, Turk
Telekom withheld $11,367 from the amount it paid to Turkcell for interconnection
for the first two months of 2000. Turkcell believes that Turk Telekom's position
is contrary to the terms of the Interconnection Agreement. Subsequently, on
April 25, 2000, the Company obtained an injunction from the commercial court
preventing Turk Telekom from calculating the interconnection fee in this manner
from March 1, 2000 onwards, and on May 4, 2000, Turkcell commenced a lawsuit
against Turk Telekom to recover the $11,367 it retained with respect to the
first two months of 2000.

     On October 5, 2000, the Court ruled against Turkcell in its lawsuit to
recover the $11,367 already retained by Turk Telekom for the first two months of
2000 and lifted the injunction the Company obtained on April 25, 2000. Turk
Telekom subsequently notified the Company on October 16, 2000 that it was
requesting payment for TL 37.5 trillion (equivalent to $55,819 as of December
31, 2000) representing the amount Turk Telekom would have deducted from its
revenues for the period between March 2000 and September 2000. Turkcell paid
Turk Telekom a first instalment of TL 16.0 trillion (equivalent to $23,965 as of
December 31, 2000) with a reservation. On November 3, 2000, Turkcell obtained an
injunction to prevent Turk Telekom from continuing to calculate their
interconnection fee in this manner and on November 10, 2000, the Company filed a
second lawsuit to recover the TL 16.0 trillion (equivalent to $23,965 as of
December 31, 2000) paid to Turk Telekom as its first instalment. The Company
also filed an appeal against the Court's decision of October 5, 2000. Out of the
total additional interconnection fee of $91,151 including interest of $3,828,
$35,332 was paid to Turk Telekom and liability was recorded for the unpaid
portion of $55,819 in the consolidated financial statements as of and for the
year ended December 31, 2000.

Dispute on Turk Telekom Interconnection Agreement:

     The Turkish Electrical Engineers' Society commenced a lawsuit against Turk
Telekom in the Ninth Administrative Court. In the lawsuit, the Turkish
Electrical Engineers' Society claimed that the Interconnection Agreement
violates public policy and the provisions of the Turkish Constitution relating
to the protection of consumers and prevention of monopoly and cartels. On
October 11, 2000, the Court annulled Annex 1-A.1 of the Interconnection
Agreement, which deals with call tariffs. Although, Turkcell was not a party to
the lawsuit, the Company's interest has been affected by the decision.

     On November 20, 2000, Turkcell was informed of the Court's decision and
received notification from Turk Telekom that all interconnection fees since the
acquisition of the License paid by Turkcell to Turk Telekom and by Turk Telekom
to Turkcell must be the same to comply with the Court's decision, should be
retroactively calculated from the date of the License and include the statutory
interest rate on the unpaid balance. Turkcell initiated an action before the
commercial court to cancel Turk Telekom's request until it agrees with Turk
Telekom to replace the cancelled provisions of the Interconnection Agreement.
The case is still pending and Turkcell obtained an injunction which is currently
in effect preventing Turk Telekom from collecting this amount. The Company and
its legal counsel believe that the Company will prevail in this matter.

Dispute on Additional Treasury Share on Value Added Services and Other Charges:

     On November 2, 2000, Turkcell received a notice from the Turkish Ministry
stating that certain value added services, transaction fees, roaming revenues
and interest charges for late collections should be included in the
determination of ongoing license fees paid to the Turkish Treasury. The Turkish
Treasury informed the Company that the license fees for all such services would
be retroactively recalculated from the date of the License

                                      F-131
<PAGE>   326
        TURKCELL ILETISIM HIZMETLERI ANONIM SIRKETI AND ITS SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1999 AND 2000 AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1999
                                    AND 2000

    (AMOUNTS IN THOUSANDS OF US DOLLARS UNLESS OTHERWISE STATED EXCEPT SHARE
                                    AMOUNTS)

(26) COMMITMENTS AND CONTINGENCIES: (CONTINUED)

Agreement and paid to the Turkish Treasury applying the statutory interest rate.
On December 22, 2000, Turkcell initiated a suit against the Turkish Ministry and
the Turkish Treasury before the Administrative Court to enjoin the Turkish
Ministry and the Turkish Treasury from charging the Company these fees. The
Company and its legal counsel believe that the Company has a meritorious claim.
Therefore, the Company has not recorded any accrual for payment of additional
ongoing license fees for such services, revenues and interest. If the case is
resolved in favour of the Turkish Treasury, the Company will be liable to the
Turkish Treasury for an amount of $89,786 including interest of $31,631.

Class action lawsuit against Turkcell:

     On November 22, 2000, a purported class action lawsuit was initiated in the
United States District Court for the Southern District of New York against
Turkcell and other defendants. The complaint alleges that the prospectus issued
in connection with Turkcell's initial public offering in July 2000 contains
false and misleading statements regarding Turkcell's "churn rate" and omits
material financial information.

     The plaintiff brought the lawsuit as a class action on behalf of
individuals and entities that purchased Turkcell's American Depository Shares,
or ADSs, at or traceable to the initial public offering. The plaintiff seeks to
recover damages pursuant to sections 11 and 15 of the Securities Act of 1933 for
the difference between the price each purchaser paid for ADSs and either the
price of the ADSs at the time the complaint was filed or the price at which such
ADSs were sold if sold prior to November 22, 2000.

     Since November 2000, approximately ten substantially identical purported
class action lawsuits have been filed on behalf of the same class. On March 5,
2001, the Court consolidated the lawsuits, appointed lead plaintiff and
appointed lead counsel. On March 29, 2001, plaintiffs in securities lawsuits
against Turkcell filed a consolidated and amended class action complaint, which
alleges that the prospectus issued in connection with Turkcell's initial public
offering in July 2000 contained false and misleading statements regarding
Turkcell's churn rate and omitted material financial information. Turkcell has
not yet filed a response to the complaints, but it intends to contest the
lawsuits vigorously. At this point in the litigation it is premature to estimate
Turkcell's potential liability, if any, from the class action lawsuits.

Dispute on discounts on transmission lines leases:

     Currently Turkcell leases all of its transmission lines from Turk Telekom.
It is required to do so to the extent that Turk Telekom can satisfy Turkcell's
requirements. Turk Telekom's monopoly on providing transmission lines is
scheduled to expire at the end of 2003. Effective from July 1, 2000, Turk
Telekom terminated the 60% discount that it had provided to Turkcell for several
years, and Turk Telekom instead began to provide it with a discount of 25%
subject to certain conditions. On July 4, 2000, Turkcell filed a lawsuit against
Turk Telekom requesting the court to rule on the legality of Turk Telekom
reducing the discount to 25% and obtained an injunction preventing Turk Telekom
from terminating the 60% discount. On November 21, 2000, the Court ruled in
favour of Turk Telekom and lifted the injunction. Turkcell filed an appeal
against the decision. In addition, Turkcell applied to the Competition Board of
Turkey to enjoin Turk Telekom from terminating the discount and to fine Turk
Telekom for its action. If the case is resolved in favour of Turk Telekom,
Turkcell will be liable to Turk Telekom in an amount of $48,126 including
interest of $4,498. The Company has not recorded an accrual for such amounts
because management and its legal counsel have not reasonably estimated the
possible outcome of this uncertainty. Although the case is still pending, Turk
Telekom requested that Turkcell pay the difference between 25% discount and 60%
discount. While continuing the court challenge, in order to retain its right to
use Turk Telekom's transmission lines the Company paid approximately TL 37.2
trillion (equivalent to $55,376 and

                                      F-132
<PAGE>   327
        TURKCELL ILETISIM HIZMETLERI ANONIM SIRKETI AND ITS SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1999 AND 2000 AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1999
                                    AND 2000

    (AMOUNTS IN THOUSANDS OF US DOLLARS UNLESS OTHERWISE STATED EXCEPT SHARE
                                    AMOUNTS)

(26) COMMITMENTS AND CONTINGENCIES: (CONTINUED)

$35,209 as of December 31, 2000 and March 30, 2001) including VAT of
approximately TL 7.3 trillion (equivalent to $10,867 and $6,909 as of December
31, 2000 and March 30, 2001, respectively) and interest of approximately TL 0.8
trillion (equivalent to $1,191 and $757 as of December 31, 2000 and March 30,
2001, respectively) as of March 30, 2001.

Dispute on tariff increase of transmission lines leases:

     In addition, on March 2, 2001, Turk Telecom unilaterally increased the fees
it charges the Company for access to its transmission lines by 100% effective
from April 1, 2001, and refused to lease the Company any further transmission
lines. The Company intends to obtain an injunction to compel Turk Telekom to
lease additional transmission lines to the Company and intends to initiate a
lawsuit against Turk Telekom to rule on the legality of Turk Telekom's increase
in the transmission line fees and their refusal to lease additional transmission
lines.

OPERATING LEASES

     The Company has entered into various operating lease agreements. At
December 31, 2000, there were no commitments and contingent liabilities in
material amounts arising from those agreements.

     For the years ended December 31, 1998, 1999 and 2000, total rental expenses
for operating leases were $7,097, $24,800 and $29,881, respectively.

(27) CONCENTRATIONS:

     In 1997 through 2000, the Company's operations were substantially all
inside Turkey. However, as explained in Note 1, the Company has investments in
Kibris Telekom (Northern Cyprus), GSM Kazakhstan (Kazakhstan), Azercell
(Azerbaijan), Geocell (Georgia) and Fintur (The Netherlands). (1999: GSM
Kazakhstan (Kazakhstan), Azercell (Azerbaijan) and Geocell (Georgia)). At
December 31, 2000, net assets at Kibris Telekom and Fintur were $11,908 and
$234,722, respectively. (1999: Kibris Telekom $6,458, GSM Kazakhstan $25,244,
Azercell $62,604 and Geocell $19,223)

     Until April 27, 1998, almost all of the Company's revenues were generated
from GSM services provided in accordance with the Revenue Sharing Agreement with
Turk Telekom. In accordance with the Revenue Sharing Agreement, Turkcell and
Turk Telekom shared revenues billed for subscription fees, monthly fixed fees
and ongoing calls at a ratio of 32.9% and 67.1%, respectively. In addition,
Turkcell received 10% of revenues billed for incoming calls. Since, Turk Telekom
invoiced the subscription fees to and collected them from subscribers directly,
the Company invoiced its share in the revenues to Turk Telekom, and
consequently, Turk Telekom was the Company's sole customer. Total revenues
earned from Turk Telekom in accordance with the Revenue Sharing Agreement were
$69,677 in 1998. Revenues earned from and charges incurred by Turk Telekom in
accordance with the Interconnection Agreement were $511,423 and $91,627 for the
year ended December 31, 2000 (for the period from April 27, 1998 to December 31,
1998: $163,392 and $40,364; 1999: $376,499 and $77,361). The net receivable from
Turk Telekom was $52,889 and $26,083 at December 31, 1999 and 2000,
respectively.

     The Company makes a substantial portion of its purchases of goods and
services related to GSM investments from Ericsson Telekomunikasyon A.S. (a
subsidiary of Ericsson Radio Communication Ltd, one of the former shareholders
of the Company). Total purchases and charges from Ericsson Telekomunikasyon A.S.
were $337,729 in 1998, $869,284 in 1999, and $929,607 in 2000, respectively, and
outstanding balance to this company was $109,655 and $132,885 at December 31,
1999 and 2000, respectively.

                                      F-133
<PAGE>   328
        TURKCELL ILETISIM HIZMETLERI ANONIM SIRKETI AND ITS SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1999 AND 2000 AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1999
                                    AND 2000

    (AMOUNTS IN THOUSANDS OF US DOLLARS UNLESS OTHERWISE STATED EXCEPT SHARE
                                    AMOUNTS)

(27) CONCENTRATIONS (CONTINUED)

     In principle, the Company's revenues are generated in Turkish Lira. Certain
sales and purchases and, resulting receivables and payables, are in currencies
different than the operating currency. Further, the Company has loans payable
denominated in currencies different than its operating currency. Transaction
gains and losses on these receivables and payables are included in the
determination of earnings, but eliminated during translation of the financial
statements, if such currency is the US Dollar.

(28) SUBSEQUENT EVENTS:

     At the Board of Directors meeting held on January 19, 2001 it was resolved
that 1,200,000 shares in Bilisim, 75,000 shares in Digikids, 150,000 shares in
Hayat and 350,000 shares in Siber with a par value of 1 million TL each to be
transferred to Turktell in exchange for the nominal paid-in share capital paid
by the Company (TL 75,000 million for Digikids and 87,500 million for Siber).
Turktell will also pay the share capital commitment of the transferred shares.
On January 22, 2001, the transfers have been realized.

     At the Board of Directors meeting of Turktell held on January 19, 2001, it
was resolved that Turktell will acquire total 599,998 shares of Bilisim (299,999
and 299,999 shares owned by Superonline and Digital Platform, respectively),
total 104,998 shares of Digikids (44,999 and 59,999 shares owned by Superonline
and Digital Platform, respectively), total 24,998 shares of Hayat (12,499 and
12,499 shares owned by Superonline and Digital Platform, respectively) and total
99,998 shares of Siber Egitim (49,999 and 49,999 shares owned by Superonline and
Digital Platform, respectively) with a par value of one million TL each in
exchange for the nominal share capital paid by Superonline and Digital Platform
(TL 104,998 million for Digikids, TL 3,125 million for Hayat paid by Superonline
only and TL 25,000 million for Siber Egitim). Turktell will also pay the share
capital commitment of the acquired shares. After these acquisition, the
ownership interest of the Company in Bilisim, Digikids, Hayat and Siber Egitim
will increase to 70%, 60%, 75% and 50%, respectively.

     On January 30, 2001, Turkcell signed a purchase contract with Ericsson
Telekomunikasyon A.S. for an amount of $400,000. With the contract signed,
Turkcell will be able to purchase several latest GSM innovations. The contract
will allow Turkcell to upgrade and develop its GSM system infrastructure.

     Significant economic difficulties have emerged in Turkey during the year
2000 and subsequent to December 31, 2000. These include, but are not limited to
a steep decline in prices of domestic debt and equity securities and increasing
rates on government and corporate borrowings. In an attempt to overcome the
liquidity crisis in the banking system, on February 21, 2001, the government
allowed Turkish Lira to float freely. This caused a 28% devaluation of the
Turkish Lira against the US Dollar during the first day of floatation. As of
April 26, 2001 the Turkish Lira has devalued significantly against major foreign
currencies as compared to the related currency exchange rates ruling as of
December 31, 2000. Such devaluation against the US Dollar has been 45%. The
financial condition of the Company and its future operations and cash flows
could be adversely affected by continued economic difficulty. Management is
unable to predict the extent, severity or duration of the current economic
difficulties nor quantify what impact it may have on the current financial
position or future operations and cash flows of the Company.

     On April 14, 2001, San Reklam ve Halkla iliskiler Hizmetleri A.S., the firm
that created the Company's logo, initiated legal proceedings against the Company
in the Istanbul Court of Intellectual Property Rights claiming ownership of the
"Turkcell" logo and alleging that the Company had misappropriated it.

     At the Board of Directors Meeting held on May 16, 2001, it was resolved to
increase Turkcell's share capital by TL 236.2 trillion (equivalent to $209,860
at May 16, 2001) in cash. In accordance with the resolution, the existing
shareholders are entitled to utilize their pre-emptive rights, the rights to
acquire additional shares

                                      F-134
<PAGE>   329
        TURKCELL ILETISIM HIZMETLERI ANONIM SIRKETI AND ITS SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1999 AND 2000 AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1999
                                    AND 2000

    (AMOUNTS IN THOUSANDS OF US DOLLARS UNLESS OTHERWISE STATED EXCEPT SHARE
                                    AMOUNTS)

(28) SUBSEQUENT EVENTS: (CONTINUED)

resulting from the share capital increase proportionate with their existing
shareholdings, at nominal value. The remaining shares after the utilization of
pre-emptive rights, if any, will be offered to the public.

     At the Board of Directors Meeting held on May 16, 2001, it was resolved
that the Company will participate in the planned share capital increase of
Fintur amounting to $63,000 by contributing its 25% share of this share capital
increase of $15,750.

     On May 28, 2001, Ericsson Telekomunikasyon A.S., the main supplier of GSM
network equipment and related services, has agreed that, at the request of the
Company, it will defer its collections from the Company resulting from the
Company's purchases of GSM network equipment and related services over the next
twelve months.

     Based on the Company's consolidated financial statements as of and for the
three-month period ended March 31, 2001, the Company is in breach of one of the
covenants contained in the 1998 and 1999 bank facilities. In anticipation of the
expected breach of such covenants, the Company recently renegotiated the maximum
leverage ratio (debt to annualized EBITDA, as defined in 1998 and 1999 bank
facilities) from 3.0 to 3.5 from December 31, 2000 to March 31, 2001 and from
3.5 to 4.0 from March 31, 2001 to September 30, 2002, and the company recently
renegotiated the minimum interest coverage ratio (EBITDA to total interest, as
defined in the 1998 and 1999 bank facilities) from 3.0 to 2.5 from December 31,
2000 onwards. The renegotiated covenants were agreed with retroactive effect by
the lenders of the Company's bank facilities. The Company was not in breach of
its covenants at December 31, 2000. At the end of the first quarter of 2001, the
Company's leverage ratio was 4.6 and its interest cover ratio was 2.8. Further,
management expects that the leverage ratio will remain above 4.0 and that the
interest coverage ratio will decrease below 2.5 at the end of the second quarter
of 2001. The breach of the leverage ratio covenants is an event of default, and
the agent for the lenders in the 1998 and 1999 bank facilities may, and upon
instruction of lenders holding more than 66 2/3% of the outstanding debt must,
demand immediate repayment of the outstanding amounts under the 1998 and 1999
bank facilities. If the agent were to do this, such a payment default would
trigger a cross-default to substantially all of the Company's borrowings. Absent
waivers obtained from the relevant lenders, a cross-default would result in the
acceleration of $1.8 billion aggregate principal amount of the Company's
indebtedness, which would have a material adverse effect on the Company's
business, financial condition and results of operations. The Company has
informed the agent in writing of the current breach of its leverage ratio
covenant and the anticipated breach of its interest cover ratio covenant and is
working with the agent to prepare a letter requesting renegotiation of the
covenants, which it will distribute to the banks. Management expects to begin
renegotiating the covenants with the lenders within the coming month. In
addition, management does not expect the agent to accelerate repayment of the
outstanding amounts under the 1998 and 1999 bank facilities. As of the date of
this report, management is not aware of any lenders instructing the agent to
accelerate repayment.

                                      F-135
<PAGE>   330

                      CONSOLIDATED FINANCIAL STATEMENTS OF
                    ORLA SIEBZEHNTE VERMOGENSVERWALTUNG GMBH
               (A DEVELOPMENT STAGE COMPANY) AND ITS SUBSIDIARIES
                AS OF AND FOR THE PERIOD ENDED DECEMBER 31, 2000

                                      F-136
<PAGE>   331

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To ORLA Siebzehnte Vermogensverwaltung GmbH, Frankfurt am Main

     We have audited the accompanying consolidated balance sheet of ORLA
Siebzehnte Vermogensverwaltung GmbH (a German corporation in the development
stage) as of December 31, 2000 and the related consolidated statement of
operations, consolidated shareholders' equity and consolidated cash flows for
the period from inception (August 2, 2000) to December 31, 2000. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

     We conducted our audits in accordance with auditing standards generally
accepted in United States. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of ORLA
Siebzehnte Vermogensverwaltung GmbH as of December 31, 2000 and the results of
their consolidated operations and their consolidated cash flows for the period
from inception (August 2, 2000) to December 31, 2000 in conformity with
accounting principles generally accepted in the United States.

                                ARTHUR ANDERSEN
                        Wirtschaftsprufungsgesellschaft
                        Steuerberatungsgesellschaft mbH

<TABLE>
<S>                                            <C>
                 Dr. Wagener                                       Plett
              Wirtschaftsprufer                              Wirtschaftsprufer
</TABLE>

Berlin, May 11, 2001

                                      F-137
<PAGE>   332

                    ORLA SIEBZEHNTE VERMOGENSVERWALTUNG GMBH
                         (A DEVELOPMENT STAGE COMPANY)

                           CONSOLIDATED BALANCE SHEET
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                    AS OF
                                                              DECEMBER 31, 2000
                                                              -----------------
                                                                     KE
<S>                                                           <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents...................................          6,204
Other current assets and prepaid expenses...................            733
                                                                  ---------
  Total current assets......................................          6,937
                                                                  ---------
PROPERTY AND EQUIPMENT, net.................................             99
INTANGIBLE ASSETS, net......................................      8,685,561
                                                                  ---------
  Total assets..............................................      8,692,597
                                                                  =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable............................................          1,501
Related party liabilities...................................      6,568,336
Accrued liabilities to related parties......................          3,098
                                                                  ---------
  Total current liabilities.................................      6,572,935
                                                                  =========
COMMITMENTS AND CONTINGENCIES (Note 7)
SHAREHOLDERS' EQUITY
Subscribed capital..........................................             50
Additional paid-in capital..................................      2,124,455
Deficit accumulated during the development stage............         (4,843)
                                                                  ---------
  Total shareholders' equity................................      2,119,662
                                                                  ---------
  Total liabilities and shareholders' equity................      8,692,597
                                                                  =========
</TABLE>

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

                                      F-138
<PAGE>   333

                    ORLA SIEBZEHNTE VERMOGENSVERWALTUNG GMBH
                         (A DEVELOPMENT STAGE COMPANY)

                      CONSOLIDATED STATEMENT OF OPERATIONS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                  PERIOD FROM
                                                                   INCEPTION
                                                              (AUGUST 2, 2000) TO
                                                               DECEMBER 31, 2000
                                                              -------------------
                                                                      KE
<S>                                                           <C>
Operating expenses:
  General and administrative................................         4,844
                                                                    ------
     Total operating expenses...............................         4,844
                                                                    ------
Operating loss..............................................        (4,844)
                                                                    ------
Interest income.............................................             1
                                                                    ------
Net loss and comprehensive loss.............................        (4,843)
                                                                    ======
</TABLE>

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

                                      F-139
<PAGE>   334

                    ORLA SIEBZEHNTE VERMOGENSVERWALTUNG GMBH
                         (A DEVELOPMENT STAGE COMPANY)

                 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                             DEFICIT
                                                                           ACCUMULATED
                                                              ADDITIONAL   DURING THE        TOTAL
                                                 SUBSCRIBED    PAID-IN     DEVELOPMENT   SHAREHOLDERS'
                                                  CAPITAL      CAPITAL        STAGE         EQUITY
                                                 ----------   ----------   -----------   -------------
                                                     KE           KE           KE             KE
<S>                                              <C>          <C>          <C>           <C>
Formation of Orla, August 2, 2000..............      50       2,117,861          --        2,117,911
Conversion of shareholder loans to equity......      --               5          --                5
Capital contribution...........................      --           6,589          --            6,589
Net loss.......................................      --              --      (4,843)          (4,843)
                                                     --       ---------      ------        ---------
As of December 31, 2000........................      50       2,124,455      (4,843)       2,119,662
                                                     ==       =========      ======        =========
</TABLE>

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

                                      F-140
<PAGE>   335

                    ORLA SIEBZEHNTE VERMOGENSVERWALTUNG GMBH
                         (A DEVELOPMENT STAGE COMPANY)

                      CONSOLIDATED STATEMENT OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                  PERIOD FROM
                                                                   INCEPTION
                                                              (AUGUST 2, 2000) TO
                                                               DECEMBER 31, 2000
                                                              -------------------
                                                                      KE
<S>                                                           <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net loss....................................................          (4,843)
Adjustments to reconcile net loss to net cash used in
  operating activities:
  Depreciation and amortization.............................               1
Change in:
  Prepaid expenses and other current assets.................            (733)
  Other accounts payable....................................           1,502
  Accrued liabilities.......................................           3,098
                                                                  ----------
Net cash used in operating activities.......................            (975)
                                                                  ----------
CASH FLOW FROM INVESTING ACTIVITIES:
Acquisition of UMTS Licenses................................      (8,471,442)
Purchase of property and equipment..........................            (100)
Purchase of other intangible assets.........................              (4)
                                                                  ----------
Net cash used in investing activities.......................      (8,471,546)
                                                                  ----------
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from contribution of capital.......................       2,124,505
Proceeds from related party liabilities.....................       6,354,220
                                                                  ----------
Net cash provided by financing activities...................       8,478,725
                                                                  ----------
Net increase in cash and cash equivalents...................           6,204
Cash and cash equivalents, beginning of period..............              --
                                                                  ----------
Cash and cash equivalents, end of period....................           6,204
                                                                  ==========
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest......................................              --
Cash paid for income taxes..................................              --
NON-CASH TRANSACTIONS
Capitalization of interest..................................         214,116
Conversion of shareholder debt to equity....................               5
</TABLE>

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

                                      F-141
<PAGE>   336

                    ORLA SIEBZEHNTE VERMOGENSVERWALTUNG GMBH
                         (A DEVELOPMENT STAGE COMPANY)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION AND OPERATIONS OF THE COMPANY

     ORLA Siebzehnte Vermogensverwaltung GmbH ("Orla" or the "Company"), a
German limited liability company in the development stage, is a subsidiary of
Telefonica Intercontinental S.A., Madrid, Spain ("TICSA"), and Sonera 3G Holding
B.V., Rotterdam, Netherlands ("Sonera 3G Holding"). TICSA is a wholly owned
subsidiary of Telefonica S.A., Madrid, Spain ("Telefonica"), and Sonera 3G
Holding a wholly owned subsidiary of Sonera Corporation, Helsinki, Finland
("Sonera"). The Company was founded on August 2, 2000 in order to participate in
the auction for the third generation mobile network licenses in Germany.

     On September 7, 2000, Orla acquired all of the outstanding capital of
Marabu Vermogensverwaltung GmbH, Berlin ("Marabu") from its shareholders. The
ownership of Orla and Marabu was exactly the same at the time of the
acquisition. Accordingly, Orla's financial statements have been presented to
include the results of Marabu from inception. On September 7, 2000, Orla also
acquired 100% of the shares of OpCo Mobile Services GmbH, Berlin ("Opco").

     Orla and its subsidiaries are referred to as "Orla Group" and are
headquartered in Munich, Germany.

     Orla Group is currently in the development stage of operations. Orla
Group's primary efforts through December 31, 2000 have consisted of acquiring
UMTS licenses for the German market from the German postal and
telecommunications regulatory authority (Regulierungsbehorde fur Post und
Telekommunikation), raising capital, funding the development of its services,
developing its network infrastructure, making strategic investments,
establishing sales and marketing channels, and recruiting key personnel. Orla
Group is subject to risks and challenges similar to other companies in the
development stage. These risks include, but are not limited to, operating in a
new and rapidly evolving market, competition from larger companies, dependence
on new products, dependence on key personnel, uncertain profitability, and a
limited operating history.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF CONSOLIDATED FINANCIAL STATEMENTS

     The financial statements have been prepared according to accounting
principles generally accepted in the United States ("U.S. GAAP"). The accounts
have been prepared after making necessary adjustments to Orla Group's books and
records that are maintained in accordance with the German Commercial Code.

     The assets, liabilities, and results of operations of entities in which the
Company has a controlling interest have been consolidated. All significant
intercompany accounts and transactions have been eliminated.

     The consolidated financial statements are stated in thousands of euros
(KE).

USE OF ESTIMATES

     The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

FOREIGN CURRENCY TRANSACTIONS

     Transaction gains and losses that arise from exchange rate fluctuations on
transactions denominated in a currency other than Orla Group's functional
currency, the euro, are included in the results of operations as incurred.

                                      F-142
<PAGE>   337
                    ORLA SIEBZEHNTE VERMOGENSVERWALTUNG GMBH
                         (A DEVELOPMENT STAGE COMPANY)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

CASH AND CASH EQUIVALENTS

     Cash includes bank balances and current bank deposits. Orla Group considers
all investments with original maturities of three months or less to be cash
equivalents.

FAIR VALUE OF FINANCIAL INSTRUMENTS

     The carrying amounts of the Company's financial instruments, including cash
and cash equivalents, accounts payable, and related party liabilities
approximate their fair values due to their short maturity or the fact that they
bear interest at market rates.

PROPERTY AND EQUIPMENT

     Property and equipment are stated at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets.

LONG-LIVED ASSETS

     Orla Group periodically evaluates the recoverability of the carrying amount
of its long-term assets in accordance with SFAS No. 121, "Accounting For The
Impairment Of Long-Lived Assets And For Long-Lived Assets To Be Disposed Of." An
impairment loss is recognized when the estimated future cash flows (undiscounted
and without interest) expected are less than the carrying amount of the asset.
Measurement of an impairment loss is based on fair value of the asset computed
using discounted cash flows if the asset is expected to be held and used.

     As of December 31, 2000, management believes that no such impairment
exists.

COMPREHENSIVE INCOME (LOSS)

     Comprehensive income is the total of net income (loss) and all other
non-owner changes in shareholders' equity. For the period from inception (August
2, 2000) to December 31, 2000 comprehensive loss was equal to net loss.

RECENT ACCOUNTING PRONOUNCEMENTS

     In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities." In June 1999, the FASB issued
SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities --
Deferral of the Effective Date of FASB Statement No. 133." In June 2000, the
FASB issued SFAS No. 138, "Accounting for Certain Derivative Instruments and
Certain Hedging Activities, an amendment of FASB Statement No. 133." SFAS No.
133, as amended, establishes accounting and reporting standards requiring that
every derivative instrument (including certain derivative instruments embedded
in other contracts) be recorded in the balance sheet as either an asset or
liability measured at its fair value. The Statement requires that changes in the
derivative instrument's fair value be recognized currently in earnings unless
specific hedge accounting criteria are met. Special accounting for qualifying
hedges allows a derivative instrument's gains and losses to offset related
results on the hedged item in the income statement, to the extent effective, and
requires that a company must formally document, designate, and assess the
effectiveness of transactions that receive hedge accounting.

     SFAS No. 133, as amended, is effective for fiscal years beginning after
June 15, 2000. Orla Group plans to adopt SFAS No. 133 as required on January 1,
2001.

                                      F-143
<PAGE>   338
                    ORLA SIEBZEHNTE VERMOGENSVERWALTUNG GMBH
                         (A DEVELOPMENT STAGE COMPANY)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

     Since Orla Group has no derivative financial or commodity instruments,
forward contracts, or hedging arrangements in cash and cash equivalents,
management does not expect the impact of adopting SFAS No. 133, as amended, to
have a material impact on Orla Group's financial condition or results of
operations.

3. PROPERTY AND EQUIPMENT

     Property and equipment consists of the following (in thousands):

<TABLE>
<CAPTION>
                                                                  RANGE OF      DECEMBER 31,
                                                                USEFUL LIVES        2000
                                                                ------------    ------------
                                                                  (YEARS)            KE
<S>                                                             <C>             <C>
Furniture and fixtures......................................        4-6             100
Accumulated depreciation and amortization...................                         (1)
                                                                                    ---
Property and equipment, net.................................                         99
                                                                                    ===
</TABLE>

4. INTANGIBLE ASSETS

     Intangible assets consist primarily of two UMTS licenses acquired in an
auction from the German postal and telecommunications regulatory authority for
KE 8,471,442. Since the acquisition of the licenses, interest in the amount of
KE 214,116 has been capitalized, resulting in a total intangible asset of
KE 8,685,561.

     Amortization of the value of the UMTS licenses will commence with the
beginning of the commercial operations related to the licenses, i.e., the
operation of UMTS networks in Germany. The amortization period will be the
estimated economic life for the licenses. As of December 31, 2000, Orla Group's
management estimates the commercial operations will commence in 2002 and cover a
period of 18 years.

     The license holder is bound by the RegTP, among other points, to the
following:

     -  To reach a penetration rate of the UMTS/IMT-2000 system of at least 25%
       until December 31, 2003 and of 50% until December 31, 2005.

     -  Independence from competitors during the life of the license.

5. ACCRUED LIABILITIES TO RELATED PARTIES

     Accrued liabilities to related parties consist primarily of amounts accrued
relating to services received from Telefonica, Sonera, TICSA and Sonera
Deutschland GmbH.

                                      F-144
<PAGE>   339
                    ORLA SIEBZEHNTE VERMOGENSVERWALTUNG GMBH
                         (A DEVELOPMENT STAGE COMPANY)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6. RELATED PARTY LIABILITIES

     Related party liabilities mainly relate to loans from direct or indirect
shareholders:

<TABLE>
<CAPTION>
                                                     DECEMBER 31,
                                                         2000
                                                     ------------
                                                          KE
<S>                                                  <C>
Original shareholder loans
  -- TICSA.......................................     3,634,249
  -- Sonera......................................     1,812,889
  -- Sonera 3G Holding...........................       906,444
                                                      ---------
                                                      6,353,582
Arrangement fees for shareholder loans
  -- TICSA.......................................        45,428
  -- Sonera......................................        22,661
  -- Sonera 3G Holding...........................        11,331
                                                      ---------
                                                         79,420
Interest on shareholder loans
  -- TICSA.......................................        77,046
  -- Sonera......................................        38,433
  -- Sonera 3G Holding...........................        19,217
                                                      ---------
                                                        134,696
Other loans (Sonera Deutschland GmbH)............           639
                                                      ---------
                                                      6,568,336
                                                      =========
</TABLE>

     As at September 30, 2000 Orla Group entered with TICSA, Sonera and Sonera
3G Holding into loan agreements. All loan agreements include the same terms and
conditions:

     -  Loans are due on December 31, 2000,

     -  For all loan agreements Orla Group is charged with an arrangement fee of
        1.25% of the loan; the arrangement fee became due on November 1, 2000,

     -  Interest rate amounts to 6.526% (EURIBOR for borrowings with a maturity
        of 4 months as of August 30, 2000 plus an additional rate of 1.500%).

     The loans were paid by the lender directly to RegTP as payment of the
purchase price for the acquired UMTS licenses. The difference between the
original purchase price of the licenses (KE 8,471,442) and the amount of loans
paid by TICSA, Sonera and Sonera 3G Holding relates to the equity portion which
the shareholders of Marabu (TICSA, Sonera and Sonera 3G Holding) paid also
directly to RegTP at the date of acquisition.

     As planned by the shareholders/lenders the loans should be refinanced until
the end of 2000. Due to delays in the negotiations with new potential investors
the refinancing could not be terminated until December 31, 2000. TICSA, Sonera
and Sonera 3G Holding therefore agreed orally to extend the maturity terms of
the loan agreements and to waive the right for default interest (payable when
loan or interest payments become overdue).

     Management of Orla Group estimates that the maturity has to be extended
until June/July 2001.

                                      F-145
<PAGE>   340
                    ORLA SIEBZEHNTE VERMOGENSVERWALTUNG GMBH
                         (A DEVELOPMENT STAGE COMPANY)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

7. COMMITMENTS AND CONTINGENCIES

     In March 2000, Orla Group entered into a lease agreement for a new facility
in Munich, Germany. The lease term is three years. Future minimum payments under
this lease agreement are as follows (in thousands):

<TABLE>
<CAPTION>
                                                           KE
                                                          -----
<S>                                                       <C>
Year ending December 31, 2001.........................    2,071
Year ending December 31, 2002.........................    3,975
Year ending December 31, 2003.........................    3,975
</TABLE>

8. INCOME TAXES

     Orla Group accounts for income taxes using an asset and liability approach
under which deferred income taxes are provided based upon enacted tax laws and
rates applicable to the periods in which taxes become payable.

     The income tax benefit differs from the amounts which would result by
applying the applicable German statutory tax rates to the loss before taxes, as
follows:

<TABLE>
<CAPTION>
                                                            KE
                                                          ------
<S>                                                       <C>
Benefit at German statutory rate......................    (2,422)
Change in valuation allowance.........................     1,928
Change in statutory tax rate..........................       494
                                                          ------
Income tax expense....................................        --
                                                          ======
</TABLE>

     For the year ended December 31, 2000, the statutory income tax rate was
54.36%, consisting of corporate income tax (Korperschaftsteuer) of 40%,
municipal trade tax (Gewerbesteuer) of 12.16%, and a corporate tax surcharge
(Solidaritatszuschlag) of 5.5%. In July 2000, legislation was passed in Germany
under which the tax rate for corporate tax will be reduced from 40% to 25%
effective for all fiscal years starting after December 31, 2000. The reduced tax
rate has been used to compute deferred taxes for the year ended December 31,
2000.

     The components of the deferred tax asset were as follows:

<TABLE>
<CAPTION>
                                                           KE
                                                         -------
<S>                                                      <C>
Net operating loss carryforwards.....................     55,536
Capitalized interest (tax deductible)................    (53,608)
                                                         -------
                                                           1,928
Valuation allowance..................................     (1,928)
                                                         -------
Net deferred tax asset...............................         --
                                                         =======
</TABLE>

     A valuation allowance has been recorded for the entire deferred tax asset
for all periods through December 31, 2000 as a result of uncertainties regarding
the realization of the asset including the limited operating history of the
Company and the lack of profitability through December 31, 2000.

     Orla Group's net operating loss carryforwards do not expire. German tax law
contains provisions which may limit the net operating loss and tax credit carry
forwards to be used in any given year upon the occurrence of certain events,
including a significant change in ownership interest.

                                      F-146
<PAGE>   341
                    ORLA SIEBZEHNTE VERMOGENSVERWALTUNG GMBH
                         (A DEVELOPMENT STAGE COMPANY)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

9. RELATED PARTIES

     Orla Group has entered with its shareholders and subsidiaries of its
shareholders into several agreements regarding the rendering of personnel
services and technical and administrative assistance. As of December 31, 2000
Orla Group has accrued for liabilities related to personnel and other services
from shareholders and its subsidiaries (KE 3,060). The transactions with related
parties are made on an arm's length basis and on commercial terms similar to
those planned to use in transactions with Orla Group's other customers and
suppliers with the same size and location.

10. SUBSEQUENT EVENTS

UNAUDITED EVENTS

     In May 2001, Orla Group entered into a roaming agreement with E-Plus. The
purpose of the roaming agreement is to decrease future costs for the UMTS
network. The terms of the agreement are confidential. The agreement has not been
audited.

     In order to clarify to which extent a shared use of infrastructure is
permitted under the award conditions, the RegTP issued in June 2001 an
"Interpretation of the UMTS Award Conditions in Light of More Recent
Technological Advance." In June 2001, the RegTP agreed to a shared use of
infrastructure in case other award conditions will remain unaffected. The
management of the Company expects that the decision of the RegTP will lead to
significant cost reductions in the near future.

                                      F-147
[{"type": "20-F", "sequence": "1", "filename": "x44199e20-f.txt", "description": "SONERA CORP", "secsgml_size_bytes": 1483450}]
{"company-data": {"conformed-name": "SONERA CORP", "cik": "0001095749", "assigned-sic": "4812", "fiscal-year-end": "1231"}, "filing-values": {"form-type": "20-F", "act": "34", "file-number": "000-30340", "film-number": "1674081"}, "business-address": {"street1": "TEOLLISUUSKATA 15", "street2": "FIN-00510", "city": "HELSINKI FINLAND", "state": "H9", "zip": "00000"}, "mail-address": {"street1": "SONERA CORP U S 8700 W BRYN MAWR", "street2": "SUITE 800 SOUTH", "city": "CHICAGO", "state": "IL", "zip": "60631"}, "former-company": {"former-conformed-name": "SONERA GROUP PLC", "date-changed": "19990927"}}
1

      AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 2, 2001
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                      ------------------------------------
                                   FORM 20-F
[ ]  REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR
        12(g) OF THE SECURITIES EXCHANGE ACT OF 1934
                             OR
[X]     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
           OF THE SECURITIES EXCHANGE ACT OF 1934
         FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
                             OR
[ ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
           OF THE SECURITIES EXCHANGE ACT OF 1934
               Commission File Number: 0-30340
SONERA CORPORATION
             (Exact name of Registrant as specified in its charter)

                                 NOT APPLICABLE
                (Translation of Registrant's name into English)

                            THE REPUBLIC OF FINLAND
                (Jurisdiction of incorporation or organization)

                               TEOLLISUUSKATU 15
                                  P.O. BOX 154
                               FIN-00051 HELSINKI
                                    FINLAND
                    (Address of principal executive offices)

     Securities registered or to be registered pursuant to Section 12(b) of the
Act:
                                      None

     Securities registered or to be registered pursuant to Section 12(g) of the
Act:
TITLE OF EACH CLASS:                   NAME OF EACH EXCHANGE ON WHICH REGISTERED:
                --------------------                   ------------------------------------------
Shares, no nominal value, represented by American              Nasdaq National Market
                  Depositary Shares
Securities for which there is a reporting obligation pursuant to Section
15(d) of the Act:
                                      None

     Number of ordinary shares outstanding on December 31, 2000:
                                  742,984,486

     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
                        Yes [X]                      No [ ]
     Indicate by check mark which financial statement item the registrant has
elected to follow.
                    Item 17 [ ]                  Item 18 [X]
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
2

                               TABLE OF CONTENTS
PAGE
                                                                        ----
Introduction..........................................................   iv
Forward-Looking Statements............................................  vii
Glossary..............................................................  viii
                                PART I
Item 1.   Identity of Directors, Senior Management and Advisers.......    1
Item 2.   Offer Statistics and Expected Timetable.....................    1
Item 3.   Key Information.............................................    1
          Selected Financial Data.....................................    1
          Risk Factors................................................    5
Item 4.   Information on the Company..................................   15
          Organization................................................   15
          History.....................................................   15
          Business Overview...........................................   16
          Strategy....................................................   17
          Description of Group Operations.............................   19
          Regulation..................................................   78
          Property and Equipment......................................   97
Item 5.   Operating and Financial Review and Prospects................   97
          Overview....................................................   97
          Recent Developments.........................................  104
          Operating Results...........................................  113
          Liquidity...................................................  134
          Capital Resources...........................................  135
          Capital Expenditures and Investments........................  138
          Research and Development....................................  139
          Inflation...................................................  141
          Results of Year 2000 Program................................  141
          Introduction of the Euro....................................  142
Item 6.   Directors, Senior Management and Employees..................  143
          Board of Directors..........................................  143
          Corporate Management Group..................................  145
          Auditors....................................................  146
          Employment Agreements.......................................  146
          Compensation of Directors and Officers......................  147
          Board Practices.............................................  147
          Employees...................................................  148
Item 7.   Major Shareholders and Related Party Transactions...........  150
          Major Shareholders..........................................  150
          Related Party Transactions..................................  153
ii
3
PAGE
                                                                        ----
Item 8.   Financial Information.......................................  154
          Consolidated Financial Statements...........................  154
          Legal and Regulatory Proceedings............................  154
          Dividend Policy.............................................  158
          Significant Changes.........................................  159
Item 9.   The Offer and Listing.......................................  159
          Nature of Trading Market....................................  159
          Trading Markets.............................................  161
Item 10.  Additional Information......................................  163
          Memorandum and Articles of Association......................  163
          Material Contracts..........................................  166
          Exchange Controls...........................................  169
          Taxation....................................................  170
          Documents on Display........................................  175
Item 11.  Quantitative and Qualitative Disclosures About Market         175
          Risk........................................................
Item 12.  Description of Securities Other Than Equity Securities......  179
                                  PART II
Item 13.  Defaults, Dividend Arrearages and Delinquencies.............  180
Item 14.  Material Modifications to the Rights of Security Holders and  180
          Use of Proceeds.............................................
Item 15.  Reserved....................................................  180
Item 16.  Reserved....................................................  180
                                  PART III
Item 17.  Financial Statements........................................  180
Item 18.  Financial Statements........................................  180
Item 19.  Exhibits....................................................  180
iii
4

                                  INTRODUCTION

     Unless the context otherwise requires, as used in this annual report, the
terms "Sonera," "Group," "Company," "we," "our" and "us" refer to Sonera
Corporation or to Sonera Corporation together with its subsidiaries depending
upon the context. As used herein, the term "Finnish State" refers to the
Republic of Finland.

     References in this annual report to "Sonera" relating to periods prior to
the demerger (as described in the paragraph below) may refer to PT Finland Ltd.
or Telecom Finland Ltd. depending upon the context.

     Our consolidated financial statements as of and for the years ended
December 31, 1998, 1999 and 2000 are contained in this annual report. We have
also included our unaudited condensed consolidated interim financial statements
as of and for the three months ended March 31, 2000 and 2001 in this annual
report.

     Our consolidated financial statements and our unaudited condensed
consolidated interim financial statements have been prepared in accordance with
Finnish generally accepted accounting principles ("Finnish GAAP"). For a
detailed discussion of the principal differences between Finnish GAAP and U.S.
generally accepted accounting principles ("U.S. GAAP"), together with a
reconciliation of net income and shareholders' equity recorded under Finnish
GAAP to net income and shareholders' equity under U.S. GAAP, see Note 21 to our
consolidated financial statements.

     Until July 1, 1998, our business operations constituted a part of the
operations of PT Finland, a company incorporated under the laws of the Republic
of Finland. Prior to July 1, 1998, all current subsidiaries of Sonera
Corporation were direct or indirect subsidiaries of PT Finland with the
exception of subsidiaries established or acquired after July 1, 1998. Effective
July 1, 1998, PT Finland's postal services and telecommunications operations
were separated from each other in a demerger carried out in accordance with
Finnish law. Although prior to the demerger Sonera did not form a separately
reporting consolidated group, our consolidated financial statements have been
prepared by separating out the telecommunications related businesses from the
consolidated financial statements of PT Finland, and presenting the results of
operations, financial position and cash flows of these businesses as if they had
formed a separately reporting consolidated group with the same structure as that
of Sonera subsequent to the demerger for the six months ended June 30, 1998. For
a discussion of the basis for, and adjustments made in relation to, our
financial statements, see Note 1 to our consolidated financial statements.

     On February 22, 1999, the board of directors of Sonera Group plc, a
predecessor of Sonera Corporation, approved a merger between Sonera Group plc,
the stock exchange listed parent company of the consolidated group, and its
principal operating subsidiary Sonera Ltd. The merger took effect on September
30, 1999, and upon the effectiveness of the merger the name of the merged entity
was changed to Sonera Corporation.

     On January 1, 1999, the 11 member states of the European Union (the "EU")
initially participating in the Economic and Monetary Union (known as the EMU)
introduced a single European currency known as the euro. Following the adoption
by Greece of the euro as its national currency, the following 12 member states
participate in the EMU and have adopted the euro as their national currency:
Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg,
The Netherlands, Portugal and Spain. Currently, the euro is only an accounting
currency and the national currencies of the EMU member states continue to be
legal tender and are considered to be sub-units of the euro. During a
transitional period that will last from January 1, 2002 until February 28, 2002,
euro banknotes and coins will enter circulation and the national currencies of
the EMU member states will be phased out. In this document, we have presented
our consolidated financial statements in euros. Our consolidated financial
statements for the year ended December 31, 1998 were prepared in Finnish
markkas, and have been restated into euros using the irrevocable conversion rate
of E1.00 = FIM 5.94573. The consolidated financial statements depict the same
trends as would have been presented if we had continued to present our
consolidated financial statements in Finnish markkas. However, the consolidated
financial statements for periods prior to January 1, 1999 are not comparable to
the financial statements of other companies that currently report in euros and
that have restated their financial statements from a currency other than Finnish
markkas.

                                        iv
5

     As used in this annual report:

     -  "Finnish markka" or "FIM," when used with respect to any time or period
        before January 1, 1999, means the lawful currency of the Republic of
        Finland and, when used with respect to any time or period after January
        1, 1999, means the sub-unit of the euro designated as such under the
        applicable regulations of the European Community;

     -  "euro," or "E" means the new single unified currency that was introduced
        in connection with the EMU in Finland and ten other initially
        participating member states of the EU on January 1, 1999; and

     -  "U.S. dollar," or "U.S.$" means the lawful currency of the United States
        of America.

     For your convenience, this annual report contains translations of certain
amounts denominated in one currency into another currency. You should not
assume, however, that amounts could have been exchanged at any particular rate
or at all.

     This annual report contains translations of certain euro amounts into U.S.
dollars. Unless otherwise stated, euro amounts have been translated into U.S.
dollars at the noon buying rate in New York City for cable transfer in foreign
currencies as certified for customs purposes by the Federal Reserve Bank of New
York (the "Noon Buying Rate") on December 29, 2000 which was E1.00 = U.S.$0.9388
(U.S.$1.00 = E1.0652).

     On June 29, 2001, the Noon Buying Rate for the euro was E1.00 = U.S.$0.8474
(U.S.$1.00 = E1.1801).

     The financial information and certain other information presented in a
number of tables in this annual report has been rounded to the nearest whole
number or the nearest decimal. Therefore, the sum of the number in a column may
not conform exactly to the total figure given for that column. In addition,
certain percentages presented in the tables in this annual report reflect
calculations based upon the underlying information prior to rounding, and
accordingly may not conform exactly to the percentages that would be derived if
the relevant calculations were based upon the rounded numbers.

     Some of the financial, operating and country-specific data contained in
this annual report under "Item 4. Information on the Company" relating to our
associated companies and other companies in which we have an equity interest are
based on financial and other information received from these companies. We
assume no responsibility for the accuracy of such data.

     Unless otherwise indicated in this annual report, (1) macroeconomic
statistics relating to the Republic of Finland as set forth herein are based on
data provided by Statistics Finland, a Finnish governmental statistics service;
(2) data relating to the Finnish telecommunications market, including market
share data and penetration rates, are based on data provided by (A) the Finnish
Ministry of Transport and Communications, in particular, in the Ministry's
publication "Telecommunications Statistics 2000;" (B) EMC World Cellular
Database, a commercial statistics organization, and (C) Taloustutkimus Oy, a
private Finnish research company; (3) data relating to the telecommunications
industry in the European Union and in certain European Union member states are
based upon data provided by the Finnish Ministry of Transport and
Communications; and (4) data relating to the telecommunications industry in the
member states of the Organization for Economic Cooperation and Development are
based on data provided by Teligen Ltd. (formerly, Eurodata Foundation), an
independent telecommunications research, consultancy and information company. We
have not independently verified the data published by these entities.

     This annual report also contains the audited consolidated financial
statements for:

     -  Turkcell Iletisim Hizmetleri A.S. as of December 31, 1999 and 2000 and
        for the years ended December 31, 1998, 1999 and 2000; and

     -  Orla Siebzehnte Vermogensverwaltung GmbH ("Orla" or "Gruppe 3G") as of
        December 31, 2000 and for the period from the date of inception (August
        2, 2000) to December 31, 2000.

     Turkcell is a provider of mobile communications services in Turkey in which
we currently hold a 37.3 percent interest. Turkcell's consolidated financial
statements have been prepared in accordance with U.S. GAAP. Orla, which was
formed in August 2000, successfully bid for one of the nationwide UMTS licenses

                                        v
6

in Germany. We currently hold a 42.8 percent interest in Orla. The board of
directors of Orla has decided to change the name of the company to Gruppe 3G
UMTS Holding GmbH and the company is currently taking the necessary steps to
have the name change registered in Germany. Accordingly, we refer to Orla as
"Gruppe 3G" throughout this annual report. Gruppe 3G's consolidated financial
statements have been prepared in accordance with U.S. GAAP.

     References in this annual report to "Nordic Countries" are to Denmark,
Finland, Iceland, Norway and Sweden. References to the "Baltic States" are to
Estonia, Latvia and Lithuania.

                                        vi
7

                           FORWARD-LOOKING STATEMENTS

     This annual report contains forward-looking statements. Statements that are
not historical facts, including statements about our beliefs and expectations,
are forward-looking statements and can be identified by the use of
forward-looking terminology such as the words "believe," "expect," "seek,"
"plan," "intend," "anticipate," "estimate," or "predict." These statements are
based on current plans, estimates and projections, and therefore the reader
should not place too much reliance on them. Forward-looking statements speak
only as of the date they are made, and, other than as required by applicable law
or the applicable rules of any exchange on which our securities may be listed,
we undertake no obligation to update any of them in light of new information or
future events. Forward-looking statements involve inherent risks and
uncertainties. A number of important factors could cause actual results or
outcomes to differ materially from those expressed in any forward-looking
statement. These factors include, but are not limited to, the following:

     -  the success of our UMTS roll out and the acceptance of UMTS in the
        marketplace and as an industry standard in the telecommunications
        industry;

     -  the level of demand for telecommunications services, particularly with
        regard to mobile services and new higher value-added products;

     -  regulatory developments and changes, including with respect to the
        levels of tariffs, the terms of interconnection, customer access and
        issues related to national roaming;

     -  the outcome of legal and regulatory proceedings in which we are involved
        or may become involved;

     -  the success of new businesses, many of which involve start-up costs and
        capital commitments and have generated little or no revenue to date,
        particularly with regard to the products and services of our Media
        Communications and New Services business area, including our Sonera
        SmartTrust wireless transaction security applications and our Sonera zed
        value added mobile content services;

     -  the effects of mergers and consolidations within the telecommunications
        industry and our ability to complete acquisitions or divestitures and
        integrate acquired businesses;

     -  the availability, terms and deployment of capital, particularly in view
        of our debt refinancing needs and the impact of regulatory and
        competitive developments on our capital outlays;

     -  changes in interest rates, which may affect us more than in the past due
        to our high degree of leverage;

     -  potential further downgrades in our debt ratings by credit rating
        agencies;

     -  the success of our international investments including our third
        generation joint ventures; and

     -  other factors that are described under "Item 3. Key Information -- Risk
        Factors."

                                       vii
8

                                    GLOSSARY

     The following explanations are not intended as technical definitions, but
to assist the general reader to understand certain terms as used in this annual
report.

Access line:                 The system used to connect a subscriber to the
                             nearest switch or concentrator. An access line
                             generally takes the form of a closed circuit and
                             consists of a pair of copper wires, but may also
                             employ fiber optic cables, microwave links or other
                             technologies.

ADSL (Asymmetric Digital
Subscriber Line):            A technology for transferring data that uses
                             existing copper wires to provide faster network
                             access to the Internet and other popular multimedia
                             and data services at speeds of up to two to six
                             Mbps, a transfer speed 50 times faster than
                             ordinary transfer technology.

AMPS (Advanced Mobile Phone
System):                     An analog mobile telecommunications system used in
                             the United States.

Analog:                      A transmission mode in which the initial signal
                             (i.e., voice) is converted into and transmitted as
                             an electrical signal.

ARP (autoradiopuhelin):      Sonera's mobile vehicle radio telephone system
                             operating in the 150 MHz frequency band. ARP, which
                             was introduced in 1971 and which is still in
                             operation, was Sonera's first mobile communications
                             network.

ATM (Asynchronous Transfer
Mode):                       A multiplexing and routing technology for
                             high-speed digital communications that permits
                             data, text, voice, video and multimedia signals to
                             be transmitted simultaneously between network
                             access points at speeds of up to 155 Mbps or more.
                             ATM allows for better local area network
                             interconnections, PBX interconnection, data
                             transmission and flexible bandwidth delivery.

Bandwidth:                   The measure of the capacity of a communications
                             channel. Analog telephone lines measure capacity in
                             hertz, the difference in the highest and lowest
                             frequency of the channel. Digital channels measure
                             bandwidth in bits per second.

Base station:                Fixed transceiver equipment in each cell of a GSM
                             mobile telecommunications network that communicates
                             by radio signal with mobile handsets in that cell.

Base station controller:     Equipment used in a GSM mobile telecommunications
                             network for controlling call set-up, signaling and
                             maintenance functions as well as the use of radio
                             channels of one or more base stations.

Basic data services:         Digital transmission of packet-switched data
                             through wired networks to provide services such as
                             the transfer of text, numeric data and graphics in
                             digital format.

Bit:                         The smallest unit of binary information.

Bps (Bits per second):       A data transmission rate. Bps is the number of bits
                             sent per second.

Broadband network:           A network where data is transmitted through
                             multiple channels over a transmission medium. A
                             broadband network is also used to describe a
                             network where data is transmitted at high
                             bandwidth, typically exceeding two Mbps.

                                       viii
9

Broadband service:           A communications service for content requiring
                             high-speed transmission rates such as video
                             transmission.

CDMA (Code Division
Multiple Access):            Transmission technology utilized in the upcoming
                             third generation UMTS mobile communications system,
                             where each transmission is sent over multiple
                             frequencies and a unique code is assigned to each
                             data or voice transmission, allowing multiple users
                             to share the same frequency spectrum.

Cell:                        The geographic area covered by a single base
                             station in a mobile communications network.

Channel:                     A link between one point in a network to another
                             point in that network, over which traffic can be
                             conveyed.

Concentrator:                A communications device that subdivides a channel
                             into a larger number of channels.

Data packet:                 A data transmission technique whereby information
                             is segmented and routed in discrete data envelopes
                             called "packets," each with its own appended
                             control information for routing, sequencing and
                             error checking.

Digital:                     A method of storing, processing and transmitting
                             information through the use of distinct electronic
                             or optical pulses that represent the binary digits
                             0 and 1. Digital transmission and switching
                             technologies employ a sequence of these pulses to
                             represent information as opposed to the
                             continuously variable analog signal. Compared to
                             analog networks, digital networks allow for greater
                             capacity, lower interference, protection against
                             eavesdropping and automatic error correction.

Dual band handsets:          Handsets that operate on two bands within the same
                             systems, for example, both GSM 900 and GSM 1800.

EDI (Electronic Document
Interchange):                A standardized format for the inter-company
                             exchange of legally binding trade documents, such
                             as invoices and shipping and purchase orders, over
                             an electronic network.

ETSI (European
Telecommunications
Standards Institute):        An organization made up of national representatives
                             from member countries of the CEPT, the European
                             post and telecommunications organization. ETSI
                             representatives can include public and private
                             telecommunications providers, research institutions
                             and equipment manufacturers and users, subject to
                             national determination.

EutElsat (European
Telecommunications
Satellite Organization):     The European Telecommunications Satellite
                             Organization headquartered in Paris.

Exchange:                    See "Switch."

Extranet:                    An intranet that is extended to include certain
                             outside businesses, organizations or individuals.
                             Extranets are typically established to enable the
                             sharing of documents and information between an
                             enterprise and its suppliers, vendors and/or
                             trading partners.

                                        ix
10

Fiber optic cable:           A transmission medium constructed from extremely
                             pure and consistent glass through which digital
                             signals are transmitted as pulses of light. Fiber
                             optic cables offer greater transmission capacity
                             and lower signal distortion than traditional copper
                             cables.

Frequency band:              A specified range of frequencies. Frequency refers
                             to the number of times per second that a wave (e.g.
                             electromagnetic wave) oscillates or swings back and
                             forth in a complete cycle from its starting point
                             to its end point.

Gbps (Gigabits per second):  A data transmission rate. One Gbps equals 2(30)
                             bps.

GPRS (General Packet Radio
Service):                    A GSM-based packet-switched data transmission
                             technology standard, established by ETSI, in which
                             base stations can be directly connected to the
                             Internet, thus bypassing the switching systems
                             typically used to connect mobile traffic to fixed
                             networks. GPRS is expected to provide users of
                             mobile communications services better data access
                             capability.

GSM (Global System for
Mobile Communications):      A digital mobile telecommunications system
                             standardized by ETSI based on digital transmission
                             and cellular network architecture with roaming in
                             use throughout Europe, in Japan and in various
                             other countries. GSM systems operate in the 900 MHz
                             (GSM 900) and 1800 MHz (GSM 1800) frequency bands.

Inmarsat (International
Maritime Satellite):         A worldwide satellite telecommunications service
                             that provides mobile telecommunications to ships at
                             sea, aircraft in flight and vehicles on the road.

Intelligent network:         A network architecture concept focusing on the
                             efficiency, automation and functionality of
                             telecommunication networks. Intelligent networks
                             are typically equipped with sophisticated
                             computerized routing systems, allow for advanced
                             features such as caller identification and voice
                             mail and can be readily expanded and upgraded.

IntElsat (International
Telecommunications
Satellite):                  A worldwide satellite telecommunications
                             organization founded in 1964 and headquartered in
                             Washington, D.C., which owns and runs the world's
                             largest satellite-based communications network.

Interconnection:             Practice of allowing a competing telephone operator
                             to connect its network to the network or network
                             elements of certain other telephone operators to
                             enable the termination of phone calls made by
                             subscribers of the competing telephone operator's
                             network to the subscribers of the other telephone
                             operator's network.

Internet telephony:          Voice traffic routed through the Internet via
                             packet-switched technology. Because a
                             packet-switched transmission does not require
                             engagement of an end-to-end connection for the
                             entire duration of the call, Internet voice
                             telephony is typically less expensive than ordinary
                             voice telephony.

Intranet:                    An internal network of an enterprise or
                             organization based on Internet technologies (Web
                             sites, e-mail, etc.) and the Internet Protocol, and
                             typically equipped with electronic security
                             barriers that prevent external access to internal
                             systems.

IP (Internet Protocol):      Protocol used in the Internet for communication
                             among multiple networks.

                                        x
11

ISDN (Integrated Services
Digital Network):            A transmission system with the capacity to transmit
                             two streams of information (voice, text, data or
                             graphics) simultaneously on a single telephone
                             line, based upon end-to-end digitalization and
                             standardized out-of-band signaling.

ISP (Internet Service
Provider):                   A company providing access to Internet and other
                             computer based information networks through their
                             servers.

IT (Information
Technology):                 A general term covering telecommunications,
                             computing and media technologies.

Kbps (kilobits per second):  A data transmission rate. One kbps equals 2(10)
                             bps.

LAN (Local Area Network):    A short distance data transmission network designed
                             to interconnect personal computers, workstations,
                             minicomputers, file servers and other computing
                             devices within a localized environment, for the
                             purpose of sharing files, programs and various
                             devices such as printers and high-speed modems.
                             LANs may have a decentralized communications
                             management, or include dedicated computers or file
                             servers that provide a centralized source of shared
                             files and programs.

Leased line:                 Voice or data circuits leased to connect two or
                             more locations for the exclusive use of the
                             subscriber.

LMDS (Local Multipoint
Distribution Service):       A broadband radio system used as part of a fixed
                             network that allows for the wireless transmission
                             of multimedia data and information.

Local loop:                  See "Access line."

Mbps (Megabits per second):  A data transmission rate. One Mbps equals 2(20)
                             bps.

MHz (Megahertz):             A measure of frequency. One MHz equals 1,000,000
                             cycles per second.

Mobile portal:               A commercial entry point for Internet designed for
                             users of mobile terminals. Provides subscribers
                             access to information and various services and
                             allows them to personalize the immediate content
                             and the structures of the site providing easier
                             accessibility.

Multiplexing:                A technique used to send multiple signals over the
                             same channel simultaneously.

National roaming:            Provision of roaming services in the domestic
                             market to subscribers of a competing operators'
                             network. See "Roaming."

NMT (Nordic Mobile
Telephone):                  An analog mobile communications system that
                             originally operated only in the Nordic Countries
                             but at present also operates in many other
                             countries.

Node:                        A network element that provides a point at which
                             key telecommunications equipment or computers can
                             access the network. In circuit networks, nodes are
                             switching systems. In packet-switched networks they
                             are often computers.

Number portability:          The ability of an end-user to change local exchange
                             carriers or mobile carriers while retaining the
                             same telephone number.

Packet-switched services:    Data transmission services based on parceling or
                             breaking the data stream into packets and
                             thereafter switching the individual packets.
                             Transmitted information (whether voice or data) is
                             segmented into cells of a standardized length,
                             which are then transmitted independently of one
                             another,
                                        xi
12

                             allowing maximization of available capacity and
                             usage of a single transmission path for multiple
                             communications. The cells are then reassembled upon
                             reaching their destination.

PBX (Private Branch
Exchange):                   A private computerized telephone switching system
                             of a business or organization.

PCS (Personal
Communications Service):     A second generation comprehensive wireless
                             communications service that was first introduced in
                             the United Kingdom in 1993. In Europe, the
                             underlying digital technology for PCS is GSM. PCS
                             systems in the United States operate under one of
                             four principal digital signal transmission
                             technologies, or standards, that have been proposed
                             by various operators and vendors in PCS: one based
                             on GSM (known as PCS 1900 in the United States),
                             one that is GSM compatible, one based on CDMA and
                             one based on TDMA. GSM and TDMA are both
                             "time-division" based standards but are
                             incompatible with each other and with CDMA. PCS
                             1900 is a slightly modified version of the European
                             GSM 1800 standard that has been adapted to work at
                             1900 MHz frequency band.

PDH (Plesiochronous Digital
Hierarchy):                  A transmission standard predating SDH technology.

PKI (Public Key
Infrastructure):             A cryptographic system that uses an asymmetrical,
                             two-key encryption algorithm that encrypts data
                             with one key that is made public and decrypts data
                             with a different key that remains secret.

Roaming:                     The mobile telecommunications feature that permits
                             subscribers of one network to use their mobile
                             handsets and telephone numbers when in a region
                             covered by another operator's network.

Router:                      An inter-network device that relays data packets to
                             networks connected to the router based upon the
                             destination address contained in those data packets
                             being routed.

SDH (Synchronous Digital
Hierarchy):                  The European standard for high-speed digital
                             transmission using fiber optic cables.

SIM (Subscriber Identity
Module):                     An electronic card inserted into a mobile handset
                             that identifies the subscriber to the network. The
                             SIM card contains the personal identification
                             number of the subscriber and identifies the
                             subscriber's network.

SMS (Short Message
Service):                    A mobile communications system which allows users
                             to send alpha-numeric messages from one mobile
                             handset to another either directly or via a message
                             center operator.

SMTP:                        One of the worldwide protocols for electronic mail.
                             SMTP is the standard used for transmitting
                             electronic mail through the Internet.

Switch:                      A device used to set up and route telephone calls
                             either to the number called or to the next switch
                             along the path. They may also record information
                             for billing and control purposes.

TDMA (Time Division
Multiple Access):            Transmission technology underlying the GSM mobile
                             communications system, where transmissions for
                             multiple users are sent over a selected frequency
                             but at different time intervals.

                                       xii
13

Telnet:                      An Internet service that enables a user to log into
                             and access a computer on a different network.

TETRA (Terrestrial Trunked
Radio System):               A digital radio system standardized by ETSI for use
                             by public authorities.

Trunk network:               A centralized national or regional high-speed
                             network utilizing mainly fiber optic cables and
                             which interconnects smaller, primarily local and
                             independent networks.

UMTS (Universal Mobile
Telecommunications System):  The third-generation broadband mobile
                             communications standard. UMTS utilizes CDMA
                             technology and has the speed and capacity to handle
                             multimedia transmissions.

WAP (Wireless Application
Protocol):                   A global open standard protocol for service
                             applications provided over wireless networks. It
                             allows delivery of basic Internet-based services
                             through use of directories to mobile phones and
                             other wireless devices.

WDM (Wavelength Division
Multiplexing):               A method of multiplying the capacity of fiber optic
                             transmission lines by combining wavelengths at the
                             sending end and separating them at the receiving
                             end.

WLAN:                        A wireless local area network (LAN).

X.25:                        A worldwide protocol for communications services
                             using packet-switched networks.

X.400:                       One of the worldwide protocols for electronic
                             mailing systems. X.400 is used only in the
                             international and domestic X.400 networks of which
                             the Internet is not a part.

                                       xiii
14

                                     PART I

ITEM 1.  IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS.

     Not applicable.

ITEM 2.  OFFER STATISTICS AND EXPECTED TIMETABLE.

     Not applicable.

ITEM 3.  KEY INFORMATION.

                            SELECTED FINANCIAL DATA

     The selected consolidated financial data presented below has been derived
from our consolidated financial statements for the relevant periods.

     Our consolidated financial statements have been prepared in accordance with
Finnish GAAP. For a detailed discussion of the principal differences between
Finnish GAAP and U.S. GAAP, together with a reconciliation of net income and
shareholders' equity recorded under Finnish GAAP to net income and shareholders'
equity under U.S. GAAP, see Note 21 to our consolidated financial statements.

     You should read the following selected consolidated financial data together
with "Item 5. Operating and Financial Review and Prospects," our consolidated
financial statements and our unaudited condensed interim financial statements
included in this annual report, including the notes to those financial
statements.

     Our consolidated financial statements for all periods prior to January 1,
1999 were prepared in Finnish markkas, and have been restated into euros using
the irrevocable conversion rate of E1.00 = FIM 5.94573 between the euro and the
Finnish markka, which conversion rate was set on January 1, 1999. Our
consolidated financial statements for such periods depict the same trends as
would have been presented if we had continued to present consolidated financial
statements in Finnish markkas. However, our consolidated financial statements
for periods prior to January 1, 1999 are not comparable to the financial
statements of other companies that currently report in euros and that have
restated their financial statements from a currency other than Finnish markkas.

                                        1
15

     Solely for the convenience of the reader, euro amounts have been translated
into U.S. dollars at the rate of E1.00 = U.S.$0.9388 (U.S.$1.00 = E1.0652), the
Noon Buying Rate for the euro on December 29, 2000.
AS OF OR FOR THE YEAR ENDED DECEMBER 31,
                                     ---------------------------------------------------------------
                                       1996       1997       1998       1999       2000       2000
                                     --------   --------   --------   --------   --------   --------
                                        E          E          E          E          E        U.S. $
                                       (IN MILLIONS, EXCEPT FOR SHARES, PERCENTAGES, PER SHARE AND
                                                     ADS DATA AND FINANCIAL RATIOS)
INCOME STATEMENT DATA
Amounts in accordance with Finnish
  GAAP
Revenues...........................    1,125      1,352      1,623      1,849      2,057      1,931
Other operating income.............       15         18         24         45      1,589      1,492
Operating expenses.................     (720)      (881)    (1,060)    (1,226)    (1,599)    (1,501)
Depreciation and amortization......     (242)      (204)      (261)      (281)      (299)      (281)
Write-downs on fixed assets........       (8)        --        (37)        --         --         --
                                     -------    -------    -------    -------    -------    -------
Operating profit...................      170        285        289        387      1,748      1,641
Equity income in associated
  companies........................        6         19         59        110        121        113
Financial income and expenses......        7          5         (2)        --         (9)        (8)
                                     -------    -------    -------    -------    -------    -------
Profit before income taxes and
  minority interest................      183        309        346        497      1,860      1,746
Income taxes.......................      (54)       (89)       (94)      (126)      (318)      (298)
Minority interest in income........       (1)        --          1         (1)        (1)        (1)
Extraordinary items, net of income
  taxes(1).........................       --         --         --         --        (35)       (33)
                                     -------    -------    -------    -------    -------    -------
Net income.........................      128        220        251        370      1,506      1,414
                                     =======    =======    =======    =======    =======    =======
Net income per share and ADS.......     0.18       0.31       0.35       0.51       2.05       1.92
Cash dividends per share and
  ADS(2)...........................     0.04       0.05       0.18       0.08       0.12       0.11
Amounts in accordance with U.S.
  GAAP
Net income.........................       --        203        237        338        704        661
Net income per share and ADS
  (non-diluted)....................       --       0.28       0.33       0.47       0.96       0.90
Net income per share and ADS on a
  fully diluted basis..............       --       0.28       0.33       0.47       0.95       0.89
Weighted average number of shares
  outstanding (in thousands)
Non-diluted........................  720,000    720,000    720,247    722,000    735,917         --
Diluted............................  720,000    720,000    720,247    723,506    741,743         --
OTHER INCOME STATEMENT DATA
Operating profit margin (%)(3).....     15.1       21.1       17.8       20.9       85.0       85.0
Net income margin (%)(4)...........     11.4       16.2       15.5       20.0       73.2       73.2
CASH FLOW INFORMATION
Cash provided by operating
  activities.......................      374        455        508        442        227        213
Cash used in investing
  activities.......................     (340)      (531)    (1,126)      (771)    (4,572)    (4,292)
Capital expenditures...............     (379)      (373)      (351)      (338)      (430)      (404)
Investments in shares..............     (133)       (22)      (898)      (410)    (2,117)    (1,987)
Cash (used in) provided by
  financing activities.............      (40)        93        632        309      4,394      4,125
OTHER RATIOS
EBITDA(5)..........................      420        489        587        668      2,047      1,922
EBITDA margin (%)(6)...............     37.3       36.1       36.2       36.1       99.5       99.5
2
16
AS OF OR FOR THE YEAR ENDED DECEMBER 31,
                                               -----------------------------------------------
                                               1996    1997    1998    1999     2000     2000
                                               -----   -----   -----   -----   ------   ------
                                                 E       E       E       E       E      U.S. $
                                               (IN MILLIONS, EXCEPT PERCENTAGES AND FINANCIAL
                                                                   RATIOS)
BALANCE SHEET DATA
Amounts in accordance with Finnish GAAP
Fixed assets and other long-term investments
  Intangible assets.........................      24      42      53      69      116      109
  Property, plant and equipment.............     950   1,090   1,123   1,159    1,265    1,188
  Long-term investments and receivables.....     229     293   1,231   1,826    4,779    4,486
Current assets
  Inventories...............................      18      15      22      36       40       38
  Receivables...............................     200     281     292     404    3,418    3,209
  Cash and short-term investments...........      30     145      93     115      156      146
                                               -----   -----   -----   -----   ------   ------
Total assets................................   1,451   1,866   2,814   3,609    9,774    9,176
                                               =====   =====   =====   =====   ======   ======
Shareholders' equity........................   1,123   1,312   1,424   1,801    3,233    3,035
Minority interest...........................       2      --      12      14       16       15
Non-current liabilities
  Long-term debt............................       1     171     788   1,124    1,842    1,729
  Other long-term liabilities...............      69      86      91     115      171      161
Current liabilities
  Current debt..............................      41       2     135     172    3,955    3,713
  Other current liabilities.................     215     295     364     383      557      523
                                               -----   -----   -----   -----   ------   ------
Total shareholders' equity and
  liabilities...............................   1,451   1,866   2,814   3,609    9,774    9,176
                                               =====   =====   =====   =====   ======   ======
Net debt/book capitalization (%)(7).........     1.0     1.9    35.2    38.0     62.4     62.4
Equity-to-assets (%)(8).....................    78.0    70.9    51.5    50.6     33.4     33.4
Amounts in accordance with U.S. GAAP
Shareholders' equity........................      --   1,341   1,446   1,896    4,432    4,161
Total assets................................      --   1,898   2,848   3,757   11,181   10,497
------------------------------

(1) Extraordinary items reported for the year ended December 31, 2000 consist of
    the cumulative effect of accounting changes related to (a) equity accounting
    for Turkcell, and (b) capitalization of borrowing costs. See Note 7 to our
    consolidated financial statements.

(2) Dividends for each year were declared and paid on the basis of profits and
    retained earnings as of the end of the previous year.

(3) Operating profit margin is the ratio of operating profit to revenues
    expressed as a percentage.

(4) Net income margin is the ratio of net income to revenues expressed as a
    percentage.

(5) EBITDA equals operating profit before depreciation and amortization and
    write-downs on fixed assets. EBITDA is not intended to represent cash flow
    from operations and should not be considered as an alternative to net income
    as an indicator of our operating performance or to cash flows as a measure
    of liquidity. Management believes that EBITDA is a standard measure commonly
    reported and widely used by analysts, investors and other interested parties
    in the telecommunications industry. Accordingly, this information has been
    disclosed to permit a more complete comparative analysis of our operating
    performance relative to other companies in our industry. However, our
    definition of EBITDA does not show significant trends related to the
    following items: depreciation and amortization; write-downs on fixed assets;
    equity income in associated companies; financial income and expense; and
    income taxes.

(6) EBITDA margin is the ratio of EBITDA to revenues expressed as a percentage.

(7) Net debt as a percentage of book capitalization. Net debt means total debt
    (which includes current and long-term interest-bearing debt) less cash and
    short-term investments. Book capitalization means total debt plus
    shareholders' equity and minority interest.

(8) Equity-to-assets ratio is the ratio of shareholders' equity and minority
    interest to total assets less advances received.

                                        3
17

EXCHANGE RATE INFORMATION

     We began using the euro as our reporting currency on January 1, 1999.
Prices for our ordinary shares listed on the Helsinki Securities and Derivatives
Exchange, Clearing House Ltd. (the "Helsinki Exchanges") are also quoted in
euros. Fluctuations in the exchange rate between the euro and U.S. dollar will
affect:

     -  the U.S. dollar equivalent of the euro price of our ordinary shares
        listed on the Helsinki Exchanges and, as a likely result, the market
        price of our ADSs listed on the Nasdaq National Market;

     -  the U.S. dollar conversion of any cash dividends paid in euros on our
        ordinary shares represented by ADSs; and

     -  the presentation of our operating results and financial condition.

     The tables below set forth, for the periods and dates indicated, the noon
buying rates for the euro expressed in euros per U.S. dollar. For any time or
period before January 1, 1999, the noon buying rates have been derived from the
noon buying rates for the Finnish markka converted into euros at the irrevocable
conversion rate between the Finnish markka and the euro. These rates are
provided solely for the convenience of the reader and are not necessarily the
rates we used in the preparation of our financial statements. We make no
representation that Finnish markkas or euros could have been converted into
dollars at the rates shown or at any other rate for such periods or at such
dates.

     The following table sets forth the average noon buying rate for the euro
for each of the previous five years and for the first and second quarters of
2001 (expressed in euros per one U.S. dollar).
YEAR                                                          AVERAGE(1)
----                                                          ----------
1996........................................................    0.7738
1997........................................................    0.8774
1998........................................................    0.8989
1999........................................................    0.9455
2000........................................................    1.0042
First Quarter 2001..........................................    1.0990
Second Quarter 2001.........................................    1.1627
The following table sets forth the high and low noon buying rate for the
euro for each of the monthly periods indicated (expressed in euros per one U.S.
dollar).
HIGH      LOW
                                                                ------    ------
2001
  January...................................................    1.0892    1.0488
  February..................................................    1.1041    1.0644
  March.....................................................    1.1371    1.0707
  April.....................................................    1.1346    1.1072
  May.......................................................    1.1827    1.1189
  June......................................................    1.1869    1.1590
------------------------------

(1) The average of the noon buying rates on the last business day of each month
    during the relevant period.

     On June 29, 2001, the noon buying rate for the euro was E1 = 0.8474 ($1 =
E1.1801).

                                        4
18

                                  RISK FACTORS

WE HAVE INCURRED AND WILL CONTINUE TO INCUR SIGNIFICANT COSTS IN PURSUING OUR
STRATEGY OF LAUNCHING UMTS NETWORK SERVICES THROUGH OUR INTERNATIONAL JOINT
VENTURES. WE CAN GIVE INVESTORS NO ASSURANCE THAT WE WILL BE ABLE TO GENERATE
ACCEPTABLE RETURNS ON OUR INVESTMENTS IN UMTS LICENSES AND NETWORKS.

     We paid a total of approximately E4 billion for UMTS licenses in 2000. In
certain countries, such as Spain and Italy, we also have ongoing investment or
payment obligations under our licenses. We further expect that the cost of
rolling out UMTS networks in the markets where our third generation joint
ventures operate will be high. We may have to take on further debt or issue
additional shares in the future to finance our UMTS strategy. We may not be able
to raise the financing we need to realize our UMTS strategy, either on terms
acceptable to us or at all, and this could harm our ability to compete and our
ability to grow.

     In addition, there can be no assurance that future levels of customer
acceptance of third generation services will be sufficient to generate an
acceptable return on investments we have made to obtain UMTS licenses, or will
in the future make to roll out networks for third generation services. Due to a
variety of technical problems facing the development of third generation
networks and handsets, we do not expect to launch third generation services on a
commercial basis until the second half of 2002, at the earliest, which is
significantly later than we believed we would be prepared to launch third
generation services when we initially bid for the UMTS licenses. These delays
mean that it will take longer than expected for us to realize profits, if any,
from offering third generation services. In addition, operators may be forced to
pass on the high costs of obtaining UMTS licenses and rolling out the networks
to users of third generation services, which may slow down market acceptance of
third generation services.

     Each of our international joint ventures that has received a UMTS license
is a new entrant on its market. Our third generation joint ventures will have to
gain customers either by attracting them away from other operators or by
attracting people who do not currently use mobile communications services. Even
though each of our third generation joint ventures has plans, through GSM/GPRS
roaming agreements or otherwise, to lower their future costs and to build up
their customer base before launching UMTS services, there can be no assurance
that our third generation joint ventures will be successful in attracting
customers.

     Moreover, a variety of new entrants in the third generation market could
heighten competition and reduce the potential profitability of providing third
generation services. Possible new entrants include mobile virtual network
operators (MVNOs) which typically do not have their own network infrastructure
and thus would not have the fixed cost burdens facing our third generation joint
ventures. Competition from companies providing WLAN services, which can deliver
wireless data services more cheaply than UMTS in concentrated areas, may also
affect the market and pricing for third generation services.

OUR SIGNIFICANT DEBT MAY LIMIT OUR FINANCIAL FLEXIBILITY AND OUR ABILITY TO GROW
AND COMPETE. IF WE ARE NOT ABLE TO SECURE ALTERNATE FINANCING ON SATISFACTORY
TERMS, WE MAY HAVE TO REVISE OUR STRATEGY AND TAKE OTHER LESS DESIRABLE ACTIONS.

     Primarily as a result of our acquisition of UMTS licenses through our third
generation joint ventures, we are a highly leveraged company. Our outstanding
net debt totaled E5,661 million as of March 31, 2001 as compared to E1,181
million at December 31, 1999. In addition, at March 31, 2001, our current
liabilities, which totaled E4,037 million, exceeded our current assets, which
totaled E3,666 million. Our high level of indebtedness may have important
consequences to you for the following reasons:

     -  it limits our ability to use operating cash flow in other areas of our
        business because we must dedicate a substantial portion of these funds
        to make principal payments and fund debt service;

     -  it limits our ability to obtain additional financing to fund our growth
        strategy, working capital requirements, capital expenditures, debt
        service requirements and other needs;

     -  our interest expense will be substantially higher in 2001 than in 2000
        since most of our debt was incurred during 2000 and since we paid higher
        interest rates for borrowings made in 2000 than previously;
                                        5
19

     -  we will have to refinance much of our debt in the near-term because much
        of the debt we incurred in 2000 was short-term debt; and

     -  it limits our ability to compete with others who are not as highly
        leveraged.

     To reduce debt, we have, since the beginning of 2001, sold some of our
non-core investments and we plan to sell additional non-core assets. In 2001, we
sold all of our interests in TietoEnator Corporation and disposed of a portion
of our interests in VoiceStream Wireless Corporation and Powertel, Inc.,
generating net proceeds of over E1.1 billion, all of which has been or will be
used to reduce our short-term indebtedness. In addition, depending on market and
other conditions, we plan to sell the shares we currently hold in Deutsche
Telekom AG to further reduce our short-term indebtedness. Our plan to generate
cash from the disposal of non-core assets may not, however, be successful. We
may not be able to dispose of these assets, may not be able to secure
satisfactory terms and the proceeds we receive may be significantly less than
anticipated. The current depressed conditions of the telecommunications markets
may make sales of assets or our equity investments difficult to complete. We are
also investigating the possibility of selling a portion of our interest in our
subsidiaries Sonera SmartTrust and Sonera zed through public offerings or
otherwise, of reducing our interest in our third generation joint venture in
Germany, Gruppe 3G, and of obtaining non-recourse financing for Gruppe 3G and
our other third generation joint ventures for which lenders could not look to
Sonera for payment. These proposed transactions may not be completed, may be
delayed, or even if completed or delayed may not be successful, especially given
the current difficult market conditions.

     If we do not receive sufficient cash from disposals of non-core assets to
service our debt payments and fund our strategic initiatives, we may be required
to revise our strategic focus. We may also be forced to sell additional or
different assets from those we have designated for sale or may be forced to sell
equity at depressed prices. We may also be required to raise additional debt
financing to refinance our existing short-term indebtedness on terms less
favorable than in the past, which could increase our interest obligations
significantly. These risks could adversely affect our business and our financial
condition in a material way.

S&P AND MOODY'S HAVE DOWNGRADED OUR CREDIT RATINGS AND OUR CREDIT RATINGS MAY BE
DOWNGRADED FURTHER. THESE DOWNGRADES MAY MAKE IT MORE DIFFICULT AND EXPENSIVE
FOR US TO FINANCE OUR OPERATIONS.

     On February 20, 2001, Standard & Poor's, or S&P, lowered our long-term
corporate credit and senior unsecured ratings from A to A- and lowered our
short-term corporate credit and commercial paper rating from A-1 to A-2. Our
debt ratings were also placed on CreditWatch with negative implications. In its
comments, S&P stated that the downgrade reflects its expectation that we will be
unable to raise sufficient cash through asset sales or equity offerings to
reduce our debt to a level consistent with our previous ratings. S&P also stated
that it had placed our rating on CreditWatch both because of concerns that we
would not realize as much cash as expected from the sale of our holdings in
VoiceStream due to the decline in Deutsche Telekom's share price and because of
uncertainty about our UMTS strategy and our future exposure to international
UMTS investments. S&P indicated it would likely lower our credit rating further
in the following circumstances:

     -  if the expected proceeds from the sale of our interest in VoiceStream
        (which we now hold largely in the form of Deutsche Telekom shares as a
        result of the Deutsche Telekom-VoiceStream-Powertel merger) are
        significantly reduced;

     -  if we do not raise enough cash through asset sales or equity offerings
        to ensure that our ratio of net debt to EBITDA is reduced to less than
        three by year-end 2001; and

     -  in the event our EBITDA does not exceed our net interest burden by more
        than four times (for these purposes, treating our UMTS investments as
        being proportionately consolidated) by year-end 2001.

     On May 3, 2001, Moody's Investor Services, or Moody's, downgraded our
senior unsecured long-term debt ratings from A2 to Baa2 and our short-term debt
rating from Prime-1 to Prime-2. Moody's also kept our debt ratings on review for
possible further downgrade. In its comments, Moody's stated that it is
continuing to review our debt ratings for possible downgrade based on concerns
that we are overexposed to the German market through our investment in Gruppe
3G. Moody's also noted that our EBITDA has been negatively affected by our
investments in new services and that it might downgrade our ratings further if
our operating performance does not
                                        6
20

improve. Moody's also stated that that there is a risk that we will not realize
the amount of proceeds we expect from non-core asset disposals in 2001. In part,
we believe our ratings downgrades reflect the general concerns of rating
agencies about the financial positions and prospects of European
telecommunications operators, many of which have been similarly downgraded,
following the UMTS license tenders in the largest markets in Western Europe in
2000.

     These downgrades by S&P and Moody's may make it more costly for us to
obtain future financing or to refinance our existing debt by increasing the
interest rates at which we are able to borrow money. We may also be subject to
further downgrades in the future, particularly if the steps we are taking to
reduce our substantial outstanding debt, such as non-core asset sales, are not
successful, which could further harm our ability to obtain future financing or
refinance our existing debt. In addition, these downgrades could further
increase our financing costs by increasing the rates at which we are able to
refinance existing debt and incur new debt.

OUR REVENUES, PROFITABILITY AND GROWTH COULD DECLINE IF THE GROWTH IN THE
FINNISH TELECOMMUNICATIONS MARKET SLOWS.

     The telecommunications industry in Finland is currently well developed
relative to most other European countries. In particular, Finland has among the
highest mobile penetration rates and lowest mobile calling tariffs in the world.
The high penetration rate may make it difficult for us to gain new mobile
customers in the future. This may result in slower growth in the revenues we
derive from our Domestic Mobile Communications business area, a significant area
of our recent growth, than we have achieved in the past.

     Although the mobile penetration rate in Finland increased in 1999 from 57
percent to 67 percent, the rate of growth slowed during 2000, such that the
penetration rate slightly exceeded 70 percent by the end of 2000. We believe
that this growth will continue to slow in the future. A significant slowdown in
the rate of mobile penetration growth in Finland could have a negative effect on
our future revenue and profit growth in our Domestic Mobile Communications
business area.

INCREASED COMPETITION IN THE FINNISH MOBILE AND FIXED NETWORK COMMUNICATIONS
MARKETS MAY RESULT IN DECREASED TARIFFS AND LOSS OF MARKET SHARE.

     We operate in the highly competitive Finnish telecommunications market. As
competition continues to intensify, our mobile and fixed-line voice services
business and our media communications services business may lose market share
and we expect to reduce our tariffs for these services further.

     We believe that our principal competitor in the Finnish mobile
communications market, Oy Radiolinja Ab, a subsidiary of Elisa Communications
Corporation, will continue to market its services aggressively and that we will
face additional competition in the GSM market as a result of the new GSM network
operator Suomen 2G Oy having commenced commercial activities through its
affiliate, DNA Finland Ltd., in February 2001. In addition, the commercial
introduction in Finland of third generation mobile services, which we expect
will take place in the second half of 2002, will open the Finnish mobile
communications market for an additional mobile operator, Finnish 3G Ltd., and
may strengthen the position of an existing operator, Telia Mobile Finland. We
also expect to experience increased competition from non-traditional operators
such as Jippii Group and RSL COM, which are known as virtual network operators
because they do not own their own mobile networks.

     In the Finnish fixed-line market, we expect that competition from
international telecommunications operators and alliances such as RSL COM,
Facilicom, Uniworld and Tele Nordia will increase, resulting in further
reductions of tariffs. Moreover, new forms of telecommunications that do not use
conventional tariff structures, such as Internet telephony, an application in
which voice traffic is routed through the Internet, are also expected to
increase the sources of competition we will face.

     In the media communications market, we expect to face increased competition
from large Scandinavian Internet service providers as well as Finnish Internet
service providers. We also expect to experience increased

                                        7
21

pressure to lower prices for our Internet access services due to industry
trends, such as the growth in the provision of free Internet connections.

THE FAILURE TO DEVELOP AND IMPLEMENT NEW TECHNOLOGIES AND SERVICES ON A TIMELY
BASIS COULD CAUSE US TO LOSE CUSTOMERS.

     Our growth strategy depends on the successful introduction of new
telecommunications services, including third generation mobile services. We also
plan to further invest in the speed and capacity of our wireless networks by
enhancing or introducing new broadband services based on technologies such as
GPRS and UMTS. We will also have to continually enhance our network independent
solutions, including Sonera SmartTrust and Sonera zed, to keep pace with
technological developments and changing customer requirements. Delays or
failures in developing, implementing or upgrading these new technologies and
other new services and solutions could result in a loss of customers or a
failure to attract new customers.

OUR DEVELOPMENT OF NEW ADVANCED SERVICES COULD REQUIRE SUBSTANTIAL EXPENDITURES
AND RESOURCES AND MAY NOT BE SUCCESSFUL.

     As part of our growth strategy, we are developing and commercializing a
wide variety of technologically advanced services. These services include new
mobile transaction security applications, such as Sonera SmartTrust; value-added
mobile content services, such as Sonera zed; and ASP (Application Service
Provision) services, such as Sonera Juxto. We expect that these strategic
initiatives will require substantial expenditures and commitment of our human
resources. We cannot, however, assure you that we will be able to successfully
market these new services or that the new services will gain widespread market
acceptance.

     We have incurred significant expenses to develop these new service
businesses, which has had a material impact on our results of operations. For
instance, the EBITDA loss of our Media Communications and New Services business
area increased from E47 million in 1999 to E303 million in 2000. Our Media
Communications and New Services business area also recorded capital expenditures
of E104 million in 2000 as compared to E15 million in 1999. We plan to continue
to make significant outlays and capital expenditures to further develop and
market our advanced mobile communications services and technologies, which is
expected to have a negative effect on our consolidated results of operations and
cash flows for at least the next two years.

     In addition, we have recently lowered our future cash flow expectations of
our Sonera SmartTrust business. In particular, our future cash flow expectations
of Sonera SmartTrust are lower than then they were in 2000 at the time we
concluded our acquisitions of Across Holding and iD2 Holding. As a result of
these and other findings, we have recorded an impairment loss of E704 million
under U.S. GAAP for the year ended December 31, 2000 to reduce the carrying
value of the goodwill and identified intangible assets related to the
acquisitions of Across and iD2. We currently estimate that the market value of
Sonera SmartTrust is approximately E250 million, more than 80 percent lower than
at the time of the acquisitions of Across and iD2.

OUR MARKET POSITION MAY SUBJECT US TO LEGAL CONSTRAINTS THAT MAY NEGATIVELY
IMPACT OUR REVENUES.

     We are deemed by the Finnish Ministry of Transport and Communications to be
an operator with significant market power in local, long distance, international
and mobile telecommunications throughout Finland. We are therefore obligated
under the Finnish Telecommunications Market Act to charge other operators
cost-related tariffs for mobile network services, public fixed network services,
leased lines and interconnection. This means that the amounts we charge for
these services must be related to the costs of providing the services. We are
also obligated not to discriminate among customers. These obligations may hamper
our future pricing flexibility. In particular, in the event that the Finnish
Telecommunications Administration Center (the "TAC") were to determine that our
interconnection tariffs were not cost-related or that they differ significantly
from those offered by other operators in the European Union, it would have the
authority to modify the terms and conditions of existing interconnection
agreements we have with other operators.

     In 2000, the European Commission proposed a new regulatory framework for
electronic communications networks and services that, among other things, would
give national regulatory authorities the right to impose a variety of
obligations on operators with significant market power. While the European
Commission's proposals
                                        8
22

have yet to become law, the proposals, if adopted and implemented, could have a
material adverse effect upon our business to the extent that mobile operators
may be subject to all the obligations, such as cost-oriented tariffs and access
obligations, to which fixed network operators with significant market power are
subject.

     We are currently a party to a Finnish administrative proceeding in which
one of our competitors has sought to require us to lower our mobile
interconnection termination fees. In April 2000, the TAC ruled that our
interconnection fees violate the Telecommunications Market Act and ordered us to
revise our interconnection rates. We have appealed the TAC's decision. If we
were required to modify our interconnection tariffs, whether as a result of an
adverse ruling in this proceeding or otherwise, it could reduce our
interconnection revenues and could have an adverse effect on our results of
operations or financial condition.

     We are also subject to Finnish and European Union competition law which is
applied by the Finnish Competition Authority (the "FCA"), the European
Commission, and national and European courts. Our dominant market position in
the market for mobile services in Finland could impact our flexibility in
marketing and pricing our services, including our SMS services. For example, the
FCA has stated that the pricing of our mobile services must be cost-based,
non-discriminatory and transparent and we are currently a party to several
Finnish administrative proceedings that may have an adverse effect on our
results of operations or financial condition.

     In addition, any future strategic alliances or other forms of business
combinations may be subject to detailed scrutiny by the competition authorities
and such transactions may be blocked or be made conditional upon divestitures or
changes to our business practices.

ADDITIONAL REGULATORY REQUIREMENTS REGARDING THE PROVISION OF NATIONAL ROAMING
SERVICES THROUGHOUT FINLAND OR THE FEES WE CHARGE FOR ROAMING SERVICES MAY
ADVERSELY AFFECT OUR BUSINESS.

     The introduction of national roaming in Finland could have a negative
impact on our results of operations or financial condition. Roaming allows
subscribers to other operators' services to use our networks when they are
outside the reach of their own operators' network service areas. National
roaming is an issue in Finland because several Finnish mobile operators,
including those that operate local GSM networks in the 1800 MHz frequency bands,
have networks with limited geographic reach. Although the Finnish Ministry of
Transport and Communications announced in September 1998 that it has no plans to
require existing operators to give other GSM operators and service providers
mandatory national roaming rights, Finnish or European Union authorities could
require telecommunications operators in Finland to offer national roaming. In
addition, recent amendments to the Finnish Telecommunications Market Act grant
holders of UMTS licenses a right to roam on the GSM networks of significant
operators, such as us, under certain conditions.

     We are currently a party to administrative proceedings at both the national
and the European Union level in which one of our competitors has claimed that we
have an obligation to provide national roaming and has sought to require us to
offer national roaming services at prices which, in our opinion, do not provide
an adequate return on our investment in our GSM network. If we are required to
provide national roaming services, whether as a result of an adverse ruling in
the currently pending proceedings or otherwise, other telecommunications
providers, including our competitors, could gain access to our GSM network. If
this were to take place on terms and conditions which do not provide an adequate
return on our investment in our GSM network, it could have an adverse effect on
our results of operations or financial condition.

THE VALUE OF OUR INTERNATIONAL INVESTMENTS IN TELECOMMUNICATIONS COMPANIES
OUTSIDE OF FINLAND, ESPECIALLY TURKCELL, MAY BE ADVERSELY AFFECTED BY POLITICAL,
ECONOMIC AND LEGAL DEVELOPMENTS IN THESE COUNTRIES.

     We have made a number of significant equity investments in
telecommunications operators in countries outside of Western Europe, such as
Turkey, the Baltic States, Hungary and Russia. The political, economic and legal
systems in these countries are less predictable than in countries with more
developed institutional structures. Political or economic upheaval, changes in
laws and other factors, such as legal or regulatory proceedings brought against
such companies, may have a material effect upon the operations of the companies
in which we have invested and, in turn, the amount of income from, and the value
of, these investments. The more significant risks
                                        9
23

of operating in emerging market countries arise from the establishment or
enforcement of foreign exchange restrictions, which could effectively prevent us
from receiving profits from, or from selling our investments in, these
countries. While none of the countries in which our associated companies are
located currently has foreign exchange controls that affect us significantly,
all of these countries have had such controls in the recent past and we cannot
assure you that they will not reinstitute such controls in the future.

     Over the past five years, the Turkish economy has experienced
hyperinflation. To combat the persistently high levels of inflation in Turkey,
the Turkish government has implemented policies, including austerity measures,
which could have a negative impact on the Turkish economy and on the
profitability of Turkcell, our most significant associated company. In February
2001, in the face of a potential financial and political crisis, Turkey
abandoned its exchange rate controls which were a key part of Turkey's economic
stabilization program. As a result of this action, the Turkish lira has
depreciated significantly against the U.S. dollar and the euro. We expect that
the devaluation of the lira will have a material adverse effect on the operating
profit and cash flow of Turkcell in 2001. In May 2001, the International
Monetary Fund (IMF) pledged an aggregate of $15.7 billion to help Turkey
overhaul its crisis-ridden economy. There can be no assurance, however, that
Turkey will satisfy the conditions for the release of the pledged IMF funds.

     Turkey is currently headed by a coalition government that has shown signs
of instability. In February 2001, a political crisis arose as a result of a
dispute between the President of Turkey and the Prime Minister. The crisis had a
major impact on investor confidence in Turkey and precipitated an economic
crisis. Any negative changes in government, including additional conflicts
between senior politicians in Turkey, or the breakdown of the ruling coalition
may create instability and may adversely affect the Turkish economy. In
addition, the failure of the Turkish government to devise or implement
appropriate economic programs may also adversely affect the Turkish economy.

     In the aftermath of the major earthquakes which occurred in the Marmara
Region of Turkey in August and November of 1999, the Turkish Parliament imposed
a temporary earthquake relief tax on mobile telephone subscriptions representing
25 percent of a subscriber's monthly mobile telephone charges. The tax,
initially in effect from December 1999 through the end of 2000 and recently
extended up to the end of 2002, has negatively impacted mobile usage in Turkey
and Turkcell's net profit. Turkcell's management believes that Turkcell will
continue to be negatively impacted by this tax but is currently not in a
position to estimate the future magnitude of the impact.

WE EXPECT TO RECORD A SIGNIFICANT EQUITY LOSS FROM OUR ASSOCIATED COMPANIES IN
2001 WHICH WILL HAVE A NEGATIVE IMPACT ON OUR NET INCOME.

     While our equity income from associated companies has shown strong growth
in prior years, increasing from E59 million in 1998 to E121 million in 2000, we
expect to record an equity loss of approximately E350 million in 2001. Two of
our principal associated companies, Turkcell and Fintur, are expected to report
losses in 2001 due, among other things, to the slowdown in the Turkish
telecommunications market, the continuation of a temporary tax on mobile phone
subscriptions in Turkey, the devaluation of the Turkish lira and increased
expenses for the development of new services. We also expect to incur
significant equity losses from our associated company Gruppe 3G, which holds a
UMTS license in Germany, due to start-up costs. The equity loss we expect to
record in 2001 will have a material adverse effect on our 2001 net income.

TURKCELL IS IN BREACH OF CERTAIN OF ITS LOAN COVENANTS, WHICH COULD HAVE A
MATERIAL ADVERSE EFFECT ON TURKCELL AND ON OUR HOLDINGS IN TURKCELL.

     Based on Turkcell's interim financial statements as of March 31, 2001,
Turkcell was in breach of certain of its covenants attached to its bank loans.
If the lenders were to demand immediate repayment of these loans, it would
trigger a cross-default to Turkcell's other indebtedness, which could have a
material adverse effect on Turkcell's financial condition. Turkcell has stated
that it does not expect the lenders to accelerate repayments under the bank loan
facilities, and that it is currently not aware of plans by the lenders to
require such accelerated payments. Turkcell also expects to begin negotiating
the covenants with the lenders shortly. Turkcell Holdings A.S., in which we hold
a 47.1 percent interest, has pledged one-fourth of the shares it holds in
Turkcell, or

                                        10
24

approximately one-sixth of our total interest in Turkcell, to secure Turkcell's
bank loan facilities. As of March 31, 2001, we also had guarantees outstanding
in the amount of E32 million in relation to Turkcell's debt. In the event
Turkcell were to default on its bank loans, we may be required to forfeit a
portion of our holdings in Turkcell and satisfy our obligations under the
guarantees.

WE HAVE ONLY LIMITED CONTROL OF OUR THIRD GENERATION JOINT VENTURES AND OTHER
INTERNATIONAL ASSOCIATED COMPANIES.

     Substantially all of our business activities as a telecommunications
operator outside of the Nordic area are conducted through joint ventures or
associated companies in which we have less than a majority holding. As a result,
we have limited control over the conduct of our international operator
businesses. With respect to our third generation joint ventures and associated
GSM operating companies, we cannot assure you that our joint venture partners or
strategic co-investors will wish to continue their partnerships with us or
continue to be a co-investor with us in the future or that we will be able to
pursue our stated strategies with respect to these joint ventures and associated
GSM operating companies. For example, we may have disputes with our joint
venture partners or co-investors over business decisions relating to the subject
companies. In addition, the third generation joint ventures or the associated
GSM operating companies may themselves undergo a change of control. Any of these
factors could harm our financial condition and results of operations.

THE INCOME WE RECEIVE FROM OUR INVESTMENTS IN TELECOMMUNICATIONS COMPANIES
OUTSIDE OF FINLAND MAY BE ADVERSELY AFFECTED BY INCREASES IN COMPETITION.

     Most of our associated companies and other non-Finnish companies in which
we hold an equity interest face significant competition in the markets in which
they operate. Our most significant GSM associated companies operate in Turkey,
the Baltic States and Hungary. The competition in these markets is expected to
increase as additional GSM licenses are granted. For instance, our associated
companies Turkcell, which operates in Turkey, and Pannon, which operates in
Hungary, are beginning to experience increased competition. In Turkey, one new
GSM operator started to offer services in March 2001, and another is expected to
do so in the second half of 2001. In Hungary, a new competing GSM provider,
Vodafone Hungary, a subsidiary of Vodafone Airtouch, commenced commercial
activities in 1999.

     In addition, we expect that the fixed-line telecommunications markets in
each of the Baltic States will be opened to competition within the next several
years as part of these countries' measures to comply with the European Union's
membership requirements. As a result, we expect that our associated companies
which offer fixed-line services in the Baltic States (AS Eesti Telefon in
Estonia, Lattelekom SIA in Latvia and AB Lietuvos Telekomas in Lithuania) may
lose market share and be forced to reduce some of their tariffs in response to
increased competition.

     We currently cannot assess what specific effects increased competition will
have on the results of operations or financial condition of our associated
companies and other international investments and, in turn, the amount of income
we will derive from our associated companies and other international
investments.

THE VALUE OF OUR INVESTMENTS IN OUR ASSOCIATED GSM OPERATING COMPANIES, AND THE
INCOME WE DERIVE FROM OUR ASSOCIATED GSM OPERATING COMPANIES, COULD DECREASE DUE
TO UMTS LICENSE COSTS AND CONDITIONS IMPOSED BY THOSE COUNTRIES IN WHICH THESE
COMPANIES OPERATE.

     Most, if not all, of the countries where our associated GSM operating
companies do business are planning or are expected to plan UMTS license tenders.
The prices of and conditions imposed by UMTS licenses in those countries are not
known yet. It is possible that UMTS license tenders may have a negative impact
on the valuations of our associated companies, their ability to pay dividends
and their need for external financing. The impact on our associated GSM
operating companies will depend upon a number of factors, including the prices
of the licenses, the conditions imposed by the licenses and whether our
associated companies are successful in

                                        11
25

bidding for the licenses. In addition, UMTS license tenders give new operators a
chance to enter the market which may increase the overall level of competition
for mobile telecommunications services in those markets.

THE VALUE OF OUR INVESTMENTS IN OUR ASSOCIATED COMPANIES, AND THE INCOME WE
DERIVE FROM OUR ASSOCIATED COMPANIES, COULD DECREASE IF THE EXCHANGE RATES
BETWEEN THE EURO AND THE OPERATING AND ACCOUNTING CURRENCIES OF OUR ASSOCIATED
COMPANIES CHANGE SIGNIFICANTLY.

     Most of our associated companies conduct their operations, prepare their
financial statements and pay dividends in currencies other than the euro.
Moreover, some of our associated companies, including Turkcell, operate under
currencies that are relatively volatile and may therefore fluctuate greatly
against the euro. In particular, the Turkish government effectively devalued the
lira in February 2001 causing the lira to decline significantly against the
euro. Any loss in value of any such currencies against the euro will have a
negative impact on the value of our investments in the relevant associated
company and the amount of income we derive from the relevant associated company,
in each case as reflected in our euro-denominated financial statements.

AS PART OF OUR STRATEGY TO ENHANCE THE VALUE OF OUR ASSETS, WE MAY DIVEST A
PORTION OR ALL OF OUR INTERESTS IN SOME OF OUR GROWTH BUSINESSES, SUCH AS SONERA
SMARTTRUST AND SONERA ZED, AS WELL AS OUR ASSOCIATED COMPANIES. IF WE WERE TO
PARTIALLY OR FULLY DIVEST SUCH ASSETS, WE COULD RISK LOSING CONTROL OF
TECHNOLOGIES AND SERVICES OR ACCESS TO MARKETS THAT ARE IMPORTANT FOR THE FUTURE
GROWTH OF OUR COMPANY.

     To enhance the value of our assets, we plan, depending on market
conditions, to divest a portion or all of our interests in some of our growth
businesses, such as Sonera SmartTrust and Sonera zed. In the event we dispose of
our interests in such growth businesses, we would risk reducing the level of
control we may exercise over and the amount of income we may receive from such
companies. In addition, we could risk losing control over important technology
and intellectual property rights that had been transferred to such businesses as
well as losing our customers to such businesses. Such dispositions might also
give rise to the perception in the financial markets that Sonera itself is
abandoning its innovative past and strategic goals, which could negatively
affect our share price. We may also decide to dispose of certain of our
investments in our international associated companies, either in part or in
whole, in light of market conditions or otherwise in an effort to maximize the
return on our investments. For instance, in 2000, we disposed of approximately
one-tenth of our holding in Turkcell. We are also investigating the possibility
of divesting a portion of our interest in our third generation joint venture
Gruppe 3G. In the event we sell a portion of our interests in our associated GSM
operating companies or third generation joint ventures, we risk reducing the
level of influence we may exercise over such companies and the amount of equity
income we receive from such companies.

WE MAY BE SUED BY THIRD PARTIES FOR INFRINGEMENT OF THEIR PROPRIETARY RIGHTS.

     The telecommunications and security software industries are characterized
by the existence of a large number of patents and litigation based on
allegations of patent infringement or other violations of intellectual property
rights. As the number of entrants into the market grows and the overlap of
product functionalities increases, the possibility of an intellectual property
claim against us increases. In particular with respect to some of our SmartTrust
products, we have received, and may receive in the future, notices of claims of
infringement of other parties' proprietary rights. We are currently involved in
a lawsuit with the former CEO of Sonera SmartTrust, Harri Vatanen, over a
technology agreement we entered into with him in 1998. Any such claims or
lawsuits, whether with or without merit, could be time-consuming, result in
costly litigation and diversion of technical and management personnel, cause
product shipment delays or require us to develop non-infringing technology or to
enter into royalty or licensing agreements. Such royalty or licensing
agreements, if required, may not be available on commercially reasonable terms
or at all. If a successful claim of product infringement were made against us
and we could not develop non-infringing technology or license the infringed or
similar technology on a timely and cost-effective basis, our business could be
harmed.

                                        12
26

AS PART OF OUR GROWTH STRATEGY, WE MAY SEEK TO PARTICIPATE IN THE ONGOING
CONSOLIDATION OF THE TELECOMMUNICATIONS INDUSTRY THROUGH A STRATEGIC ALLIANCE OR
OTHER FORM OF BUSINESS COMBINATION. OUR FAILURE TO PARTICIPATE SUCCESSFULLY IN
THE CONSOLIDATION OF THE INDUSTRY COULD HARM OUR BUSINESS AND OUR SHAREHOLDERS.

     As part of our growth strategy, we may seek to participate in the ongoing
consolidation of the telecommunications industry in Europe. This strategy
entails a variety of risks that could negatively impact our business. On the one
hand, there is the risk that due to competition in the identification of
strategic partners, we enter into a strategic alliance or partnership on
unattractive terms. There is also the risk that we will not be able to
successfully integrate and profitably manage any potential business combination.
We also face substantial risks if we fail to participate in the consolidation of
the industry. Among other things, failing to participate in the consolidation of
the industry could make us more susceptible to competition from global
competitors, could hamper our ability to grow our subscriber base and could make
it more difficult for us to market our enhanced mobile services and applications
on an international basis.

IF WE LOSE OR ARE UNABLE TO RENEW LICENSES NECESSARY FOR CONDUCTING OUR
OPERATIONS IN FINLAND AND INTERNATIONALLY, WE MAY NOT BE ABLE TO CARRY ON PARTS
OF OUR CURRENT OR PLANNED BUSINESS.

     We are in many cases only permitted to provide telecommunications services
and operate networks under licenses granted by competent authorities in each
country. All of these licenses are issued for a limited period of time and may
not be renewed or, if they are renewed, their terms may be changed.

     These licenses contain a number of requirements regarding the way we
conduct our business, as well as regarding network quality and coverage. Failure
to meet these requirements could result in fines or other sanctions, including,
ultimately, revocation of the licenses.

WE DEPEND ON OUR RELATIONSHIPS WITH VARIOUS PARTNERS AND SUPPLIERS AND THE
DISRUPTION OF THESE RELATIONSHIPS MAY ADVERSELY AFFECT OUR BUSINESS.

     Our businesses depend on our ability to obtain adequate supplies of
telecommunications equipment (and related software), our contractors' ability to
build and roll out telecommunications networks on schedule, and our suppliers'
ability to deliver dependable technical support. Our dependence on our suppliers
is now particularly important because of our strategy to build and roll out
third generation networks and launch third generation services. We cannot be
certain that we will be able to obtain telecommunications equipment from our
alternative suppliers on a timely basis if our existing suppliers are unable to
satisfy our requirements. This could lead to an interruption to the operation
and build out of our networks and the networks of our joint ventures, which
could harm our results of operations and financial condition.

WE MAY NOT BE ABLE TO REMAIN COMPETITIVE AND IMPLEMENT OUR GROWTH STRATEGIES IF
WE CANNOT RETAIN SKILLED PERSONNEL.

     In order to remain competitive and implement our growth strategies, we need
to retain our high quality employees. Competition for qualified
telecommunications and information technology personnel in Finland and
internationally is intense. To a considerable extent, our ability to retain
skilled personnel in our growth businesses, such as Sonera SmartTrust, Sonera
zed and Sonera Juxto, and for our international operations will depend on our
continuing ability to offer stock options and other similar incentives to our
personnel. The adoption of such incentive programs may require the support of
the Finnish State as a majority shareholder. We have already experienced
difficulties in retaining various categories of employees, including product
managers and information technology specialists, and have lost competent
personnel to our competitors. We cannot assure you that we will be able to
retain qualified personnel in the future. In particular, we cannot assure you
that we will continue to be able to make sufficient incentive programs available
to our personnel. If we cannot retain skilled employees, we may not be able to
continue to develop new business areas or make advances or retain our
competitive positions in our traditional business areas.

                                        13
27

SENIOR MANAGEMENT HAS RECENTLY UNDERGONE SIGNIFICANT CHANGE.

     At our annual general meeting of shareholder held in March 2001, all but
one of the members of our Board of Directors were replaced. In addition, in June
2001, Kaj-Erik Relander, our President and CEO, announced that he would resign
effective August 1, 2001. We have also lost certain other members of our
executive and senior management in the recent past. Such significant changes in
management present a number of risks, including the difficulty of predicting the
performance of the new directors and officers and the potential for disruption
of our previous policies and strategies, which could cause our results of
operations and financial condition to suffer.

ACTUAL OR PERCEIVED HEALTH RISKS OR OTHER PROBLEMS RELATING TO MOBILE HANDSETS
OR TRANSMISSION MASTS COULD LEAD TO DECREASED MOBILE COMMUNICATIONS USAGE.

     Concern has been expressed that the electromagnetic signals from mobile
handsets and transmission masts, which serve as antennae for transmitting radio
signals, may pose health risks and interfere with the operation of electronic
equipment, including automobile braking and steering systems. Actual or
perceived risks of mobile handsets or transmission masts and related publicity
or litigation could reduce our growth rate, customer base or average usage per
customer and could therefore have a negative impact on our results of operations
or financial condition.

WE COULD BE INFLUENCED BY THE FINNISH STATE WHOSE INTERESTS MAY NOT ALWAYS BE
ALIGNED WITH YOURS.

     The Finnish State holds approximately 52.8 percent of our share capital and
voting rights. Accordingly, the Finnish State has the power to determine matters
submitted for a vote of shareholders, including the approval of the annual
financial statements, declarations of dividends, capital increases in connection
with acquisitions, investments or otherwise, and the election and removal of
members of our board of directors. The Finnish State also has the power to
prevent a change of control in Sonera. The interests of the Finnish State in
approving or rejecting these matters could be different from the interests of
our other shareholders.

FUTURE SALES OF SHARES COULD ADVERSELY AFFECT THE MARKET PRICE OF OUR SHARES.

     The Finnish Parliament has authorized the Finnish Government to reduce the
Finnish State's shareholding in our company to zero. We do not know the timing
and manner of any further sale of shares by the Finnish State, or the effect of
any such sale on our other shareholders. However, the sale of a substantial
number of additional shares by the Finnish State in the future could cause the
market price for our shares or ADSs to drop.

                                        14
28

ITEM 4.  INFORMATION ON THE COMPANY.

                                  ORGANIZATION

     Sonera Corporation is a stock corporation organized under the laws of the
Republic of Finland. The Company was incorporated in the Republic of Finland on
September 30, 1999 as a result of the merger of Sonera Ltd. into Sonera Group
plc and renamed Sonera Corporation on October 1, 1999. Sonera Corporation's
registered office is located at Teollisuuskatu 15, FIN-00051 SONERA, Helsinki,
Finland. Our telephone number is 358-20401. Our agent for U.S. federal
securities law purposes is Sonera Corporation U.S., 890 Winter Street, Waltham,
MA 02451.

                                    HISTORY

OVERVIEW

     We originated as part of a state organization, the Telegraph Office of
Finland, which was created shortly after the founding of the independent state
of Finland in 1917 and was responsible for state telegraph operations. The
Telegraph Office initially operated a fixed long distance network and a number
of local fixed networks and was merged with another state organization, Post of
Finland, in 1928 to form Posts and Telegraphs of Finland, subsequently renamed
Posts and Telecommunications of Finland. As an administrative entity, Posts and
Telegraphs of Finland had a dual role as a telecommunications operator and as a
regulator of the telecommunications market. In 1935, Posts and Telegraphs of
Finland became the only Finnish long distance and international call operator.
The monopoly in long distance and international telephone services continued
until 1992, at which time the Finnish Council of State began granting licenses
to competing telephone operators. Practically all forms of national
telecommunications services in Finland were opened to competition in 1994 when
the market for the provision of domestic long distance and international
telecommunications services was fully liberalized.

     As a first step towards making the structure of Posts and
Telecommunications of Finland more market-orientated, its regulatory functions
were transferred to the Ministry of Transport and Communications in 1987. On
January 1, 1990, Posts and Telecommunications of Finland became an
unincorporated state-owned enterprise and its operations were separated from the
state budget. On January 1, 1994, Posts and Telecommunications of Finland was
converted into a limited liability company, PT Finland, and its business
operations and assets were divided into two principal business areas; postal
services and telecommunications. PT Finland's postal service operations and
telecommunications operations were then transferred into newly-created
corporations, Finland Post Ltd. and Telecom Finland, while certain non-core
operations were transferred to other subsidiaries within PT Finland. After
incorporation, the group started operating entirely on commercial terms.

     In December 1997, the Finnish Parliament approved a gradual and partial
privatization of Telecom Finland. As part of the privatization program, PT
Finland's postal services and telecommunications operations were separated from
each other by dividing PT Finland into separate telecommunications and postal
services groups and placing Telecom Finland and some other subsidiary and
associated companies of PT Finland under the telecommunications group. The
demerger took effect on July 1, 1998.

THE DEMERGER

     The demerger was effected principally to allow us access to the
international capital markets and thus to implement a capital structure better
suited to our needs and prospects. The demerger was also prompted by the
expectation that, as a separate company, we would be better able to focus on our
distinctive strategic objectives, operational needs and philosophies, capital
requirements, personnel needs and resources, product development and marketing
policies.

     Upon the effectiveness of the demerger, the shares of Telecom Finland,
Tieto Corporation (currently TietoEnator) and PT Credit Ltd. (currently, Sonera
Gateway) and other assets and liabilities were transferred by operation of law
to Telecom Finland Group plc, and the shares of Finland Post Ltd. and other
assets and liabilities were transferred to Finland Post Group Ltd. After the
completion of the demerger, PT Finland ceased to exist,

                                        15
29

and the Finnish State, as the former sole shareholder of PT Finland, received
all of the outstanding shares of Telecom Finland Group and of Finland Post
Group.

SHARE SPLIT AND NAME CHANGE

     After the demerger, in a series of meetings of the shareholders of Telecom
Finland Group plc, the articles of association of Telecom Finland Group plc were
amended to provide for an increase in the number of shares as well as a change
to the name Sonera Group plc. In addition, the share capital of Telecom Finland
Group plc was resolved to be changed into euro denomination and the nominal
value of the ordinary shares to be dropped on the basis of a legislative
amendment promulgated in connection with the introduction of the euro. These
changes took effect on January 25, 1999. The name change was motivated primarily
by the anticipated change in our status from a state-owned company to a publicly
owned corporation in connection with our initial public offering. In particular,
our management believed that our previous name gave the impression of the
company as a Finnish telecommunications monopoly, which is neither
representative of our position in the Finnish telecommunications market nor
reflective of our ongoing business strategy. In connection with the demerger,
Sonera's principal operating subsidiary, Telecom Finland, assumed the name
Sonera Corporation on April 15, 1998, which was subsequently changed to Sonera
Ltd. in July 1998.

MERGER OF SONERA GROUP PLC AND SONERA LTD.

     In February 1999, the board of directors of each of Sonera Group plc
(presently, Sonera Corporation) and Sonera Ltd., a wholly-owned subsidiary of
Sonera Group plc, resolved to merge Sonera Ltd. into Sonera Group plc, the stock
exchange listed parent company of the consolidated group. The name of the
combined entity was decided to be changed to Sonera Corporation upon completion
of the merger. The merger was completed on September 30, 1999 while the name
change took effect on October 1, 1999.

INITIAL PUBLIC OFFERING

     Prior to November 1998, all of our shares were owned by the Finnish State.
In November 1998, the Finnish State sold 158,000,000 shares at the price of FIM
45 (E7.57) per share in an institutional offering in reliance on Rule 144A and
Regulation S under the Securities Act of 1933 and in a retail offering in
Finland. At the same time, we issued 2,000,000 shares at the price of FIM 40.5
(E6.81) per share in an employee offering. In connection with the November 1998
offering, our shares were listed on the Helsinki Securities and Derivative
Exchange, Clearing House Ltd. (the "Helsinki Exchanges").

FOLLOW-ON OFFERINGS OF OUR SHARES

     In October 1999, the Finnish State sold an additional 143,950,000 shares at
the price of E23.75 per share, the sale of which reduced the Finnish State's
holding in our shares to 57.9 percent. Approximately 50,000 investors
participated in the retail offering in Finland, and more than 44,000 of them
purchased shares with bonus rights. In November 2000, investors who participated
in the bonus offering received, for no additional cost, an aggregate of
approximately one million shares from the Finnish State. On March 7, 2000, the
Finnish State sold an additional 22 million shares at the price of E92 per share
to institutional investors on a private placement basis. The Finnish State
currently holds 52.8 percent of our outstanding shares. In June 2000, the
Finnish Parliament authorized the Finnish Government to lower the Finnish
State's holding to zero. See "Item 7. Major Shareholders and Related Party
Transactions."

     In connection with the 1999 offering, we applied for the quotation of our
shares on the Nasdaq National Market in the United States. Trading in our shares
on the Nasdaq National Market commenced on October 13, 1999. See "Item 9. The
Offer and Listing."

                               BUSINESS OVERVIEW

     We are the leading provider of telecommunications services in Finland, one
of the most sophisticated telecommunications markets in the world. Mobile
communications, which accounted for approximately 54 per-

                                        16
30

cent of our total revenues in 2000, is our principal area of focus. In addition
to being the leading mobile telecommunications provider in Finland, we also have
strategic investments in mobile operators in a number of other countries
including Turkey, Hungary, the Baltic States, Russia and Lebanon. We have
committed substantial resources to the development of new services and
applications for mobile communications as well as for data and media services.
In addition, we have a UMTS license in Finland and joint ventures of which we
are a member have been granted UMTS licenses in Germany, Italy, Spain and
Norway.

     We are also one of the leading providers of domestic long distance and
international voice services in Finland. In addition, we provide local voice
services primarily in the more sparsely populated areas of eastern and northern
Finland. We also have significant investments in fixed-line communications
operators in the Baltic States.

     In 2000, we recorded revenues of E2,057 million, and an operating profit of
E1,748 million (including non-recurring capital gains and other such items of
E1,546 million). At December 31, 2000, we had total assets of E9,774 million.

                                    STRATEGY

     Our objective is to increase shareholder value by becoming a leading
provider of enhanced mobile telecommunications services in Finland and
internationally. To achieve our objectives, we have adopted the following
strategies:

DEVELOP OUR INTERNATIONAL MOBILE OPERATOR BUSINESS THROUGH OUR THIRD GENERATION
JOINT VENTURES AND ASSOCIATED GSM OPERATING COMPANIES

     In 2000, we achieved our objective of obtaining, together with strategic
partners, UMTS licenses in several of Europe's leading mobile markets, including
Germany, Italy and Spain. We are now focusing on launching commercial third
generation network services through our joint ventures. To accomplish this, we
plan to provide our joint venture companies both technical and financial
assistance in the build out of their third generation mobile networks in an
efficient and timely way. Using the know-how and experience we have gained as a
network operator and service provider in our advanced home market in Finland, we
also plan to cooperate with our joint venture companies in building third
generation service platforms. We believe that our third generation joint
ventures will be able to generate revenues from a variety of new sources, such
as the provision of content and high speed data services, and will be an
important source of income for Sonera. We believe that the third generation
joint ventures will also provide us with a means of increasing the penetration
of our enhanced mobile technologies and services, such as our Sonera SmartTrust
applications and Sonera zed services, in these large European markets. To
acquire subscribers and strengthen the brands of our third generation joint
ventures prior to the commercial introduction of third generation network
services, we may also assist our joint ventures in entering into strategic
arrangements such as the agreement Gruppe 3G recently entered into with the
German mobile operator E-Plus MobilFunk GmbH & Co. KG, which will allow Gruppe
3G to begin offering a GPRS/GSM service in Germany in the second half of 2001.
Depending on regulatory, legal and other developments, we may also seek to
reduce the cost of the build-out of the networks of the third generation
networks of our joint ventures by cooperating with other operators in the build
out of the networks.

     In addition, we plan to continue to participate actively in an effort to
enhance the value of our associated GSM operating companies, such as Turkcell,
Pannon and EMT, by providing such operators with strategic and technological
assistance to upgrade their networks and to enable them to offer their customers
a greater variety of value-added services. We also plan to continue to export
our marketing and customer service expertise to our associated GSM operating
companies and to help such companies bid for UMTS licenses where practicable.

EXPAND OUR WIRELESS AND INTERNET BASED VALUE-ADDED CONTENT SERVICE BUSINESS

     We currently offer a mobile portal service, Sonera zed, which is one of the
leading operator independent mobile portals with a potential customer base of
over 100 million based on the contracts we have entered into with
telecommunications operators. Sonera zed aims to offer relevant and easy to use
content and applications to

                                        17
31

mobile subscribers. Zed currently operates in nine countries and offers both SMS
and WAP services depending on the market. The major challenge for zed is now to
leverage its extensive international distribution to generate revenues. Among
other initiatives, we expect to upgrade the technological capabilities of our
zed services to function in a GPRS and, in the future, a UMTS environment. We
have also begun to segment our customer base, establishing a package of advanced
services called "Zed for Business" targeted at business customers. We believe
that through these and other initiatives we can significantly increase the
revenues we derive from our Sonera zed services.

     We are also planning to sharpen the focus of our Sonera Plaza Internet
portal, the leading Internet portal in Finland, concentrating on financial,
entertainment and information services to enhance its appeal and to increase the
potential of deriving significant transaction based revenue from the service.
Through our subsidiary, Sonera Juxto, we are investing in the expansion of our
ASP service business, which we began to offer commercially in 2000. Sonera Juxto
will concentrate on offering wireless ASP services to corporate customers. We
have also focused on expanding our directory service business, Sonera Info
Communications, through cooperation with partners in Europe and the United
States. In particular, we plan to expand the advanced Internet and mobile
directory assistance services of Sonera Info Communications together with our
partners. As a means of enhancing the value of our content service businesses,
we are currently evaluating whether to sell a portion of our interests in Sonera
zed and certain of our other content service business through public offerings
or strategic sales or to enter into strategic alliances relating to such
businesses.

FOCUS ON THE DEVELOPMENT AND COMMERCIALIZATION OF INNOVATIVE MOBILE AND INTERNET
TRANSACTION TECHNOLOGIES

     Transaction volumes over the Internet and mobile telephones are expected to
grow dramatically in the next several years. Through our Sonera SmartTrust
wireless security solution, we are actively developing technologies intended to
facilitate the growth of Internet and mobile handset transactions. We offer
these technologies independently from our mobile telecommunications network,
allowing us to sell them on a global basis. Sonera SmartTrust provides PKI-based
solutions for mobile network operators and service providers, such as banks and
brokers, that enable highly secure mobile e-commerce services. As of the end of
2000, over 60 mobile operators and 160 service providers had deployed the
SmartTrust solution to manage the security of their e-services and through
continued technological development and marketing we aim to make Sonera
SmartTrust one of the world's leading providers of wireless security solutions.
To increase the functionality of the SmartTrust solution, we also seek to
acquire companies that have core technologies that complement SmartTrust's
technology. In this regard, we have integrated the businesses of Across Holding
AB, a leading provider of wireless Internet based service platforms that we
acquired in April 2000, and iD2 Holding AB, a leading provider of
smartcard-based security solutions for Internet transactions that we acquired in
June 2000, so that Sonera SmartTrust now offers a complete range of open
standard solutions for both mobile network operators and service providers. As a
result of these initiatives, we aim to significantly increase the revenues we
derive from our Sonera SmartTrust business. Moreover, as a means of enhancing
the value of our SmartTrust business, we are currently evaluating whether to
sell a portion of our interest in Sonera SmartTrust through a public offering or
strategic sale or to enter into a strategic alliance relating to our Sonera
SmartTrust business.

MAINTAIN OUR STRONG AND PROFITABLE POSITION IN THE FINNISH MOBILE AND FIXED
TELECOMMUNICATIONS MARKET

     In the Finnish telecommunications market, we seek to maintain our position
as a leading provider of mobile and fixed network services both to ensure
revenue growth and to generate cash to fund our other strategic initiatives. We
also aim to improve productivity and efficiency in our mobile and fixed network
businesses to enhance our overall cash flow and to improve our EBITDA. We seek
to maintain our position as the leading mobile communications operator in
Finland by expanding our subscriber base and stimulating usage through, among
other initiatives: (1) customer segmentation, (2) customer service, (3)
introduction of new products and services, and (4) continued emphasis on strong
retail distribution and high quality customer service.

     We seek to gain new subscribers and stimulate usage across our customer
segments by providing a broad range of customized products and services aimed at
attracting high usage customers and maintaining customer
                                        18
32

loyalty. Examples include the introduction of GSM tariff plans tailored to the
usage patterns of different business and residential customers. We also seek to
maintain our market leadership by being a forerunner in the development of
innovative mobile telecommunications products and services, including a wide
variety of SMS applications, for commercial application. We continue to focus on
maintaining the breadth and quality of our mobile retail distribution network,
which has been integral to the growth of our mobile communications business. We
also intend to continue to provide high quality customer service, largely
through our customer call centers, which provide 24-hour-a-day, seven-day-a-week
service.

     We seek to maintain our strong position in the domestic fixed network
telecommunications market in the face of increasing competition through, among
other actions, offering customers more cost efficient and higher capacity fixed
network access. We are devoting substantial resources to the installation of
fiber local loops in the major cities in Finland so that we can market direct
local access to business customers in those areas. We have and may continue to
make strategic investments in local telephone operators in selected cities in
Finland to broaden our base of fixed network corporate customers. We are also
concentrating on expanding our LAN interconnection and management data services.
In the highly competitive domestic long distance and international voice
markets, we are continuing to develop new ways of delivering our services. For
example, we are now in the process of testing a new service that uses IP
technology to carry voice transmissions over data networks.

DIVESTMENT OF NON-CORE ASSETS TO FUND STRATEGIC INITIATIVES

     To reduce our debt and finance our outlays on new services and the roll out
of the third generation networks of our joint ventures, we plan, among other
things, to divest non-core assets. Potential dispositions may take a variety of
forms, including asset sales, stock sales or sale-leaseback transactions, and
will be made subject to market conditions in an attempt to maximize the return
on our investments. In March 2001, we divested all of our interest in
TietoEnator, for which we received net proceeds of E424 million. In May 2001, we
agreed to sell a part of our fixed network business that targets Swedish
corporate customers to Song Networks Holding AB (previously Tele 1 Europe). We
received aggregate cash proceeds of approximately E720 million as a result of
(1) our sale of VoiceStream and Powertel shares in May 2001 and (2) our receipt
of cash from our tender of shares in connection with the Deutsche
Telekom-Powertel-VoiceStream merger which closed on May 31, 2001. We will use
this cash to reduce our short-term debt. We also received approximately 72
million shares of Deutsche Telekom in connection with the Deutsche
Telekom-Powertel-VoiceStream merger. We plan to dispose of our shareholdings in
Deutsche Telekom, taking into consideration market conditions and our lock-up
obligations, in an effort to maximize our return on the shares. We may also
decide to dispose of certain of our investments in our associated companies
either in part or in whole.

CONTINUE TO INVESTIGATE THE STRATEGIC POTENTIAL OF PARTICIPATING IN THE ONGOING
CONSOLIDATION OF THE TELECOMMUNICATIONS INDUSTRY

     As part of our growth strategy, we seek to participate in the ongoing
consolidation of the telecommunications industry in Europe. Management believes
that we are well positioned to participate in this consolidation because of our
role as a leader in telecommunications services in the sophisticated Finnish
market. Any acquisition, investment, business combination or strategic alliance
undertaken in connection with the ongoing consolidation of the industry could
increase our subscriber base substantially, improve our ability to serve
international corporate customers, improve our ability to market our enhanced
network independent services and allow us to pursue growth in markets which are
significantly larger and less penetrated than Finland.

                        DESCRIPTION OF GROUP OPERATIONS

OVERVIEW OF OPERATIONS

     We are organized into five business segments:

     -  Domestic Mobile Communications;

     -  International Mobile Communications;

                                        19
33

     -  Media Communications and New Services;

     -  Sonera Telecom, which includes our fixed-network voice and data services
        and our equipment sales and construction and maintenance businesses; and

     -  Other Operations, which consists principally of intra-Group operations.

     In addition, we have significant interests in mobile and fixed-line
telecommunications operators outside of Finland from which we derive equity
income. See "-- International and Other Significant Investments." The following
chart sets forth our external revenues broken down by business area as a
percentage of our total external revenues for the year ended December 31, 2000:

                        [PIE CHART OF EXTERNAL REVENUES]

     International Mobile Communications and Other Operations each generated
less than one percent of our external revenues in 2000.

     We are primarily active in Europe and hold minority interests in companies
in the United States and Asia. In 2000, substantially all of our revenues were
derived from activities in Europe.

SIGNIFICANT SUBSIDIARIES

     Sonera Corporation is the ultimate parent company of the Group. The
following table sets forth the significant subsidiaries owned, directly or
indirectly, by Sonera Corporation:
NUMBER OF
                                                                     PERCENTAGE    PERSONNEL AS OF
NAME OF COMPANY                                      DOMICILE          OWNED      DECEMBER 31, 2000
---------------                                      --------        ----------   -----------------
Intra Call Center S.A.........................   Amiens, France         51.1              283
Primatel Ltd..................................   Kuopio, Finland       100.0            1,837
Sonera Carrier Networks Ltd...................   Helsinki, Finland     100.0              774
Sonera Entrum Ltd.............................   Helsinki, Finland     100.0              892
Sonera Info Communications Ltd................   Helsinki, Finland     100.0              606
Sonera Juxto Ltd..............................   Helsinki, Finland     100.0              601
Sonera Plaza Ltd..............................   Helsinki, Finland     100.0              223
Sonera Plaza Nederland B.V....................   Capelle a/d           100.0              178
                                                 Ijssel,
                                                 the Netherlands
Sonera SmartTrust AB..........................   Stockholm, Sweden     100.0              241
Sonera SmartTrust Ltd.........................   Helsinki, Finland     100.0              193
Sonera Solutions Ltd..........................   Helsinki, Finland     100.0              827
Sonera Sverige AB.............................   Stockholm, Sweden     100.0              149
Sonera zed Ltd................................   Helsinki, Finland     100.0              134
Telering Ltd..................................   Helsinki, Finland     100.0              114
20
34

DOMESTIC MOBILE COMMUNICATIONS

     We are the leading mobile telecommunications operator in Finland. In 2000,
Domestic Mobile Communications generated revenues of E1,134 million, or
approximately 54 percent of our total revenues. We offer digital mobile services
through our GSM 900 and GSM 1800 networks and analog mobile services through our
NMT 450 network. Additionally, we began offering a GPRS service as a part of our
GSM service in December 2000. Our market share of GSM subscriptions in Finland
at the end of 2000 was greater than 60 percent. The aggregate penetration rate
of digital and analog mobile communications services in Finland is estimated to
be one of the highest in the world, exceeding 70 percent at the end of 2000.

     We are one of three licensed providers of GSM 900 services in Finland. At
year end, our GSM 900 network covered approximately 97 percent of Finland's
geographical area and 99 percent of its population. We also hold one of four
nationwide GSM 1800 licenses. We use our GSM 1800 network as a cost-effective
means of increasing the capacity of our GSM 900 network, predominantly in urban
areas with significant amounts of mobile traffic. We offer a dual band service
that can utilize both our GSM 900 and GSM 1800 networks through the use of dual
band handsets. Our dual band zones cover over 70 percent of the Finnish
population. At the end of 2000, approximately 35 percent of all our
subscriptions were dual band (36 percent of our GSM subscriptions were dual
band). Most of our new subscriptions since the beginning of 2000 have been dual
band. As of December 31, 2000, we had approximately 2.28 million GSM
subscriptions, representing more than a 60 percent share of the total GSM market
in Finland. Of these, approximately 2.2 percent were pre-paid subscriptions. We
began offering a GPRS service as a supplementary feature to the majority of our
GSM subscribers in December 2000. GPRS operates at a higher transmission rate
than GSM, and allows for simultaneous voice and data transmission connections.
Use of GPRS requires a GPRS terminal.

     We are the leading provider of analog mobile services in Finland through
our NMT 450 network. Our NMT 450 network covers approximately 99 percent of
Finland's geographic area and its population. Provision of our NMT 900 mobile
services was discontinued on December 31, 2000 due to the decrease in the number
of NMT 900 subscribers and the decreased average monthly usage of our NMT 900
subscriptions.

SUBSCRIPTIONS

     The table below sets forth selected subscription data for our GSM and NMT
services as of the dates specified:
AS OF DECEMBER 31,
                                                            -----------------------------------
                                                              1998         1999         2000
                                                            ---------    ---------    ---------
Subscriptions at end of period:
  By type of service:
  GSM(1)................................................    1,596,897    1,938,644    2,281,916
  NMT...................................................      334,987      197,597       55,863
                                                            ---------    ---------    ---------
Total subscriptions.....................................    1,931,884    2,136,241    2,337,779
                                                            =========    =========    =========
  By type of subscription:
  Business(2)...........................................      431,739      453,615      480,191
  Residential(2)........................................    1,500,145    1,682,626    1,857,588
                                                            ---------    ---------    ---------
Total subscriptions.....................................    1,931,884    2,136,241    2,337,779
                                                            =========    =========    =========
------------------------------

(1) Includes combined data with respect to our GSM 900 and GSM dual band
    services.

(2) Business and residential subscriptions have been divided according to tax
    identification number.

     The growth in our total mobile subscription base is due to the increase in
the number of GSM subscriptions. The rapid increase in the number of our GSM
subscriptions since 1995 is attributable to a number of factors, including the
quality and innovative nature of our services, our active marketing, our
introduction of targeted tariff packages and the increasing number of
subscribers who have switched from NMT services to GSM services. We expect GSM
subscriber growth to slow in the future due to the high penetration levels in
Finland of

                                        21
35

above 70 percent. We believe, however, that we have new means to grow revenue
and profitability through initiatives such as new data services and cost-control
programs, as well as through the continuing evolution of Finland as a wireless
telecommunications environment in which subscribers may have more than one
mobile connection. However, we expect that the growth of our mobile subscriber
base will continue to slow down in the future.

     We also believe that we have one of the lowest churn rates for GSM services
in Europe. "Churn" refers to customer deactivations that occur either
voluntarily, due, for example, to customers switching to a competing network or
terminating mobile service altogether, or involuntarily, due, for example, to
bill non-payment. Our GSM churn rate, which reflects the total number of GSM
subscriber deactivations during the period as a percentage of the average number
of our GSM subscribers for the period, was 14.0, 14.6 and 12.4 percent for 1998,
1999 and 2000, respectively. Moreover, customer churn, which excludes cases in
which the registered owner of the subscription changes but the user remains the
same (as in the case where a person has his or her individual subscription
transferred to a company subscription), was significantly lower at 9.7 percent
in 2000, as compared to 12.1 percent in 1999. We attribute our low GSM churn
rate to a number of factors including the general prohibition against handset
subsidies in the Finnish market, the existence of only one nationwide GSM 900
competitor operating in the market until the beginning of 2001 (there are
currently two licensed competitors), the high quality of our customer service,
our computerized credit checking procedures and the innovative services we
offer. Because of the general prohibition against handset subsidies in the
Finnish GSM market, a subscriber has little incentive to terminate his or her
subscription and enter into a new subscription to obtain a more modern handset
at a subsidized rate, as is the practice in most other European countries.

     In recent years, we have experienced a high migration rate in our NMT
services. Increased migration of NMT customers has resulted principally from
analog subscribers switching to digital services. The majority of our
disconnecting NMT subscribers have gone on to subscribe to our GSM services. As
a result of these developments, we discontinued our NMT 900 service at the end
of 2000. The Finnish telecommunications authorities have released the spectrum
previously allocated to our NMT 900 operations to our GSM operations and to the
GSM operations of Radiolinja, our main competitor in nationwide GSM 900
services, in proportion to our respective market shares, and have reserved
spectrum for the GSM 900 operations of DNA Finland.

TRAFFIC

     The table below sets forth selected traffic data for our GSM and NMT
services for the periods indicated:
YEAR ENDED DECEMBER 31,
                                                                -----------------------
                                                                1998     1999     2000
                                                                -----    -----    -----
Total traffic (in millions of minutes)(1)...................    2,452    3,173    3,724
Average monthly minutes of use per subscription(2)..........      116      130      139
------------------------------

(1) Includes outgoing mobile to mobile and mobile to fixed-line calls.

(2) Average monthly minutes of use per subscription is calculated by dividing
    total outgoing traffic for our GSM and NMT services by the average number of
    subscriptions for the period for both types of service divided by the number
    of months in the period.

     Growth in total traffic on our GSM network since 1997 is principally due to
the growth in our GSM subscriber base. Continued traffic volume growth on our
GSM network will depend on a number of factors, including pricing and the
availability of new services, general economic conditions, the overall mix of
our subscriptions and the level of competition for obtaining new subscriptions.
In addition, we believe that the growth of usage per subscription has partly
offset increases in the number of lower volume residential subscribers to our
GSM services.

     Our NMT networks have experienced a continued decline in total traffic
since 1995, attributable primarily to the steady decrease in the number of
subscribers for these services. Because of the rapid decline in recent years in
average traffic per NMT 900 subscriber, as most higher volume NMT 900
subscribers switched to GSM services, we discontinued providing NMT 900 services
at the end of 2000. Average traffic per NMT 450 subscriber has

                                        22
36

remained largely stable in recent years as the core users of the NMT 450
service, including certain niche groups such as freight transport operators and
seasonal users, maintain steady usage.

TARIFFS

     We charge subscribers an initial connection fee, monthly subscription
charges and traffic charges for outgoing calls based on minutes of use and for
outgoing SMS messages based on the number of messages sent. Subscribers are not
charged for incoming calls (other than calls received while roaming) although
Sonera receives interconnection fees from other telecommunications service
providers for these calls. See "Item 5. Operating and Financial Review and
Prospects -- Overview -- Interconnection Arrangements." In 2000, traffic
revenues, including interconnection and roaming revenues, accounted for
approximately 84.5 percent of Domestic Mobile Communications' revenues, while
monthly subscription charges, initial connection fees and complementary service
charges accounted for approximately 11 percent. While charges for the provision
of mobile communications services are not subject to direct regulation in
Finland, Finnish telecommunications regulation and competition law subject
operators with dominant market positions or a significant market power,
including us, to cost-based and non-discriminatory pricing requirements. See "--
Regulation."

     Airtime is billed in per-second intervals under all of our pricing plans.
We provide a number of value-added services to our subscribers at no additional
monthly service fee, including voice mail and SMS messaging services.
Subscribers are charged monthly service fees for other value-added services,
such as smart phone back-up service, and are charged per-minute or
per-transaction fees for other services such as value-added SMS messaging
services and GSM data. In general, international tariff rates vary depending
upon the country called rather than the tariff plan selected. Roaming rates vary
depending upon the terms contained in the individual roaming agreements and the
relevant foreign mobile network operator.

GSM

     We currently offer seven different pricing plans for our GSM 900 mobile
communications service and three for our GSM dual band mobile communications
service. The initial connection fee for each pricing plan is E6.73, while
monthly service fees range from E2.50 to E8.41, in each case excluding
value-added tax ("VAT").

     Our current GSM pricing plans include: Business, Company, Classic, Privat,
Easy, Control and Control Plus. In addition, there are three plans for dual
frequency phones: Business Duo, Company Duo and Privat Duo. The Control and
Control Plus plans, which were launched in April 2001, are geared for machine
applications that are based on data transfer or SMS messaging.

     The Business and Company pricing plans are designed for business users with
heavy usage rates during peak hours. The Classic pricing plan has a lower
monthly service charge than the Business pricing plan and standard tariff rates
to suit the needs of average and moderate usage subscribers. The Privat pricing
plan is designed for callers with more moderate calling volumes and who use
their mobile phones primarily in the evenings, on weekends and during summer
months. The Duo pricing plans offer lower per minute rates when a customer using
a dual band phone calls from an area where Sonera offers GSM 1800 coverage while
calls made from sole GSM 900 coverage areas are charged at slightly higher rates
than in most other GSM 900 pricing plans. Additionally, in September 1998, we
launched the Easy pricing plan, which is based on a pre-activated and pre-paid
SIM card containing E50.46 (including VAT) of airtime. An Easy SIM card costs
E63.91 but has no activation charge and no monthly subscription fee. On December
31, 2000, there were approximately 51,000 activated Easy SIM cards outstanding.

     In February 2001, we introduced the Sonera Recharging Card, a scratch card
by which customers may pay in advance for the outgoing traffic of their mobile
phone subscription. The card is scratched to reveal a 12-digit number which is
needed to activate the card. The card may then be activated either through
placing a call, sending an SMS text message, or through the Internet.

     We began offering a GPRS service in December 2000. The Sonera GPRS service,
which can be added as a supplementary feature to the majority of Sonera GSM
subscriptions, has a fixed monthly payment of E16.65, which covers unrestricted
GPRS data transmission, as well as the monthly payment of mobile e-mail.
However,

                                        23
37

we plan to announce a more complete pricing structure during 2001 when a more
wide ranging marketing of the service is expected to start.

NMT

     We currently offer four pricing plans for our NMT 450 mobile telephone
service. New NMT subscriptions have not been marketed since April 1999. We
discontinued offering NMT 900 services on December 31, 2000.

INTERCONNECTION

     Under Finnish telecommunications regulations, we are required to provide
interconnection to our mobile communications network for calls to and from
competing domestic operators. See "-- Regulation -- Interconnection." Pursuant
to interconnection agreements with other operators with which our mobile network
interconnects, we receive fees for terminating incoming calls that originate
from other mobile telecommunications operators.

VALUE-ADDED SERVICES

     We offer a variety of value-added services to our mobile customers. The
importance of such non-voice services to our mobile operations has increased in
recent years as customers have become familiar with SMS messaging, the means by
which many of our value-added services are provided. The use of non-voice
services increased by 36 percent in 2000 as compared to 1999, accounting for
E114 million, or approximately 11 percent of revenues from Domestic Mobile
Communications in 2000, as compared to E84 million or eight percent of revenues
in 1999. We expect that the share of non-voice services as a percentage of total
Domestic Mobile Communications revenues will grow in the future.

SMS communication services

     In May 1995, we introduced SMS, which allows users to send text messages
with up to 160 characters from one mobile handset to another as well as to other
communications devices. In 2000, our GSM subscribers sent 618 million SMS
messages, an increase of 41 percent from 1999. SMS messages are billed on a per
message basis, with a charge of E0.17 per message, including VAT, as of December
31, 2000 (other than the Easy pricing plan, under which SMS messages are charged
at E0.33 per message, including VAT). We also offer a number of services that
utilize SMS messaging technology, including transmission of an SMS message to a
fax machine or a GSM e-mail address. A subscriber to our e-mail notification
service can have e-mail messages received by his personal computer automatically
forwarded as an SMS message to his mobile handset.

SMS and WAP-based content services

     We also offer a wide variety of SMS-based content services. Among the most
popular services are (1) Zed Finder SMS directory service, which enables a
subscriber to look up a person's telephone number or to identify the holder of a
telephone number using SMS messaging, (2) Doris ringing tone and icon service,
which enables a subscriber to order a new ringing tone for a mobile handset or a
new icon (wallpaper) to the subscriber's mobile handset screen using SMS
messaging, and (3) an account query service, which enables the subscriber to
obtain the current balance of his or her mobile bill. Using our mobile
information services, a subscriber can send an SMS message to a special service
number and receive an SMS reply with information such as weather, share prices,
public transportation schedules or news reports. A subscriber can also receive
information regularly by subscribing to an SMS mailing list service. While
SMS-based content services are delivered through a technological platform which
is built into our network and operated by us, the content of the services is in
most cases provided by third parties.

     In August 1999, we became the first operator in the world to launch
information services intended for WAP compliant mobile handsets. WAP is an
industry standard protocol which allows delivery of Internet-based services
through use of selection menus to mobile phones. We are developing WAP services
together with a number of our corporate partners and customers. While our
current services offered through a WAP platform

                                        24
38

include, among other things, our Doris ringing tone and icon service, our
account query service and Zed Finder directory assistance service, we plan to
make most of our existing SMS content services WAP compliant.

     Other value-added services that we have launched since the beginning of
2000 include:

     -  M-mail, a service that allows our GSM customers to send or receive
        e-mail messages to or from a mobile handset. The service can be used
        through both SMS or WAP-based communications; and

     -  The Pointer Guide service: one of the first applications to utilize
        positioning technology. The Pointer Guide offers information on
        services, events and sites in the locality where the customer is located
        and transmits the information directly to the customer's handset. In
        January 2001, we expanded our Sonera Pointer location based services
        with Petrol Pointer which automatically compares gasoline prices of
        petrol stations in the locality of the subscriber's mobile handset, and
        can then suggest which are the nearest and cheapest gas stations
        subscribing to the service which are in the vicinity. Sonera Pointer
        services can pinpoint the location of a customer's mobile handset to an
        accuracy of one base station.

Transaction services

     Our customers can use their mobile handsets for executing various
transactions, such as wireless telebanking, storing of back-up files for
smartphones, modifying mobile subscriptions on-line, purchasing goods from
vending machines and sending GSM postcards.

     Our wireless telebanking services allow subscribers to use their mobile
handsets as an automated teller machine, through which subscribers can access
account information and pay bills using SMS messaging, WAP or voice response
technology. The service is provided in cooperation with two large Finnish banks.
Our Mobile Pay application allows mobile subscribers to, for example, purchase
goods or services from selected vending machines and other automated service
machines such as car wash stations. The subscriber places a call on the number
shown at the machine authenticating the transaction and the product or the
service is billed via the subscriber's mobile bill. We entered into an agreement
with Oyj Hartwall Abp in February 2000 to equip some Hartwall softdrink vending
machines with GSM technology, allowing consumers to order and pay for softdrinks
by mobile phone. In February 2001, we began testing Mobile Pay in three Pizza
Hut restaurants in the Helsinki city area, offering customers the possibility to
pay for meals through their mobile handsets.

Additional subscription options

     We also offer additional mobile services, including voice mail, call
forwarding, home call and family agreement. These services are based on
additional elements that we have installed in our network. Our home call service
provides a low-cost connection service between two to four pre-selected mobile
numbers or with two to three pre-selected Sonera mobile numbers and one
pre-selected fixed-line number. Our Family subscription agreement allows
subscribers to make low-cost calls and send reduced rate SMS messages between
subscriptions numbers under the same family agreement.

     Through GSM data service, subscribers can access their corporate LANs or
e-mail through a laptop computer. Sonera smartphone back-up is a service for
subscribers who have mobile handsets with data storage and Internet browsing
capabilities. It enables subscribers to save data, including faxes and e-mail,
on our network servers by dialing a service number. In September 1999, we
launched a GSM HiSpeed Data service, which provides its subscribers data
transmission at speeds of 14.4 Kbps, 4.8 Kbps higher than the transmission speed
of standard GSM networks. In late 1999, we further increased the transmission
speed provided through GSM HiSpeed Data to 43.2 Kbps through the launch of a
HSCSD feature, which allows a single subscriber to use up to four time slots at
the same time. GSM HiSpeed Data enhances remote working possibilities as it
supports a greater number of mobile applications including enhanced Internet
browsing and e-mail transmission, more advanced graphics and transmission of
moving images. The service is available throughout our GSM network, provided
that the host network supports high speed transmission and the host operator has
a data traffic interconnection agreement with Sonera. Currently, GSM HiSpeed
Data service can be used only with certain more advanced GSM handset models. In
December 2000, we became the first operator in the Nordic countries to launch a
mobile phone service based on GPRS. Our GPRS service is able to reach
transmission rates of up to

                                        25
39

100 kbits per second, although the first GPRS terminals can only utilize a speed
of approximately 20 kbits per second.

     In addition to basic voice services and non-voice value-added services, we
provide our mobile subscribers with complimentary voice traffic related services
such as caller identification, blocking of caller identification, call waiting
and blocking of pay-per-call services. We also offer services with no
subscription fee but which are charged on a transaction basis such as basic call
forwarding, conference calling and voicemail. We also offer subscription fee
based services such as call forwarding with certain special features. These
services are available for both analog and digital mobile networks.

INTERNATIONAL ROAMING

     Roaming agreements with mobile telecommunications operators in foreign
countries allow our mobile telephone subscribers to make and receive calls
outside of Finland and for subscribers of foreign networks to make and receive
calls through our mobile network in Finland. At the end of 2000, we had roaming
agreements with 200 operators, an increase of almost 21 percent from 166 at the
end of 1999. Our GSM roaming currently covers 108 countries including nearly all
continents. It covers all of Europe and the developed industrial countries of
Southeast Asia -- with the exception of Japan -- as well as several areas in the
United States, Canada, Africa and South America.

     These roaming agreements allow our GSM subscribers to access these
telecommunications operators' respective networks by using their own SIM cards
in a GSM or PCS handset. Our analog NMT 450 systems offer subscribers only
limited international roaming in countries that have adopted the NMT 450
standard, including the Nordic Countries and the Baltic States.

     In general, when a Sonera subscriber uses the services of a GSM network
operator in another country, we are responsible for the payment of charges for
those services in accordance with the corresponding GSM network operator's
roaming tariffs. We pass these charges on to the relevant subscriber, together
with a surcharge of five percent. Similarly, when a customer of a GSM network
operator in another country uses our GSM network, we charge that GSM network
operator for the call at our roaming tariff rate.

OTHER MOBILE COMMUNICATIONS OPERATIONS

     We also provide a range of other mobile communications services, including
mobile satellite, mobile logistic, wireless automation, closed network radio and
mobile consulting services. Some of these, such as mobile satellite services and
mobile consulting services, complement our main GSM and NMT mobile services. In
general, these services target specific customer groups and generate relatively
modest revenues. However, we consider these services important insofar as they
enable us to provide a broad spectrum of mobile communications services to our
customers.

Mobile Satellite Services

     We provide global satellite services for inbound and outbound
communications to and from areas outside of conventional mobile
telecommunications coverage areas by means of satellite transmission through the
Inmarsat Commercial Organization (ICO-Europe and ICO-Global), the European
Telecommunications Satellite organization (EutElsat), the International
Telecommunications Satellite Service (IntElsat) and the International Maritime
Satellite Service (Inmarsat). We own minor equity interests in both ICO
organizations and in Inmarsat. Within Finland, our satellite services complement
our conventional terrestrial wireless services by extending the coverage of our
services to the most remote areas in northern Finland and open sea areas along
the Finnish coast. Through our satellite services, we are able to offer mobile
communications to airlines and ships as well as customers with overseas working
sites that might otherwise be beyond the reach of terrestrial voice or data
connections. In April 2000, we launched a new global area network (GAN)
satellite service, which is implemented by means of the Inmarsat satellite
system, in the Finnish market. The GAN service makes it possible for customers
who are in remote areas outside the coverage of other communications systems to
access the Internet. In addition, we are actively taking part in the development
of the Global Mobile Personal

                                        26
40

Communications Satellite, which is expected to introduce more efficient and
economical satellite communications solutions and extend the use of such
satellite services solutions to larger customer groups.

Mobile Logistic Services

     Mobile logistic control services involve the installation of terminals in
trucks and other vehicles which allow for the monitoring of transportation and
delivery of goods using our wireless network. We provide logistic control
services primarily to the freight transportation industry. Other mobile logistic
services we offer include data information and dispatch systems used by taxi and
limousine services as well as Mobitex fleet management and logistic data
services, which are primarily used by the forest industry and field maintenance
service providers. We currently provide several companies, including UPM-Kymmene
Corporation, with the Sonera FleetWare(TM) service, a wireless vehicle data
exchange system.

Closed Network Radio Services

     As part of our closed network radio services, we operate a Global Maritime
Distress and Safety Service System, which is a hybrid communications solution
utilizing both satellite technology and medium and very high frequency radio
technology.

Telemetry Services

     Our SafeNet telemetry services consist of an intelligent network
independent alarm number, information transmission and remote control services.
The product range includes access terminals for mobile and fixed networks. Our
services are targeted mainly at businesses in the fields of security, safety,
building management and remote metering. Typical telemetry service customers in
Finland include governmental security and safety organizations and private
service producer companies. New advanced network independent services for
security and information management are generally focused on the customer
sector. Most of our telemetry service system customers outside of Finland are
telecommunications operators.

Paging Services

     We offer two paging services. The market for pagers has declined in recent
years due to the increased use of GSM services and, in particular, increased use
of SMS messaging. We plan to discontinue the operation of our paging services in
their current form on December 31, 2001, at the latest. However, we expect to
continue using certain advanced paging solutions applications in the context of
wireless automation services.

Mobile Consulting

     We provide consulting services relating to network planning, construction
and operation to other mobile telecommunications operators. The principal
customers of our mobile consulting services are our associated companies and our
business partners.

DISTRIBUTION

     We market our mobile telecommunications services to residential subscribers
primarily through independent distributors and to corporate subscribers
primarily through our direct sales force.

     Our principal distributor is the independent Sonera GSM dealer network,
which accounted for approximately 95 percent of our new residential
subscriptions in 2000. The Sonera GSM dealer network, which has acted as the
non-exclusive distributor of our mobile telephone subscriptions since 1990, is
currently comprised of approximately 1,700 outlets in Finland, including
specialty stores for mobile telecommunications equipment, home electronics
stores and department stores. While Sonera GSM dealers principally offer Sonera
mobile subscriptions, they may also sell other operators' subscriptions.
However, our major partners have devoted themselves to selling our subscriptions
and services, and offer other alternatives merely upon request of customers.
Major distribution chains providing our services and subscriptions are Telering,
Paamies-Kauppiat Oy, Expert, Tekniset and Data-Info. Telering, a retailing unit
operated by us, forms a part of the Sonera GSM

                                        27
41

dealer network. Other distribution chains in which we have an ownership interest
are Paamies-Kauppiat Oy, Kasteam Oy, Helsingin GSM Palvelu Oy and Data-Info. Our
distribution network was further strengthened during the first quarter of 2000
with the commencement of a cooperation arrangement with Musta Porssi, a home
electronics chain with over seventy outlets in Finland, and through a
distribution arrangement with the R-Kioski chain, which has over 700 convenience
stores located throughout Finland, under which R-Kioski stores began selling
Sonera pre-paid subscriptions.

     We pay our distributors a fixed sign-up commission per subscription, which
is the same for all distributors, and fees for other services and provide
marketing support, principally through common advertising campaigns. Unlike in
many other countries, mobile operators in Finland are restricted from
subsidizing the price of a mobile handset in connection with the sale of a
mobile subscription. The commission received by the distributor under our
commission scheme is divided into four allotments, each of which becomes payable
after the sale of the subscription, provided that, among other things, the
subscriber is accumulating traffic and is current in the payment of his monthly
subscription charges. The final portion of the commission is paid to the
distributor 18 months after the subscription sale. The new commission structure
is intended to give the distributors an incentive to develop closer
relationships with their customers, and to enhance the dealers' role in customer
care and customer retention and thereby reduce churn. We also provide some
additional incentives to dealers classified as "authorized" or "expert" based on
subscription volume, service quality and other factors as provided in our
distributor guidelines. Authorized dealers have been authorized to use our
software systems for on-line subscription activation, and they receive
additional compensation for performing tasks which otherwise would be the
responsibility of our own customer service department.

SUBSCRIBER MANAGEMENT AND BILLING

     Before activating a mobile subscription, we verify information that the
subscriber provides in its subscription application and perform a credit check
on the subscriber. Authorized and expert dealers generally have an on-line
connection with our mobile activation system through which we can verify
information contained in the application, as well as perform the credit check
using our newly-installed intelligent credit evaluation systems. If the
subscriber information is verified and the credit check is satisfactory, we can
activate the mobile connection within approximately five minutes. If the
subscription application is rejected by our automated system, the application is
then forwarded to our customer service department for handling. Mobile
connections for customers submitting applications to non-authorized dealers are
generally activated within two business days. Deposits are generally required
for foreign subscribers and higher credit risk customers.

     Our mobile subscribers are billed monthly. To reduce costs, we generally do
not bill subscribers with balances below certain net thresholds but, instead,
transfer the balance to the next month's billing cycle. Subscribers may choose
from a number of billing options, including traditional paper bills, direct
withdrawal from the subscriber's bank account, some deferred payment options for
which the subscriber is charged a fee, and aggregated bills for subscribers with
families who maintain more than one subscription. In conjunction with Merita
Bank and Sampo Bank (formerly, Leonia Bank), two major Finnish commercial banks,
we have also introduced a new billing service through which subscribers can
receive and pay bills via the Internet. Customers of Sonera Solutions and of our
Business and Residential Services unit can receive bills showing integrated
charges for mobile telecommunications, fixed-line voice services and data and
media services on one bill. We can also provide, at the customer's request,
detailed calling information in the bill, including, subject to some exceptions,
numbers called and time and length of calls. In addition, subscribers can verify
their balances with our balance inquiry services or receive notification from a
balance reminder service in the event that their pre-defined balance level is
exceeded.

     Our mobile communications customer care and billing system is responsible
for all customer information required for customer management and billing. In
early 1999, Sonera introduced an SMS-based mobile billing service, which allows
subscribers to receive their mobile bills directly to their mobile handsets.
Customers are also able to manage their subscriptions and settle their bills
on-line via the internet.

     We have established a uniform policy for dealing with delinquent subscriber
accounts. Written reminders are sent to subscribers who fail to pay their bills
within seven days after the due date and, if payment is not received

                                        28
42

within 14 days after the first reminder is sent, the subscriber connection is
barred. If payment is not received within 13 days after the disconnection, we
will send a second reminder. If payment is still not received within 65 days of
the original bill, we will terminate the subscription. In 2000, approximately 60
percent of our mobile bills were paid in full within the due date, 85 percent
before the first reminder was sent, which is 21 days after the sending of the
invoice, and 98 percent of our mobile bills were paid within 14 days after the
first reminder was sent.

     Our customer service department actively monitors our exposure to credit
loss and subscriber fraud. We utilize advanced software that, in addition to
processing current credit information on subscribers from third-party sources,
tracks subscribers' bills on a daily basis and identifies unusual activity. Our
credit control managers monitor data regarding subscribers' account activity and
credit history and carry out our credit control policy guidelines. In the event
of unusual activity, our credit controllers may take a variety of actions
including selectively barring some functions, such as entertainment services,
sending invoices ahead of the billing schedule or terminating the subscription.
As a result of our credit evaluation system, active monitoring program and
strictly enforced program regarding accounts receivable, losses due to credit
loss and subscriber fraud were approximately 0.3 percent of our 2000 revenues.

CUSTOMER SERVICE

     Our Domestic Mobile Communications business area has a separate customer
service department serving both our mobile subscribers and dealers. The mobile
customer service department is principally responsible for maintaining our
subscriber database, answering billing inquiries, answering subscriber
complaints, checking subscriber credit, opening new subscriptions for non-expert
dealers and selling additional, value-added mobile services to existing
subscribers. The customer service department operates call centers at different
locations in Finland which operate 24-hours-a-day, seven-days-a-week and which
are linked together by a common database and an automated call delivery system.
Call center services are segmented into a number of different categories,
including fault reporting, billing, major accounts and general subscriber and
dealer support. In 2000, our mobile telecommunications call centers handled over
60 million calls. Our call centers are largely automated, offering subscribers
access to product and price information and enabling a subscriber to order a
number of value-added services without the assistance of a call center
representative. In addition, other customer services we offer, such as an
SMS-based account inquiry service and Internet price and product listings, allow
our subscribers to access information regarding their mobile accounts and order
new products and services without the need to contact our call centers.

TECHNOLOGY AND INFRASTRUCTURE

     As of December 31, 2000, our GSM 900 network covered approximately 97
percent of Finland's geographic area, and 99 percent of the Finnish population.
Our NMT 450 network covered approximately 99 percent of Finland's geographic
area and population. Our GSM 900 network has been designed for handheld
terminals while our NMT 450 network was initially built as a network for
vehicle-installed terminals. In February 1998, we launched a GSM dual band
service, which allows our subscribers to use both the 900 MHz and 1800 MHz
frequency bands for making mobile calls.

Network Infrastructure

     The infrastructure of a mobile communications network, whether analog or
digital, consists of (1) a radio network comprising base stations, which
communicate by radio signal with mobile handsets in their cells, as well as
antenna systems and masts, (2) a switching network comprising base station
controllers, which control call set-up, signaling and maintenance functions, as
well as the use of radio channels in one or more base stations, and other
network management systems, (3) mobile switching centers, which control the
switching network, (4) home location registers, which not only contain
information regarding subscribers and roaming users utilizing the network but
also authorize their network usage, and (5) cabling and other transmission of
devices to connect different components of the network. To save costs, we have
utilized components of our existing networks as part of our build-out of new
networks. For example, our base station sites typically contain both NMT and GSM
base stations. Similarly, our mobile network uses our fixed-line network to
connect mobile switching centers to
                                        29
43

interconnection sites and for trunk transmission of all mobile traffic that
terminates beyond the mobile caller's local cell (i.e., the geographic area
covered by a single base station in a mobile communications network). In
addition, our GSM 1800 switching network has been entirely integrated with our
GSM 900 network.

     In addition to standard infrastructure, mobile networks commonly contain
several service platform elements. All of our networks contain platforms for
basic services such as voice mail, call waiting and call forwarding. Our GSM
networks have also been equipped to provide a platform for higher level
value-added services such as home call, SMS-based content services, Privatel
services and Mobicentrex services. We have also installed network elements which
enable the use of WAP handsets. In addition, our mobile infrastructure provides
a platform for wireless data applications including e-mail and access to
corporate LANs. To increase the data capacity of our mobile networks, we have
completed the installation of multislot HSCSD software in our network. HSCSD
increases the transmission speed of a single slot from 9.6 Kbps to 14.4 Kbps and
allows a single user to utilize up to four timeslots at the same time and with
data transmission speeds of up to 43.2 Kbps. As a result, HSCSD supports a
greater number of mobile applications.

     We were the first operator in the Nordic Countries to launch a mobile phone
service based on packet-switched data transmission. We have updated our existing
GSM network through the installation of packet switched GPRS network elements
provided by our existing component suppliers, Nokia Corporation and LM Ericsson.
GPRS allows transmission speeds high enough to support effective running of
Internet applications and requires use of a GPRS terminal. Our GPRS service,
which was launched commercially in December 2000, is able to reach transmission
rates of up to 100 kbits/s, although the first terminals can only utilize a
speed of approximately 20 kbits/s. The GPRS network has functioned throughout
Finland since March 2001.

     In 1999, we received a license to operate a third generation mobile
communications network in Finland. We aim to be in a position to launch a pilot
UMTS service during 2002 and a commercial service in 2003 depending, among other
things, on the availability of UMTS network elements and handsets. In December
2000, we began building our UMTS network in cooperation with Nokia and signed a
three year agreement with Nokia Networks under which Nokia will deliver
equipment such as core network and radio network equipment and maintenance
services for the Finnish UMTS network. Additionally, we entered into a three
year agreement with Ericsson in December 2000 under which Ericsson will supply
us with the base station system for our UMTS network in Finland. The
implementation of GPRS technology and the anticipated implementation of UMTS
technology is expected to enable mobile networks to transfer data at sufficient
speeds to support a wide range of data and media applications. We are
participating in the standardization process for these new technologies and are
actively evaluating the possible applications and services that such
technologies will provide. See "Item 5. Operating and Financial Review and
Prospects -- Research and Development."

     To guard against various technology related risks, we are using components
manufactured by two different suppliers in our networks and have installed
central elements of our network in a number of different geographical locations.
We have also secured the system's transmission lines by building alternative
backup routing.

Network Capacity and Quality

     Using our network management system, we regularly monitor capacity,
congestion and utility of our network elements. The capacity of mobile
telecommunications systems is dependent upon, among other things, the amount of
spectrum available for transmission within the frequency band allocated to the
network operator.

     Our primary challenge in meeting the market's capacity demand is in the
Helsinki metropolitan area, which has approximately 25 percent of Finland's
population. However, the introduction of dual band service and its strong
acceptance by subscribers has enabled us to more economically meet capacity
demand through the build-out of new 1800 Mhz band based network capacity in the
high density areas. In addition, we secure the availability of capacity by
installing micro- and pico-cells in high density areas and integrating
intelligent features into our network. In addition, with the termination of our
NMT 900 services, 900 MHz frequencies allocated to our NMT 900 service have been
reallocated by the Finnish regulatory authorities to our GSM 900 operations as
well as to those of Radiolinja and Suomen 2G. The reallocation of NMT
frequencies has further improved our

                                        30
44

ability to handle our constantly growing GSM traffic volume. Currently, we are
not facing significant capacity restraints in any of our service areas.

Development Plan

     We view the further development of our networks as an ongoing process. We
intend to continue building new base stations, adding cells to existing base
stations and updating the technology of our existing networks. Recently, as a
result of changing customer behavior and expected growth of cellular data
traffic, the focus of our network development activities, especially in densely
populated areas, has shifted to improving the indoor coverage of our networks,
in particular in areas such as shopping malls, underground parking garages and
subway tunnels. In addition, we have installed a number of base stations to
improve the quality of our network within the offices and production facilities
of some of our major corporate customers. The new mobile communication
technologies that we have or are in the process of implementing, including
HSCSD, GPRS and UMTS, has or can be placed on top of our existing GSM
infrastructure through selected installation of new network elements.

     Our capital expenditures relating to our mobile communications operations
totaled approximately E124 million in 2000. An increasing proportion of our
capital expenditures relating to mobile communications will be allocated to
value-added service platforms and, pursuant to growth expectations, wireless
data applications. We have not invested in the expansion of our NMT network
since 1997. See "Item 5. Operating and Financial Review and Prospects -- Capital
Expenditures and Investments."

INTERNATIONAL MOBILE COMMUNICATIONS

     Beginning January 1, 2001, we divided the mobile communications business
area into two separate business areas: Domestic Mobile Communications and
International Mobile Communications. International Mobile Communications focuses
principally on administering our holdings in international GSM operators and
third generation joint ventures. Earnings in these associated companies continue
to be included in our consolidated accounts in accordance with the equity method
of accounting. The International Mobile Communications area derives revenues and
incurs expenses from ongoing business conducted with our associated GSM
operating companies and our third generation joint ventures. For example, the
International Mobile Communications business area derives substantially all of
its revenues from the provision of technical, management and other services by
us to our associated GSM operating companies and our third generation joint
ventures, including the temporary transfer of Sonera employees to such
companies. International Mobile Communications' expenses consist mainly of
personnel expenses related to employees that have been temporarily transferred
to our associated GSM operating companies and our third generation joint
ventures, travel expenses and consultant service fees. International Mobile
Communications generated revenues of E5 million in 2000.

MEDIA COMMUNICATIONS AND NEW SERVICES

     In 2000, our Media Communications and New Services business area generated
revenues of E254 million, or approximately ten percent of our total revenues for
the period. The following table sets forth the revenues of the Media
Communications and New Services business area for the periods specified:
YEAR ENDED DECEMBER 31,
                                                                -----------------------------
                                                                 1998       1999       2000
                                                                -------    -------    -------
                                                                       (IN E MILLIONS)
Media Communications and New Services.......................      127        175        254
MEDIA COMMUNICATIONS

     Media communications consist of our new media, business media and directory
services operations. Our new media services include consumer and corporate
Internet services, cable TV and special calling services, such as pay-per-call
numbers. Our business media operations offer a variety of communications,
marketing and customer care solutions for business customers, such as toll-free
numbers and local access charge corporate

                                        31
45

numbers, multifax services, telephone and video conference calling and remote
working, as well as e-commerce solutions.

New Media

     We are the leading provider of Internet access in Finland and provide a
variety of other Internet-related services such as Internet hosting and Internet
data transfer. We are also one of the leading cable TV service providers in
Finland and offer a variety of innovative cable TV services including
interactive services and cable TV Internet access. We believe that we are well
positioned to take advantage of the convergence of PC, television, cable TV,
Internet and mobile communications technologies.

     We are one of the market leaders in consumer Internet subscriptions in
Finland with a market share of nearly 40 percent as of December 31, 2000.
Overall, we had approximately 239,000 Internet subscribers in Finland at the end
of 2000 as compared to 216,000 at the end of 1999. We also offer Internet access
in the Netherlands, where Internet connections are offered to more than 20,000
consumer and corporate customers via the fixed network and cable TV.

     In February 2000, we launched a new Internet access product, Sonera
Internet PC. Available through authorized dealers, the Sonera Internet PC
product includes Internet access, a PC, required software, maintenance,
insurance and user support. In January 2001, we introduced a version of the
Sonera Internet PC service package that includes a portable computer. In May
2000, we began offering customers high speed ADSL Internet access.

Other New Media Services

     We were the first company to offer high speed data cable TV services in
Finland. As of December 31, 2000, we provided cable TV access to approximately
140,000 households through our own broadband cable network, giving us a 15
percent share of the Finnish cable TV market. In addition to traditional cable
TV, we offer more innovative media products, including two-way cable TV Internet
access (QuickNet service). It allows high speed access (2 Mbps) to the Internet
through either personal computer or TV interface. QuickNet's TV interface
service was launched in October 1998 and had 38,000 subscribers at the end of
2000. QuickNet service is available in the Netherlands and limited areas in
Finland.

     In 1995, we became the first telecommunications operator in the world to
deliver audio and video material through the Internet by means of our Live
service. Live is targeted at companies delivering multimedia material through
the Internet or through intranets or extranets. Through our Live service,
business and residential customers can integrate multimedia material onto their
Internet sites.

     We offer corporate customers, including independent Internet access and
online service providers, access services to the Internet, making available such
services as e-mail, the World Wide Web, Telnet (an Internet service that enables
users to log into and access a computer in a different network), Usenet news and
file transfer protocol (a service for transferring files from one system to
another via Internet). We offer a variety of Internet connections, ranging from
lower capacity ISDN to high capacity ATM line connections. Other value-added
services include MailNet, which offers business customers global messaging
through X.400 and SMTP standard compliant systems, enabling users to send and
receive messages among diverse e-mail systems, and other messaging services.

     We also provide Internet hosting services, which enable subscribers to
establish a World Wide Web site on one of our servers. Our Sonera Forum hosting
service is principally devoted to creating and maintaining basic home pages for
small- to medium-sized enterprises. Sonera Palace is an enhanced hosting service
for larger companies or organizations which conduct essential parts of their
business through the Internet. Additional features offered through Sonera Palace
include closed user groups, through which the customer can restrict access to
its World Wide Web site, database connectivity tools and data encryption.

     Our new media services also include the provision of service call numbers,
such as charged entertainment calls.

                                        32
46

Business Media

     Our business media services include a variety of communications solutions
targeted at business customers for their customer service, marketing and
e-commerce needs. While e-commerce is the main focus of our business media unit,
it is still in the early stages of development. The unit's aim is to offer
services that will enable our business customers to conduct e-commerce on the
Internet and to provide easy and secure utilization of such services to
end-users. Present offerings range from pure software products, such as Sonera
TradeXpress, to a complete Internet shopping mall, Sonera Shopping World. Sonera
TradeXpress is a software platform enabling efficient and reliable message
delivery and routing between companies' legacy systems, between a Web store and
different databases or companies' ERP systems. Sonera TradeXpress customers
include a number of multinational companies based both in Finland and elsewhere.

     Sonera Shopping World offers a complete delivery channel for merchants
selling goods to consumers. Shopping World offers customers Web catalogue
features, universal shopping basket, a variety of payment methods and
interconnectivity to logistics systems and companies, ERP-systems. In May 1999,
we launched Ostella, the Finnish version of Sonera Shopping World, which has
been bundled with the Sonera Plaza portal site.

     Ostella is currently still at an early stage of development but we expect
that it will generate revenue both in the form of fees charged from merchants
which place their products for sale on the site as well as transaction
commissions. We are also developing an IP based business to business e-commerce
application.

     Our e-commerce product portfolio also includes Electronic Trading services
which we host. These hosted services vary from generic message handling and
routing to turn-key solutions like fully featured Web stores or special
applications for electronic communication.

     For customer service and marketing purposes, the traditional offerings of
our business media unit include intelligent network services such as toll-free
800 numbers and reduced tariff service numbers, fax services such as mass
distribution of facsimile messages and prepaid/charge card telephone services.
Similar applications are also utilized for remote working and access to
corporate intranets. Intelligent network services are completed with a selection
of pre-designed mass customized applications or with tailor-made applications on
customers request. We also offer call center services which enable outsourcing
of customer service functions. In April 1999, we introduced a new product called
Sonera On Line Contact Center. It enables Internet originated contacts (chat,
voice or e-mail) to be handled in a call center which uses traditional
fixed-line phones.

TECHNOLOGY AND INFRASTRUCTURE

     The Media Communications and New Service business area operates its own
infrastructure primarily in connection with its Internet operations.

     Customers connect to our Internet access service via personal computer, TV
or mobile handset by calling a single nationwide access number. These
connections are established locally through Internet dial-in ports or, in places
where local access is unavailable, through our national trunk network.
Currently, we provide local access nationwide in Finland, with the exception of
the province of Aland. When a subscriber places a call to our dial-in port, the
call connects to an access router, which transforms the signal into
packet-switched format and relays the data packages through our frame relay or
ATM backbone to our servers, giving the subscriber access to the Internet.
Server computers also store data from frequently accessed Internet pages which
accelerates the downloading of such pages to the user's computer. Our Internet
access network consists of dial-in ports, routers (used for both Internet and
intranet services) and servers, which maintain, in total, approximately 3,000 Gb
of storage. We continually monitor our network throughput and make necessary
hardware and software adjustments to maximize network throughput. Our network
elements are supplied by commercial power as well as diesel generators to
provide emergency back-up power.

NEW SERVICES

     Our New Services businesses consists of businesses that focus on the
development of innovative communications, content and e-commerce applications
and services that can be delivered through mobile, fixed

                                        33
47

or cable TV networks. To date, New Services has focused principally on bringing
the full benefits of the Internet to mobile communications.

     Our New Services businesses include:

     -  Sonera SmartTrust,

     -  Sonera zed,

     -  Sonera Plaza,

     -  Sonera Info Communications,

     -  Sonera Juxto, and

     -  New Communications Services.

     We anticipate making significant investments in the future to further
develop the products and service concepts of New Services and that we will incur
increased operating expenses in connection with such development work.

Sonera SmartTrust

     Sonera SmartTrust Ltd., our wholly-owned subsidiary, is one of the leading
providers in wireless e-commerce and security solutions. Sonera SmartTrust first
began offering its secure wireless transaction service based on public-key
infrastructure on a commercial basis in February 1999. The SmartTrust Solution,
targeted principally at wireless operators and service providers, such as banks
and financial institutions, offers its customers a convenient and secure method
of transacting business using wireless devices. As of December 2000, 160 service
providers and 60 operator customers had deployed SmartTrust's products to manage
and ensure the security of their e-services. Mobile operators which employ
Sonera SmartTrust secure wireless electronic commerce solutions, include Cable &
Wireless HKT, the Swiss GSM operator diAx, Digi Telecom, Virgin Mobile
Australia, MTN (a division of Prism Wireless) and New World Telephone Group.

     SmartTrust is designed to enable financial institutions and other service
providers to offer services such as access to account statements, bill payment,
fund transfers, stock trading, insurance purchasing and other payment services
through a mobile handset in a secure manner. The SmartTrust solution is based on
our technology that uses public-key infrastructure, or PKI, and 1,024 bit
encryption which is embedded in a SIM card and which provides for secure user
identification and message encryption. The technology allows service providers
and users to authenticate each other's identity and to ensure that information
exchanged between them remains confidential. The service is designed to be easy
to operate: all the subscriber needs is a PIN number to authorize his or her
transactions. Our aim is to promote SmartTrust as the premier secure mobile
transaction solution and, on that basis, develop SmartTrust into a global
product with universal acceptance.

     The SmartTrust solution involves a number of different participants,
including mobile network operators, service providers, such as banks and
brokers, SIM card manufacturers that incorporate our SmartTrust technology on
the SIM card, "certification authorities" that are central to the verification
of users, and software firms that integrate existing service providers' systems
with SmartTrust. In establishing Sonera SmartTrust, we entered into a
cooperation agreement with TietoEnator, the leading systems integrator in the
Nordic Countries. We have also entered into an agreement with SIM card
manufacturer Gemplus SA to have SmartTrust features and application codes
embedded into SIM cards.

     SmartTrust enables mobile phones operating on existing and future digital
mobile communication networks to be used as a tool for a wide range of secure
e-commerce applications. We believe that the SmartTrust solution is one of the
first commercial services for the emerging market of mobile commerce. It is part
of our strategy of using mobile devices to bring the Internet into a person's
pocket. In 2000, SmartTrust began generating revenues for us in the form of both
license fees for our secure mobile commerce transaction platform and annual
usage and transaction-based fees. We also expect to benefit from additional
traffic generated by mobile e-commerce applications. However, in the course of
the updating of the strategy and business plan for Sonera SmartTrust, it has
become evident that the future cash flow expectations of Sonera SmartTrust are
lower than at the time we
                                        34
48

completed the acquisitions of Across and iD2 in April and June of 2000. As a
result of these and other findings, we have recorded an impairment loss of E704
million under U.S. GAAP for the year ended December 31, 2000 to reduce the
carrying value of the goodwill and identified intangible assets related to the
acquisitions of Across and iD2. See "Item 5. Operating and Financial Review and
Prospects -- Acquisitions of Across Holding and iD2 Holding; Impairment Loss
Relating to Acquisitions under U.S. GAAP."

     Sonera SmartTrust offers products such as the SmartTrust Delivery Platform,
which enables the provision and management of wireless services and devices, and
SmartTrust Certificate Management software, which allows companies to manage
their digital certificates in multiple access environments. The SmartTrust
Delivery Platform allows for the delivery of Internet based services to handsets
which are not equipped with WAP technology through the use of technologies such
as SMS.

     In January 2000, we created a wholly-owned subsidiary, Sonera SmartTrust
Ltd., and transferred the assets related to the SmartTrust business to that
subsidiary. While we have announced our intention to sell a portion of our
interest in Sonera SmartTrust in 2000, unfavorable market conditions have led us
to delay any potential sale of Sonera SmartTrust. We are investigating the
possible sale of Sonera SmartTrust as well as other strategic alternatives for
the subsidiary.

     In April 2000, Sonera acquired Across, which provides a large selection of
wireless Internet based service platforms, such as over-the-air service and
device management and SIM-based WAP browsers. Management believes that Sonera
SmartTrust and Across will be able to provide a complete range of open standard
solutions for both mobile operators and service providers, such as banks and
brokers.

     In June 2000, Sonera acquired iD2, a leading provider of smartcard-based
security solutions for Internet transactions, offering software for secure
digital identification on the Internet based on PKI and smart card technology.
Management believes that the acquisition of iD2 will enable SmartTrust to pursue
new revenue generating opportunities by adding the iD2 product range of secure
identification software to its offerings, including a certification management
platform.

     We believe that through the acquisitions SmartTrust made in 2000,
SmartTrust is now in possession of a unique competence base and product range to
create a comprehensive platform for managing wireless services as well as
issuing, managing and using digital certificates and signatures in the
converging e-services market.

     Set forth below are certain important developments regarding the business
operations of Sonera SmartTrust:

     -  Sonera SmartTrust announced a joint development and marketing agreement
        with MasterCard International to enable mobile devices equipped with
        SmartTrust's secure wireless technology to support the family of payment
        products of MasterCard and its European strategic partner, Europay
        International.

     -  In January 2000, we, together with eQ Online Corporation, an advanced
        online brokerage firm in Finland, announced a secure, SMS-based stock
        exchange transaction service. The service uses SmartTrust digital
        signature technology and 1,024 bit RSA data encryption to allow the
        customers of eQ Online's service to buy and sell stocks using their
        mobile handsets in a highly secure manner.

     -  In 2000, Evli Securities, a Finnish brokerage firm, began using
        SmartTrust's wireless security solution to authenticate the identity of
        all of its customers using its financial Internet portals.

     -  In September 2000, Sonera SmartTrust entered into a non-exclusive
        reseller agreement with Nokia Networks. Under the agreement, Nokia
        Networks may offer its operator and services provider customers
        SmartTrust's wireless PKI solutions as part of its mobile Internet
        solutions.

     -  In November 2000, the Swedish banking group, ForeningsSparbanken and
        Telia Mobile AB, one of Sweden's largest telecommunications companies,
        chose Sonera SmartTrust to co-operate in the development of secure
        mobile payment and e-commerce solutions. Users of their services will be
        given the opportunity to remotely access their credit card accounts
        using digital signatures within a WPKI (Wireless Public Key
        Infrastructure). SmartTrust is to provide ForeningsSparbanken and Telia
        with consulting and development services to ensure the delivery of these
        applications to both WAP and advanced GSM handsets.

                                        35
49

     -  We entered into an agreement with Graphium Card in November 2000, which
        will allow customers of SmartTrust's Certification Management solutions
        to outsource the production of PKI-enabled smart cards to the Nordic
        card system specialist Graphium. As a result of this agreement, Graphium
        will offer its services to certification authorities using SmartTrust
        Certificate Manager for the management of certificates and cryptographic
        key pairs.

Sonera zed

     Zed is an international mobile services business that we launched in
Finland in October 1999. Zed services are provided through Sonera zed Ltd., one
of our wholly-owned subsidiaries, that was incorporated in February 2000. Zed
provides entertainment and information services to mobile handsets. These
services are delivered principally through text messaging (SMS), but also via
WAP. Subscribers can receive zed either (1) on a "pull" basis -- that is,
subscribers can access the services by sending a key word or command via SMS, or
via WAP to a zed access number or (2) on a "push" basis, by which zed services
are sent to subscribers based on the subscriber's pre-arranged specifications.
Zed services are available to subscribers in Finland, Germany, the Netherlands,
the Philippines, Singapore, Turkey, the United Kingdom and the United States.
Management anticipates that zed will be launched in Italy later in 2001. Zed is
currently available to an estimated 77 million mobile phone users through eleven
operators in eight countries. Operator partners that offer zed services include:

     -  Finland -- Radiolinja,

     -  Germany -- T-D1, D2 Vodafone,

     -  the Netherlands -- KPN Mobile, Libertel,

     -  the Philippines -- Smart Communications,

     -  Singapore -- Mobile One,

     -  Turkey -- Turkcell,

     -  the United Kingdom -- Vodafone, and

     -  the United States -- Deutsche Telekom (formerly, VoiceStream and
        Powertel).

     In addition, zed has entered into agreements with the operators E-Plus and
Viag Interkom in Germany and TIM in Italy to provide zed services in the near
future.

     Zed is aimed at selected international markets. The business concept relies
on active cooperation with local mobile operators. Zed services are important
for us because they provide a means for expanding our mobile communications
service offerings to areas where we do not have our own mobile communications
network.

     During 2000, revenue was generated mainly from SMS-based services used by
individual mobile phone users. Zed generated revenues from both per-transaction
fees and subscription-based fees. Some additional revenue was derived from WAP
services and from mobile marketing solutions (where zed works with corporate
customers to provide sponsorship style services). In the first quarter of 2001,
an average of approximately 352,000 customers used zed services on a monthly
basis and approximately 800,000 customers used zed services on a monthly basis
worldwide.

     Zed's competitive strength lies in developing and providing targeted
entertainment and information services that are best suited for delivery through
mobile handsets and that can be personalized to fit the profiles of its
subscribers. Zed works with more than 160 content providers globally and locally
to develop content based services and offers operators the know-how to convert
content and context to meet local specifications. We believe that mobile
operators have chosen to work with zed in order to offer their subscribers a
broader choice of mobile services and thereby gain additional revenue and reduce
subscriber churn.

     Zed's most popular services include ringtones, icons, horoscopes, zed
finder and traffic information. Popular new services launched in 2000 include
Tarot cards, healthcare and Fisu, an interactive fishing game. In 2001, zed
launched, among other things, a prank service with anonymous SMSs and a dating
service.

                                        36
50

     In October 1999, we purchased the business activities of ByeDesk, a U.S.
company that specializes in wireless communications services, from the TeamWARE
Group. As a result of this transaction, ByeDesk was made a part of our zed
business. Founded in 1998, ByeDesk has approximately 20,000 customers, and it
was the first provider of value-added services for mobile phones in the United
States.

     The mobile services business is facing increasing competition worldwide,
particularly in the WAP-based market. Zed's competitors include mobile phone
operators, Internet portals, equipment manufacturers and software companies. We
believe, however, that zed is well placed to be successful in the mobile portal
business because of our strong experience in the mobile communications and
Internet businesses, value-added mobile communications services for mobile
handsets and content packaging. In addition, one of zed's main strengths is its
ability to track customers' buying habits, both with respect to which services
are used and how they are offered. In addition, zed provides localized services
which are geared to the requirements of each country or region and provides
services in the subscriber's local language. Thus, customers who have global
roaming agreements with their operators can receive zed services abroad in their
own language.

     To further develop zed's services, we plan to launch new products and
services that are increasingly market-specific, particularly in the field of
entertainment. We also expect to introduce services with location-based
capabilities in highly developed markets such as Finland in the near future. As
its technical platform is specifically designed for the mobile environment, we
believe zed is well placed to exploit application and service developments such
as location-based services and radio network technology developments such as
GPRS and UMTS.

Sonera Plaza

     Sonera Plaza Ltd., our wholly-owned subsidiary, provides content services
through its Internet access portal site Sonera Plaza (www.soneraplaza.com). The
site is the most frequently visited in Finland, recording approximately 1.5
million visitors in February 2001. The Sonera Plaza portal offers clients
navigation and search services, entertainment services including chat sites and
on-line computer games, news and information services and links to our corporate
customer's sites and various other sites. Through Sonera Plaza and our Internet
access service, we offer tailored content service packages for targeted user
groups, such as young people, women and sports fans. We also sell banner-type
advertisement space on the site to a variety of businesses.

     Set forth below are certain important developments regarding the business
operations of Sonera Plaza:

     -  In 2000, we formed a 50-50 joint venture together with SOK corporation,
        a Finnish retail group, called Netista, to offer retail e-commerce
        services through which people can buy consumer products such as books,
        CDs, clothing and domestic appliances.

     -  In December 2000, Sonera Plaza purchased various consumer services
        businesses from WOW-verkkobrandit Oy. These consumer services will
        supplement Sonera Plaza's own search service and content packages.

     -  In January 2001, Sonera Plaza Ltd. signed a letter of intent with eQ
        Online Corporation under which eQ Online will provide online brokerage
        services as part of Sonera Plaza's online financial services. eQ
        Online's brokerage services are scheduled to be available to Sonera
        Plaza's customers by the end of 2001 and are designed to provide
        customers with real-time trading, custody and clearing services for
        Finnish equities. The service will also include eQ Online's information
        services.

     -  In January 2001, Sonera Plaza began offering its Rahastokanava service,
        which is essentially an electronic market place for funds. In February
        2001, we announced the combination of Rahastokanava with Rahastot.net,
        an online marketplace for fund shares backed by a number of Finnish
        companies. The combined fund services will be brought onto the market
        during 2001.

Sonera Info Communications

     Our directory services business was incorporated as of December 1, 2000 as
Sonera Info Communications Ltd. Sonera Info Communications operations comprise
electronic and operator-assisted directory services and

                                        37
51

printed telephone directories. Sonera Info Communications, which is the leading
provider of electronic and operator assisted directory services in Finland, is
also a forerunner in developing directory services that can be accessed via a
mobile handset. Sonera Info Communications, for example, provides Sonera zed
with an electronic directory service called zed finder(TM) which can be utilized
either via the Internet or GSM- or WAP-based handsets. Zed finder(TM) and Sonera
Info Communications' other directory services, such as Sonera Finder, provide
customers with a variety of information including mobile and fixed-line
telephone numbers and addresses as well as Web-sites and e-mail addresses.
Sonera Info Communications' operator-assisted directory services provide
customers access to directory information in more than 200 countries.
Operator-assisted directory services also include call completion services.
Sonera Info Communications has begun to offer its services in a number of
European countries other than Finland through a variety of subsidiaries and
joint ventures.

     Sonera Info Communications also publishes printed directories in all areas
of Finland where Sonera provides fixed-line services. Sonera Info Communications
is involved in the production of yellow pages through Suomen Keltaiset Sivut Oy,
a joint venture in which we hold a 30.2 percent interest. Under the agreement
among the owners of Suomen Keltaiset Sivut, revenues from advertisers are
credited to that telephone company which is the principal provider of fixed-line
services to such advertiser.

     To facilitate the centralized collection of information on Finnish
telephone subscribers, we, together with the Finnet Group and other
telecommunications providers in Finland, established Suomen Numeropalvelu Oy
(Directory Assistance Services Finland), which maintains a joint subscriber
database. Directory Assistance Services Finland, of which we hold a 40 percent
interest, provides a common database to the publishers of telephone directories,
including our Company and other telephone companies operating in a particular
directory area, and to those service operators that provide directory assistance
services or Internet directory services.

     Set forth below are certain important recent developments regarding the
business operations of Sonera Info Communications:

     -  In December 1999, we established a telephone directory service named
        Gilla in Italy together with the Italian telecommunications operator
        Tiscali S.p.A. Sonera Info Communications and Tiscali each own half of
        the Gilla joint venture.

     -  In May 2000, we established 118 Ltd in the United Kingdom together with
        the Irish directory services company Conduit PLC. 118 Ltd began
        operations in February 2001, and offers national directory services to
        Telewest Communications Group in the United Kingdom. We hold a 45
        percent interest in 118 Ltd. We also acquired a ten percent holding in
        Conduit PLC through an equity investment. Conduit is a Neuer Markt
        (Germany) listed company.

     -  In May 2000, we acquired a controlling interest in Intra Call Center
        S.A., a French company providing directory assistance services. In the
        initial stage, we acquired a 51.1 percent holding in Intra Call Center
        of France, and expect to acquire a 100 percent interest in Intra Call
        Center within two years. Our goal is to make Intra Call Center one of
        the leading directory service providers in France. Intra Call Center
        offers both national and international directory services.

     -  In October 2000, we and the Israeli company Phonetic Systems agreed to
        cooperate in developing automated directory and information services. We
        also acquired an initial 12.7 percent interest in Phonetic Systems which
        has subsequently been diluted to 8.7 percent.

     -  In December 2000, Sonera Info Communications and the Spanish
        telecommunications operator Euskaltel agreed on establishing a new
        directory services company named Digame Servicios de Directorio in
        Bizkaia, Spain. We have a 51 percent holding in the company.

     -  In February 2001, we acquired a 25.5 percent interest in Metro One
        Telecommunications Inc. Metro One Telecommunications is the leading
        company in the United States offering directory services to mobile
        users. Sonera Info Communications and Metro One have also agreed to
        further develop and enhance directory services for customers worldwide.
        Metro One is a Nasdaq listed company.

                                        38
52

Sonera Juxto

     Sonera Juxto provides wireless and secure ASP services to customers in
Finland. We offer these services through Sonera Juxto Ltd., a wholly-owned
subsidiary, which began operations in June 2000.

     ASP is a mode of business interaction in which a corporate customer leases
the user rights to applications together with related services, such as updates
and maintenance, in package form directly from the application service provider.
In addition, Sonera Juxto offers infrastructure management services encompassing
workstations, mobile handsets and other wireless terminals, LANs, remote
networks, servers, data processing platforms as well as, to a limited extent,
customer applications.

     Set forth below are certain important recent developments regarding the
business operations of Sonera Juxto:

     -  In April 2000, we began offering Microsoft software and Lotus
        applications to our customers via the Internet. We are the first Finnish
        company to partner with Microsoft in the provision of Microsoft products
        on-line. Our agreement with Microsoft covers both Microsoft Office 2000
        and Microsoft BackOffice. Our customers can also rent Lotus applications
        via the Internet. In May 2000, we entered into an agreement with SAP
        Aktiengesellschaft to assist SAP in delivering SAP's management services
        applications to corporate customers in Finland.

     -  In February 2001, Sonera Juxto began providing towns and municipalities
        in Finland with a financial management system adapted from the mySAP.com
        solution as an ASP service. The mySAP.com financial management system,
        which is tailored to the needs of towns and municipalities, helps to
        free local governments from the costly maintenance of IT systems.

     -  During 2000, one of Sonera Juxto's most important customers in Finland
        was Valtra Oy Ab, which manufactures and markets tractors. Sonera Juxto
        built an e-commerce site for Valtra, on which Valtra's customers can
        purchase maintenance supplies and accessories, among other things. The
        service can be used by means of a fixed connection or a WAP handset.

     -  In December 2000, we acquired a 100 percent holding in the Swedish
        application service provider Frontec Support and Operations AB from its
        parent company, Frontec AB. Frontec Support and Operations was
        incorporated to form Sonera Juxto AB. Sonera Juxto AB began offering our
        ASP services in Sweden on January 1, 2001.

     -  In January 2001, Sonera Juxto deployed Citrix application server
        software as an integral part of its ASP initiative. In addition, Sonera
        Juxto joined the Citrix iBusiness Application Service Provider program
        which gives Sonera Juxto access to Citrix application server software on
        a "pay-as-you-go" license basis.

     -  In February 2001, Sonera Juxto announced that it expects ASP
        applications will be accessible from mobile handsets in Finland in the
        first half of 2001 in Finland, and in Sweden in the second half of 2001.
        Traditionally, office and business applications have been provided as an
        ASP service for fixed terminals only.

New Communications Services

     New Communications Services is a newly-formed business unit which focuses
on developing new mobile Internet services and on assisting us in making the
transition from second generation to third generation mobile products and
services. In pursuing its objectives, New Communications Services analyzes
promising ideas and concepts, employing both business development and technology
experts, and, if it deems the idea to be viable from a business and technology
standpoint, establishes a business vehicle through which the idea or concept can
be developed. New Communications Services also aims to support new ventures in
becoming global businesses.

     One innovative service that has been developed by New Communications
Services is Sonera Positioning Services (SPS). Through SPS, we have become the
world's first mobile communications operator to offer positioning services that
can be deployed by all GSM mobile phones via voice, WAP data call and text
message

                                        39
53

connections. We believe that positioning will be the basis for most mobile
communications' value-added services in the future.

     Our SPS solution is designed to work with all existing mobile handsets
having SMS, voice call or WAP capabilities. The SPS service allows the cell
position of a mobile subscriber to be located, which information enables the
delivery of a wide variety of wireless value added applications and services. In
addition, other positioning technologies such as GPS (Global Positioning
System), TOA (Time of Arrival) and E-OTD (Enhanced Observed Time Difference) can
be integrated into our positioning services. Since the fall of 2000, we have
offered SPS services to all of our GSM subscribers in Finland.

SONERA TELECOM

     Our Sonera Telecom business area is comprised of several distinct lines of
business, each of which occupy leading positions in the Finnish
telecommunications market. The principal lines of business of our Sonera Telecom
business area include fixed network voice services, data services, leased lines,
equipment sales and construction and maintenance. In total, our Sonera Telecom
business area generated revenue of E1,020 million in 2000, or approximately 36
percent of our total revenues for the period.

     The following table sets forth the revenues of our Sonera Telecom business
area by principal lines of business for the periods specified:
YEAR ENDED DECEMBER 31,
                                                                ------------------------
                                                                1998     1999      2000
                                                                -----    -----    ------
                                                                    (IN E MILLIONS)
Fixed network services:
  Domestic voice............................................     258      250       247
  International voice.......................................     128      120       109
Data services...............................................     149      168       165
Leased lines................................................      25       32        52
Equipment sales.............................................      96      114       125
Construction and maintenance................................      31       24        34
Other services..............................................     260      272       288
                                                                 ---      ---     -----
  Total.....................................................     947      980     1,020
                                                                 ===      ===     =====
FIXED NETWORK VOICE SERVICES

     We provide a full range of fixed network telecommunications services for
both residential and business customers. Our fixed network voice services
provide access to local calling, domestic long distance calling and
international calling. Despite increased competition since the liberalization of
fixed network services in Finland in 1994, our fixed network voice services have
continued to be a generally stable source of revenue, generating E386 million,
E370 million and E356 million in revenues in 1998, 1999, and 2000, respectively.

Domestic voice services

     Domestic voice services comprises local voice services and long distance
voice services.

     Local Voice Services.  In 2000, our local voice services generated net
sales of E247 million. We had a market share of 98 percent in our traditional
service areas, located principally in the more sparsely populated areas of
eastern and northern Finland. In addition to us, 46 local telephone companies
provide local telephone services in Finland and have maintained, to a large
extent, monopolies in their traditional local service areas, which cover most of
the larger towns and urban areas of Finland. We have a share of approximately
four percent of the market in the traditional service areas of the local
telephone companies based on subscriber connections.

                                        40
54

     The following table sets forth information regarding our total access lines
in Finland as of the dates indicated:
YEAR ENDED DECEMBER 31,
                                                                -----------------------------
                                                                 1998       1999       2000
                                                                -------    -------    -------
Standard lines:(1)
Residential.................................................    541,368    497,466    466,826
Business....................................................    115,156     94,871     74,786
                                                                -------    -------    -------
  Total.....................................................    656,524    592,337    541,612
                                                                =======    =======    =======
ISDN lines:(1)
Residential.................................................      5,013      9,057     13,328
Business....................................................     19,759     27,356     32,603
                                                                -------    -------    -------
  Total.....................................................     24,772     36,413     45,931
                                                                =======    =======    =======
2 Mbps lines(1)(2)..........................................      2,820      3,509      3,612
Equivalent lines:
Residential.................................................    551,394    515,580    493,482
Business....................................................    239,274    254,853    248,352
                                                                -------    -------    -------
  Total.....................................................    790,668    770,433    741,384
                                                                =======    =======    =======
Total lines by location:
  in our traditional service areas..........................    699,570    663,294    636,629
  outside of our traditional service areas..................     91,098    107,139    105,205
Line growth (% per period):
  in our traditional service areas..........................       (2.2)      (5.2)      (4.0)
  outside of our traditional service areas..................       23.5       17.6       (1.8)
------------------------------

(1) Principles for keeping access line statistics were changed in the beginning
    of 1999. Prior to the change, residential ISDN lines were registered both as
    standard and ISDN lines. Certain 2 Mbps lines were also registered both as
    standard and 2 Mbps lines. Information for periods prior to 1999 has not
    been restated.

(2) Subscribers for 2 Mbps lines are exclusively business users.

     The number of total equivalent lines we install annually has decreased
slightly over the past few years. Despite liberalization of the local calling
market in 1994, there has been little competition in the Finnish local call
market because charges for leasing existing local operators' networks remain
high principally because potential new entrants would have to build out their
own network infrastructure to offer local service. We are installing fiber optic
loops in the largest cities in Finland and are marketing direct local access to
business customers in those areas. We believe that the usage of our fixed
network will shift from voice services to data, Internet and media applications
and that competition for local customers in the heavily populated areas of
Finland will increase as charges for leasing existing operators' networks fall
and customers choose service providers based on the quality of customer service
and their range of service offerings which are, to an increasing extent, going
to be based on ADSL and other broadband technologies as well as the Internet
Protocol. We further believe that, while local access competition in our
sparsely populated service areas will remain more limited than in urban regions,
the number of local access customers in such regions will decline as customers
move to urban areas and the use of mobile phones increases.

     In May 2000, we began offering consumers the ability to subscribe for a
broadband service based on ADSL technology. The service known as Sonera Home
ADSL uses existing telephone cables and has a transfer rate of up to two
megabits per second. This service provides a quicker connection to the Internet
via the Sonera Internet ADSL service improving consumer's ability to, for
example, download web pages, play games and transfer files. In addition, the
transmission capacity of the ADSL technology will enable the provision of other
services which require the transmission of large amounts of data including video
calls and conferences as well as other e-commerce applications. By the end of
2000, we offered ADSL on a nationwide basis. Subscribers to our ADSL

                                        41
55

broadband service receive an always-on Internet connection at a fixed monthly
price without separate usage or call charges.

     Local Access GSM.  The population decrease in our traditional operating
areas in Eastern and Northern Finland, together with the growing shift in voice
traffic toward mobile communications has led us to explore the possibility of
providing local access to these regions using GSM technology. In September 2000,
we launched a pilot project in Northern Karelia involving the replacement of the
fixed network telephone connections of approximately 100 consumer customers with
GSM technology. Using the GSM technology, the quality of the voice connections
was maintained, and in some cases improved. In addition, the new technology did
not represent an increase in cost to the customer as the price of the calls and
the telephone itself remained unchanged. However, the maintenance costs per
connection are expected to be significantly lower than the cost of repairing a
conventional telephone line connection.

     In May 2000, we founded a joint venture, Sonera Living Ltd, together with
construction firm YIT Corporation. We hold a 51 percent interest in the joint
venture. Sonera Living develops and builds broadband connections for homes and
solutions that improve maintenance, functional features and value of properties.
In April 2001, we began offering broadband subscriptions to customers in the
Helsinki metropolitan area.

     We also introduced a number of new services to the market in 2000 including
eTools and voice over IP (VoIP). eTools is a development platform that enables
corporations to build their own network services rapidly and cost-effectively.
In October 2000, we became the first operator in Finland to begin test traffic
with VoIP calls.

     The following table sets forth information regarding local call traffic
generated by our fixed-line subscribers for the periods indicated:
YEAR ENDED DECEMBER 31,
                                                                -----------------------
                                                                1998     1999     2000
                                                                -----    -----    -----
Traffic (in millions of minutes)(1).........................    1,994    1,869    1,834
------------------------------

(1) Minutes accrued from calls originating on our fixed network and terminated
    within the same telecommunications area.

     Long Distance Voice Services.  We provide domestic long distance voice
services for both residential and business customers. In 2000, our domestic long
distance voice services generated net sales of E25 million, which accounted for
approximately 37 percent of the estimated E75 million domestic long distance
call market in Finland. Since the beginning of 1995, our market share in the
domestic long distance market has been stable at or near 40 percent. Overall
long distance traffic volumes, however, have declined in recent years
principally due to increased mobile phone usage.

     The following table sets forth information regarding domestic long distance
voice traffic generated by our subscribers for the periods indicated, in terms
of minutes accrued from calls utilizing our trunk network, including long
distance calls placed by subscribers of other service operators which are routed
through our trunk network:
YEAR ENDED DECEMBER 31,
                                                                -----------------------
                                                                1998     1999     2000
                                                                -----    -----    -----
Traffic (in millions of minutes)(1).........................      749      667      588
------------------------------

(1) Minutes accrued from calls utilizing our trunk network including long
    distance calls placed by subscribers of other service operators which are
    routed through our trunk network.

International Voice Services

     We are the leading provider of international voice services in Finland. In
2000, our international voice services generated revenues of E109 million, which
accounted for approximately 51 percent of the estimated E200 million
international call market in Finland. Prior to 1994, we had an exclusive right
to provide international calling services in Finland. The international call
market was opened to competition in 1994 and customers

                                        42
56

typically choose international long distance carriers on a call-by-call basis by
dialing a prefix associated with that providers' service. Recent revisions to
the Finnish Telecommunications Market Act require fixed network operators with
significant market power to offer their customers pre-selection, whereby a
customer can choose their local, long distance or international operator by
dialing a prefix or by entering into a special contract. Pre-selection may
affect our market share of in the local, long distance and international call
market. See "-- Regulation -- Numbering and Carrier Selection."

     The following table sets forth information regarding our outgoing
international call traffic by geographic region and incoming international call
traffic plus transit traffic for the periods indicated:
YEAR ENDED DECEMBER 31,
                                                                -----------------------------
                                                                 1998       1999       2000
                                                                -------    -------    -------
                                                                (MILLIONS OF MINUTES, EXCEPT
                                                                 FOR PERCENTAGES AND RATIOS)
Outgoing traffic:(1)
Sweden......................................................      72.0       75.1       74.7
Germany.....................................................      18.5       18.8       18.9
Russia......................................................      15.1       13.4       12.5
United Kingdom..............................................      15.4       15.6       15.7
Estonia.....................................................      14.1       14.1       15.3
United States...............................................       9.5        9.1       10.0
All other countries.........................................      80.3       82.8       83.7
                                                                 -----      -----      -----
Total outgoing traffic......................................     224.9      228.9      230.8
                                                                 =====      =====      =====
Growth in total outgoing traffic (% per period).............      (0.5)       1.8        0.8
Total incoming traffic plus transit traffic(2)..............       278        277(3)     274
Growth in total incoming traffic plus transit traffic (% per
  period)...................................................      (7.6)      (0.4)      (1.1)
Ratio of incoming traffic plus transit traffic to outgoing
  traffic...................................................       1.2        1.2        1.2
------------------------------

(1) Outgoing international traffic includes all Finland-originated traffic,
    including calls placed by subscribers of other service operators which are
    routed through our international network.

(2) Incoming international traffic includes all Finland-terminated international
    calls, including calls terminating with subscribers of other service
    operators which are routed through our international network, as well as
    international transit traffic utilizing our international network.

(3) Principles for keeping international incoming and transit traffic statistics
    changed in 1999. Prior to 1999, the calculation was based on payments from
    foreign operators instead of directly from the network. Information for
    periods prior to 1999 has not been restated.

TARIFFS

     We charge our fixed-line customers an initial connection fee, monthly
subscription charges and local, domestic long distance and international traffic
charges for outgoing calls. We have higher connection fees and monthly
subscription charges for ISDN and 2 Mbps lines than for standard connections. In
general, the prices of local and long distance telephone services in Finland are
relatively low by international standards.

Fixed Network Interconnection

     Under Finnish telecommunications regulations, we are required to provide
interconnection to our public switched telephone network for calls to and from
competing domestic operators. In 2000, we received interconnection fees of E24
million, principally from competing Finnish local telephone operators.

     The current interconnection regime between Sonera, Elisa Communications
Corporation (formerly Helsinki Telephone Corporation), Radiolinja, Kaukoverkko
Ysi and Finnet International became effective as of May 1, 1999. During 1999,
Sonera entered into similar interconnection agreements with the majority of
other Finnish operators. See "-- Regulation -- Interconnection."

                                        43
57

Settlement Arrangements

     We pay other carriers for the use of their networks for outgoing
international calls and receive payments from other carriers for the use of our
network for incoming international calls pursuant to bilateral settlement
arrangements. Our incoming international traffic has generally exceeded our
outgoing international traffic, with the result that we are a net importer of
international minutes. We settle our traffic balance payments with other
carriers through bilaterally determined accounting rates under the general
auspices of the International Telecommunications Union. In recent years,
international accounting rates have declined significantly due to initiatives by
the FCC and increased competition among international carriers. As a result, our
net revenues from international settlements have declined.

DATA SERVICES

     Data services consist primarily of data communications and network and
systems management services for business customers. We generated E165 million in
revenues from the provision of data services in 2000, as compared to E168
million in 1999 and E149 million in 1998.

     Our data services include two product areas, basic data services, and LAN
interconnection and management services and systems for servers and
workstations. Our basic data transfer services include DataPak X.25
packet-switching services, and our FastNet managed leased line services. Our LAN
interconnection and management services include DataNet, which provides managed
communications packages that utilize a number of underlying technologies
including frame relay and ATM. In recent years, our strategic focus has shifted
from standardized data transmission to the development of higher value-added
services, such as LAN interconnection and management services, which offer
customers comprehensive communications solutions. Our data communications
service customers include the largest corporations in Finland, small- to
medium-sized enterprises and public organizations. The following table sets
forth the total number of customer connections for each of our DataPak, FastNet
and DataNet services as of the dates indicated:
YEAR ENDED DECEMBER 31,
                                                                --------------------------
                                                                 1998      1999      2000
                                                                ------    ------    ------
DataPak(1)..................................................     9,182     8,456     7,219
FastNet(2)..................................................    10,929    10,329    11,092
DataNet(3)..................................................     9,205     8,792     9,256
------------------------------

(1) DataPak is our X.25 packet-switching service.

(2) FastNet is our managed leased line service. Historical total connections for
    FastNet are estimated as of each of the dates indicated.

(3) DataNet is our LAN interconnection and management service. We revised our
    principles for keeping DataNet statistics in 2000. DataNet Remote Access
    connections are no longer included in our 2000 figures. Comparable figures
    for the years 1998 and 1999 would have been 7,515 and 8,482, respectively.

     Since 1997, the number of subscribers to our DataPak service has declined
while the growth of DataNet and FastNet has continued as business customers in
Finland increasingly opt to utilize managed communications solutions. DataPak
services enable the transfer of smaller volumes of data through our X.25
packet-switched network from a customer's location to other locations connected
to the network. Our FastNet leased line services offer fixed "point-to-point"
connections between separate locations, which may be used by the subscriber to
handle high volume voice, data or video transmission between selected locations.
Our leased lines utilize a proprietary intelligent network management system
that facilitates the monitoring and maintenance of such lines and permits them
to be used as a platform for our DataNet services. DataPak offers customers
world-wide coverage and FastNet offers leased line connections in Finland,
Sweden, the Baltic States, the Benelux countries, Germany, the United Kingdom
and some areas within Russia.

     Our DataNet services are a rapidly growing segment of our data services
that provide customers with a comprehensive communications package tailored to
such customer's needs. Since 1996, business customers have increasingly opted to
utilize comprehensive communications solutions such as DataNet rather than
standardized basic data transfer services. We were one of the first
telecommunications operators to provide LAN inter-

                                        44
58

connections to our customers, and are among the leading providers of intranets
in Finland. We have developed intranets with a variety of features, including
intranets with different security options, mobile and remote access, e-commerce
applications and other extranet applications and directory services, as well as
intranets with various e-mail, GSM, fax and pager services. We also offer
customers a variety of bandwidths (i.e., services with different transmission
capacities) for their intranet connections, including ISDN, ADSL, frame relay or
ATM connections. Our intranets use open communications, browsing and programming
standards, thus allowing for seamless communication within the network. As an
extension of our intranet services, we also offer extranets to our corporate
customers, a variation of the corporate intranet that is connected to external
parties such as suppliers, distributors and customers. Through both our own
network and through agreements under which we lease capacity from other
operators, we can provide DataNet connections in most of Europe, North America,
South America, Japan, South Africa and several countries in the Asia Pacific
region.

LEASED LINES

     We are a provider of leased lines, which are fixed point-to-point
connections for the transmission of voice and data traffic between two
geographically separate points. Our leased line service does not include the
provision of managed leased lines, which are offered as part of our data
communication services. Customers lease lines from us both for their own use and
for use in providing telecommunications services to third parties. Although the
total number of lines we lease has decreased since 1996, total transmission
capacity of our leased lines has increased significantly due principally to the
increase in the number of higher capacity digital lines leased. Our leased line
customers pay an initial connection fee based upon the type of line leased
(analog or digital) and monthly rental charges based on the type of line leased,
the length of the line and the duration of the lease.

TECHNOLOGY AND INFRASTRUCTURE

     We believe that we have one of the most technologically advanced fixed-line
networks in the world. Our network features fully digital local, trunk and
international switching, fully digital transmission, with regional and trunk
transmission based mostly on fiber optic cable infrastructure, wide access to
ISDN, a new switching platform capable of providing ADSL service from most of
its nodes, which are network elements that provide access to the network for
other telecommunications equipment and computers, and a national trunk network
that is mainly equipped with SDH (Synchronous Digital Hierarchy) transmission
systems, which facilitate high-speed digital transmission through fiber optic
cables. Our nationwide fixed network functions as the backbone for our
operations, supporting not only our local, long distance and international
traffic, but also mobile and data communications trunk traffic.

     Due in large part to our advanced network technology, we have been able to
rationalize our network, thereby increasing the productivity and cost
effectiveness of our network as well as reducing the number of switches we
maintain and the number of employees engaged in network development and
operation.

     The reliability of our fixed network has resulted largely from our digital
restoration system, which permits rapid rerouting of transmission in the event
of cable or switch malfunction. The reliability of our network is further
enhanced by highly efficient maintenance services. The accessibility and
reliability of our network is shown in the following table:
YEAR ENDED DECEMBER 31,
                                                                -----------------------
                                                                1998     1999     2000
                                                                -----    -----    -----
Transmission network availability (%).......................    99.99    99.99    99.99
Call success rate (%).......................................    99.00    98.90    99.10
Local Network

     Our local network is one of the most highly digitalized in the world.
Digitalization of the network began in 1979, and was completed in 1996. In the
future, fixed network services will concentrate increasingly on ISDN and ADSL
technology, on other broadband technologies as well as on the Internet protocol.
During 2000, ISDN

                                        45
59

basic subscriptions accounted for 7.2 percent of our fixed-line-access lines as
compared to 5.8 percent in 1999. At the beginning of June 2000, we began
offering a broadband-based ADSL connection which is intended for small-and
medium-sized companies as well as certain consumers and offers a fixed Internet
connection at a fixed monthly rate. The transfer speed of the ADSL connection is
up to two megabits a second. At present, we are offering ADSL services in 142
locations in Finland. By the end of 2000, ADSL coverage in our traditional local
service areas was approximately 73 percent. In the area where competitors
dominate the local network, our objective is to be the high capacity service
provider for 90 percent of companies and 40 percent of consumers in these areas.

     At December 31, 2000, our domestic network consisted of 541,612 standard
telephone access lines, 45,931 ISDN lines and 3,612 2 Mbps lines. Our new
switching platform for our local network features a standardized interface
between our switches and concentrators, making it easier to add network elements
designed by different manufacturers, and facilitating the offering of new
services, including ISDN. Our local network covers approximately 80 percent of
Finland's geographic area and 28 percent of the population.

     Outside of our traditional service areas, we have approximately 3,500
kilometers of fiber optic cable loops in place in the largest cities in Finland
primarily to provide corporate customers with data transfer and voice services.
In the aggregate, we have built fiber optic links to approximately 7,500 office
buildings, production facilities, industrial parks and business centers located
throughout Finland. The installation of fiber optic cable loop slowed down in
the Helsinki city area in the latter part of 1999 and during 2000 due to
limitations placed on earthworks by the Helsinki city council.

Regional and National Trunk Network

     Our regional and trunk networks are fully digitalized and mainly utilize
fiber optic cable capable of operating at transmission speeds of up to 2.5 Gbps.
As of December 31, 2000, a total of approximately 7,000 kilometers of fiber
optic cable had been installed for use in our trunk network. The installation of
fiber optic cable in regional and trunk networks continues at a rate of
approximately 800 kilometers per year.

     We continue to modernize the transmission system in our trunk networks by
installing uniform SDH technology. SDH, which is a relatively inexpensive
technology, allows for enhanced reliability. Through the use of a stand-by
national network and self-healing local rings, the SDH optical network is
protected against single cable failures. The SDH modernization project will be
continued as part of our ongoing investment in our infrastructure. The SDH
modernization is expected to reduce the operation and capital cost of our fixed
network and we expect that the modernization will be completed by the end of
2003. Our current transmission and rerouting system also utilizes PDH
(Plesiochronous Digital Hierarchy) technology, which predates SDH technology. We
are continuing to replace PDH with SDH as part of our SDH modernization project.
In the future, we will develop our national network solely on the basis of fiber
optic cables and SDH technology while the regional network will utilize digital
radiolinks as well.

     We have also implemented WDM (Wave-length Division Multiplexing) technology
on some of our national and regional trunk network fibers which have relatively
low capacity. WDM, which multiplies the capacity of fiber optic cables using
laser beam amplification, has allowed us to increase the capacity of some of our
existing fiber optic cables rather than having to lay down new fiber optic
cables.

     We also operate a number of switched digital networks used principally for
the provision of X.25, frame relay and ATM data services. We were one of the
first telecommunications providers in the world to develop and offer commercial
ATM service. ATM permits data, text, voice and multimedia signals to be
transmitted simultaneously between network access points at speeds of up to 155
Mbps or more. By utilizing ATM technology, we can provide superior LAN
interconnections, data transmission and flexible bandwidth delivery. We believe
that our ATM trunk network is one of the most efficient transmission networks in
the world. See "-- Sonera Telecom -- Data Services."

                                        46
60

International Network

     For international switched traffic, we use two state-of-the-art SS7
international switches located in Helsinki and the Finnish city of Hameenlinna.
These switches handled approximately 599.1 million minutes of international
traffic in 2000 comprising 230.9 million minutes of outbound traffic and 368.2
million minutes of inbound and transit traffic. In addition, we have
international switches in Stockholm and in London.

     We have invested E36 million in submarine cable systems since 1990 and
maintain capacity in several European and trans-Atlantic submarine cables. We
also have a 50 percent interest in two 2.5 Gbps capacity fiber optic cables
connecting Finland and Estonia. We own and operate a high capacity gateway
network based on fiber optic cable which connects Stockholm, Helsinki and St.
Petersburg. We also own a fiber optic cable between St. Petersburg and Moscow,
the building of which was completed in 1999. The cable was first put into
commercial use in February 2000. The new fiber optic cable is expected to
strengthen our position in international transit traffic and enable us to offer
ATM-based broadband services and Internet-based services in Moscow. The total
cost of the fiber optic cable project was approximately E37 million. See "--
International and Other Significant Investments -- Other Investments -- Foreign
Subsidiaries -- Russian Operations." The investment in the fiber optic cable
made possible the Ivan leased line service, a link from Moscow to New York
maintained by Sonera Carrier Networks. We have implemented WDM technology, which
significantly enhances the data transfer capabilities of fiber optic cable, on
that portion of the Ivan service link from Moscow to Hamburg, and plan to
implement WDM technology on additional portions of the link during 2001. In
February 2001, Sonera Carrier Networks, ZAO Sonera Rus and Cable & Wireless
concluded an agreement for ten years whereby Sonera Carrier Networks is to
supply Cable & Wireless with capacity between Moscow and Stockholm as a part of
Sonera Ivan.

EQUIPMENT SALES

     During 2000, our subsidiary Sonera Solutions sold, installed and maintained
switchboard and telephone systems, payment terminals, computers as well as other
data processing and telecommunications equipment. Sonera Solutions also
supervised the Telering and Datainfo retail chains. Revenues from equipment
sales amounted to E125 million in 2000, an increase of approximately 9.6 percent
as compared to 1999.

     The Telering chain, which markets mobile phones and information technology
to consumers and companies, comprises 20 Sonera-owned stores and 60 franchising
outlets. In 2000, mobile phone sales were Telering's largest single sales
segment, as in previous years. Beginning in 2001, the Telering operations were
transferred to the Domestic Mobile Communications business area.

     The Datainfo chain is one of Finland's leading distributors of personal
computers and software, and it is also a supplier of maintenance and network
services for computers. The chain has 44 independent franchising stores.

     We have a 50-50 joint venture with ICL, a Finnish IT firm, called Isoworks
Oy. Isoworks, which specializes in the repair and maintenance of customer
equipment as well as help desk support for customers, began operations in early
October 1999.

     In 1996, we established a wholly-owned subsidiary, Sonera Gateway (formerly
Sonera Credit), primarily to support our core sales operations by providing
equipment and other financing services to our customers. Sonera Gateway's
services are also available to customers of Finland Post Group and TietoEnator.
Sonera Gateway operates as a separate entity, making its own credit
determinations and bearing its own credit risk. For the year ended December 31,
2000, Sonera Gateway recorded leasing sales of E58 million. We plan to change
the focus of Sonera Gateway gradually from financing services for customers
toward broader management of the procurement process in the future.

CONSTRUCTION AND MAINTENANCE

     We provide a full range of network installation and maintenance services
through our wholly-owned subsidiary, Primatel. Primatel provides network
installation and maintenance services for both Sonera and outside customers
including other telephone companies and end-users of telecommunication services
such as public utilities, corporations and residential customers.
                                        47
61

     Primatel's operations are conducted under three business units: (1)
Engineering, which constructs, tests and maintains fixed-line and mobile network
technical elements, including switching and transmission systems as well as base
station technical elements; (2) Networks, which installs and maintains optical
and copper cable networks; and (3) Real Estate Networks, which installs,
maintains and repairs safety networks at customer premises. At December 31,
2000, our construction and maintenance operations had 1,837 employees, as
compared to 1,918 employees at December 31, 1999. In 2000, revenues from
construction and maintenance services to external customers amounted to E34
million. Primatel's share of customers outside the Sonera Group grew during
2000, with revenues derived from outside customers amounting to approximately 20
percent of its total revenues.

OTHER SERVICES

     Other Services consists of various non-core fixed-line related businesses,
including network consulting services and public phones as well as intra-Group
operations such as network capacity sales to other business areas, reselling of
products of other business areas to corporate customers of Sonera Telecom and
the provision of construction and maintenance services to Domestic Mobile
Communications. Our wholly-owned telecommunications consulting subsidiary,
Telecon Oy, provides consulting services relating to network planning,
construction, development and operation to other providers of fixed network
voice communications and data and media services. Telecon's primary customers
are our associated companies. In 2000, we operated approximately 4,100 public
phones. The strong growth in the mobile phone penetration rate has led to a
gradual decline in the use of public phones.

OTHER OPERATIONS

     Other Operations include other non-core businesses such as ticket sales
services, as well as Sonera's administrative functions and centralized services,
which generate primarily intra-Group revenues. Through our subsidiary,
Lippupalvelu Oy, we provide ticket reservations and sales services. Lippupalvelu
operates through a premium rate national service number and retail outlets in
selected major Finnish cities. In 2000, external revenues from these other
businesses amounted to E10 million.

INTERNATIONAL AND OTHER SIGNIFICANT INVESTMENTS

     We have made significant investments in telecommunications companies
outside of Finland that we believe have substantial growth potential and in
which we can apply technical and commercial know-how developed in our Finnish
home market and in other markets. Our principal investments have been
substantial minority positions in providers of mobile telecommunications
services in which we can leverage our expertise in building and operating
advanced GSM networks as well as our strengths in sales, marketing and customer
service. We have made our investments in mobile telecommunications providers in
growth markets such as Turkey, the Baltic States and Hungary. In the United
States, starting in 1998, we made significant investments in PCS operators
Aerial and Powertel and, subsequently, VoiceStream. In light of the acquisition
of Aerial by VoiceStream in May 2000 and of VoiceStream and Powertel by the
German telecommunications company Deutsche Telekom in May 2001, as of June 2001,
we have divested most of our interests in U.S. telecommunications companies. See
"-- Deutsche Telekom." Beginning in 2000, we also began investing, together with
partners, in UMTS licenses in a number of European markets. Joint ventures of
which we are a member have been granted UMTS licenses in Germany, Italy, Spain
and Norway. We have also made substantial investments in providers of fixed-line
services in the Baltic States, which have historically had strong economic ties
to the Nordic Countries.

                                        48
62

     The following table sets forth our principal international investments, our
percentage ownership interest in these companies and total actual cost of shares
in these companies:
AS OF DECEMBER 31, 2000
                                                           ------------------------------------------
                                                                         PERCENT OF   ACTUAL COST OF
COMPANY NAME                                                 COUNTRY     OWNERSHIP       SHARES(1)
------------                                                 -------     ----------   ---------------
                                                                           (%)        (IN E MILLIONS)
GSM MOBILE OPERATORS:
Turkcell Iletisim Hizmetleri A.S........................   Turkey           37.3            230
Fintur Holdings B.V.....................................   Netherlands      35.3            136
Pannon GSM Rt...........................................   Hungary          23.0             72
AS EMT..................................................   Estonia          24.5             --(2)
Latvijas Mobilais Telefons SIA..........................   Latvia           24.5             --(2)
UAB Omnitel.............................................   Lithuania        27.5             83
ZAO North-West GSM......................................   Russia           23.5              4
LibanCell S.A.L.........................................   Lebanon          14.0              4
UMTS MOBILE OPERATORS:
Orla Siebzehnte Vermogensverwaltung GmbH(3).............   Germany          42.8            913
Ipse 2000 S.p.A.........................................   Italy            12.6            270
Xfera Moviles S.A.......................................   Spain            14.3             43
Broadband Mobile ASA....................................   Norway           50.0             --(2)
FIXED NETWORK OPERATORS:
AS Eesti Telefon........................................   Estonia          24.5             20(4)
Lattelekom SIA..........................................   Latvia           44.1            209
AB Lietuvos Telekomas...................................   Lithuania        30.0            238
------------------------------

(1) Includes our total actual cost of shares resulting from the investment in
    the share capital of the company in question.

(2) As of December 31, 2000, we had invested less than E500,000 in the share
    capital of each of AS EMT, Latvijas Mobilais Telefons and Broadband Mobile.

(3) Also referred to as Gruppe 3G in this annual report.

(4) Includes E9 million paid in February 1999 for additional shares in Eesti
    Telekom, the parent company of AS EMT and Eesti Telefon.

MOBILE TELECOMMUNICATIONS OPERATIONS

Turkcell and Fintur

     We have a 37.3 percent holding in Turkcell, the leading GSM cellular
provider in Turkey. The Turkish mobile telecommunications market continued to
grow significantly during 2000 and the country's mobile phone penetration almost
doubled, from 12.5 percent in 1999 to 23 percent in 2000. At the end of 2000,
Turkcell had approximately 10.1 million subscribers or approximately 68 percent
of the Turkish mobile market. Of these, approximately 44 percent were pre-paid
subscribers. Turkcell's contribution to our equity income was E130 million in
2000 compared to E154 million in 1999. Turkcell currently provides
comprehensive, high-density coverage to an area that includes approximately 64
percent of the total population of Turkey, as well as all of the 81 largest
Turkish cities.

                                        49
63

     The following table sets forth some information regarding Turkcell and the
Turkish mobile telecommunications market:
AS OF OR FOR THE
                                                               YEAR ENDED DECEMBER 31,
                                                              -------------------------
                                                               1998     1999     2000
                                                              ------   ------   -------
                                                              (IN E MILLIONS,(1) EXCEPT
                                                               PERCENTAGES AND MARKET
                                                                        DATA)
Revenues(2).................................................    649    1,484     2,415
Operating profit............................................    266      539       462
Net income..................................................    191      346       225
Sonera's share of net income(3) (%).........................   41.0     41.0      37.3
Equity income consolidated to Sonera(4).....................     82      154       130
Total assets................................................  1,339    2,838     4,175
Shareholders' equity........................................    386      816     1,370
Net debt(5).................................................    677    1,408     1,849
Number of subscribers at end of period (in thousands).......  2,330    5,466    10,069
Penetration rate of mobile telephone services in Turkey
  (%).......................................................    5.0     13.0      23.0
------------------------------

(1) U.S. dollar amounts have been translated into Finnish markkas (i) with
    respect to income statement items at the Bank of Finland average exchange
    rate for the relevant accounting period and (ii) with respect to the balance
    sheet items at the Bank of Finland middle rate as of the relevant balance
    sheet date, which FIM amounts have been converted into euros at the
    irrevocable conversion rate between the Finnish markka and the euro of E1.00
    = FIM 5.94573.

(2) Until April 30, 1998, the figures given represent net revenues of Turkcell,
    after taking into account fees calculated on Turkcell's gross revenues paid
    by Turkcell under the 1993 revenue sharing agreement with Turk Telekom. As
    from May 1, 1998, the figures given represent Turkcell's gross revenue.

(3) In connection with Turkcell's initial public offering in July 2000, we sold
    a portion of our interest in Turkcell, reducing our interest to 37.3
    percent.

(4) Before any amortization of goodwill. In 1998, 1999 and 2000 we recorded
    amortization of goodwill with respect to Turkcell of E3 million, E4 million
    and E4 million, respectively.

(5) Net debt consists of interest-bearing debt less cash and short-term
    investments.

     Turkcell was formed in 1993 as a joint venture whose principal owners
included the Cukurova Group, the third largest industrial conglomerate in
Turkey. In 1993, Turkcell was awarded a 15-year revenue sharing agreement with
Turk Telekom, Turkey's state-owned monopoly fixed-line operator, giving it the
right to operate a GSM network. Under the terms of the agreement, Turkcell built
and operated the GSM network and marketed GSM services to subscribers while Turk
Telekom set tariffs for Turkcell's services, performed subscriber billing and
collection and permitted Turkcell access to Turk Telekom's network. Turkcell's
original revenue sharing agreement with Turk Telekom provided that Turkcell
receive 32.9 percent of revenues billed for connection fees, monthly fees and
outgoing calls and ten percent of revenues billed for incoming calls, an
arrangement which resulted in Turkcell receiving between 25 percent and 26
percent of the gross revenues generated by subscribers to its GSM system.

     In April 1998, Turkcell was granted a 25-year GSM license (the "Turkcell
License") upon payment of an up-front license fee of U.S. $500 million. The
payment of the license fee was initially financed through a U.S.$575 million
bridge loan facility, which was refinanced in July 1998 with an issuance of
U.S.$300 million of high-yield debt and a borrowing under a U.S.$575 million
credit facility from a consortium of international banks. The Turkcell License
eliminated certain of the operating constraints of the 1993 revenue sharing
agreement with Turk Telekom. Under the terms of the Turkcell License, Turkcell
is entitled to collect the revenues generated from the operation of its GSM
system and is obligated to pay a fee equal to 15 percent of the monthly gross
revenues to the Treasury of Turkey, as well as certain interconnection and other
service fees to Turk Telekom. The Turkcell License also gives the Turkish
Ministry of Communications certain powers to set and approve charges for GSM
services provided by Turkcell. The Ministry of Communications in Turkey may
terminate the Turkcell License under certain circumstances, including Turkcell's
failure to perform its obligations

                                        50
64

under the Turkcell License, in which event Turkcell could be required to deliver
its GSM system to the Ministry of Communications.

     As of December 31, 2000, Turkcell provided service to its subscribers in 90
countries through roaming agreements with 189 operators. In 2000, Turkcell
introduced a number of new services, including a mobile positioning service.

     In addition, Turkcell has a 25 percent interest in Fintur Holding B.V., a
Dutch holding company which has, among other things, (1) a 51.3 percent interest
in Azercell Telecom B.M., which operates a GSM network in Azerbaijan, (2) an
80.7 percent interest in Geocell Ltd., which operates a GSM network in Georgia,
(3) a 51 percent interest in GSM Kazakhstan, which operates a GSM network in
Kazakhstan and (4) a 77 percent interest in Moldcell S.A., which operates a GSM
network in Moldova. Turkcell, Sonera and the Cukorova Group jointly established
Fintur in 2000 with Turkcell contributing most of its interests in GSM operators
outside of Turkey and certain additional interests and with Sonera and Cukorova
contributing cash. Through an investment of U.S.$127 million, we acquired a 35.3
percent equity holding in Fintur. As of December 31, 2000, Azercell had
approximately 380,000 subscribers to its GSM network, Geocell had approximately
69,000 subscribers, GSM Kazakhstan had approximately 141,000 subscribers and
Moldcell had approximately 43,000 subscribers. In connection with the
acquisition of the GSM Kazakhstan license, we, together with the other principal
shareholders of Turkcell, have committed to enter into guarantees in respect of
GSM Kazakhstan's bank debt in the aggregate amount of U.S.$34 million. Fintur's
other holdings include (1) a 75 percent interest in Novacell CJSC, which applied
for a frequency license in February 2001 to become a GSM operator in the Ukraine
and (2) a 60 percent holding in European Telecommunication Holding AG, which
focuses on providing long distance services principally to the ethnic Turkish
population in Germany. Fintur also has investments in Turkey in Digital
Platform, which is a provider of television program services; Superonline, an
internet service provider; and Topaz, a cable TV infrastructure provider.

     Turkcell has a direct ownership interest in one GSM operator outside of
Turkey: Kibris Mobil Telekomunikasyon Limited Sirketi (Cyprus Mobile
Telecommunications, Inc.), in which it holds a 99.9 percent interest. Cyprus
Mobile commenced operations in July 1999 and as of the end of 2000 had
approximately 59,000 subscribers.

     Turkcell currently faces competition from Telsim, Turk Telekom and IsTim, a
consortium formed by Telecom Italia and Isbank, one of the largest private banks
in Turkey. Telsim operates a GSM 900 network, IsTim operates a GSM 1800 network,
and Turk Telekom, which currently operates an analog network, received its GSM
1800 license in September 2000 and expects to launch GSM services through its
wholly-owned subsidiary Aycell in the second half of 2001. Telsim, which is
Turkcell's principal competitor, began offering mobile services in 1994. Telsim
had approximately five million subscribers as of December 31, 2000, representing
approximately 32 percent of the total Turkish GSM market. IsTim received its GSM
1800 license in September 2000 and began offering services in March 2001. It is
also possible that a new GSM 1800 license will be offered by the Turkish
government in the future.

     Pursuant to the terms of a shareholders' agreement entered into with the
other original shareholders of Turkcell, we are entitled to nominate three
individuals to serve on Turkcell's seven member board of directors. The
shareholders' agreement also provides for certain rights of refusal with respect
to transfers of Turkcell shares. We have also entered into a technical
assistance agreement with Turkcell pursuant to which we provide assistance
relating to planning and construction services and site management of Turkcell's
network, as well as assistance relating to the planning and training of
Turkcell's business and technical departments; the technical assistance
agreement was valid up until the end of 2000. As of December 31, 2000, we had
outstanding guarantees to various lenders with respect to E66 million of debt
incurred by Turkcell and Fintur in connection with the purchase of network
equipment and draw-downs of bank facilities. As of December 31, 2000, Turkcell
Holding A.S., our associated company which holds a portion of our interest in
Turkcell, had pledged 25 percent of its Turkcell shares as security for
Turkcell's loan financing.

     We are the only principal shareholder of Turkcell that operates its own
mobile telecommunications network. The other significant shareholders of
Turkcell include the Cukurova Group, with an aggregate 45.9 percent ownership
interest, and MV Holding A.S., with a 7.0 percent equity interest.
                                        51
65

     In October 1999, we entered into a shareholders agreement with the Cukurova
Group providing for the establishment of a new holding company in Turkey,
Turkcell Holding A.S. Under the terms of the agreement, we contributed Turkcell
shares representing 24.02 percent of the share capital of Turkcell to the
Turkish holding company. We own 47.09 percent of the shares of the holding
company with the balance being owned by the Cukurova Group. Turkcell Holding
holds 51 percent of the share capital of Turkcell.

     In July 2000, Turkcell completed the initial public offering of its shares.
We sold a total of approximately 10.2 billion shares in the offering and
received total net proceeds of U.S.$704 million from the offering. As part of
the offering, Turkcell's shares were listed on the Istanbul Stock Exchange and
the New York Stock Exchange. We currently hold 37.3 percent of Turkcell's
outstanding shares.

     In late November 1999, the Turkish Parliament confirmed the introduction of
a temporary tax on mobile subscriptions. This tax, in effect from December 1,
1999 up to the end of 2002, amounts to 25 percent of a subscriber's total
monthly telephone bill net of VAT and is being collected by mobile operators.
Turkcell's net profit in 2000 was reduced significantly by the mobile phone tax,
which has also had a negative impact on mobile phone usage in Turkey. In
addition, in an attempt to avert a potential financial and political crisis, the
Turkish government allowed the Turkish lira to float freely in February 2001.
This has resulted in a significant devaluation of the Turkish lira against the
U.S. dollar and other major foreign currencies. The effects of the mobile phone
tax and the devaluation of the lira in early 2001 are expected to have a
negative impact on Turkcell's net profit and cash flow in 2001 and 2002.

     Turkcell is involved in a number of ongoing legal proceedings and disputes
which, if determined against Turkcell, could individually or in the aggregate
have a material adverse effect on its financial condition or results of
operation. These include the following:

     -  Turkcell has been named as a defendant in a consolidated purported class
        action lawsuit pending in the United States. The complaint alleges that
        the prospectus issued in connection with Turkcell's public offering in
        July 2000 contained false and misleading statements about its churn rate
        and omitted material financial information. The plaintiffs seek to
        recover damages pursuant to the U.S. Securities Act of 1933. In a recent
        related claim, the directors of Turkcell, including our nominees, were
        named as co-defendants with Turkcell. Turkcell management believes it is
        premature to estimate its potential liability, if any, from the class
        action lawsuit.

     -  Turkcell is involved in a dispute with the Turkish Ministry of
        Transportation and the Treasury of Turkey in connection with the method
        of calculating the monthly license fee owed to the Treasury of Turkey
        under the Turkcell License. In the view of the Ministry of
        Transportation and the Treasury, the 15 percent monthly license fee
        should be calculated on a gross basis before deduction for VAT,
        Turkcell's required contribution to the education fund and frequency
        usage and transmission fees. Turkcell has calculated the ongoing license
        fee on a net basis after deducting for these items. Turkcell commenced
        legal proceedings against the Ministry of Transportation and the
        Treasury at the Danistay, Turkey's highest administrative court, in the
        matter. After the Danistay lifted an injunction preventing the Treasury
        from collecting the license fee amounts payable on account of
        collections of VAT, Turkcell paid the Treasury U.S.$57.2 million in
        March 2000 for license fees on account of VAT and late interest payments
        (which sum does not include license fees on account of the education
        fund and frequency usage and transmission fees). Turkcell has stated
        that it will continue to pay license fees in respect of VAT collections,
        subject to a final decision to be rendered by the Danistay. The suit is
        currently pending before the Danistay. In the event that the Ministry
        and the Treasury prevail in these matters, Turkcell may be required to
        pay higher license fees in the future and may have to pay supplemental
        fees for prior periods together with overdue interest.

     -  Turkcell is involved in a dispute with the Turkish Ministry of Finance
        in connection with the payment of VAT on the upfront fee for the
        Turkcell License. Should the matter, which is before the Danistay, be
        decided in favor of the Turkish Ministry of Finance, Turkcell could be
        required to pay significant fees to the Turkish tax authorities,
        together with interest and penalty charges.

                                        52
66

     -  Several thousand Turkcell customers have initiated lawsuits against
        Turkcell demanding that Turkcell stop charging fixed monthly fees (not
        based on usage) and reimburse them for such fixed fees already paid by
        them. While a large majority of such cases have been dismissed or
        referred to consumer courts, customers have prevailed in a number of
        these suits. If a significant number of these suits are instituted and
        Turkcell is unsuccessful in defending against them, it could have a
        material adverse effect on Turkcell's financial condition or results of
        operations.

     -  The Turkish Ministry of Transportation has claimed that certain value
        added services, transaction fees, roaming revenues and interest charges
        for late collections should be included in the calculation of the
        monthly license fee owed to the Treasury of Turkey under the Turkcell
        License. Turkcell has initiated a lawsuit relating to the matter, and
        the case is currently pending before the Danistay. If the case is
        resolved in favor of the Treasury, Turkcell will be liable for
        significant additional license fee payments as well as interest charges.

     -  Turkcell is involved in a dispute with Turk Telekom in connection with
        recent modifications in the way that Turk Telekom calculates the
        interconnection fees that Turk Telekom pays to Turkcell. Beginning in
        early 2000, Turk Telekom, in determining the interconnection fees that
        it pays to Turkcell, began deducting from the revenues it receives
        certain payments that it makes to the Turkish Treasury and other Turkish
        authorities. Turkcell commenced a lawsuit to prevent Turk Telekom from
        calculating the fee in this matter, which it lost at the lower court
        level and has appealed. While the appeal is pending, Turkcell agreed to
        pay U.S.$35.3 million out of the total additional interconnection fee
        requested of U.S.$91.1 million. Turkcell also recorded a liability of
        the unpaid portion of U.S.$55.8 million for 2000.

     -  Turkcell is also involved in a dispute with Turk Telekom currently
        pending at the Turkish commercial court involving the way in which
        Turkcell and Turk Telekom share interconnection revenue. Turk Telekom
        has claimed that Turkcell should make a payment to Turk Telekom based on
        the cancellation of certain provisions of Turkcell's interconnection
        agreement with Turk Telekom in a separate lawsuit.

     -  In July 2000, Turk Telekom, which has an effective monopoly on providing
        transmission lines to mobile operators, reduced the discount on leased
        transmission lines that it had provided for a number of years from 60
        percent to 25 percent. Turkcell brought suit seeking to enjoin Turk
        Telekom from implementing the reduction, lost in the trial court, and
        has appealed the decision. Turkcell has also sought relief from the
        Competition Board of Turkey. Turkcell estimates that it will be required
        to pay approximately U.S.$48 million to Turk Telekom if the case is
        decided in Turk Telekom's favor.

     -  In addition, in March 2001, Turk Telekom unilaterally, and without the
        approval of the Ministry of Transportation, increased the fees it
        charges Turkcell for access to Turk Telekom's transmission lines by 100
        percent, effective April 1, 2001, and refused to lease Turkcell any
        further transmission lines. In May 2001, Turkcell obtained an injunction
        to compel Turk Telekom to lease additional lines to Turkcell and to
        prevent Turk Telekom from collecting any amounts relating to its
        increase in the transmission line fee. In June 2001, Turkcell initiated
        a lawsuit to rule on the legality of Turk Telekom's actions. If Turkcell
        is unsuccessful in this lawsuit, Turkcell's fees for leasing
        transmission lines will double.

     In June 2001, we announced that we would participate in a rights offering
of shares by Turkcell to its existing shareholders. Our pro rata participation
in the offering would amount to approximately U.S.$75 million.

     Based on Turkcell's interim financial statements as of March 31, 2001,
Turkcell was in breach of certain of its covenants attached to its bank loans.
If the lenders were to demand immediate repayment of these loans, it would
trigger a cross-default to Turkcell's other indebtedness, which could have a
material adverse effect on Turkcell's financial condition. Turkcell has informed
the lenders of the default and is working with them to prepare a waiver letter.
Turkcell does not expect the lenders to accelerate repayments under the bank
loan facilities, and is currently not aware of plans by the lenders to require
such accelerated payments. Turkcell also expects to begin negotiating the
covenants with the lenders shortly. Turkcell Holding, in which we hold a 47.1
percent interest, has pledged one-fourth of the shares it holds in Turkcell, or
approximately one-sixth of our

                                        53
67

total interest in Turkcell, to secure Turkcell's bank loan facilities. As of
March 31, 2001, we also had guarantees outstanding in the amount of E32 million
in relation to Turkcell's debt.

     Turkcell's consolidated financial statements as of and for the years ended
December 31, 1998, 1999 and 2000 are included in this annual report. The report
of the independent auditors report of Turkcell, which is unqualified, contains
an explanatory paragraph that states that Turkcell's current liabilities at
December 31, 2000 exceeded current assets by approximately U.S.$55.8 million and
that as of the three month period ended March 31, 2001, Turkcell was in breach
of the covenants contained in certain of its bank facilities, which may raise
substantial doubt about Turkcell's ability to continue as a going concern. In
addition, the Turkcell independent auditors' report contains an explanatory
paragraph that states that an uncertainty exists relating to the significant
economic difficulties that have emerged in Turkey during 2000 and subsequent to
December 31, 2000.

Pannon

     We have a 23 percent shareholding in Pannon GSM, the second largest mobile
telephone operator in Hungary. Hungary's mobile phone penetration rate grew to
30 percent at the end of 2000. As of December 31, 2000, Pannon had approximately
1.2 million subscribers, an increase from 668,000 subscribers at the end of
1999, giving it approximately 41 percent of the Hungarian mobile telephone
market. Pannon's network covers approximately 99 percent of Hungary's population
and approximately 95 percent of its geographic area. For the year ended December
31, 2000, Pannon's revenues amounted to E375 million, as compared to revenues of
E313 million in 1999.

     The following table sets forth certain information regarding Pannon and the
Hungarian mobile telecommunications market:
AS OF OR FOR THE
                                                                 YEAR ENDED DECEMBER 31,(1)
                                                                -----------------------------
                                                                 1998       1999       2000
                                                                -------    -------    -------
                                                                  (IN E MILLIONS,(2) EXCEPT
                                                                PERCENTAGES AND MARKET DATA)
Revenues....................................................       266        313        375
Operating profit............................................        41         87         73
Net (loss) income...........................................        (4)        51         36
Sonera's share of net income(3)(%)..........................      23.0       23.0       23.0
Equity (loss) income consolidated to Sonera(4)..............      (0.4)        10          8
Total assets................................................       302        465        446
Shareholders' equity........................................        35         78        117
Net debt(5).................................................       200        168        214
Number of subscribers at end of period (in thousands).......       432        668      1,221
Penetration rate of mobile services in Hungary (%)..........      10.7       16.0         30
------------------------------

(1) The selected financial data set forth above is based on financial reports
    received from Pannon in the preparation of our consolidated financial
    statements and the data presented may therefore differ from the data
    included in the financial statements published by Pannon for the relevant
    years.

(2) For 1998, 1999 and 2000, Hungarian forint amounts in income statement items
    have been translated into Finnish markkas using the Bank of Finland average
    exchange rate for the period and in balance sheet items using the Bank of
    Finland middle rate in effect on December 31, 1998, 1999 and 2000,
    respectively, which Finnish markka amounts have then been converted into
    euros at the irrevocable conversion rate between the Finnish markka and the
    euro of E1.00 = FIM 5.94573.

(3) Until August 1998, we had an 18.1 percent equity interest in Pannon. In
    August 1998, we acquired an additional 4.9 percent interest increasing our
    shareholding to 23.0 percent.

(4) Before any amortization of goodwill. In 1998, 1999 and 2000, we recorded
    amortization of goodwill with respect to Pannon of E2 million, E6 million
    and E6 million, respectively.

(5) Net debt consists of interest-bearing debt less cash and short-term
    investments.

     Pannon launched its GSM service commercially in March 1994 pursuant to a
license awarded in September 1993 by the Hungarian Ministry for Transport,
Telecommunications and Water Management (the "Hungarian

                                        54
68

Ministry"). Under the terms of the license, Pannon has the right, for 15 years
from the date of the license, to provide public GSM 900 services and may, with
the agreement of the Hungarian Ministry, extend the term of the license for an
additional period of seven and one-half years. In June 1999, Pannon was granted
a 15-year GSM 1800 license from the Ministry. The other providers of mobile
telecommunications in Hungary are Westel 900 GSM Mobil Tavkozlesi Rt., a
provider of GSM 900 and 1800 services; Westel Radiotelefon Kft., a provider of
analog mobile telecommunications services; and Vodafone Hungaria, a subsidiary
of Vodafone Airtouch that provides GSM 1800 services.

     The granting of GSM 1800 licenses in Hungary was part of an arrangement
between the Hungarian Ministry and the current operators in which the current
operators agreed to waive their rights for additional GSM 900 frequencies
against the receipt of GSM 1800 licenses. Additionally, Pannon and Westel agreed
to provide Vodafone Hungaria an opportunity to roam in their networks for a
maximum of three years ending on June 30, 2004, at the latest. Pannon began
using its GSM 1800 frequencies in Budapest in November 2000, and outside
Budapest in March 2001. Under the terms of the agreement between Pannon and
Vodafone Hungaria, Pannon can terminate the agreement fifteen months from its
execution and Vodafone Hungaria can terminate it after twelve months. Each party
is required to give the other party three months' notice of its intention to
terminate the agreement.

     Pannon offers its subscribers a wide range of value-added features,
including the ability to send SMS messages to e-mail addresses and receive
e-mail messages in SMS format, voice mail and conference call services. Pre-paid
services started in 1997, and, in 1998, Pannon introduced a pre-paid service
with rechargeable SIM cards. In 1999, Pannon started to offer voice over IP for
international calls. In 2000, Pannon introduced pre-paid roaming. Pannon is also
preparing to launch GPRS services in 2001. While Pannon's network has been fully
built out and covers essentially the entire geographical area of Hungary, Pannon
continues to make additional investments in its network to increase quality,
improve indoor coverage and expand the overall capacity of its network. By the
end of 2000, Pannon had entered into roaming agreements with 160 operators in 71
countries.

     We provide business and technical expertise to assist the operation of
Pannon's GSM network. We currently have two nominees including the Chairman
serving on Pannon's seven member board of directors and one nominee on Pannon's
five member supervisory board. Pannon's other principal shareholders include
Royal KPN N.V. and Telenor AS. We and the other shareholders of Pannon have
entered into a shareholders' agreement which provides for certain rights of
first refusal with respect to transfers of Pannon shares.

AS EMT

     Through our shareholding in Eesti Telekom, a publicly listed Estonian
corporation, we have an indirect 24.5 percent ownership interest in AS EMT,
formerly known as Eesti Mobiiltelefon. AS EMT, a wholly-owned subsidiary of
Eesti Telekom, is the largest of three GSM operators in Estonia. As of December
31, 2000, AS EMT had approximately 327,000 subscribers using its GSM network,
giving it approximately 60 percent of the total Estonian mobile telephone
market. AS EMT's GSM network covers approximately 99 percent and 98 percent of
Estonia's population and geographic area, respectively. For the year ended
December 31, 2000, AS EMT's revenues amounted to E116 million, as compared to
revenues of E103 million in 1999.

                                        55
69

     The following table sets forth certain information regarding AS EMT and the
Estonian mobile telecommunications market:
AS OF OR FOR THE
                                                                 YEAR ENDED DECEMBER 31,(1)
                                                                -----------------------------
                                                                 1998       1999       2000
                                                                -------    -------    -------
                                                                  (IN E MILLIONS(2), EXCEPT
                                                                PERCENTAGES AND MARKET DATA)
Revenues....................................................        84        103        116
Operating profit............................................        29         38         43
Net income..................................................      20.1       34.1       43.4
Sonera's share of net income (%)............................      24.5       24.5       24.5
Equity income consolidated to Sonera........................       4.9        8.4       10.6
Total assets................................................        66         85        101
Shareholders' equity........................................        54         73         87
Net debt(3).................................................      (5.1)       (15)       (22)
Number of subscribers at period end (in thousands)..........       152        244        327
Penetration rate of mobile telephone services in Estonia
  (%).......................................................      16.8       27.5         39
------------------------------

(1) The selected financial data set forth above is based on financial reports
    received from AS EMT in the preparation of our consolidated financial
    statements and the data presented may therefore differ from the data
    included in the financial statements published by AS EMT for the relevant
    periods.

(2) For income statement items, Estonian kroon amounts have been translated into
    Finnish markkas using the Bank of Finland average exchange rate for the
    applicable period and for balance sheet items using the Bank of Finland
    middle rate in effect on December 31 of the applicable year, which Finnish
    markka amounts have then been converted into euros at the irrevocable
    conversion rate between the Finnish markka and the euro of E1.00 = FIM
    5.94573. The financial information in the table is sensitive to exchange
    rate fluctuations.

(3) Net debt consists of interest-bearing debt less cash and short-term
    investments.

     AS EMT commercially launched its NMT service in 1991 and its GSM service in
1995. AS EMT terminated its NMT services at the end of 2000. AS EMT has a GSM
license granted by the Estonian Ministry of Transport and Communications (the
"Estonian Ministry") that is valid until August 31, 2006. AS EMT also has a
license granted by the Estonian Ministry to provide GSM 1800 services that is
valid until August 31, 2006. Competing providers of mobile telecommunications
services in Estonia include Radiolinja Eesti AS, a subsidiary of the Finnish GSM
operator Radiolinja, and Tele 2 Eesti AS, which together have a 40 percent share
of the Estonian mobile telecommunications market.

     AS EMT offers its subscribers a wide range of value-added features,
including the ability to send SMS messages to other mobile phones and to e-mail
addresses and to receive e-mail messages in the form of SMS messages. AS EMT had
roaming agreements with mobile communications operators in approximately 77
countries as of March 31, 2001.

     We provided both GSM operating and technical expertise to AS EMT. Our
ownership interest in AS EMT is held through Eesti Telekom, a publicly listed
Estonian corporation. Other shareholders of Eesti Telekom are Telia, which holds
an indirect 24.5 percent equity interest, and the Republic of Estonia, which
holds a 27.3 percent equity interest. The remaining 23.7 percent is owned by the
public. Prior to the initial public offering of Eesti Telekom, both its group
structure and ownership structure were restructured. The restructuring was
effected on the basis of an agreement entered into between the Republic of
Estonia and the minority shareholders of Eesti Telekom's subsidiaries. Pursuant
to the restructuring agreement, the shareholders of AS EMT and Eesti Telefon,
including our Company, exchanged their shares in such subsidiaries for
publicly-traded shares of Eesti Telekom. Together with Telia, we currently have
four nominees and the Republic of Estonia has two nominees serving on Eesti
Telekom's ten member supervisory council. The remaining four members have been
elected by the annual general meeting of shareholders of Eesti Telekom. AS EMT
has its own four member supervisory council in which Sonera and Telia together
have two nominees.

     Estonian telecommunications legislation was revised in preparation for
Estonia's expected membership in the European Union and came into effect on
March 19, 2000. The implementing legislation is still under

                                        56
70

development. There can be no assurance that the interpretation and
implementation of new telecommunications legislation in Estonia will not have an
adverse effect upon AS EMT. A number of lawsuits regarding Eesti Telekom's
recent initial public offering and the restructuring process have been brought
against Eesti Telekom, the Republic of Estonia and several other parties
including Telia. These claims attempt to, among other things, invalidate the
restructuring and the subsequent sale of shares in the initial public offering.
While Eesti Telekom has successfully defended itself in a number of the suits,
management is currently not in a position to estimate the outcome of the
remaining lawsuits but it believes that the defendants have good defenses
against the claims presented.

Latvijas Mobilais Telefons

     We have a 24.5 percent shareholding in Latvijas Mobilais Telefons, the
largest GSM operator in Latvia. As of December 31, 2000, Latvijas Mobilais
Telefons had approximately 267,000 subscribers for its GSM and NMT 450 networks
combined, giving it approximately 67 percent of the total Latvian mobile phone
market. For the year ended December 31, 2000, Latvijas Mobilais Telefons'
revenues amounted to E154 million, as compared to revenues of E103 million in
the prior year.

     The following table sets forth certain information regarding Latvijas
Mobilais Telefons and the Latvian mobile telecommunications market:
AS OF OR FOR THE
                                                                 YEAR ENDED DECEMBER 31,(1)
                                                                -----------------------------
                                                                 1998         1999       2000
                                                                -------    -------    -------
                                                                  (IN E MILLIONS(2), EXCEPT
                                                                PERCENTAGES AND MARKET DATA)
Revenues....................................................        69        103        154
Operating profit............................................        25         44         63
Net income..................................................      12.9         31         46
Sonera's share of net income (%)............................      24.5       24.5       24.5
Equity income consolidated to Sonera........................       3.1        7.7       11.3
Total assets................................................        78         99        135
Shareholders' equity........................................        40         72        107
Net debt(3).................................................         7          2         (6)
Number of subscribers at period end (in thousands)..........       125        201        267
Penetration rate of mobile telephone services in Latvia
  (%).......................................................       6.8       11.5         17
------------------------------

(1) The selected financial data set forth above is based on financial reports
    received from Latvijas Mobilais Telefons in the preparation of our
    consolidated financial statements and the data presented may therefore
    differ from the data included in the financial statements published by
    Latvijas Mobilais Telefons for the relevant years.

(2) For income statement items, Latvian lat amounts have been translated into
    Finnish markkas using the Bank of Finland average exchange rate for the
    applicable period and for balance sheet items using the Bank of Finland
    middle rate in effect on December 31 of the applicable year, which Finnish
    markka amounts have then been converted into euros at the irrevocable
    conversion rate between the Finnish markka and the euro of E1.00 = FIM
    5.94573. The financial information in the table is sensitive to exchange
    rate fluctuations.

(3) Net debt consists of interest-bearing debt less cash and short-term
    investments.

     Latvijas Mobilais Telefons commercially launched its NMT service in 1992
and its GSM service in 1996. Latvijas Mobilais Telefons' GSM and NMT licenses
were each renewed in January 2000 for terms of five years. Pursuant to the
license, Latvijas Mobilais Telefons has the right to develop and operate an NMT
450 and a GSM network in Latvia. The only competing provider of mobile
telecommunications services in Latvia is SIA Tele2, a wholly-owned subsidiary of
the Swedish telecommunications company Tele2 AB, which has approximately 33
percent of the total Latvian mobile communications market. Latvijas Mobilais
Telefons offers its subscribers a wide range of value-added features, including
voice mail, call forwarding, caller identification, SMS messaging and forwarding
of SMS messages to e-mail addresses as well as fax and data capability. In July
1999, Latvijas Mobilais Telefons and SIA Tele2 were granted GSM 1800 licenses.
Latvijas Mobilais Telefons began using the new frequency at the end of 1999 and
SIA Tele2 in early 2000. Latvijas Mobilais Telefons has roaming agreements with
approximately 189 mobile telecommunications operators in 83 countries.

                                        57
71

     We provide both GSM operating and technical expertise to Latvijas Mobilais
Telefons. We currently have two nominees serving on Latvijas Mobilais Telefons'
seven member board of directors. Latvijas Mobilais Telefons' other shareholders
include Telia, with a 24.5 percent interest, Digital Latvia Radio and TV Centre,
which is a wholly-owned mobile operator of the Latvia Radio and Television
Centre, with a 23 percent interest, Lattelekom, with a 23 percent interest, and
an entity controlled by the Ministry of Transport of the Republic of Latvia,
which has a five percent interest.

     Latvian telecommunications legislation is currently being revised in
preparation for Latvia's expected membership in the European Union. Management
is currently not in a position to assess the impact on Latvijas Mobilais
Telefons of the anticipated passage of new telecommunications legislation in
Latvia.

Omnitel

     In September 1998, we purchased a 27.5 percent indirect holding in Omnitel,
the largest of three GSM operators in Lithuania. As of December 31, 2000,
Omnitel had approximately 307,000 subscribers using its GSM network, giving it
approximately 60 percent of the total Lithuanian mobile telephone market.
Omnitel's GSM network covers approximately 99 percent and 98 percent of
Lithuania's population and geographic area, respectively. For the year ended
December 31, 2000, Omnitel's revenues amounted to E92 million, as compared to
E83 million in 1999.

     The following table sets forth certain information regarding Omnitel and
the Lithuanian mobile telecommunications market:
AS OF OR FOR THE
                                                                 YEAR ENDED DECEMBER 31,(1)
                                                                -----------------------------
                                                                 1998       1999       2000
                                                                -------    -------    -------
                                                                  (IN E MILLIONS(2), EXCEPT
                                                                PERCENTAGES AND MARKET DATA)
Revenues....................................................        79         83         92
Operating profit............................................      18.4         35         27
Net income..................................................      15.8       30.6       20.5
Sonera's share of net income (%)............................      27.5       27.5       27.5
Equity income consolidated to Sonera(3).....................       2.0        8.4        5.6
Total assets................................................        84        106        123
Shareholders' equity........................................        31         67         93
Net debt(4).................................................        42         10         (1)
Number of GSM subscribers at period end (in thousands)......       146        196        307
Penetration rate of mobile telephone services in Lithuania
  (%).......................................................       6.3        8.7         11
------------------------------

(1) The selected financial data set forth above is based on financial reports
    received from Omnitel in the preparation of our consolidated financial
    statements and the data presented may therefore differ from the data
    included in the financial statements published by Omnitel for the relevant
    years.

(2) For income statement items, Lithuanian lita amounts have been translated
    into Finnish markkas using Bank of Finland average exchange rate for the
    applicable period and for balance sheet items using the Bank of Finland
    middle rate in effect on December 31 of the applicable year, which Finnish
    markka amounts have then been converted into euros at the irrevocable
    conversion rate between the Finnish markka and the euro of E1.00 = FIM
    5.94573. The financial information in the table is sensitive to exchange
    rate fluctuations.

(3) Before any amortization of goodwill. In 1998, 1999 and 2000, we recorded
    amortization of goodwill with respect to Omnitel of E2 million, E7 million
    and E8 million, respectively. We acquired our shareholding in Omnitel on
    September 2, 1998. Accordingly, our equity income from Omnitel in 1998 only
    includes the last four months of 1998.

(4) Net debt consists of interest-bearing debt less cash and short-term
    investments.

     Omnitel commercially launched its GSM 900 service in March 1995. Omnitel's
current GSM 900 license was granted in October 1997 by the Lithuanian Ministry
of Communications and Information and is valid until October 2007, subject to
renewal thereafter. Omnitel competes principally with UAB Bite GSM and UAB
Tele2, providers of GSM 900 and GSM 1800 services. Omnitel was granted a GSM
1800 license in 1998. Omnitel offers its subscribers a wide range of value-added
features, including voice mail, call forwarding, call waiting,

                                        58
72

caller identification, three-way conferencing and SMS messaging. Omnitel also
provides commercial Internet services, data transmission services, using X.25
and X.28 protocol, and nationwide paging services. Omnitel had roaming
agreements with 132 mobile telecommunications operators in 62 countries as of
December 31, 2000.

     Omnitel's other shareholders are Telia, also with a 27.5 percent
shareholding, Motorola Lithuania Telecom, a Lithuanian subsidiary of Motorola
Corporation, with a 35 percent shareholding, and the Kazickas family, with a ten
percent shareholding. Sonera and Telia may each nominate two of the seven
members of the Omnitel board of directors. Subject to certain conditions, each
shareholder may require Omnitel to repurchase its Omnitel shares. The
shareholders may be required to make additional capital contributions to Omnitel
provided that any proposal for capital contributions must be approved by a
supermajority of the shareholders.

North-West GSM

     We have a 23.5 percent shareholding in North-West GSM ZAO, a GSM service
provider in the northwestern part of Russia, including the St. Petersburg,
Archangelsk, Murmansk, Karelia and Vologda regions. As of December 31, 2000,
North-West GSM had approximately 253,000 subscribers using its GSM network.
North-West GSM's network covers approximately 93 percent of the population in
St. Petersburg and Leningrad oblast and 40 percent of its geographic area,
respectively, and between 30 to 50 percent of the population in its other
service areas. For the year ended December 31, 2000, North-West GSM's revenues
amounted to E132 million, as compared to revenues of E80 million in 1999.

     The following table sets forth certain information regarding North-West GSM
and the Russian mobile telecommunications market:
AS OF OR FOR THE
                                                                 YEAR ENDED DECEMBER 31,(1)
                                                                -----------------------------
                                                                 1998       1999       2000
                                                                -------    -------    -------
                                                                  (IN E MILLIONS(2), EXCEPT
                                                                PERCENTAGES AND MARKET DATA)
Revenues....................................................        88         80        132
Operating profit............................................      29.4       19.7         42
Net income..................................................      16.3        5.9       22.7
Sonera's share of net income (%)............................      23.5       23.5       23.5
Equity income consolidated to Sonera........................       3.8        1.2        5.3
Total assets................................................        84        108        122
Shareholders' equity........................................        32         43         67
Net debt(3).................................................        10        0.3         17
Number of subscribers at period end (in thousands)..........        92        133        253
Penetration rate of mobile telephone services in Russia
  (%).......................................................       0.3        0.9          2
------------------------------

(1) The selected financial data set forth above is based on financial reports
    received from North-West GSM in the preparation of our consolidated
    financial statements and the data presented may therefore differ from the
    data included in the financial statements published by North-West GSM for
    the relevant years.

(2) For income statement items, U.S. dollar amounts have been translated into
    Finnish markkas using the Bank of Finland average exchange rate for the
    applicable period and for balance sheet items using the Bank of Finland
    middle rate in effect on December 31 of the applicable year, which Finnish
    markka amounts have then been converted into euros at the irrevocable
    conversion rate between the Finnish markka and the euro of E1.00 = FIM
    5.94573. The financial information in the table is sensitive to exchange
    rate fluctuations.

(3) Net debt consists of interest-bearing debt less cash and short-term
    investments.

     North-West GSM commercially launched its GSM service in the St. Petersburg
area in December 1994 and in most of its other service areas in 1997. North-West
GSM's licenses in its five principal service areas are valid until 2008. In
December 1999, North-West GSM acquired 100 percent of the equity of North-West
DCS ZAO, a holder of a GSM 1800 license, and, in March 2000, by decision of the
Russian Ministry of Telecommunications, the North-West DCS ZAO license was
transferred to North-West GSM. This acquisition permits North-West GSM to
provide dual band service and adds Kaliningrad, Novgorod and Pskov to the
regions in which it is licensed. North-West GSM expects to launch commercial
services in these new regions by the end of 2001. As of

                                        59
73

December 31, 2000, North-West GSM had a 70 percent share of the market for
mobile telecommunications services in the city of St. Petersburg and Leningrad
oblast and approximately 20 percent in its other service areas. The two
principal competitors of North-West GSM are Delta Telecom, which operates an NMT
based service, and Fora Communications, which operates an AMPS based service.
North-West GSM's management believes that North-West GSM operates the most
advanced mobile network in Russia, giving it a competitive advantage over other
providers of primarily analog based services.

     North-West GSM offers its subscribers a wide range of value-added features,
including voice mail, call forwarding, caller identification and SMS messaging,
data and fax capabilities as well as WAP and electronic payment services.
North-West GSM has roaming agreements with approximately 243 mobile
communications operators in approximately 112 countries. North-West GSM also
provides national roaming pursuant to agreements with 15 other GSM operators
operating in many densely populated areas in Russia, including the cities of
Moscow, Nizhni-Novgorod, Samara and Krasnodar.

     We provide operating, financial and technical expertise to North-West GSM.
North-West GSM's other shareholders include a group of Russian
telecommunications companies and financial institutions, which hold, in the
aggregate, 51 percent of North-West GSM, and Telia and Telenor, which each hold
12.7 percent interests in North-West GSM. Of the ten members of the North-West
GSM board of directors, five are nominated by the Russian shareholders. Of the
remaining five directors, we have the right to nominate two directors, Telia and
Telenor have the right to nominate one director each, and we, together with
Telia and Telenor, have the right to nominate one director. The transfer of
shares in North-West GSM is subject to certain restrictions, including rights of
refusal and consent rights of other North-West GSM shareholders.

     The European Bank for Reconstruction and Development (EBRD) agreed in 1996
to lend North-West GSM up to U.S.$40 million to finance development of the GSM
network. To secure North-West GSM's obligations thereunder, each shareholder
agreed to pledge up to 50 percent of its respective shares to the EBRD. The loan
agreement also restricts North-West GSM's ability to pay dividends, incur
additional indebtedness and make certain expenditures without the permission of
the EBRD. In accordance with the EBRD loan agreement, we have pledged 50 percent
of our North-West GSM shares in favor of the EBRD, including dividends or
distributions that may be paid thereon. North-West GSM repaid all amounts under
the EBRD loan agreement in January 2001, but the pledge remains in effect.

     In August 1998, Russia experienced a severe economic and political crisis
which negatively affected North-West GSM's results of operations in 1998 and
1999. In 2000, North-West GSM experienced a sharp increase in revenues and
returned to profitability in part due to improvements in the Russian economy.
Russia, however, remains an emerging market and does not possess the
well-developed business and regulatory infrastructure that generally exist in
more mature market economies. Furthermore, the Russian Government has not fully
implemented the reforms necessary to create banking, judicial, tax and
regulatory systems that usually exist in more developed markets. In the event a
new economic or political crisis should occur in Russia, it could have a
material adverse effect upon the value and prospects of North-West GSM.

Sonic Duo

     In May 2000, Sonic Duo, a company in which we hold a 35 percent interest,
acquired a license to provide GSM services in the greater Moscow area, which has
a population of approximately 15 million inhabitants. Sonic Duo has started
construction of its GSM network and management expects that Sonic Duo will begin
to offer GSM services on a commercial basis to its own subscribers as well as to
visitors by the final quarter of 2001.

LibanCell

     We have a 14 percent holding in LibanCell, one of two GSM operators in
Lebanon. As of December 31, 2000 LibanCell had approximately 346,000
subscribers, giving it approximately 47 percent of the Lebanese mobile telephone
market in 2000. LibanCell's network covers approximately 95 percent of Lebanon's
population and approximately 90 percent of its geographic area. For the year
ended December 31, 2000, LibanCell's net revenues amounted to E180 million, as
compared to net revenues of E150 million in 1999.
                                        60
74

     The following table sets forth certain information regarding LibanCell and
the Lebanese mobile telecommunications market:
AS OF OR FOR THE
                                                                YEAR ENDED DECEMBER 31,(1)
                                                               -----------------------------
                                                                1998       1999       2000
                                                               -------    -------    -------
                                                                 (IN E MILLIONS(2), EXCEPT
                                                               PERCENTAGES AND MARKET DATA)
Net revenues................................................      120        150        180
Operating profit............................................       54         61         81
Net income..................................................       41         46         58
Sonera's shareholding (%)...................................     14.0       14.0       14.0
Dividends received..........................................        3          3          3
Total assets................................................      226        247        215
Shareholders' equity........................................       73         96        149
Net debt(3).................................................       25         10        (85)
Number of subscribers at period end (in thousands)..........      248        318        346
Penetration rate of mobile telephone services in Lebanon
  (%).......................................................     12.0       15.7         18
------------------------------

(1) Except as noted in the immediately following sentence, the selected
    financial data set forth above is based on financial reports received from
    LibanCell in the preparation of our consolidated financial statements and
    the data presented may therefore differ from the data included in the
    financial statements published by LibanCell for the relevant years. We,
    however, treated bad debt write-offs recorded by Libancell as a part of
    operating expenses rather than non-recurring items that are not taken into
    account in calculating operating profit due to our belief that the cost of
    bad debt is a cost of conducting a mobile operator business. Net profit is
    unaffected by this change.

(2) Lebanese pound amounts have been translated into U.S. dollars using an
    exchange rate of 0.00066313 U.S. dollars per Lebanese pound, which U.S.
    dollar amounts in income statement items have been translated into Finnish
    markkas using the Bank of Finland average exchange rate for the respective
    periods and in balance sheet items using the Bank of Finland middle rate in
    effect at the end of each year, which Finnish markka amounts have then been
    converted into euros at the irrevocable conversion rate between the Finnish
    markka and the euro of E1.00=FIM5.94573. The financial information in the
    table is sensitive to exchange rate fluctuations.

(3) Net debt consists of interest-bearing debt less cash and short-term
    investments.

     LibanCell commercially launched its GSM service in May 1995, pursuant to an
agreement with the Republic of Lebanon granting LibanCell the right to build,
operate and transfer a GSM network in Lebanon. The ten-year license expires in
2004 and LibanCell has an option to extend the license for an additional two
years. Under the terms of the license, LibanCell's GSM network will revert back
to the Republic of Lebanon after the expiration of the license. LibanCell pays
certain fixed amounts to the Republic of Lebanon annually together with a
percentage of revenues generated by airtime, connection and subscription fees,
and international call fees ranging from 20 percent in the first eight years to
50 percent in the final two years of the extended license term. The license also
restricts LibanCell's ability to increase rates for network usage. On April 22,
2000, the Lebanese Ministry of Post and Telecommunications served a payment
order on LibanCell for the amount of U.S.$300 million in connection with alleged
violations by LibanCell of the terms of its mobile operator license. France
Telecom Mobiles International, the other GSM operator in Lebanon, was also
requested to pay U.S.$300 million. In response, in May 2000, LibanCell filed a
request for arbitration of the matter pursuant to the terms of the 1994 contract
between LibanCell and the Republic of Lebanon, Ministry of Post and
Telecommunications. The matter is still pending and LibanCell's management is
not currently in a position to predict the timing or likely outcome of the
proceeding.

     Pursuant to an agreement between LibanCell and us, we provide technical
expertise and services to assist LibanCell in complying with the minimum
requirements of the build, operate and transfer license. In return for these
services, we receive four percent of LibanCell's annual net income. We currently
have one nominee serving on LibanCell's five member board of directors. We are
the only principal shareholder of LibanCell that operates its own
telecommunications network, the other principal shareholders being Lebanese
Telecommunications Company SARL, Lebanese Communication Holding SAL and Almabani
Liban. Although the shareholders can freely sell their shares to one another,
sales of shares to parties other than shareholders are subject, first, to a
right of first refusal held by LibanCell and, thereafter, to a right of first
refusal held by the other shareholders

                                        61
75

proportionally in accordance to their holdings. Any transfer of shares is also
subject to the prior approval of the Lebanese Ministry of Posts and
Communications.

     The only other provider of mobile telecommunications services in Lebanon is
France Telecom Mobile Liban, which serves approximately 50 percent of the
Lebanese market. However, the Lebanese government has made public that it is
considering launching a state-owned cellular phone company to compete with the
two current providers. The terms regarding exclusive rights granted to LibanCell
in the current license agreement between LibanCell and the Republic of Lebanon
would allow the new company to start its operations in 2003.

Deutsche Telekom

     We own approximately 72 million shares of Deutsche Telekom, representing
less than two percent of its outstanding shares. Deutsche Telekom is the largest
provider of telecommunications services in Europe. We acquired our interest in
Deutsche Telekom as a result of a number of different transactions relating to
our investment in the U.S. PCS operators, Aerial Communications, Inc., Powertel,
Inc. and VoiceStream Wireless Corporation. These transactions are summarized
below:

     -  In September 1998, we invested U.S.$200 million in Aerial Operating Co.,
        the principal operating subsidiary of Aerial Communications, Inc.
        (Aerial), in exchange for an initial 19.4 percent ownership interest in
        Aerial Operating Co.

     -  In September 1999, we acquired a 9.1 percent ownership interest, on a
        fully diluted basis, in Powertel, one of the largest GSM-based PCS
        operators in the United States, for a purchase price of U.S.$122.7
        million. This was effected through our purchase of 100,000 shares of
        Powertel's Series A convertible preferred stock from LM Ericsson. We
        subsequently converted the Powertel Series A preferred shares into
        shares of Powertel common stock.

     -  In November 1999, we made an additional investment of U.S.$230 million
        in Aerial.

     -  In February 2000, in connection with the merger of VoiceStream and
        Omnipoint Corporation, a U.S. PCS operator, we purchased VoiceStream
        shares representing 3.6 percent of its outstanding share capital for a
        purchase price of U.S.$500 million.

     -  On May 4, 2000, Aerial and VoiceStream merged. Pursuant to the merger
        agreement, we received 0.455 shares of VoiceStream for each Aerial
        common share that we held prior to the merger.

     -  On January 31, 2001, we acquired additional shares of common stock of
        Powertel representing approximately 2.7 percent of its outstanding share
        capital for an aggregate purchase price of approximately $125 million.

     -  In May 2001, we sold 3,300,000 VoiceStream shares and sold 1,100,000
        Powertel shares for which we received proceeds of approximately E430
        million in the aggregate.

     -  On May 31, 2001, Deutsche Telekom completed the acquisitions of
        VoiceStream and Powertel. Under the terms of the merger agreements, each
        share of VoiceStream held by us was converted into the right to receive
        a combination of U.S.$15.9062 in cash and 3.6683 shares of Deutsche
        Telekom and each share of Powertel common stock was converted into the
        right to receive 2.6353 shares of Deutsche Telekom. In connection with
        the merger we received, in the aggregate, approximately 72 million
        shares of Deutsche Telekom and approximately E290 million in exchange
        for our VoiceStream and Powertel holdings.

     We expect to use the cash proceeds in connection with (1) our sale of
VoiceStream and Powertel shares in May 2001 and (2) the tender of all of our
VoiceStream shares pursuant to the merger of VoiceStream with and into Deutsche
Telekom to reduce our outstanding indebtedness. We plan to dispose of our shares
in Deutsche Telekom, taking into consideration market conditions and our lock-up
obligations, in an effort to maximize our return on the shares.

     In connection with the merger of VoiceStream and Deutsche Telekom, we,
together with certain other large former shareholders of VoiceStream and
Powertel, have agreed with Deutsche Telekom not to transfer any

                                        62
76

Deutsche Telekom shares received in exchange for our VoiceStream and Powertel
shares in the mergers except for the percentage of our holdings set forth below,
subject to certain exceptions:

     1.    For the three-month period following the merger: none.

     2.    For the three-month period ending six months after the merger: 40
           percent. This percentage is calculated based on the number of
           Deutsche Telekom shares we would have received in the Deutsche
           Telekom-Powertel-VoiceStream merger, assuming (i) we held the number
           of Powertel and VoiceStream shares at the time of the merger as we
           held at the time of the respective shareholders' meeting of Powertel
           and VoiceStream approving the merger with Deutsche Telekom (both of
           which occurred in March 2001) and (ii) we had elected to receive a
           "mixed consideration" of Deutsche Telekom shares and cash in
           connection with our tender of VoiceStream shares as provided in the
           VoiceStream-Deutsche Telekom merger agreement. Based on our
           interpretation of the agreements we entered into with Deutsche
           Telekom, we believe that we will be able to sell an aggregate of
           approximately 34.5 million shares we hold in Deutsche Telekom during
           the period from September 1, 2001 to December 1, 2001.

     3.    After six months after the merger: 100 percent.

     Our consolidated earnings in 2000 included a gain of E835 recorded as a
result of the Aerial/VoiceStream merger. The amount of the gain was determined
by the difference between VoiceStream's market value at the time of the merger
and the carrying value of Aerial on our consolidated balance sheet. In April
2000, we received an advance ruling from the Central Tax Board of Finland,
according to which the Aerial/VoiceStream merger is considered a transaction for
which we are liable to pay tax in Finland. This ruling was subsequently affirmed
by the Supreme Administrative Court in Finland. As a result of the ruling, we
paid taxes of approximately E216 million relating to the Aerial/VoiceStream
merger in 2000 even though the merger had no effect on our cash flow.

EWV Holding

     In January 2001, we invested U.S.$75 million in Eliska Wireless Ventures
Holding Company, Inc., a newly-formed company which acquired the PCS licenses
and other assets of DiGiPH PCS, a GSM operator in Alabama, Mississippi and
Florida in January 2001. We hold a 30.1 percent interest in EWV. EWV's other
shareholders include Deutsche Telekom, which acquired its interest through the
merger with Powertel, and Eliska Wireless Investors I, L.P. with 49.9 percent
and 20.0 percent interests, respectively. In connection with the EWV
transaction, we entered into a put agreement with Deutsche Telekom (formerly
Powertel) pursuant to which Deutsche Telekom agreed that, from October 1, 2001
until June 30, 2002, we may sell all of our interest in EWV to Deutsche Telekom
in exchange for shares of Deutsche Telekom shares. Deutsche Telekom also has a
right of first offer on our EWV shares in the event we desire to sell such
shares to a third party.

INVESTMENTS IN UMTS LICENSES

     As part of our growth strategy, we have been active in investing, together
with partners, in UMTS licenses in a number of European markets. In 2000,
consortiums of which we are a member were granted UMTS licenses in Germany,
Italy, Spain and Norway. In addition, we were a member of a consortium that bid
for, but did not obtain, a UMTS license in Sweden. The following discussion
provides a brief description of our interest in the consortiums that have been
granted UMTS licenses and the markets in which such consortiums expect to
operate.

Germany

     Gruppe 3G, a consortium in which we hold a 42.8 percent interest, was
awarded a UMTS license as the result of an auction process in Germany in August
2000 for a total purchase price of E8,408 million. Telefonica Moviles S.A., a
subsidiary of Telefonica S.A., a major Spanish wireless communications company,
holds the remaining 57.2 percent interest in Gruppe 3G. In March 2001, Gruppe 3G
established its headquarters in Munich. Management expects that Gruppe 3G will
begin offering UMTS services on a commercial basis by 2002, depending, among
other things, upon the availability of third generation network elements and
handsets.

                                        63
77

     Gruppe 3G's consolidated financial statements for the period as of December
31, 2000 and for the period from inception (August 2, 2000) to December 31, 2000
are included in this annual report.

     Concession.  Under the terms of Gruppe 3G's nationwide UMTS license in
Germany, Gruppe 3G is authorized to operate using two paired 10 MHz channels to
provide wireless services, including voice and data. Gruppe 3G is also
authorized to operate a single unpaired 5 MHz channel which can be used for
wireless data applications. Gruppe 3G's third generation license is valid for a
term of 20 years.

     Agreements.  The consortium agreement by and among Telefonica
Intercontinental S.A., a subsidiary of Telefonica Moviles, Sonera 3G Holding
B.V. and Sonera provides that, upon a direct or indirect change of control of
either Telefonica Intercontinental or Sonera 3G Holding that results in the
party being controlled by a competitor of the other party, Gruppe 3G or Gruppe
3G's operating subsidiary, a call right is triggered under which the party which
was not the subject of the change of control may purchase the other party's
interest in Gruppe 3G. In addition, the consortium agreement provides that upon
a change of control of either party which results in a regulatory determination
that causes such party to dispose of its interest in Gruppe 3G, then we have the
right to require Telefonica Moviles to purchase, or to cause a third party to
purchase, all of our interest in Gruppe 3G. Any payment would be based on the
cost of the license until August 2001 and, thereafter, fair market value.

     Competition.  In addition to the license awarded to Gruppe 3G, five other
UMTS licenses were awarded in August 2000, including four UMTS licenses that
were awarded to the incumbent wireless service providers in Germany. The four
incumbent service providers are:

     -  T-Mobil, owned by Deutsche Telekom;

     -  Vodafone (through its acquisition of Mannesmann AG);

     -  E-Plus, in which KPN and BellSouth have a significant interest; and

     -  Viag Interkom, which is controlled by British Telecom.

     Mobilcom, which is controlled by France Telecom and also received a UMTS
license, is currently operating as a wireless reseller for wireless network
service providers and does not have its own wireless network.

     German Regulatory Developments.  In June 2001, the German Regulatory
Authority for Post and Telecommunications (Reg TP) announced it would allow UMTS
licensees to cooperate in the construction and operation of UMTS networks. Under
the ruling, Reg TP indicated that it will permit different degrees of
cooperation among licensees depending upon the type of infrastructure at issue.
For these purposes, Reg TP distinguished between three classes of
infrastructure: one class which may be shared without restriction, another class
which may be shared provided the operator has the proper software, and a final
class comprised mainly of mobile switching centers which may not be shared. Reg
TP has announced that it believes that its regulatory structure will ensure
competition in the UMTS market.

     In light of Reg TP's announcement, Gruppe 3G has entered into discussions
with other UMTS licensees about cooperating on the roll out of the UMTS networks
in Germany. Any agreement among operators to cooperate with respect to UMTS
networks would likely be examined under European and national competition rules
and might be modified or blocked in the event of intervention by the relevant
authorities. In addition, competitors which unsuccessfully participated in the
tenders for the UMTS licenses may challenge any cooperation among the successful
UMTS bidders in court, asserting, among other things, that such cooperation
would violate the conditions of the UMTS licenses.

Italy

     In September 2000, we became one of the founding members of the Ipse 2000
S.p.A. consortium, which was formed principally to bid on third generation
licenses offered by the Government of Italy. In November 2000, Ipse 2000 was
awarded one of five national licenses. The aggregate price for the license was
approximately E3.3 billion, approximately E2.1 billion of which was paid at the
time the license was awarded, and the remaining E1.2 billion of which is due in
ten yearly installments commencing at the end of 2001. An Italian bank has

                                        64
78

guaranteed the payment of the remaining E1.2 billion due to the Italian
government. In addition, we, together with other members of the consortium, have
guaranteed the payment obligations of certain smaller shareholders in the Ipse
2000 consortium in relation to the remaining E1.2 billion due to the Italian
government. As of January 26, 2001, we held an aggregate interest in Ipse 2000
of 12.55 percent.

     Our partners in Ipse 2000 include Telefonica Moviles, which as of the
beginning of 2001 had a 49.67 percent interest in the consortium, and Banca di
Roma, which as of the beginning of 2001 had a ten percent interest.

     Concession.  Under the terms of the nationwide UMTS license, which Ipse
2000 won in the auction, Ipse 2000 is authorized to operate using two paired 10
MHz channels, a further two paired 5 MHz channels and one unpaired, or single, 5
MHz channel to provide wireless services, including voice and data services. The
UMTS license in Italy will be valid for a term of 15 years.

     Agreements.  Under the terms of our consortium agreement for Ipse 2000,
Ipse 2000 created an operating company to provide third generation services.
Under the consortium agreement, Telefonica Moviles and Sonera have agreed to
exercise their voting rights as a single block, under the control of Telefonica
Moviles. A change of control in Sonera would trigger a right for us to sell our
interest in Ipse 2000 to Telefonica Moviles.

     Competition.  In addition to the license awarded to Ipse 2000, four other
UMTS licenses were awarded in November 2000 by the Italian authorities,
including three UMTS licenses that were awarded to the incumbent wireless
service providers in Italy. These three incumbent wireless service providers
are:

     -  Telecom Italia Mobile, owned by Telecom Italia;

     -  Omnitel, owned by Vodafone; and

     -  Wind, owned by Enel and France Telecom.

     The other new entrant operator granted a UMTS license is Andala, which is
70 percent owned by Hutchison.

Spain

     In January 2000, we became one of the founding shareholders of Xfera
Moviles S.A. In March 2000, Xfera Moviles was granted one of four third
generation licenses in Spain. Xfera Moviles paid an initial license fee of
approximately E130 million and agreed to invest an additional E500 million to
promote various government sponsored projects. From 2000 to 2005, we expect to
invest a total of E350 million in the shareholders' equity in Xfera. In addition
to shareholders' equity, Xfera intends to obtain additional funding through
project financing. Xfera has entered into a national roaming agreement with
Airtel Movil and expects to launch GSM/GPRS services in September 2001. The
Spanish government has extended the deadline for the initial roll out of UMTS
networks from August 2001 to June 2002. We currently hold a 14.25 percent
indirect interest in Xfera Moviles.

     In addition to Sonera, the shareholders of Xfera Moviles S.A. include
Vivendi, which holds a 29.5 percent interest in the consortium, and a number of
other Spanish and international financial and telecommunications groups. We hold
our interest in Xfera Moviles through ACS Sonera Moviles SA, a holding company
which has a 34.25 interest in Xfera. We own a 41.6 percent interest in ACS
Sonera, and ACS, a spanish instruction and engineering company, owns the
remainder.

     In early 2001, the Spanish government requested that Xfera Moviles pay an
annual spectrum fee of E163 million for 2001. In May 2001, the Spanish
government indicated that it would lower the fee.

     Concession.  Under the terms of the nationwide UMTS license, which Xfera
Moviles was awarded by the Spanish government, Xfera Moviles is authorized to
operate two paired 15 MHz channels to provide wireless services, including voice
and data. Xfera Moviles is also authorized to operate a single unpaired, 5 MHz
channel, which can be used for wireless data applications. The license is valid
for a term of 20 years.

     Agreements.  Under the terms of the agreement among the shareholders of
Xfera Moviles, we have the right to appoint two members to a 15 member Xfera
Moviles Board of Directors so long as we continue to maintain at least a ten
percent equity interest in Xfera Moviles. Under the terms of the shareholders'
agreement, Xfera

                                        65
79

Moviles has established an executive committee comprised of the chief executive
officer and three board members, which is responsible for closely monitoring and
supporting the operation of the business and to decide matters not explicitly
reserved for the entire board of directors in the agreement. We have the right
to nominate one director to the executive committee so long as we maintain a ten
percent equity interest in Xfera Moviles. We also have the right to appoint two
members of Xfera Moviles' management team: the chief technical officer and the
director of sales & marketing. The shareholders' agreement provides for a right
of first refusal on the part of the other shareholders in the event a
shareholder desires to transfer its Xfera Moviles' shares to a third party.

     Competition.  In addition to the license awarded to Xfera Moviles, three
other UMTS licenses were awarded in March 2000 by the Spanish authorities. All
three of these licenses were awarded to existing GSM operators. The three
incumbent service providers are:

     -  Retevision Movil, in which Telecom Italia, Endesa and Union Fenosa have
        significant interests;

     -  Telefonica; and

     -  Airtel Movil.

Norway

     In November 2000, Broadband Mobile ASA, a consortium with the Norwegian
telecommunications company Enitel ASA, was granted a UMTS license for Norway.
Sonera and Enitel are equal partners in Broadband Mobile ASA. The State of
Norway charged a fee of NOK 200 million (approximately E25 million) for the
license. In addition, the State of Norway will levy an annual license fee, the
level of which will be decided by the Norwegian Parliament on an annual basis.
For 2001, the annual license fee is NOK 20 million (approximately E3 million).

     Concession.  Under the terms of Broadband Mobile's nationwide UMTS license
in Norway, Broadband Mobile is authorized to operate using two paired 15 MHz
channels to provide wireless services, including voice and data services.
Broadband Mobile is also authorized to operate a single, unpaired 5 MHz channel
which can be used for wireless data applications. The license is valid for a
term of 12 years.

     Agreements.  The shareholders' agreement with Enitel provides that the
board of directors of Broadband Mobile will consist of four members, two of whom
will be appointed by us. The transfer of shares in Broadband Mobile during a 36
month grace period after the granting of the UMTS license may only be made upon
certain circumstances and is subject to the consent of the other party. After
the grace period, a transfer of shares may be effected so long as the transferee
agrees to accept the obligations of the shareholders' agreement. In the event of
a change of control of either of the parties that could jeopardize Broadband
Mobile's chances of retaining the UMTS license, the other party shall have the
right to require such party to withdraw from the consortium.

     Competition.  In addition to the license awarded to Broadband Mobile, three
other UMTS licenses were awarded in November 2000, one of which was awarded to
the incumbent wireless operator in Norway, Telenor. The two other recipients of
UMTS licenses in Norway are NetCom and Tele2 Norge.

FIXED-LINE OPERATIONS

     Our principal fixed-line associated companies are Eesti Telefon in Estonia,
Lattelekom in Latvia and Lietuvos Telekomas in Lithuania. Each of these
companies is making the transition from a period of partially exclusive rights
to a deregulated operating environment.

Eesti Telefon

     Through our holding in Eesti Telekom, a publicly-listed Estonian
corporation, we have an indirect 24.5 percent interest in Eesti Telefon. Eesti
Telefon, a wholly-owned subsidiary of Eesti Telekom, is currently the dominant
provider of fixed-line telecommunications services in Estonia. As of December
31, 2000, Eesti Telefon had approximately 517,000 subscriber lines. In 2000,
Eesti Telefon's revenues amounted to E172 million, as compared to revenues of
E154 million in 1999.

                                        66
80

     The following table sets forth certain information regarding Eesti Telefon
and the Estonian fixed-line telecommunications market:
AS OF OR FOR
                                                                 YEAR ENDED DECEMBER 31,(1)
                                                                ----------------------------
                                                                 1998      1999       2000
                                                                ------    -------    -------
                                                                 (IN E MILLIONS(2), EXCEPT
                                                                PERCENTAGES AND MARKET DATA)
Revenues(3).................................................      138        154        172
Operating profit............................................       22         25         30
Net income(4)...............................................       16          9         27
Sonera's share of net income (%)............................     24.5       24.5       24.5
Equity income consolidated to Sonera(5).....................      4.0        0.5        6.5
Total assets................................................      162        173        178
Shareholders' equity........................................       80         80         97
Net debt(5).................................................       65         61         49
Number of access lines at period end (in thousands).........      493        510        517
Penetration rate of fixed-line telephone services in Estonia
  (%).......................................................     34.5       35.3       35.9
------------------------------

(1) The selected data set forth above is based on our financial reports
    available to and estimates made by us in the preparation of our consolidated
    financial statements and the data presented above may therefore differ from
    the data included in the financial statements published by Eesti Telefon for
    the relevant periods. Consequently, the equity income consolidated to Sonera
    for a certain period is likely to include corrections from the previous
    year.

(2) For income statement items, Estonian kroon amounts have been translated into
    Finnish markkas using the Bank of Finland average exchange rate for the
    applicable period and for balance sheet items using the Bank of Finland
    middle rate in effect on December 31 of the applicable year, which Finnish
    markka amounts have then been converted into euros at the irrevocable
    conversion rate between the Finnish markka and the euro of E1.00 =
    FIM5.94573. The financial information in the table is sensitive to exchange
    rate fluctuations.

(3) In 1999, Eesti Telefon changed its recognition of interconnection revenues
    and costs to the gross method, which increased the revenues and costs
    compared to the previous years. Revenues for 1998 have been adjusted so as
    to be comparable to the 1999 and 2000 revenues.

(4) Due to the changes in Estonian tax law in effect from January 1, 2000, Eesti
    Telefon was required to write-off deferred tax assets. This had a negative
    effect on net income in 1999.

(5) Net debt consists of interest-bearing debt less cash and short-term
    investments.

     Until December 31, 2000, Eesti Telefon had exclusive rights to provide
basic fixed-line local, domestic long distance and international telephony
services in Estonia. The market for basic fixed-line services was fully
liberalized effective January 1, 2001, for which Eesti Telefon had been actively
preparing. Despite these preparations, management expects that the
liberalization will result in Eesti Telefon losing market share and being forced
to make changes to its tariff structure and reduce some of its tariffs.
Management, however, cannot currently assess what specific effects increased
competition will have on the results of operations or financial condition of
Eesti Telefon and, in turn, the amount of income we will derive from Eesti
Telefon in the future.

     To improve cost efficiency, Eesti Telefon has taken such steps as
outsourcing installation and maintenance tasks. During the past several years,
Eesti Telefon has made substantial investments in its fixed-line
telecommunications network. The number of access lines increased from 493,000 at
the end of 1998 to approximately 517,000 a the end of 2000. The rate of
penetration increased from 34.5 lines per 100 inhabitants at the end of 1998 to
approximately 35.9 lines per 100 inhabitants at the end of 2000. In addition,
the number of Eesti Telefon's telephone lines connected to digital switches
increased from 48 percent at the end of 1998 to approximately 71 percent at the
end of 2000. Customers connected to the digital system can also subscribe to
such services as call waiting, call forwarding, conference calls and voice mail.
Eesti Telefon also offers ISDN services in the majority of Estonia's most
populated regions, and has recently introduced ADSL products to the market. It
is expected that Eesti Telefon will continue to make substantial investments in
the modernization of its network. In cooperation with us, Eesti Telefon has
created a data communications system between Estonia and Finland based on ATM
technology and has plans to develop a basic ATM network covering the entire
country. Eesti Telefon also offers X.25 and frame relay data transmission
services as well as Internet access services. Eesti Telefon also has over 50
percent of the market for dial-up Internet access services in Estonia.

                                        67
81

     Our indirect ownership interest in Eesti Telefon is held through Eesti
Telekom, a publicly-listed Estonian corporation. Prior to the initial public
offering of Eesti Telekom shares in 1999, Eesti Telekom and its operative
companies, AS EMT and Eesti Telefon, completed a restructuring pursuant to an
agreement between the Republic of Estonia and the other shareholders of AS EMT
and Eesti Telefon. Pursuant to the restructuring agreement, the shareholders of
AS EMT and Eesti Telefon, other than the Republic of Estonia, which already
prior to the restructuring owned its shares in the operative companies through
Eesti Telekom, exchanged their shareholdings in such companies for publicly
tradable shares of Eesti Telekom. See "-- Mobile Telecommunications Operations
-- AS EMT" for a description of the ownership structure of Eesti Telekom. A
number of lawsuits regarding the initial public offering and the restructuring
of Eesti Telekom have been brought against Eesti Telekom and other parties to
it, including Sonera. See "-- Mobile Telecommunications Operations -- AS EMT"
for a description of these lawsuits.

     Estonian telecommunications legislation was revised in preparation for
Estonia's expected membership in the European Union and went into effect on
March 19, 2000. Among other changes, the new legislation imposes a licensing
requirement on telecommunications operators. In 2000, as a consequence of the
new legislation, Eesti Telefon was granted a renewed and modified license. Eesti
Telefon and the Republic of Estonia also entered into an agreement on the
termination of the concession agreement signed in 1992. The new agreement
imposes certain obligations on Eesti Telefon, such as implementing number
portability and reducing the subscriber waiting list. There can be no assurance
that the interpretation and implementation of the new telecommunications
legislation in Estonia will not have an adverse effect upon Eesti Telefon.

Lattelekom

     We have a 44.1 percent indirect shareholding in Lattelekom, currently the
leading provider of fixed-line telecommunications services in Latvia. The other
shareholders in Lattelekom are the Republic of Latvia, which holds a 51.0
percent interest in Lattelekom, and the International Finance Corporation, which
holds a 4.9 percent indirect interest. As of December 31, 2000, Lattelekom had
approximately 735,000 subscriber lines. In 2000, Lattelekom's revenues amounted
to E248 million, as compared to revenues of E207 million in 1999.

     The following table sets forth certain information regarding Lattelekom and
the Latvian fixed-line telecommunications market:
AS OF OR FOR THE
                                                                 YEAR ENDED DECEMBER 31,(1)
                                                                -----------------------------
                                                                 1998       1999       2000
                                                                -------    -------    -------
                                                                  (IN E MILLIONS(2), EXCEPT
                                                                PERCENTAGES AND MARKET DATA)
Revenues....................................................       178        207        248
Operating profit............................................        40         36         47
Net income(3)...............................................        32         34         42
Sonera's share of net income (%)(4).........................      44.1       44.1       44.1
Equity income consolidated to Sonera(5).....................       8.8       15.0       18.5
Total assets................................................       374        444        481
Shareholders' equity(5)(6)..................................       248        317        277
Net debt(7).................................................        53         55         25
Number of access lines at period end (in thousands).........       742        732        735
Penetration rate of fixed-line telephone services in Latvia
  (%).......................................................      30.1       30.2         32
------------------------------

(1) The selected data set forth above is based on our financial reports
    available to and estimates made by us in the preparation of our consolidated
    financial statements and the data presented above may therefore differ from
    the data included in the financial statements published by Lattelekom for
    the relevant periods. Consequently, our equity income consolidated for a
    certain period is likely to include corrections from the previous year.

(2) For income statement items, Latvian lat amounts have been translated into
    Finnish markkas using the Bank of Finland average exchange rate for the
    applicable period and for balance sheet items using the Bank of Finland
    middle rate in effect on December 31 of the applicable year, which Finnish
    markka amounts have then been converted into euros at the irrevocable
    conversion rate between the Finnish markka and the euro of E1.00 = FIM
    5.94573. The financial information in the table is sensitive to exchange
    rate fluctuations.

                                        68
82

(3) Lattelekom's net income includes its equity income in its associated company
    Latvijas Mobilais Telefons, in which it holds a 23 percent equity interest.

(4) We acquired an additional 30.9 percent interest in Lattelekom in September
    1998. We hold our interest in Lattelekom through a holding company, Tilts
    Communications, the only asset of which is a 49 percent equity interest in
    Lattelekom. We currently hold a 90 percent interest in Tilts Communications,
    the other Tilts Communications' shareholder being IFC. Prior to September
    1998, we held a 27 percent interest in Tilts Communications, and we
    historically treated Tilts Communications as an associated company,
    including its earnings in our consolidated accounts in accordance with the
    equity method of accounting. Since September 1998, we have consolidated the
    accounts of Tilts Communications and present IFC's minority interest in
    Tilts Communications separately in our consolidated income statement and
    balance sheet.

(5) Before any amortization of goodwill. We recorded amortization of goodwill of
    E8 million, E19 million and E18 million with respect to Lattelekom in 1998,
    1999 and 2000, respectively.

(6) Shareholders' equity for 2000 does not include redeemable share capital,
    which Lattelekom classifies under long-term liabilities in its IAS accounts.
    Shareholders' equity for 1999 and 1998 have not been restated.

(7) Net debt consists of interest-bearing debt less cash and short-term
    investments. Redeemable share capital has not been included in net debt.

     Lattelekom has made substantial investments in its fixed-line
telecommunications network, with cumulative investments from the beginning of
1994 to the end of 2000 amounting to approximately E628 million. During that
period, the number of access lines has grown by approximately 84,000. The rate
of penetration has increased from approximately 26.4 lines per 100 inhabitants
at the end of 1994 to approximately 31.0 lines per 100 inhabitants at the end of
2000. At the end of 2000, approximately 52 percent of all lines were connected
to digital switches, compared to 43 percent in 1999 and two percent in 1994. The
digital system offers customers additional services such as call waiting, call
forwarding and other value-added services. Lattelekom also offers ISDN services
in the majority of Latvia's most populated regions. Lattelekom expects that it
will continue to make substantial investments in the modernization of its
network.

     Although voice telephone services remain its core business, Lattelekom has
begun to offer many other types of telecommunications services, including
Internet access, data transmission and local area network connections.
Lattelekom offers its customers data transmission services and virtual private
network services using X.25 protocol, a world-wide protocol for transmitting
data in packet switched format. In 2000, Lattelekom began offering an Ultra DSL
broadband service, based on ADSL technology.

     Lattelekom was granted exclusive rights to provide local, domestic long
distance and international fixed-line telecommunication services throughout
Latvia through the end of 2013. However, there has already been significant
erosion of these exclusive rights. Furthermore, as part of its push for WTO
(World Trade Organization) and European Union memberships, the government of
Latvia has made a commitment to shorten the exclusivity period during which
Lattelekom may act as the exclusive fixed-line service provider in Latvia to the
end of 2002. We take the position that such a unilateral reduction of the
exclusivity period constitutes a breach of the agreement pursuant to which we
originally acquired our beneficial interest in Lattelekom. After negotiations
with the Latvian government failed to resolve the matter, Tilts Communications
brought the issue of compensation to be paid by the Republic of Latvia for
losses that will be sustained in the event of a unilateral reduction of the
license exclusivity period and for other breaches by the Republic of Latvia to a
court of arbitration. Deliberations on the arbitration matter are still in
progress. Management is currently not in a position to predict with any
certainty the likely outcome of these arbitration proceedings.

     In addition, in January 2001 the Latvian government issued to Latvijas
Mobilais Telefons a new license which grants to Latvijas Mobilais Telefons,
among other things, the right to provide international telephony services.
Lattelekom and Tilts Communications have notified the Latvian government that,
in their opinion, the new license should be amended because it violates the
exclusive rights of Lattelekom. Management is currently not able to estimate the
outcome of this matter.

     Pursuant to agreements with Lattelekom and the Republic of Latvia, Tilts
Communications provides Lattelekom management services, employee training and
assistance in the procurement of equipment and supplies for which Tilts
Communications received fees of E4 million in 2000, E4 million in 1999 and E9
million in 1998. Tilts Communications has also agreed to improve Lattelekom's
network and infrastructure. We have provided performance guarantees to
Lattelekom in respect of Tilts Communications' foregoing obligations.

                                        69
83

     We currently have four nominees serving on Lattelekom's 11-member board of
directors. Executives nominated by us also serve as Chief Executive Officer and
Chief Financial Officer of Lattelekom.

     Latvian telecommunications legislation is currently being revised in
preparation for Latvia's expected membership in the European Union. There can be
no assurances that the interpretation and implementation of new
telecommunications legislation in Latvia will not have an adverse effect on
Lattelekom.

     Currently, Lattelekom is undergoing a regular state revenue tax audit
covering periods from 1997 to 1999. As the audit is not yet completed,
management cannot determine the effect that the results of the audit may have on
Lattelekom's tax position and the related adjustments that may be necessary to
Lattelekom's financial statements.

Lietuvos Telekomas

     In July 1998, we acquired a 30 percent indirect shareholding in Lietuvos
Telekomas, currently the leading provider of fixed-line telecommunications
services in Lithuania. As of December 31, 2000, Lietuvos Telekomas had
approximately 1,188,000 access lines. In 2000, Lietuvos Telekomas' revenues
amounted to E281 million, as compared to revenues of E231 million in 1999.

     The following table sets forth certain information regarding Lietuvos
Telekomas and the Lithuanian fixed-line telecommunications market:
AS OF OR FOR
                                                                 YEAR ENDED DECEMBER 31,(1)
                                                                -----------------------------
                                                                 1998       1999       2000
                                                                -------    -------    -------
                                                                  (IN E MILLIONS(2), EXCEPT
                                                                PERCENTAGES AND MARKET DATA)
Revenues....................................................       204        231        281
Operating profit............................................        49         39         55
Net income..................................................        22         34         65
Sonera's share of net income (%)(3).........................        30         30         30
Equity income consolidated to Sonera(4).....................       6.6       10.2       12.2
Total assets................................................       356        492        552
Shareholders' equity........................................       233        302        315
Net debt(5).................................................        77        140        137
Number of access lines at period end (in thousands).........     1,110      1,161      1,188
Penetration rate of fixed-line telephone services in
  Lithuania (%).............................................      30.0       31.4         32
------------------------------

(1) The selected data set forth above is based on financial reports available to
    and estimates made by us in the preparation of our consolidated financial
    statements and the data presented above may therefore differ from the data
    included in the financial statements published by Lietuvos Telekomas for the
    relevant periods. Consequently, our equity income consolidated for a certain
    period is likely to include corrections from the previous year.

(2) For income statement items, Lithuanian lita amounts have been translated
    into Finnish markkas using the Bank of Finland average exchange rate for the
    applicable period and for balance sheet items using the Bank of Finland
    middle rate in effect on December 31 of applicable year, which Finnish
    markka amounts have been converted into euros at the irrevocable conversion
    rate between the Finnish markka and the euro of E1.00 = FIM 5.94573. The
    financial information in the table is sensitive to exchange rate
    fluctuations.

(3) We acquired our 30.0 percent indirect interest in Lietuvos Telekomas in July
    1998.

(4) Before any amortization of goodwill. We recorded amortization of goodwill of
    E8 million, E16 million, and E16 million with respect to Lietuvos Telekomas
    in 1998, 1999, and 2000, respectively.

(5) Net debt consists of interest-bearing debt less cash and short-term
    investments.

     Lietuvos Telekomas has the exclusive right up to December 31, 2002 to be
the sole operator of Lithuania's public fixed telephone network and the sole
provider of public fixed telephone services in Lithuania. However, Lietuvos
Telekomas experiences significant competition in the fixed-line market from
Lithuanian mobile operators, which, under the terms of their past licenses, had
the right to provide international telephony services. During the past several
years, Lietuvos Telekomas has made substantial investments in its fixed-line
communications networks. At the end of 2000, 46.5 percent of access lines in use
were connected to digital exchanges as

                                        70
84

compared to 33.7 percent at the end of 1999. The digital system offers customers
additional services such as call waiting, conference calling and other
value-added services. Lietuvos Telekomas has been investing significantly in the
modernization of its network, with 2000 net cash flow to investing activities in
the amount of E110 million.

     Lietuvos Telekomas offers a nationwide data transmission service, that
utilizes X.25 or X.28 protocols, two world-wide protocols for transmitting data
in packet switched format, via leased lines or via modem using the public
switched telephone network. Lietuvos Telekomas also offers X.400 e-mail
services.

     To improve its ability to provide wireless local loop (WLL) solutions in
Lithuania, Lietuvos Telekomas increased its ownership in UAB Comliet, an analog
mobile network operator in Lithuania, from 41 percent to 100 percent on December
15, 1999.

     We currently have three nominees serving on Lietuvos Telekomas' nine member
board of directors. One of our Sonera executives has been appointed as the
general manager of Lietuvos Telekomas. Lietuvos Telekomas' other shareholders
include Telia, which also holds an indirect 30 percent equity interest, and the
Republic of Lithuania, which retains an approximately ten percent interest. In
1999, in accordance with Lithuanian legislation, the State of Lithuania offered
approximately five percent of the share capital of Lietuvos Telekomas to
employees of Lietuvos Telekomas, thus reducing its interest in the company from
40 percent to approximately 35 percent. In June 2000, the State of Lithuania
sold, as part of an international and domestic offering, an additional 25
percent interest in Lietuvos Telekomas, thus reducing its interest in the
company to approximately ten percent. During the offering, UAB Lintkom, a
wholly-owned subsidiary of Lietuvos Telekomas, acquired and continues to hold
4.67 percent of Lietuvos Telekomas' shares.

OTHER SIGNIFICANT INVESTMENTS

Metro One

     In February 2001, we acquired a 25.5 percent interest in Metro One
Telecommunications, a developer and provider of enhanced directory assistance
and information services for the telecommunications industry based in Oregon,
the United States, for an aggregate purchase price of U.S.$68 million.

     Metro One primarily contracts with wireless providers to provide directory
assistance and information services to their subscribers. Metro One's customers
include many of the leading wireless telecommunications carriers in the United
States, including Sprint PCS, AT&T Wireless Services, Nextel Communications,
Pacific Bell Wireless and Vodafone Airtouch. Metro One offers services to a
carrier's subscribers under a brand name selected by the carrier, such as
"Sprint PCS Directory Assistance." Services offered by Metro One through its 28
call centers located throughout the United States include: directory listing
information; time, weather and traffic information; movie, restaurant and local
event information; and call completion services. Metro One maintains a
proprietary telephone listings database and has proprietary operator interface
software, data management systems and search engines to increase the access
speed and the efficiency and search capability of its operators. Metro One
currently charges its carrier customers on a per call basis.

     We entered into an Investment Agreement with Metro One which provides,
among other things, for the following:

     -  We may designate two persons as members of Metro One's seven member
        board of directors.

     -  Until February 2009, we have the right to purchase all or a portion of
        any common stock or securities convertible into common stock sold by
        Metro One, subject to certain ownership limitations described in the
        next paragraph.

     -  Prior to February 2004, we are prohibited from acquiring an interest
        greater than 33 percent in Metro One's common stock on a fully diluted
        basis, except in certain limited circumstances.

     Except with respect to transfers to permitted affiliated transferees and in
certain other limited circumstances, we are prohibited from transferring any
shares we have purchased in Metro One prior to the third anniversary of the
closing of the stock acquisition; provided, however, that we may sell shares
under certain limited circumstances and, after the second anniversary of the
closing of the stock acquisition, pursuant to Rule 144

                                        71
85

under the Securities Act or in an offering registered under the 1933 Act
pursuant to a registration rights agreement we entered into with Metro One. From
the third to the eighth anniversary of the closing of the stock acquisition, if
we seek to transfer any shares we have purchased in Metro One to a nonaffiliated
transferee, Metro One has the right to purchase all or designated blocks of such
shares under certain circumstances. Under the registration rights agreement, we
have three demand registrations and five piggyback registrations under the
Securities Act with respect to shares purchased directly from Metro One, which
may be exercised on or after February 2003.

     If Metro One initiates any process to effect a change in control (as
defined in the Investment Agreement), we have the right to participate on at
least an equal basis with any other third party in such negotiations. If Metro
One effects a change in control, we have tag-along rights and Metro One has
drag-along rights with respect thereto, with certain limitations.

TietoEnator (Divested in March 2001)

     On March 1, 2001, we divested all of our shareholdings in Tieto Enator. Net
cash proceeds from the sale were E424 million, of which E286 million were
recorded as a gain in the first quarter of 2001. We initially acquired a 20.3
percent interest in TietoEnator, a leading supplier of information technology in
the Nordic Countries, as a consequence of our 27.3 percent holding in Tieto,
which was initially acquired in 1996 and our 4.99 percent holding in Enator
acquired in stock market transactions in 1998. Tieto and Enator merged in July
1999. TietoEnator provides processing and network services, software services
and industry specific professional services including consulting, development
and maintenance of software and information systems, application of software
packages and service integration.

FOREIGN SUBSIDIARIES

     We have several subsidiaries operating outside of Finland which focus
principally on providing data and media communications services. Our foreign
subsidiaries had revenues of E44 million in 1998, E53 million in 1999 and E79
million in 2000 and incurred operating losses of E21 million in 1998, E36
million in 1999, and E70 million in 2000, excluding capital gains. For financial
accounting purposes, we include the results of operations of our foreign
subsidiaries in our Media Communications and New Services and Sonera Telecom
business areas, as applicable.

Swedish Operations

     Sonera Sverige AB offers communications and information services in the
Swedish market. Sonera AB is primarily involved in the development and marketing
of telecommunications solutions, including Internet, intranet and call center
voice services to businesses and public entities. Sonera AB generated revenues
of E46 million in 2000, compared to E34 million in 1999 and E24 million in 1998.
In May 2001, we agreed to sell part of the fixed-line business of Sonera AB that
targets Swedish corporate customers to Song Networks (formerly Tele1 Europe) for
approximately SEK 200 million.

German Operations

     We have two subsidiaries in Germany, one based in Erfurt, which develops
and operates electronic payment services principally for German banks, and
another, based in Dusseldorf, which provides primarily data services.

Russian Operations

     Our wholly-owned subsidiary ZAO Sonera Rus operates its own end-to-end
fiber optic cable line with several fiber pairs and gigabit level capacity from
Helsinki, via St. Petersburg, to Moscow. Transmission on the Helsinki-Moscow
cable is based on SDH technology and is supported by ZAO Sonera's FastNet nodes
and IP routers. The cable, which is used for the out-bound traffic of Sonera's
and North-West GSm's Russian subscribers, and Russia-bound international transit
traffic, including traffic generated by our Finnish customers, is ZAO Sonera's
primary source of revenue. ZAO Sonera Rus also leases capacity in its cable
network to foreign as well as St. Petersburg and Moscow based companies. In
autumn 2000, ZAO Sonera Rus launched a project to
                                        72
86

expand the capacity of its fiber optic cable with DWDM equipment. ZAO Sonera may
further extend its operation with new products to other major Russian cities in
the future.

Benelux Operations

     Sonera Nederland B.V. and Sonera Belgium n.v./s.a., our wholly-owned
Netherlands and Belgium based subsidiaries, are principally involved in
marketing our data and Internet services and technical solutions in the
Netherlands and Belgium.

Additional Investments

     We have invested in various venture capital funds that invest in companies
which have products or development projects that are of strategic interest to
Sonera. As of December 31, 2000, the carrying value of our investments in
venture capital funds was E37 million. See also Note 20 to our consolidated
financial statements.

     We may also from time to time make selective acquisitions or acquire
minority interests in companies that have technologies, service concepts or
personnel which can enhance the development of the products and services being
offered by our Media Communications and New Services businesses area.

MARKETING

     We devote significant resources to the marketing and distribution of our
products and services. We believe that our active marketing programs and
extensive distribution network increase customer awareness of our products and
services and bolster our ability not only to provide "one stop service" to our
business customers but also to offer customized services to our residential
customers. We believe the foregoing strengths give us a significant advantage
over our competitors.

     To orient our business towards customer service, we have created a
customer-focused marketing organization to support our various businesses. Our
principal customer-focused marketing units consist of Sonera Solutions and
Sonera Entrum.

     Sonera Solutions is a separately incorporated business unit that serves the
largest corporate customers in Finland. Sonera Solutions currently is
responsible for coordinating the marketing and sale of a complete range of
fixed-line telecommunications, mobile telecommunications and data and media
products and services to approximately 300 of the 400 largest corporations in
Finland, generating, in the aggregate, revenues of E304 million and E402 million
in 1999 and 2000, respectively. Sonera Solutions' marketing priority is to
establish Sonera as the single source for large customers' comprehensive
telecommunications needs. Sonera Solutions offers its customers fixed-line voice
services, including local, domestic long distance and international calling, and
value-added services based on intelligent network systems such as corporate
numbering, as part of its Vipgate package. Vipgate customers can elect either to
have Sonera act as the provider of all of their fixed-line telecommunications
needs or to have Sonera provide specific fixed-line communications services.
Vipgate customer agreements, which generally have terms ranging from one year to
18 months, also provide customers with a number of different billing options,
including integrated bills for fixed-line, mobile and data services, or bills
that are broken down by usage at various customer sites. Sonera Solutions also
enters into separate agreements with its customers for mobile telecommunications
and data and media services.

     Sonera Solutions has a group of account managers who are responsible for
the account relationships of our large customers. Sonera Solutions also employs
sales representatives with particular industry specializations, including the
forest and metal industry, the trade service industry, the information
technology industry, and the finance and insurance industry, who assist the
account managers in marketing industry specialized service offerings. In
addition, Sonera Solutions employs technical support staff and solutions
designers involved in designing and tailoring services for individual customers
and providing ongoing technical assistance. Sonera Solutions utilizes the
services of sales representatives from other Sonera marketing units, principally
Sonera Entrum and mobile services, for certain special assignments or for
customers' remote sites. Sonera Solutions is also responsible for our data
services business.

                                        73
87

     Sonera Entrum Ltd. concentrates on serving SMEs, communities and
residential customers. For its SME customers, Sonera Entrum offers the Skaala
solution, under which we provide fixed-line telecommunications, mobile
telecommunications and data and media services. Account managers are responsible
for customer relationships with the larger SME customers and sales
representatives are responsible for medium-sized business customer accounts.
Other distribution channels that we use include telephone sales and chains of
resellers. For residential customers in our traditional service areas, Sonera
Entrum markets a complete line of standard fixed-line telecommunications
services as well as value-added services such as voice mail, caller
identification and call forwarding for which customers receive an integrated
bill. Sonera Entrum has nine separate sales areas throughout Finland and employs
approximately 103 account managers and sales representatives. The unit also
operates through one of our subsidiaries, Sonera Innotele Oy, which has a sales
force that is focused on SME customers in the Helsinki area. Sonera Entrum has
call centers for both business and residential customers which provide a single
convenient point of contact with us and enable customers to address all of their
telecommunications needs via telephone, including ordering services, registering
complaints and making inquiries. In April 2001, Sonera Entrum agreed to
outsource some of its operations to Keypro Oy, a Finnish IT company.

     Our Domestic Mobile Communications business area is responsible principally
for marketing mobile telecommunications services to business and residential
customers. The business area has a direct sales force which, in coordination
with Sonera Solutions and Sonera Entrum, serves larger corporate customers. We
market our mobile communications services to residential customers primarily
through a large network of independent distributors and our own retail outlets.
Our strategic focus has been on offering a broad range of mobile
telecommunications tariff and service packages to appeal to different customer
segments. The Domestic Mobile Communications business area's customer service
department, which operates customer call centers 24-hours-a-day,
seven-days-a-week, not only enables subscribers to order additional services,
make bill inquiries, and report faults, but also provides dealer support. Our
Domestic Mobile Communications business area also offers SMS-based account
inquiry services and distributes a magazine for its mobile subscribers. We
believe that the marketing and customer care initiatives of our Domestic Mobile
Communications business area have contributed to subscriber growth and increased
customer loyalty.

     Our other marketing and sales units include our Media Services unit and
other sales and marketing operations. Our Media Services unit is responsible
primarily for marketing our new media products, including Internet and cable TV
services, and business media services, and has approximately 80 sales
representatives. Sonera Solutions is responsible for the sale, construction and
maintenance of data processing and telecommunications equipment to our
customers. Sonera Solutions also supervises our Data-Info franchise network, and
operates its TeleService maintenance and after-sales service operations, and
also works in close coordination with Sonera Entrum in the provision of
telecommunications equipment to our large business and SME customers. We also
maintain several marketing centers responsible for the publication of printed
and Internet telephone directories and the marketing of our other operations.

     Our brand development is managed by our corporate communications unit. The
unit works closely together with our business units to build the value of the
Sonera brand by developing strategic and product level advertising and
marketing.

     For general marketing activities and the development of public awareness of
our services and products, we devote substantial resources to TV, radio, print
and outdoor advertising.

COMPETITION

     With the liberalization of local and long distance telephone services on
January 1, 1994, and international telephone services on July 1, 1994, all
telecommunication services in Finland were opened to full competition. Other
sectors of telecommunications services, including mobile communications and data
communications, were liberalized during the period ranging from 1987 to 1991.
The telecommunications market in Finland is highly competitive, characterized by
successive promotional campaigns and price competition, with the exception of
local telephone service where the market is dominated by incumbent local
operators which control, with minor exceptions, the local access market. Despite
the liberalization of the market, true competition has not developed on the
local access market and market shares have remained generally static.

                                        74
88

     In Finland, our main competitor is Elisa Communications (formerly Helsinki
Telephone Corporation), which is the largest local access operator in Finland
and whose traditional service area is the Helsinki metropolitan area. Elisa
Communications is also the parent of Radiolinja, a mobile communications
operator; Datatie, a provider of data transmission services; and FinnetCom Oy, a
provider of telecommunications services to corporate customers. Elisa
Communications has a minority interest in Soon Communications (formerly Tampere
Telephone) and is expected to acquire control of Soon in 2001. In addition,
Elisa Communications owns considerable direct and indirect minority interests in
certain local telephone companies including KSP Group (formerly, Keski-Suomen
Puhelin), Lounais-Suomen Puhelin and Tikka Communications (formerly Joensuun
Puhelin), and in Finnet International, a provider of international
telecommunications services.

     Another significant competitor in Finland is the Finnet Group, an alliance
of local telephone companies and certain national telecommunication operators
such as Kaukoverkko Ysi, a domestic long distance telephone operator, and Oy
Omnitele Ab, a provider of telecommunications consulting services. The alliance
is based upon a common shareholding structure whereby the local telephone
companies of the Finnet Group hold varying percentage interests in each of these
national telecommunications operators. As a response to the aggressive growth
strategy of Elisa Communications and its takeover of control in Radiolinja, 41
of the 46 Finnish local telephone companies, excluding Elisa Communications and
its affiliates Soon Communications and KSP Group as well as two other local
operators, established a new company, Finnish 3G Ltd., for the purpose of
applying for a third generation mobile license. While the primary business of
the local telephone companies that have interests in Finnish 3G consists of
operating local networks in their respective service areas, Finnish 3G was
granted a nationwide third generation mobile technology based mobile license in
1999 together with Tele2 AB (formerly Netcom AB). These companies are expected
to enter into the mobile communication services market when third generation
mobile technology becomes commercially available.

     Prior to January 2000, Sonera and Radiolinja were the only holders of
national GSM 900 licenses in Finland. On January 21, 2000, Suomen 2G was granted
a GSM 900 license by the Ministry of Transport and Communications. Suomen 2G is
a mobile network operator owned by 36 local telephone companies. Suomen 2G's GSM
900 network began commercial operations in Finland in February 2001 through its
affiliate DNA Finland Ltd.

     In addition, we compete with Telia Finland and Telia Mobile AB,
subsidiaries of the Swedish state-owned telephone company Telia AB. Telia
Finland operates on the Finnish international and domestic long distance
markets. Telia Mobile AB provides GSM 900 and 1800 mobile services. Telia Mobile
AB maintains its own national and regional trunk network and infrastructure for
local GSM 1800 mobile operations and has also operated as a service provider
utilizing Radiolinja's GSM 900/1800 networks for national coverage since
December 1999. Other operators and service providers in the Finnish market
include Jippii Group, Song Networks, KPN Qwest, Utfors, Tele2, Telenordia,
Global One Communications Ltd., Facilicom Finland Ltd., a Finnish subsidiary of
a U.S. based telecommunications company, and RSL COM Finland Ltd., a U.S. based
reseller of international and domestic voice services, all of which provide
network and other services to their customers. Jippii Group and RSL COM Finland
have entered into service provider agreements with us and provide mobile
communication services to their customers through our network. In addition, we
expect to face increased competition from specialized market participants such
as Colt Telecom Group plc and MCI Worldcom, Inc. The identity of new entrants on
the Finnish telecommunications market and the extent of the impact on our market
share will depend upon a variety of factors that are difficult to assess at
present.

MOBILE COMMUNICATIONS

GSM Networks

     The Finnish mobile telecommunications market has been open to competition
since 1990. We are the leading mobile communications operator in Finland with an
over 60 percent share of the combined digital and analog mobile market in terms
of subscriptions as of December 31, 2000. We provide GSM 900 mobile telephone
services in competition with Radiolinja, Telia Mobile, DNA Finland and a number
of service providers which do not maintain their own network such as Jippii
Group and RSL COM principally on the basis of price and quality of service. As
of December 31, 2000, Radiolinja had an overall share of over 30 percent in the
GSM mobile

                                        75
89

telecommunications services market in terms of number of subscriptions. In
February 2001, a third GSM 900 operator, DNA Finland, began selling
subscriptions on a commercial basis, which is expected to increase competition
on the Finnish mobile telecommunications market. We consider it likely that
Radiolinja and other competitors will continue to market their services
aggressively and reduce prices for their services in the future. We also believe
that competition from new entrants such as Jippii Group will intensify.

     Allocation of additional frequency capacity to other operators could, in
the future, increase the competitive environment in the GSM market. At present,
there are no unallocated frequencies in the GSM 900 MHz band that are accessible
using commercially available telecommunications equipment. The authorities have
indicated that unallocated GSM 1800 frequencies, although limited, may be
allocated on demand within the next few years. In such an event, these
frequencies may be allocated to Sonera, Radiolinja, Telia Finland, or a new
entrant to the GSM market which is able to demonstrate the ability to satisfy
the service standards set forth in the Finnish Telecommunications Market Act.

     The Ministry of Transport and Communications has announced that it
currently has no plans to require existing operators to give other GSM operators
and service providers mandatory national roaming rights. In the event that a
national roaming scheme were introduced either for current or future
frequencies, local mobile operators would gain access to our national GSM 900
network, which could result in increased competition in the Finnish mobile
market. In addition, under new Finnish law, holders of UMTS licenses will have
the right to roam on the GSM 900 and GSM 1800 networks of operators under
certain conditions, which could have the effect of increasing competition. See
"-- Regulation." For a discussion of the statute of legal proceedings relating
to the issue of national roaming in Finland, see "Item 8. Financial Information
-- Legal and Regulatory Proceedings -- National Roaming Cases."

NMT Networks

     We are the sole provider of NMT mobile telephone services in Finland. Our
NMT operations face indirect competition from providers of other mobile
communications services, principally GSM 900 and GSM 1800 services. We have
experienced a decline in our NMT subscriber base in recent years as NMT
subscribers continue to switch to GSM service to take advantage of its higher
transmission quality, greater value-added services, greater roaming capability
and the smaller handsets used to access GSM networks. We believe that the use of
NMT services will continue to decline for the next few years as the majority of
present NMT subscribers switch to GSM. As a result of the decreasing subscriber
numbers, we discontinued our NMT 900 service on December 31, 2000. We expect
that, ultimately, the remaining users of NMT 450 mobile services will primarily
be certain niche groups, including freight transport operators and seasonal
users, who prefer it for its marginally broader network coverage as compared to
GSM service.

MEDIA COMMUNICATIONS AND NEW SERVICES

Media Communications

     The Finnish market for media communications, including the provision of
Internet services and cable television, is highly competitive. We believe that
we are the leading ISP in Finland, with a share of nearly 40 percent of the
market as of December 2000. With respect to consumer media services, including
Internet related services, we compete mainly with Saunalahden Serveri Oy, a
Finnish ISP, Elisa Communications and the Finnet Group. In the future, we expect
to face competition from Scandinavian Online, a joint venture of Telia Finland,
Telenor and Schibsted that provides Internet services in most of Scandinavia,
and MTV3, a Finnish broadcasting company that operates a national commercial
television channel. With respect to the provision of Internet access to business
customers, we compete principally with Elisa Communications, the Finnet Group
and Eunet, a Finnish ISP, and expect to face competition from Telia Finland,
Saunalahden Serveri and a range of IT companies in the future. Because Internet
connections face mounting price pressures, such as the trend toward offering
free Internet connections, the growth in revenues from new media functions will
depend on larger volumes of content services and advertising income in coming
years.

                                        76
90

New Services

     We expect to face tough competition in both our international mobile
services business and our wireless security solutions businesses. Among Sonera
zed's competitors are other providers of mobile communications, existing and
newly created Internet portals, equipment manufacturers and software creators.
As with the introduction of any new product or service, the breadth of the
market for Sonera zed's services remains untested.

     SmartTrust's competitors in the provision of wireless security solutions
include PKI vendors, cryptography developers, systems integrators and
application service providers, and manufacturers of wireless devices and SIM
cards among others. In addition to the competition faced from competitors, the
technologies at the core of SmartTrust's current solutions, namely RSA
encryption algorithms and PKI, each face competition from other security
technologies or architectures. Export controls with respect to encryption
products in the United States are currently more stringent than those in other
jurisdictions, including those in the European Union and its member states.
However, many non-U.S. companies, including us, have been able to take advantage
of the strict U.S. export regulations by supplying products with strong
encryption capabilities in the global market without serious competition from
U.S. companies. This current comparative advantage vis-a-vis SmartTrust's U.S.
competitors, however, is unlikely to continue. The U.S. government has recently
loosened U.S. controls on the export of encryption technology and software. The
ability of SmartTrust's U.S. competitors to more freely export products with
strong encryption capabilities could adversely affect our wireless security
solutions business. See "-- Regulation -- European Union Law -- Encryption
Regulation."

SONERA TELECOM

Local Voice Services

     In addition to us, there are currently 46 Finnet Group operators providing
local telephone services in Finland. These local operators generally own their
own networks and operate mainly in larger cities and towns. Traditionally, there
has been only one local operator per area. Competition has not increased
materially since the opening of the local voice market in 1994 due to the high
upfront costs of building a local network and the long-term relationships
between local telephone companies and their customers.

     As a result of the foregoing, competition in local markets is limited, and
has focused largely on business customers. We have been installing fiber optic
cable loops in major cities and leasing lines from our competitors primarily to
satisfy existing demand from our corporate customers and to build platforms for
possible future competition in local markets. As a result, we have gained a
market share in the local access market of approximately four percent in
Helsinki and certain other large cities in Finland. For the reasons identified
above, we have not faced increased competition in the areas in which we operate
local networks, although the number of subscribers in our service areas, which
are located principally in the sparsely populated areas of eastern and northern
Finland, is expected to decrease slightly due to increased usage of mobile
phones and expected declines in population in such areas. As of December 31,
2000, the overall market share of local telephone companies for local voice
services calculated on the basis of access lines was 73 percent as compared to
27 percent for Sonera.

Long Distance Voice Services

     Long distance calls in Finland have been subject to intense competition
since the liberalization of the market in 1994. Competition has forced the
prices of long distance calls in Finland to levels considerably below the
average long distance calling rates in the European Union. Our primary
competitors are Kaukoverkko Ysi, a nationwide telephone operator and member of
the Finnet Group, and Telia Finland. Both Kaukoverkko Ysi and Telia Finland
operate their own trunk networks. During the year ended December 31, 2000,
Sonera, Kaukoverkko Ysi and Telia Finland had approximately 37 percent, 58
percent and five percent shares of the domestic long distance market,
respectively, calculated on the basis of minutes of use. We believe that, since
1995, our share of the domestic long distance market has been relatively stable.

                                        77
91

International Voice Services

     International voice services in Finland have also been open to competition
since 1994. Our principal competitors in the provision of international voice
services are Finnet International, a nationwide telephone operator providing
international telecommunications services, and Telia Finland.

     The international voice service market has been characterized by aggressive
promotional campaigns and price reductions, particularly by Telia Finland, which
has been offering low-rate tariffs on calls to other Nordic Countries. We
believe that competition will continue to increase in the international
telecommunications market, resulting in further reductions of tariffs. During
the year ended December 31, 2000, Sonera, Finnet International and Telia Finland
had approximately 50 percent, 28 percent and seven percent shares of the
international telecommunications market, respectively, calculated on the basis
of called minutes. In addition, we face competition from service operators, and
from international telecommunications operators and alliances, such as RSL COM,
Facilicom, Global One, Uniworld and Tele Nordia which together hold an
approximately nine percent market share.

Data Communications

     The Finnish market for data communication was opened to full competition in
1990. Since that time, competition has been vigorous in all aspects of the data
communications markets, including data transmission services, LAN
interconnection and management services and leased lines. We believe that we are
a leading provider in Finland for data transmission and LAN interconnection
management services. In data communications services, our principal competitor
is Datatie, a national operator of data transfer links owned by the Elisa
Communications Corporation. In leased lines services, our principal competitor
is Kaukoverkko Ysi, a national long distance operator owned by the Finnet Group.
In addition, we compete with large international telecommunications companies
such as Global One and KPN Qwest in providing data services to large corporate
customers.

                                   REGULATION

     The Finnish telecommunications market has traditionally been one of the
most liberalized in Europe. The telecommunications service industry has been
gradually opened to competition since 1987, when the markets for data
communications and business networks were partially liberalized. In 1994, more
than three years ahead of most other European countries, the Finnish
telecommunications market was fully liberalized and, since then, every segment
of the market has been subject to competition.

     We are subject to the comprehensive regulatory regime applicable to the
Finnish telecommunications industry under the Finnish Telecommunications Market
Act (396/1997), as amended (the "Telecommunications Market Act"), and related
regulations, decrees and administrative decisions, which replaced the Finnish
Telecommunications Act (183/1987), as amended (the "Telecommunications Act").
Together with the Finnish and European Union competition rules, the
Telecommunications Market Act, which became effective on June 1, 1997, is the
principal body of law governing our activities. See "-- Competition."

     The Telecommunications Market Act was amended in two significant ways in
the beginning of 2001, effective April 2001. One amendment, which is aimed at
enhancing the Finnish market for broadband services, requires telecommunications
operators with significant market power to lease a portion of their unused
subscriber line transfer capacity in the fixed voice network to, for example,
providers of high-speed data transmission services. See "--Interconnection." A
second amendment grants holders of third generation mobile telecommunications
licenses a right to roam on the GSM 900 and GSM 1800 networks of operators with
significant market power provided certain conditions are met. See "-- National
Roaming."

     The stated purpose of the Telecommunications Market Act is to promote the
efficiency of the Finnish telecommunications market so that telecommunications
in Finland meets the reasonable needs of users and is competitive, technically
advanced, of good quality, functionally reliable and secure, and reasonably
priced. The Telecommunications Market Act also brought Finnish
telecommunications law into line with European Union legislation in this area.
See "-- European Union Law." Certain provisions of the Telecommunications Market

                                        78
92

Act have been implemented by ministerial decisions or decrees covering specific
subjects such as interconnection, accounting separation and the rights of users.

     The openness of the Finnish market is evidenced by the current licensing
regime. The Telecommunications Market Act requires licensing only for the
provision of telecommunications network services in the public mobile network.
Such a license is granted to all applicants that meet the requirements set forth
in the Telecommunications Market Act, subject to the availability of
frequencies. The construction of public telecommunications networks and the
provision of publicly available telephony services is normally subject to a
notification procedure. A notification, which includes information on the
organization and the activities of the filing entity, has to be submitted to the
Ministry of Transport and Communications before the filing entity can commence
operations. Provision of other telecommunications services does not require a
license or filing of notification. See "-- Allocation of Mobile Frequencies."

     As part of its objective to promote further competition, the
Telecommunications Market Act encourages new market entrants by introducing the
concept of "significant market power," holders of which are subject to a higher
degree of transparency in their accounting, more stringent fair pricing
requirements and requirements not to discriminate. See "-- Tariff Structure" and
"-- Interconnection." Pursuant to the Telecommunications Market Act, the
Ministry of Transport and Communications considers a number of factors when
deciding upon whether an operator is deemed to possess significant market power.
However, in practice, operators with a market share exceeding 25 percent in a
relevant market have been presumed to have significant market power in that
market. By ministerial decision, we currently have significant market power in
long distance, international, international transit and mobile
telecommunications throughout Finland and in local voice telephony in our
traditional service areas.

     A number of our other activities, including our cable TV operations, are
also subject to regulation under legislation other than the Telecommunications
Market Act, and related decisions of the Finnish Government and the Ministry of
Transport and Communications.

     On May 10, 2001, the Ministry of Transport and Communications distributed a
memorandum outlining its unofficial proposal for new legislation that would
bring the regulatory regimes covering different communications networks under a
single communications law (the "Communications Act Proposal"). The new law would
replace the Telecommunications Market Act and would also govern digital TV and
Internet activities as well as telecommunications. The Ministry of Transport and
Communications has requested various communications market participants to
comment on the proposals outlined in the Communications Act Proposal. The
principal idea behind the Communications Act Proposal is that same rules should
apply to different communications media. As a response to the ongoing
convergence of different communications services, providers of different
communications services would have equal rights and obligations regardless of
the media. The Communications Act Proposal would apply to communications
networks, but the new law would not cover the content of services delivered
through the networks.

REGULATORY INSTITUTIONS

     Regulatory authority under the Telecommunications Market Act is divided
between the Ministry of Transport and Communications and the Finnish
Telecommunications Administration Center (the "TAC"). Like other
telecommunications operators in Finland, we are also subject to Finnish and
European Union competition law which is applied by the Finnish Competition
Authority (the "FCA") and the European Commission (DG for Competition),
respectively. See "-- European Union Law" and "-- Competition Law." Other
regulatory authorities that have jurisdiction over issues relating to our
business operations include the Office of Data Protection Ombudsman, in relation
to data protection regulation, and the Office of the Consumer Ombudsman and
National Consumer Administration Finland, as well as the Finnish Market Court,
both in relation to consumer protection and marketing regulation. See "-- Tariff
Structure."

     On April 26, 2001, the Finnish Government submitted a proposal to the
Finnish Parliament to change the name of the TAC to the Finnish Communications
Regulatory Authority. The amendment is expected to enter into force on September
1, 2001.

                                        79
93

     The Ministry of Transport and Communications is responsible for drafting
legislation, granting licenses for mobile network operators, administering fixed
network operator and service operator notifications and issuing executive orders
based on certain telecommunications regulations. The TAC, which commenced its
operations on October 1, 1988, is an agency under the Ministry of Transport and
Communications with responsibility for radio, telecommunications and postal
administration and television license management. With respect to
telecommunications, the powers of the TAC include supervising operators in the
market, establishing and administering the numbering plan, assigning
frequencies, overseeing technical standards and administering type approvals for
telecommunications equipment. The Communications Act Proposal envisages
strengthening of the TAC's regulatory powers.

     European Union regulations and the World Trade Organization
Telecommunications Agreement require that regulatory powers be separated from
the ownership of state-owned telecommunication operators. In Finland, this
separation has been implemented through the separation of regulatory functions
and ownership functions within the Ministry of Transportation and Communications
and the creation of the TAC.

     One of the TAC's particular responsibilities is to oversee the financial
and operational aspects of interconnection arrangements among operators and
service providers in the Finnish telecommunications sector. The TAC is
authorized to investigate complaints and to seek to resolve disputes with
respect to interconnection and other pricing-related matters. In the event the
parties to a dispute are unable through commercial negotiations to resolve the
dispute, the TAC has the authority to impose a resolution on the parties.

     The FCA has general jurisdiction under the Act on Competition Restrictions
to investigate complaints by competitors or act on its own initiative with
respect to competition law issues. In certain respects, the FCA and the TAC have
overlapping jurisdiction to investigate and resolve disputes involving our
relationships with our competitors and subscribers pursuant to the respective
mandates under the Act on Competition Restrictions and the Telecommunications
Market Act. See "-- Competition." The Telecommunications Market Act and the Act
on Competition Restrictions establish different market share and revenue based
threshold tests and other guidelines for merger control and for administrative
intervention with respect to operators with significant market power under the
Telecommunications Market Act and operators with a "dominant market position"
under the Act on Competition Restrictions. Although the telecommunications and
the competition authorities have independent legislative mandates and
responsibilities, the Telecommunications Market Act establishes a mechanism for
inter-agency cooperation through a referral procedure where the Ministry of
Transport and Communications or the TAC may transfer an investigation or certain
parts of an investigation to the FCA. This reduces the likelihood of unnecessary
burdens being imposed on telecommunications operators due to the two agencies'
overlapping jurisdictions.

TELECOMMUNICATIONS LICENSING AND NOTIFICATIONS

     Under the Telecommunications Market Act, a license from the Ministry of
Transport and Communications is required for the provision of telecommunications
network services in the public mobile network. Each license granted to a mobile
communications network operator under the Telecommunications Market Act defines
the operational area of the operator and may have an associated schedule of
conditions setting forth obligations relating to essential requirements, such as
the safety of network operations, the maintenance of the operability of the
network and data protection. Licenses granted by the Ministry of Transport and
Communications have a maximum term of 20 years and are renewable. The
Telecommunications Market Act limits the grounds on which the Ministry of
Transport and Communications may reject a license application to the lack of
financial resources, non-compliance with relevant telecommunications regulations
and the unavailability of frequencies. The Ministry of Transport and
Communications may not revoke the license of a telecommunications network
operator in part or in full unless (1) an operator has failed to comply with the
telecommunications regulations and has, after having been put on notice of the
alleged breach, failed to enter into full compliance therewith within a
reasonable time or (2) the nature and extent of the operator's activities have
changed to the extent that grounds to reject a license application would exist.

     Before granting a license for provision of telecommunication network
services in a public mobile network, the Ministry of Transport and
Communications is required to give public notice of the availability of new

                                        80
94

licenses. Applicants are required to provide, among other things, a description
of their planned networks and interconnection points, an estimate on the
investments needed to commence operation and a plan for funding such
investments. If licenses cannot be granted to all applicants due to the limited
number of frequencies, the Ministry of Transport and Communications shall grant
licenses to applicants whose operations best meet the objectives of the
Telecommunications Market Act, including promoting competition, satisfying
market demands and advancing high technical standards, quality, reliability and
reasonable pricing. Our current license was granted on November 6, 1997, for a
term of 20 years. The license covers the NMT 450, GSM 900 and GSM 1800 networks
in Finland. The license does not contain any additional conditions to those
expressed in the Telecommunications Market Act relating to the financial
condition of an operator and the network coverage. Prior to January 2000, Sonera
and Radiolinja were the only holders of national GSM 900 licenses in Finland. On
January 27, 2000, Suomen 2G, which is owned by a group of local
telecommunications companies, was granted a GSM 900 license by the Ministry of
Transport and Communications. Suomen 2G, through its affiliate DNA Finland,
commenced commercial activity in February 2001. In addition to Sonera, Telia
Mobile Finland and Radiolinja hold nationwide GSM 1800 licenses. Regional GSM
1800 licenses are held by 39 local telecommunications companies.

     On March 18, 1999, we received a third generation mobile license for a term
of a 20 years. Our license currently covers operation of a public third
generation mobile network throughout Finland. The license is conditional upon
obtaining necessary permits to possess radio transmitters and obliges us to
commence activities no later than on January 1, 2002, in line with the decision
128/1999/EC of the European Parliament and the Council adopted on December 14,
1998 (the "UMTS Decision"). Additionally, the introduction of third generation
mobile communication services is dependent upon a number of factors, including
the development of commercially viable technology and the ability of
telecommunications operators to license such technology on commercially
acceptable terms. See "-- European Union Law -- Licensing." Third generation
mobile licenses were also issued to Radiolinja, Telia Mobile Finland and Finnish
3G. In March 2001, the TAC delivered a report to the Ministry of Transport and
Communications on the progress of build up of third generation communication
networks in Finland. In its report, the TAC noted that the build up of networks
is going forward as planned, but any delays in delivery of third generation
handsets and network equipment will delay the introduction of third generation
commercial services in Finland. The TAC noted that operators are expected to
reach such geographical coverage for their third generation networks as
mentioned in their license applications, but it is expected that the UMTS
network will not be ready for wider commercial use at the beginning of 2002. The
TAC will issue its next report on September 30, 2001.

ALLOCATION OF MOBILE FREQUENCIES

     Radio spectrum is a limited resource necessary to operate a mobile network
and is allocated by the TAC through an administrative procedure. Pursuant to the
decisions of the TAC, we have been allocated the following frequency bands for
public mobile telecommunications networks:

     -  2x4.475 MHz (453.000 -- 457.475 / 463.000 -- 467.475 MHz) for our NMT
        450 services;

     -  2x13.6 MHz (890.2 -- 903.6 / 935.2 -- 948.6 MHz) in the Helsinki
        metropolitan area, Turku, Tampere and Oulu and 2x11.6 MHz (890.2 --
        901.6 MHz / 935.2 -- 946.6 MHz) elsewhere in Finland for our GSM 900
        services;

     -  2x11 MHz (1,710.2 -- 1,721.0 / 1,805.2 -- 1,816.0 MHz) for our GSM 1800
        services;

     -  2x10 MHz (1,950.0 -- 1,960.0 / 2,140.0 -- 2,150.0 MHz) for our IMT-2000
        / UMTS services until June 30, 2001; and

     -  2x15 MHz (1,964.9 -- 1,979.7 / 2,154.9 -- 2,169.7 MHz) and 5 MHz (center
        frequency 1,902.4 MHz) for our IMT-2000 / UMTS services from July 1,
        2001.

     At present, there are some nationwide unallocated frequencies in the GSM
900 MHz extension band as well as in the GSM 1800 MHz band. As a result of the
termination of our NMT 900 services, frequencies from 900 MHz band were released
and reallocated for mobile operators by the TAC.

                                        81
95

RIGHTS OF WAY

     Pursuant to the Telecommunications Market Act, telecommunications network
operators are entitled to use public roads, public areas and private properties
for the installation of telecommunications cables. Prior to laying a cable, the
telecommunications network operator must prepare a route plan, which it must
make public by publishing it in a local newspaper and notifying estate owners
affected by the plan. In drawing up the plan, landscape and environmental
factors must be taken into account. Where possible, preference should be given
to installing cables along public roads and public areas, which are available
free of charge. Estate owners or any other party whose interests or rights are
affected by the route plan have the right to file objections with the municipal
building board within 30 days from the date the plan was made public.

     Once the route plan has been approved, the telecommunications network
operator has the right to undertake construction work along the approved route
for the installation of the telecommunications cables, as well as equipment,
minor structures and poles related to the network. The area affected by the
installation must be restored after completion of the work. Private estate
owners are entitled to full compensation for any loss and damage caused by the
cable installation.

     The Act on Land Use and Construction (132/1999, the "Construction Act")
entered into force on January 1, 2000 superseding the Construction Act of 1958.
In connection with the entrance into force of the Construction Act, the relevant
provisions of the Telecommunications Market Act governing the construction of
telecommunications networks were also amended. The legislation obligates network
operators, among other things, to pay compensation for establishment of
easements for purposes of laying cable in real estate other than public roads
and areas. In addition, it provides for a special procedure establishing a right
to install cables pursuant to which telecommunications operators would have a
duty to negotiate with the owners of real estate to obtain their permission. If
such negotiations are not successful, the local municipal building board may
decide on the installation of the cable. In addition, the legislation provides
that both public and private real estate holders have a right to receive
compensation for inconvenience and expenses resulting from the establishment of
easements, and that, in certain instances, the telecommunications operators will
be obligated to compensate for damages resulting from any necessary removal of
cables. We believe that the implementation of the Construction Act and the
amended provisions of the Telecommunications Market Act will not have a material
adverse effect on our operations, although it could increase the costs of
constructing telecommunications networks.

TARIFF STRUCTURE

     Telecommunication operators in Finland, including Sonera, may freely
determine tariffs for their telecommunications services. The Ministry of
Transport and Communications may, however, issue orders on the general
principles of telecommunications tariffs, the calculation of costs and publicity
and itemization of fees if the overall objectives of the Telecommunications
Market Act are threatened by the tariff policies of significant market power
operators or if required by European Union legislation. See "-- Numbering and
Carrier Selection" and "-- European Union Law." The Communications Act Proposal
does not suggest to change the freedom operators have in determining tariffs,
but does give the TAC the possibility to intervene and challenge unreasonable
pricing terms applied by operators with significant market power.

     Our leased line and voice services are also subject to the provisions of
the Telecommunications Market Act and the related decisions of the Ministry of
Transport and Communications that implement European Union's framework directive
relating to Open Network Provision ("ONP"), as well as to specific ONP-related
directives. These directives require operators with significant market power
with respect to leased lines and voice services to apply rates that are
transparent, non-discriminatory, and cost-oriented. The ONP directives also
impose cost accounting obligations designed to ensure that rates are
cost-oriented. ONP rules are without prejudice to the application of the
competition rules. See "-- Competition" and "-- European Union Law."

     Effective August 1999, the Ministry of Transport and Communications
determined that significant market power operators' tariffs for fixed public
local telephone network services and for leased lines should be public,
cost-related, transparent and non-discriminatory. This determination, however,
applies only to cases where a customer's subscriber lines have a capacity of
less than 2Mbps in both directions. In addition, reasonable volume discounts are
explicitly permitted. The Ministry of Transport and Communications determined on
June 21, 2001
                                        82
96

that we have significant market power with respect to the Finnish local, long
distance, international and mobile telecommunications markets throughout
Finland. A total of 48 other telecommunications operators in Finland are also
deemed to have significant market power. On the local market, 44 of the regional
companies are deemed to have significant market power. On the long distance
market, Kaukoverkko Ysi has been determined to possess significant market power.
On the international telecommunications market, Finnet International has been
determined to possess significant market power, as do Radiolinja and Alands
Mobiltelefon on the mobile market. The ministerial decision regarding
significant market power became effective on July 1, 2001 and expires on June
30, 2002.

     Our agreements with our residential customers are also subject to the
requirements of the Finnish Consumer Protection Act (38/1978), as amended (the
"Consumer Protection Act"). The Consumer Protection Act requires that a consumer
contract must not include unreasonable terms and conditions. The Finnish Market
Court is vested with the authority to prohibit the use of unreasonable terms and
conditions in consumer contracts and the Consumer Ombudsman has the authority to
impose that type of prohibition on a temporary basis. In addition, an aggrieved
consumer may seek relief directly in a general court under the Consumer
Protection Act. The Ministry of Transport and Communications has issued a
decision on the general grounds for the delivery terms of telecommunications
services providing for a minimum standard for delivery terms for household
users. See "--Universal Service."

INTERCONNECTION

     On June 30, 1997, the European Union adopted a directive on
interconnection, and the requirements of the directive were later that year
incorporated into the Finnish telecommunications regulation. Under the
Telecommunications Market Act and decisions issued by the Ministry, operators of
public telecommunications networks in Finland have an obligation to negotiate
interconnection agreements with each other for the purpose of offering their
telecommunications services. The purpose of this obligation is to ensure that
Finnish subscribers can contact subscribers to other networks in Finland or
abroad. Under the Telecommunications Market Act and decisions issued by the
Ministry, for operators without significant market power in interconnection, the
obligation to interconnect extends to interconnecting with at least one other
operator operating a public telecommunications network to ensure that its
subscribers' communications can be routed to other networks or service
providers. Interconnection should be granted without delay at the requested
interface following a written request. Significant market power operators are
under an obligation to behave in a transparent and non-discriminatory manner and
to offer interconnection with their networks to all telecommunications service
operators on non-discriminatory terms and at a reasonable price in view of
costs. See "-- Tariff Structure." Significant market power operators may not
refuse a request for interconnection if the proposed terms are reasonable. In
addition, pursuant to an amendment to a decision of the Ministry of Transport
and Communications on interconnection in February 2001, operators with
significant market power have to provide subscribers with access to all local,
long distance, mobile and international telecommunications services provided in
their area.

     If no agreement can be reached between the operators, the TAC will seek to
settle any dispute through negotiations between the parties and may order the
party deemed to be non-compliant to comply with its obligations under the
Telecommunications Market Act. To ensure that the objectives of the
Telecommunications Market Act are met, the Ministry of Transport and
Communications has the power to issue orders regarding the general principles
for telecommunications fees, the calculation of costs in relation to fees and
the publication and itemization of such fees.

     All operators with significant market power must publish the technical and
pricing terms on which they will provide interconnection to other operators in a
so-called "Reference Interconnection Offer" (the "RIO"). This offer must be
itemized and related to reasonable costs incurred. In addition, a decision
issued by the Ministry of Transport and Communications on February 19, 1999, as
amended on February 7, 2001, obligates operators with significant market power
to separately determine reference fees for incoming (terminating) and outgoing
(access) interconnection traffic. The aim of the ministerial decision is to
create a regulatory platform that would enable operators to offer end-to-end
pricing for their services. The decision does not apply (1) with respect to
access, (A) to communication without prefix or pre-selection transmitted from a
local telecommunications network to another local telecommunications network or
service within the same telecommunications area nor (B) to
                                        83
97

communication from a mobile communications network to a local telecommunications
network or service or to another mobile communications network or its service,
and (2) with respect to termination, to communication transmitted from a local
telecommunication network to a mobile communication network or its service.

     The Telecommunications Market Act and a related decision of the Ministry of
Transport and Communications explicitly provide that interconnection charges may
cover a reasonable profit on invested capital but provides no detailed
methodology on how costs should be allocated. Significant market power operators
must, however, offer a description of the calculation system used to arrive at
their interconnection charges and, after submitting the description for the
review and approval of the Ministry of Transport and Communications, make
interconnection agreements publicly available, subject to the deletion of
confidential information covering the business strategy of the parties.

     In addition, all telecommunication operators have a duty to collect, upon
reasonable terms, telecommunications fees from their subscribers on behalf of
other operators or to provide sufficient information for the invoicing of such
services.

     Historically, Finnish operators have entered into bilateral interconnection
agreements on a collective basis. These interconnection agreements establish
interconnection and related changes for the term of such agreements.

     Effective April 13, 2001, the Telecommunications Market Act was amended to
require telecommunications operators to lease a portion of their unused
subscriber line transfer capacity in the fixed voice network (shared use of the
local loop) to third parties for, for example, the provision of parallel
high-speed subscriber lines. The obligation to lease does, under certain
conditions, also require telecommunications operators to provide space for other
operators' equipment on their property (co-location) to allow other service
providers to connect to a subscriber connection with the necessary technical
equipment. Parallel access to subscriber connections is expected to promote the
availability of low-cost Internet connections to households. The cost payable by
the lessee for a shared access to subscriber line can be no more than half the
cost of the use of such subscriber connection for all purposes, unless the
telecommunications operator is able to show for the TAC that its costs for
allowing parallel access are higher than this.

     On April 24, 2001, the TAC issued a decision in which it stated that the
interconnection fees we charged for calls terminating on our domestic mobile
network are not reasonable in relation to the actual costs of providing such
services. The TAC also stated that, in its opinion, our interconnection fees
violated the Telecommunications Market Act and ordered us to revise our
interconnection fees. See "Item 8. Financial Information -- Legal Proceedings --
Interconnection Fees" for further details on this matter. On May 25, 2001, we
filed an appeal against the TAC's decision to the Helsinki Administrative Court.

     Because of the high market shares of local telephone operators in their
respective areas, the terms upon which interconnection is offered are expected
to be material to the development of competition in the Finnish fixed
telecommunications market. Notwithstanding the above regulations, there can be
no certainty that we will be able to negotiate favorable interconnection
contracts as part of our efforts to provide competitive communications service
in new markets.

NATIONAL ROAMING

     Roaming consists of providing mobile connections to other operators'
subscribers while they are outside the network coverage of their own service
operator. Prior to an amendment to the Telecommunications Market Act on April
13, 2001, there was neither a regulatory nor a commercial national roaming
system in Finland for GSM 900 and GSM 1800 networks. As a result of amendments
to the Telecommunications Market Act that went into effect in April 2001,
holders of third generation mobile telecommunications licenses have a right to
roam on the GSM networks of operators with a significant market power. This
amendment does not apply to roaming between GSM networks. This enables third
generation license holders to provide services available through GSM networks on
a nationwide basis before the license holders have completed the build-out of
their third generation networks. A third generation mobile license holder must
be granted the right to roam on GSM networks if its own third-generation network
covers at least one-fifth of the population in the licensed area, as defined in
the respective license. Operators with significant market power have an
obligation to negotiate with third generation

                                        84
98

license holders which request the right to roam. If an agreement cannot be
reached within six months, the TAC may grant the requesting party the right to
roam on the GSM networks of the operator to whom such request was made. Owners
of GSM networks are not required to grant roaming rights in an area where the
requesting party already has its own digital network or access to a GSM network
through a separate agreement with a third party. In principle, the pricing for
compulsory roaming services is calculated in the same way as the pricing for the
provision of mobile network access for services providers. In the event the
parties are unable to conclude an agreement, the TAC may set the terms and
conditions of a network roaming agreement within the parameters set forth in the
Telecommunications Market Act.

     The terms upon which any national roaming scheme will be offered may
influence the development of competition on the Finnish mobile
telecommunications market. The availability and cost of roaming may affect
existing operators' decisions of whether to build their own nationwide networks
or simply rely on the networks we or other nationwide mobile network operators
provide. In the event national roaming were to be mandated on terms and
conditions which do not provide an adequate return on our investment in our GSM
networks, our mobile communications business could be materially adversely
affected.

     We are currently a party to administrative proceedings at both the national
and the European Union level in which one of our competitors has claimed that we
have an obligation to provide national roaming. See "Item 8. Financial
Information -- Legal and Regulatory Proceedings -- National Roaming Cases."

NUMBERING AND CARRIER SELECTION

     The TAC is responsible for administering the national numbering plan. Upon
application by a telecommunications operator, the TAC assigns numbers and
addresses on a transparent, equal and non-discriminatory basis. The TAC must
ensure that applications relating to numbers and addresses are handled without
delay.

     The TAC is also charged with overseeing number portability. Geographic
number portability in the public switched network was introduced as a pilot
scheme in Helsinki on June 1, 1997, and, it has been mandatory in the whole of
Finland since September 30, 1998. The regulatory framework requires local number
portability (within an existing area) and nation-wide number portability using a
newly allocated numbering area. Operators with significant market power are
required to offer number portability at cost oriented prices. The legislative
framework does not enforce any other mandatory provisions for the allocation of
costs and conditions for the establishment of number portability. The
Communications Act Proposal includes a proposal that would allow a mobile user
to change the user's mobile communications operator without changing the user's
mobile number.

     Carrier selection is the facility that allows a user to choose a local,
long distance, mobile or international carrier independent of its local loop
provider. This can be achieved in different ways: (1) by pre-selection: the
carrier is chosen by the user; (2) by call-by-call procedures: the user
typically inserts a prefix before a dialed number; or (3) randomly based on the
carriers' market shares of local or long distance and international calls.

     The Telecommunications Market Act and related decisions of the Ministry
require fixed network operators with significant market power to enable
residential customers to select their preferred operator on a call-by-call
basis. Our prefix for long distance calls is "101" while Telia Finland and
Kaukoverkko Ysi have the prefixes "1041" and "109," respectively. Our prefix for
international calls is "990" while Telia Finland and Finnet International have
the "994" and "999" prefixes, respectively. Our other competitors on the long
distance and international telecommunications market also have their own
prefixes. From March 1, 2001, telecommunications operators have had the
possibility to obtain a general carrier access code from the TAC. To use the
general carrier access code, a user dials a five digit operator specific carrier
access code when calling from a fixed network. The call is routed to the network
of the owner of the general carrier access code dialed by the user. Our general
carrier access code is "90020."

     Fixed network operators with significant market power must also offer upon
request carrier pre-selection. Thus, a call dialed without any prefix or with
the "00" prefix is automatically routed to a local, long distance or an
international telecommunications service selected by the user. Where the user
neither selects a prefix nor has made a pre-selection of an operator for long
distance or international telecommunications services, traffic is allocated
proportionally among the operators whose services can be used without a separate
service agreement. If

                                        85
99

the user neither selects a prefix for local telecommunications services or
mobile communications nor has concluded a contract on pre-selection for such
services, the fixed network operator may decide on the routing of the
communication. Mobile operators with significant market power are required to
offer carrier selection and pre-selection for international calls. However, they
are not obligated to offer carrier selection or pre-selection for national calls
including calls between mobile networks.

     Under Finland's interconnection regime, operators may only offer selection
barring services to their retail customers in a manner that does not
discriminate against competing telecommunications operators.

UNIVERSAL SERVICE

     Universal service entails an obligation to provide access to the public
telephone network and to deliver an affordable telephone service to all users
reasonably requesting it. More specifically, pursuant to European Union
legislation, universal service obligations include the provision of access to a
fixed network which will allow usage of voice services, fax and data
transmission services, operator assistance, emergency and directory inquiry
services (including subscriber directories) and public payphones. However,
neither mobile services, with the exception of free emergency calls and
directory assistance, nor Internet services are included in the universal
service requirement. The proposed European Union universal service directive
clarifies that the scope of the universal service obligations includes access to
data communications such as Internet via the public telephone network from a
fixed location, and addresses affordability of the service. This proposal, as
well as other parts of the proposed electronic communications framework, are at
an early stage of discussions and their final wording is as yet unknown. See "--
European Union Law -- New Communication Framework."

     A few European countries which have introduced universal service
requirements have also implemented funding schemes to allocate the costs of
providing the service among all organizations providing public
telecommunications networks or publicly available telecommunications services.
Two methods for collecting and distributing universal services are considered:
either a universal service fund at the national level or a system of
supplementary charges collected directly by the operator providing universal
service from other operators interconnecting with its network. In Finland, no
scheme for allocating the costs of providing universal service has yet been
devised, nor has one been proposed by the Ministry of Transport and
Communications or the TAC.

     Currently, the Finnish telecommunications regulations do not specifically
require us to offer universal service. However, the Telecommunications Market
Act sets forth a general objective that telecommunications services should be
provided in accordance with the reasonable needs of users and be reasonably
priced. The Ministry's current interpretation of this requirement is that fixed
network operators that possess significant market power are obliged to provide
basic services, but neither at rates below their competitive market rates nor
using equally priced nationwide tariffs and subscription charges.

     To control the costs of operating our extensive fixed network, we have
examined more cost-effective ways of providing network connections to the most
rural regions, such as mobile terminals which are dwelling-installed, use the
standard GSM network for transmission, and to which an ordinary fixed-line
terminal can be connected. For low-medium traffic to and from remote areas,
providing so-called "fixed wireless" connections is more cost-effective than
maintaining a sizable fixed network local loop for a limited number of
subscribers. The Ministry of Transport and Communications has communicated to us
and other telephone operators that the installation of fixed wireless units
using NMT and GSM networks for residential customers will satisfy the
requirement for providing telecommunications services set forth in
Telecommunications Market Act. In addition, the Ministry of Transport and
Communications noted that telephone operators will not have the right to change
the type of technology used in the provision of services without the
subscribers' permission, except when the standard of service and the level of
pricing for their services remains the same.

TELECOMMUNICATIONS DATA PRIVACY ACT

     On April 22, 1999, the Finnish Parliament adopted the Act on the Protection
of Privacy and Data Security in Telecommunications (the "Telecommunications Data
Privacy Act") that implements the European Union directive (97/66/EC) on the
protection of individuals with regard to the free movement and processing of
personal data in telecommunications networks (the "Telecommunications Data
Protection Directive"). The Telecommuni-
                                        86
100

cations Data Privacy Act entered into force on July 1, 1999. The purpose of the
Act is to protect the confidentiality of personal data, ensuring, among others,
the user's right to protect his or her telecommunications messages by technical
means such as encryption. The Act also provides for strict rules as regards a
telecommunications operators' right to process user data, such as traffic data,
the subscription number or the length of a call and governs disclosure of a user
and a caller's identity, storing of billing records and itemization of calls.
For example, as a general rule, the itemization of calls has been expanded to
show all but the last three digits of a call made, instead of the earlier four
digits. Under the Act, direct marketing through automatic calling systems is
possible only with the consent of the consumer, allowing the prevention of any
mass sending of text and e-mail messages. As regards directories, the Act
obligates the telecommunication operators to give, on equal terms, the
information published in directories to be published in some other directory,
thereby aiming to increase competition in directory business. According to the
Act, the telecommunications operators are obliged to manage the directories of
subscribers and national directory services. A private person is entitled to
have his or her personal data contained in directories of subscribers partially
or fully omitted from the directory or changed free of charge. In the
Communications Act Proposal, the Ministry of Transport and Communications
indicates that the information that may be included in these directories should
be defined more narrowly and should include only information on the name,
address and phone number of a subscriber. Telecommunications operators are
required to safeguard the data security of their own networks and to inform the
users of any risks. A telecommunications operator violating the
Telecommunications Data Privacy Act or the regulations thereunder, may be
ordered to correct its error or omission, or face fines or a possible suspension
of all of its operations.

     In July 2000, the European Commission proposed a new directive on data
protection in the electronic communications sector. The proposal aims at
expanding the current provisions of the Telecommunications Data Protection
Directive on traffic data to ensure, among other things, that all communications
services providers (including Internet service providers) must obtain the
consent of the subscriber before using traffic data processed for the
transmission of a communication for marketing purposes or for the provision of
value-added services. This proposal is at an early stage of the legislative
process and its final wording is uncertain.

ACCESS TO TELEPHONE CALL AND CALLER RECORDS

     On March 1, 2001, an amendment to the Finnish Police Act (the "Police Act")
became effective. The Police Act expands the rights of the police in connection
with the prevention of crime to, among other things, receive information on
short notice related to data that is collected from the telecommunication
networks. This information includes data relating to calls made or calls
received and the identity and location of the callers. To comply with the
obligations of the amendments to the Police Act, we installed a new data
collection system (KUHA). The implementation of the Police Act has not, however,
led to an increase in our operating costs because (1) the Ministry of the
Interior reimbursed us for the development and installation of the KUHA, and (2)
we charge the relevant police authorities for all the direct costs relating to
the use of the KUHA.

TELEVISION AND RADIO BROADCASTING

     Provision and transmission of television and radio programs via wires or
radio waves, including satellite transmission, is regulated by the Finnish Act
on Television and Radio Operations (744/1998), as amended (the "Television and
Radio Act"). According to the Television and Radio Act, broadcasting of and
radio signal via radio waves requires a license issued by the Finnish
Government. These licenses can be obtained only after the Finnish Government has
made a public notification of the availability of new licenses. When granting
the licenses, the Finnish Government is obligated to consider, among other
things, the effect of such licenses on the entire radio and television market,
with a view to promoting freedom of speech, versatility of the programs and the
needs of various interest groups. The licenses are valid for a maximum of ten
years. Other television and radio operations are not subject to a licensing
requirement. Prospective operators are merely required to submit a notification
to the TAC prior to commencing operations.

     The TAC has general jurisdiction to oversee compliance with the Television
and Radio Act as well as the rules and regulations thereunder. The consumer
ombudsman exercises a parallel right with the TAC to oversee certain provisions
relating to consumer protection. The Finnish Government may revoke a license or
order operations carried out under the notification procedure to be stopped if
the operator, after having been put on
                                        87
101

notice of the alleged breach, continues to be in serious breach of the
Television and Radio Act. The license for television and radio operations can
also be annulled due to the unavailability of appropriate frequencies. The
Television and Radio Act also provides for the obligation of telecommunications
operators that own or hold a right to operate a telecommunications network
primarily for the transmission of television and radio programs to transmit,
without charge, programs of certain other program providers as defined in the
Television and Radio Act. In addition, the Television and Radio Act contains
provisions on quotas for European content and content produced by independent
producers as well as other content related issues such as advertising.

     The Television and Radio Act provides for the right of the Ministry of
Transport and Communications and the TAC to receive information from the
operators needed to carry out its oversight and regulatory tasks. The licensed
operator must also inform the Ministry of Transport and Communications when the
voting participation, or the percentage ownership, of any of its shareholders
reaches, exceeds or falls below 1/10, 1/5, 1/3, 1/2, or 2/3 of the operator's
total share capital. A shareholder owning more than 20 percent of the shares or
votes of a licensed operator must give the Ministry of Transport and
Communications and the TAC a notice regarding any change, to its knowledge, in
which the voting participation and the percentage ownership of any shareholder
of the licensed operator reaches, exceeds or falls below 1/10, 1/5, 1/3, 1/2, or
2/3 of the operator's total share capital.

     Pursuant to the Communications Act Proposal, the regulation of television
and radio broadcasting would be divided into two separate branches. The
Television and Radio Act would continue to regulate broadcasting content and the
offering of television programs on digital networks would be covered by new
legislation. Analog television broadcasting would not be covered by the
Communications Act and would continue to be regulated under the Television and
Radio Act. The Ministry of Transport and Communications also proposes that
digital television and radio networks would be, after a transitional period,
subject to access and interconnection rules. The Communications Act Proposals
also contains a discussion about the inclusion of a so-called "must carry"
requirement for digital television and radio network operators (in practice,
cable television companies). An operator controlling such network would be
required to allow access to services providers to broadcast their programs in
the operator's network.

EUROPEAN UNION LAW

     Finland is a member state of the European Union and, as such, is required
to implement European Union legislation in its national law and to comply with
European Union legislation when applying its national law. European Union
legislation can take a number of forms. Regulations have general application and
are binding in their entirety and directly applicable in all member states.
Directives are binding, but national authorities may choose the form and method
of implementation. In certain circumstances, the European Court of Justice or a
national court may declare that a directive is directly applicable in a member
state, even if it has not been formally adopted through national legislation by
the deadline set forth in such directive. Council decisions are also binding and
require implementation by national regulatory authorities. Recommendations are
not, however, binding, unlike regulations, council decisions and directives.
Resolutions are policy statements that have political significance but no legal
character.

     European Union institutions have enacted numerous directives providing for
an open and seamless telecommunications market within and between the member
states, following two distinct and complementary processes: (1) liberalization
and (2) harmonization. A first series of directives, adopted pursuant to Article
86(3) of the EC Treaty on state monopolies or undertakings with special or
exclusive rights, mandated the full liberalization of national
telecommunications markets and the abolition of the monopoly rights of
state-owned or licensed operators by January 1, 1998. A second series of
directives, adopted pursuant to Article 95 of the EC Treaty on harmonization of
member states' regulatory requirements, provides for open and efficient access
and use of public telecommunications networks and services across member states'
territories (the "ONP" directives). A complete review of the regulatory
framework is currently under way. It aims to simplify the legislative framework
and adapt it to the latest developments in the information society, by making it
technologically neutral and applicable to all communication infrastructures and
associated services.

                                        88
102

LIBERALIZATION DIRECTIVES

     The services liberalization directive was adopted on June 28, 1990 (the
"Services Directive"). The Services Directive provided for the new
liberalization of telecommunications services other than voice telephony, mobile
telecommunications, telex and satellite communications. The Services Directive
has been progressively amended to liberalize satellite telecommunications
services other than public switched voice services (October 1994),
telecommunications services provided over cable television networks (October
1995) and mobile services (January 1996). Completing the liberalization process,
on March 13, 1996, a new directive (1) required the full liberalization, as of
July 1, 1996, of the use of alternative infrastructures (such as
telecommunications infrastructures of railways) for the provision of all
telecommunications services other than voice telephony and, in addition, (2)
required complete liberalization of voice telephony and (3) the provision of
public telecommunications infrastructure by January 1, 1998.

     On June 23, 1999, the European Commission adopted a directive further
modifying the Services Directive. This so-called "Network Separation" directive
introduces a requirement that any telecommunications organization which is
either controlled by a member state or which has been granted special or
exclusive rights over radio frequencies should operate its cable television
networks under a separate entity from its public telecommunications network,
always provided the operator has a dominant position in a substantial part of
the common market. This goes further than the current provisions on accounting
separation set forth in the Telecommunications Market Act. According to the
Ministry, the modified Directive will not concern operators in Finland as there
are no exclusive or other special concession in place for operation of cable
television network. The Commission has not responded to the Ministry's
interpretation. The Commission may eventually demand that the Telecommunication
Market Act has to be changed, and, as a consequence, we could be obligated to
incorporate our cable television interest into a separate legal entity. We do
not believe that this legal separation will have an adverse effect on our
results of operations or financial condition.

ONP DIRECTIVES

     The ONP directives are intended to harmonize technical interfaces, usage
conditions and tariff principles throughout the European Union and to ensure
objectivity, transparency and non-discrimination in access to services provided
in accordance with ONP requirements. On June 28, 1990, along with the first of
the liberalization directives, the European Union adopted a basic ONP framework
directive. It was followed by directives on leased lines in June 1992 and on
voice telephony in December 1995. Recommendations for dealing with packet
switching data services and ISDN offerings have also been adopted.

     The interconnection directive adopted on June 30, 1997, establishes
principles for setting interconnection charges and allocating the cost of
universal service obligations, requires accounting safeguards to avoid unfair
cross-subsidization, and allocation of telephone numbers, defines the role of
national regulators and establishes a common dispute resolution procedure. On
October 6, 1997, the ONP framework and the ONP leased line directives were
modified to adapt them to a competitive telecommunications environment. On
January 14, 1998, the Council and the European Parliament adopted a directive on
the application of ONP to voice telephony and on universal service obligations
for telecommunications. This directive updated the ONP voice telephony directive
of December 1995 in the context of full liberalization of telecommunications
infrastructures and services across the European Union (with the exception of
some member states) on January 1, 1998. Finally, on September 24, 1998, the
Council and the European Parliament adopted an amendment to the interconnection
directive accelerating the introduction of operator number portability in fixed
networks through the European Union and to create a legal basis for the
introduction of carrier pre-selection. The European Commission has issued a
recommendation on termination charges in the fixed network and a recommendation
on local loop unbundling.

NEW COMMUNICATIONS FRAMEWORK

     On July 12, 2000, in line with the results of an in-depth review of the
telecommunications regulatory framework in 1999, the European Commission
proposed a new regulatory framework for electronic communications networks and
services (the "Communications Framework") consisting of:

                                        89
103

     -  five harmonization directives, including a framework directive and four
        specific directives on (1) authorization, (2) access and
        interconnection, (3) universal service and user rights, and (4) data
        protection in the electronic communications sector;

     -  a regulation on the unbundling of the local loop;

     -  a liberalization directive concerning competition in the electronic
        communications sector; and

     -  a decision on European Union radio spectrum policy.

     The Communications Framework will apply to all forms of communications
networks carrying publicly available communications services, whether used for
voice, fax, data or images, including fixed and mobile telecommunications
networks, cable television networks, networks used for terrestrial broadcasting,
satellite networks and networks using Internet protocol. It aims to bring the
sector-specific rules for electronic communications more in line with the
general competition rules. For example, the framework directive bases the notion
of significant market power on the concept of dominant position in particular
markets, calculated in accordance with the competition law practice. The new
form of significant market power will embrace single company dominance, joint
dominance and the leverage of a dominant position onto an associated market.
National regulatory authorities will be able to notify companies that they have
significant market power and to impose ex ante obligations where such firms are
considered to have a dominant position under competition law and where either
there are problems of incumbency and/or problems of vertical integration, such
that the ex post remedies of competition law are not adequate to meet the market
problems identified. The European Commission's proposal also aims to ensure that
national regulatory authorities do not impose significant market power
obligations on newly emerging markets.

     The Commission's proposals are currently at various stages in the
legislative process. The final wording of the new Communications Framework will
not become clear until the end of the legislative process. Although its precise
impact on our business is uncertain, certain features of the new regulatory
environment, such as the increased convergence between fixed and mobile
regulations, if adopted, may have a material adverse effect on our business.

Access and Interconnection

     Within the Communications Framework, the European Commission has proposed a
new directive on access to, and interconnection of, electronic communications
networks (the "Access and Interconnection Directive"). The proposed Access and
Interconnection Directive harmonizes the way in which European Union member
states regulate the market between suppliers of communications networks and
services in the European Union.

     Pursuant to the proposal, a national regulatory authority may impose
obligations on operators having significant market power in the markets listed
in the Commission's decision to grant access to, and use of, specific facilities
and/or associated services, for example, in situations where the national
regulatory authority considers that denial of access would hinder the emergence
of a sustainable competitive market at the retail level or would not be in the
end-user's interest.

     Operators with significant market power may be required, among other
things:

     -  to give third parties access to specified network elements and/or
        facilities;

     -  not to withdraw access to facilities already granted;

     -  to provide resale of specified services;

     -  to grant open access to technical interfaces, protocols or other key
        technologies that are indispensable for the interoperability of
        services;

     -  to provide co-location or other forms of facility sharing, including
        duct, building or mast sharing;

     -  to provide specified services needed to ensure interoperability of
        end-to-end services to users, including facilities for intelligent
        network services or roaming on mobile networks;

                                        90
104

     -  to provide access to operational support systems or similar software
        systems necessary to ensure fair competition in the provision of
        services; and

     -  to interconnect networks or network facilities.

     National regulatory authorities may attach to those obligations conditions
covering fairness, reasonableness, timeliness, transparency and/or
non-discrimination.

     Pursuant to the Commission's proposal, the access and interconnection
obligations may be imposed by the national regulatory authorities in the markets
to be listed in the Commission's decision. The framework directive contains a
proposed list of such markets, which comprises, for example, a market for access
to public mobile telephone networks, including carrier selection. The
Communications Framework, with the exception of the regulation on unbundling of
the local loop, is at an early stage of the legislative process and its final
wording is as yet unknown. However, if it is adopted and applied by the TAC,
mandatory cost-based access to our mobile network may have a material adverse
effect on our business.

LICENSING

     The European Union directive on general authorizations and individual
licenses in the field of telecommunications services was adopted on April 10,
1997. The key elements of the directive are:

     -  the prohibition of any limit on the number of new entrants, except to
        the extent required to ensure an efficient use of radio frequencies and,
        under limited circumstances and for a temporary period, of numbers;

     -  the priority given to general authorizations as opposed to individual
        licenses; and

     -  the definition of harmonized licensing principles and procedures.

     The new Communications Framework proposes that all services and networks
should be covered under a general authorization, and specific rights of use
should be limited to the assignment of frequencies and numbers only.

UNBUNDLING OF THE LOCAL LOOP

     The local loop is the physical twisted metallic pair circuit connecting the
network termination point at the subscriber's premises to the main distribution
frame or equivalent facility in the fixed public telephone network. Local loop
unbundling means the granting by incumbent operators of full unbundled access to
the local loop and shared access to the local loop. It does not entail a change
in ownership of the local loop.

     The European Commission views local loop unbundling as a necessary step
towards the provision of a full range of communications services, including
broadband multimedia and high-speed Internet (the local loop can be adapted for
provision of high-speed broadband services by applying digital subscriber line
technologies).

     On December 18, 2000, the European Parliament and the Council adopted
regulation 2887/2000 on unbundled access to the local loop (the "ULL
Regulation"). Under the directly applicable regulation, the operators designated
as having significant market power are under an obligation to publish from
December 31, 2000, and keep updated, a reference offer for unbundled access to
their local loops and related facilities. They are also required to meet
reasonable requests from beneficiaries for unbundled access to their local loops
and related facilities, under transparent, fair and non-discriminatory
conditions. Where access is refused, the aggrieved party may submit the case to
the dispute resolution procedure set up by the ULL Regulation. Except where
specifically exempted by the national telecommunications authority, prices
charged for unbundled access to the local loop and related facilities notified
operators need to be cost-orientated.

     The Finnish regulatory regime has already provided for "full" and "shared"
access. We do not, therefore, expect the ULL Regulation to have a material
adverse effect on our business or financial results.

                                        91
105

LIABILITY OF INTERNET SERVICE PROVIDERS

     Subscribers to our Internet services may access content on our portals or
on other web-sites via hyperlinks on our portals, download this content and
transmit it to others over the Internet. They may also upload content onto our
servers, either onto their individual web pages hosted by us, in chat rooms,
bulletin boards or news groups. In addition, they may use the email accounts we
provide to send and receive content by email. Any of these actions by
subscribers could potentially result in claims against us as a service provider
based on infringement of intellectual property rights of third parties,
including copyright and trademark infringement, as well as defamation and
publication or transmission of obscene material. We attempt to reduce our
exposure to this potential liability through, among other things, the general
terms and conditions we apply to subscribers to our Internet services and
through our portal disclaimers.

     Our activities are increasingly subject to self-regulation laid down in
industry codes of conduct. On January 25, 1999, the European Union adopted an
action plan to combat illegal and harmful content on the Internet. Under the
action plan, European Union member states agree to promote, encourage and
support the development of industry self-regulation and content-monitoring
schemes regarding the safer use of the Internet, industry filtering tools and
rating system to protect minors, as well as to promote international cooperation
on these points.

ELECTRONIC COMMERCE

     Directive 2000/31/EC of June 8, 2000 on certain legal aspects of
information society services, in particular electronic commerce, in the internal
market (the "Electronic Commerce Directive") aims to ensure the free movement of
information, including electronic commerce, within the European Union member
states, based on a country of origin principle. The Electronic Commerce
Directive regulates the legal recognition of electronic contracts, the formation
of electronic contracts, the information to be provided by the service provider
to the consumer, and solicited and unsolicited commercial communications with
consumers.

     The Electronic Commerce Directive also contains rules on liability of
intermediary service providers for mere conduit, as well as for caching and
hosting activities. In principle, intermediary service providers cannot be held
liable if they only act as a mere conduit, that is, as long as they do not
initiate the transmission, select the receiver of the transmission or select or
modify the information contained in the transmission. Similarly, for caching the
intermediary service provider cannot be held liable as long as it: (1) does not
modify the information; (2) complies with the conditions on access to
information; (3) complies with the rules regarding the updating of information;
(4) does not interfere with the lawful use of technology to obtain data on the
use of the information; and (5) acts expeditiously to remove or disable access
to the information upon receiving actual knowledge that the information at the
initial source has been removed or access to it has been disabled, or have been
ordered to do so by a court or an administrative authority. Furthermore, for
hosting activities, intermediary service providers cannot be held liable if the
provider does not have actual knowledge of illegal activity or information and
was not aware of facts or circumstances from which illegal activity or
information is apparent. Where the provider receives such information, it can
avoid liability by acting expeditiously to remove or disable access to the
information. The Electronic Commerce Directive does not deal with the liability
for hyperlinks; it indicates, however, that the European Commission should
address this issue in the future.

     European Union member states must implement the Electronic Commerce
Directive by January 17, 2002. The Finnish State circulated a first draft of a
proposal for the legislation on electronic commerce to interested parties on
March 8, 2001. The implementing legislation is expected to enter into force
before the deadline set out in the Electronic Commerce Directive. As European
Union member states will have a margin of discretion in implementing the
Electronic Commerce Directive, their national laws relating to electronic
commerce may vary. It is, therefore, difficult to predict the Electronic
Commerce Directive's precise implications for Sonera until the implementation of
the Directive is completed. The Commission will publish a first review of the
Electronic Commerce Directive before July 17, 2003.

                                        92
106

COPYRIGHT

     As far as liability issues are concerned, the Electronic Commerce Directive
is closely linked to the directive on copyright and related rights in the
information society (the "Copyright Directive"), which was adopted on April 9,
2001. The Copyright Directive is to be implemented by European Union member
states within 18 months of its entry into force (which will be on the day of its
publication in the Official Journal).

     The Copyright Directive introduces, among other things, an exclusive right
to make on-demand transmissions available to the public, and to harmonize
reproduction and distribution rights. The Copyright Directive contains a long
list of exceptions to the reproduction right. Only one of these exceptions is
mandatory. This exception covers transient or incidental copies which are an
integral and essential part of a technological process. This exception needs to
be read together with the liability stipulations in the Electronic Commerce
Directive. The Copyright Directive also deals with technological measures to
protect against copyright infringements and aims to provide legal protection
against the circumvention of these measures.

     We believe that the scope of the exceptions for intermediary activities
should be sufficient to ensure that most of our services escape liability for
infringements. However, it cannot be excluded that our transmission or ISP
activities may not always benefit from exceptions in the e-commerce or copyright
directives. Implementation of the two directives into national law should
clarify matters further.

ELECTRONIC SIGNATURES

     Closely connected with our electronic commerce activities is the use of
electronic signatures. The European Union adopted a directive on a community
framework for electronic signatures on December 13, 1999 (the "Electronic
Signatures Directive"), which establishes a framework in which third parties,
also known as "certification service providers", issue "qualified certificates"
to enable the verification of electronic signatures. The Electronic Signatures
Directive also sets out criteria for the legal recognition of electronic
signatures. The Electronic Signatures Directive is required to be implemented by
European Union member states by July 19, 2001.

     In Finland, electronic signatures already apply to a certain extent in the
public sector. There is an existing law on using electronic signatures in public
administration (you can have an ID with an electronic signature "function").
Moreover, the Finnish government is preparing Finnish regulations designed to
implement the Electronic Signatures Directive. It appears likely that the
legislation will be adopted during the fall 2001. The Electronic Signatures
Directive does not differentiate between public and private sector and Finland
is expected to have as few exceptions to the public sector as possible. Among
other things, the new proposal will incorporate the existing rules applicable to
public administration. However, the issue whether the government can delegate
the "identification" function to a commercial certificate authority is being
discussed.

ENCRYPTION REGULATION

     With the development of information and communications technologies that
allow vast quantities of data to be transmitted, copied and stored quickly and
easily, encryption is fast becoming an integral part of personal and business
computing. While uniform international policy on encryption has been elusive,
several countries have implemented regulations and policies on the use of
encryption and other countries may do so in the future. The European Union has
played a key role in liberalizing restrictions on encryption. The European
Commission requires European Union member states to report to it any national
proposals to impose technical rules for marketing, use, manufacture or import of
encryption products. The European Commission has also successfully dismantled a
large part of internal European Union controls on commercial encryption
products. Encryption products that can be used for both civil and military
purposes and are listed in the relevant Council decision can only be exported on
the basis of an authorization.

     On June 22, 2000, the European Commission adopted a new regulation on
export controls of dual-use goods and technology which repealed the previous
regulation 3381/94/EC on export controls of dual-use goods (the "Amended Export
Controls Regulation"). The Amended Export Controls Regulation simplified export
licensing procedures and created an European Union general export authorization.
The newly created authorizations are

                                        93
107

valid for most of the widely traded dual-use items for exports to Australia,
Canada, Czech Republic, Japan, Hungary, Norway, New Zealand, Poland, Switzerland
and the United States. The Amended Export Controls Regulation reduced and
simplified European Union's internal trade, notably in nuclear and ballistic
devices. It created a common list of items for European Union would maintain
internal controls, which would replace national lists. European Union's internal
trade was liberalized completely for information security items (including
encryption), except for a few highly specialized products (cryptanalysis items).

     In addition, the United States has recently shown significant activity in
legislation and regulation affecting such areas as digital signatures and
electronic commerce. The U.S. federal government added a measure of uniformity
on the regulation of electronic business when the Electronic Signatures in
Global and National Commerce Act (S.761) ("E-Signatures Act") was signed into
law on June 30, 2000. The E-Signatures Act effectively gives electronic
signatures and other legal transactions conducted through electronic means the
same legal status as written documents. It ensures that consumers who contract
on-line have the same kind of protection and records that they currently receive
when they sign paper contracts. The E-Signatures Act allows the states to pass
their own laws with respect to electronic commerce, either by adopting the
Uniform Electronic Transaction Act or other similar laws, but requires that
these laws must be consistent with the E-Signatures Act and not technologically
biased.

     In January 2000, the U.S. government enacted legislation which eased
encryption controls. The U.S. federal restrictions on encryption transfers were
further reduced via a regulatory amendment promulgated on October 19, 2000. The
objective was to parallel European Union liberalizations in this area to ensure
U.S. companies are able to compete internationally. Under the new rules, certain
lower level encryption products may be "self-classified" by business and
exported without the need for government review, although reporting requirements
may apply. Products (i.e., audio devices, video cameras, mobile phones) that
incorporate components providing cryptographic functionality limited to
short-range wireless technology can mostly be exported freely without review.
The amendment also liberalized the export of higher level encryption products.
Provided a classification request is submitted prior to export, all encryption
items (except encryption used to break codes) may be exported and reexported
without a license to all end-users (both government and non-government) in the
European Union, Australia, Czech Republic, Hungary, Japan, New Zealand, Norway,
Poland, and Switzerland without a license (i.e., under license exception.)
Outside these countries exportation of such encryption products generally will
also be permitted under license exception to non-government end users but will
require licensing to government end-users. The amended rule confirms that all
encryption items of any key length also are authorized for export to foreign
subsidiaries of U.S. companies without review and classification. In a new
development, certain encryption items have been made eligible for de minimis
treatment, meaning that they may be incorporated under certain circumstances
into non-U.S. origin items and reexported without the need for a license after
prior review and classification. The amendment does not modify prior U.S.
restrictions on exportation to embargoed countries (Cuba, Iran, Iraq, Sudan,
Libya and North Korea).

DISTANCE SELLING

     Our activities in the field of electronic commerce will also be subject to
a directive on the protection of consumers in respect of distance contracts (the
"Distance Selling Directive"), which sets out rules for contracts concluded at a
distance, including contracts for goods and services sold over the Internet. The
Distance Selling Directive requires suppliers to provide consumers with specific
information, including their name, address, price and delivery costs, before a
contract is concluded. Consumers generally have a seven working day right of
withdrawal. The Distance Selling Directive prohibits "inertia selling" (the
supply of goods or services without prior request) and suppliers are restricted
in their use of automatic calling or facsimile machines or unsolicited e-mails
to communicate with consumers. Consumers must have effective means of redress.

     The Distance Selling Directive does not apply to contracts such as those
relating to financial services, contracts concluded with telecommunications
operators through the use of public pay-phones, and contracts concluded at an
auction. European Union member states were required to implement the Distance
Selling Directive by June 4, 2000. Finland implemented the Distance Selling
Directive by amendments to the Consumer Protection Act and the Act on Unfair
Trade Practices, both adopted on December 15, 2000.

                                        94
108

MEDIA REGULATION

     The European Union regulatory framework with respect to media contains
regulation on both infrastructure and content.

Infrastructure

     To promote the launch of digital television services, the European Union
adopted on October 24, 1995, Directive 95/47/EC on the use of standards for the
transmission of television signals (the "Transmission Standards Directive"). The
Transmission Standards Directive requires, among other things, that: (1)
conditional access providers offer broadcasters access on fair, reasonable and
non-discriminatory terms, (2) hardware manufacturers use the European common
scrambling system to make it technically possible to receive all digital
television services through the decoder, and (3) broadcasters use European
standards for television transmission; it does not, however, mandate any
particular standard or type of service. The Transmission Standards Directive
does not apply to cable television operators. The new Communications Framework,
if adopted in its current form, will repeal the Transmission Standards Directive
incorporating its contents.

     On November 20, 1998, the European Parliament and Council adopted Directive
98/84/EC on the legal protection of services based on, and consisting of,
conditional access (the "Conditional Access Directive"). Conditional access
services include pay-television, video-on-demand, music-on-demand, electronic
publishing and a wide range of other on-line services. The Conditional Access
Directive requires European Union member states to prohibit and provide
appropriate sanctions against all commercial activities related to unauthorized
access to a protected service, such as the sale of pirate decoders, smart cards
or software. It also prohibits member states from invoking "anti-piracy" grounds
to restrict the free movement of legitimate services and conditional access
devices originating in another member state. The Conditional Access Directive
forms part of a package of measures related to electronic commerce. See "--
Liability of Internet Services Providers." European Union member states were
required to implement the Conditional Access Directive by May 28, 2000. The
substance of the Conditional Access Directive was incorporated into two Finnish
acts: the Telecommunications Market Act and the Radio Act.

     The proposed Access and Interconnection Directive envisages an amendment
which imposes the conditional access obligations on all operators of conditional
access services, irrespective of the means of transmission, who provide access
services to digital television services. This amendment appears mainly to
clarify the application of the conditional access obligations to cable network
operators.

Content

     On October 3, 1989, the European Union adopted Directive 89/552/EEC on the
coordination of certain provisions concerning the pursuit of television
broadcasting activities which was amended on June 30, 1997 by Directive 97/36/EC
(the "Revised Television Without Frontiers Directive"). The Revised Television
Without Frontiers Directive was designed to establish a harmonized framework for
the free movement of television broadcasting services in the European Union. The
aim of the Revised Television Without Frontiers Directive is to promote a
European market in broadcasting and related activities, such as television
advertising and the production of audiovisual programs. It covers promotion of
the production and distribution of European works, television advertising and
sponsorship, the protection of minors, the right of reply, law applicable to
television broadcasts, and access of the public to major (sports) events. The
most controversial provision lays down a European content quota, by which
broadcasters must ensure that, wherever practicable, the majority of their
content consists of European programming. The European content quota provisions
do not apply to television broadcasts that are intended for local audiences and
do not form part of a national network. The Commission is currently preparing a
review of the Television Without Frontiers Directive. The Directive provides for
a further review by June 30, 2002.

COMPETITION LAW

     In Finland, since the commencement of the liberalization of the
telecommunications market in 1987, competition law has gradually been applied to
telecommunication services and is currently being applied fully to
                                        95
109

services we offer. Finnish competition law, including the Act on Competition
Restrictions, prohibits the abuse of a dominant market position, restrictive
practices relating to prices and agreements or collusive behavior among market
participants restricting competition. The Telecommunications Market Act provides
that the Ministry of Transport and Communications and the TAC may refer any
matter, to the extent that it may infringe the competition law, to the Finnish
Competition Authority.

     The FCA monitors the application of the competition law and in the event of
an infringement, the FCA may propose to the Finnish Competition Council that it
order the infringing parties to pay a fine or bring to an end the infringement,
or both. The maximum fine may be increased where justified on the basis of the
seriousness of the infringement and the prevailing circumstances, but the amount
cannot exceed ten percent of the preceding year's turnover of the parties
involved, on a consolidated basis. When considering the competition restrictions
and their harmful consequences on the telecommunications market, the FCA and the
Finnish Competition Council must also take into account the provisions of the
Telecommunications Market Act and potential conflicts therewith.

     In addition to Finnish competition law, we must adhere to the European
Union competition rules, the main principles of which are set forth in Articles
81 and 82 of the EC Treaty, as well as national competition laws in
jurisdictions where we operate. Article 81 prohibits agreements or collusive
behavior between companies which may affect trade between member states and
which have the object or effect of restricting competition within the European
Union. Article 82 prohibits any abuse of a dominant market position within a
substantial part of the European Union that may affect trade between member
states. These rules are enforced by the European Commission in cooperation with
the national competition authorities. The European Commission may impose fines
in the event of a breach amounting to up to ten percent of a company's turnover
on a consolidated basis in the preceding financial year. In addition, national
courts have jurisdiction to apply European Union competition law and award
damages in the event of a breach.

     For so long as the majority of our shares are owned by the Finnish State or
the Finnish State exercises a significant influence over us, the European
Commission will have the authority to address individual decisions to the
Finnish State to ensure our compliance with European Union competition rules. In
this regard, the European Commission will be able to initiate proceedings
against us directly under Articles 81 and 82 of the EC Treaty, or against the
Finnish State under Article 86 of the EC Treaty. As a result, we may have to
face two different proceedings, one of which we cannot directly influence and in
which we are not a party.

MERGER CONTROL

     Since October 1, 1998, mergers and acquisitions by companies exceeding
certain turnover thresholds have been subject to the prior notification to and
approval by the Finnish competition authorities. The Finish Competition Council
may, upon a proposal by the FCA, prohibit a transaction which results in the
creation or strengthening of a dominant position of the parties, as a result of
which competition would be significantly impeded in the Finnish market or in any
significant part thereof. The Finnish Competition Council may also approve the
transaction conditionally, ordering the parties to dispose of part of their
business. If the transaction in question falls within the scope of the European
Union merger control regulation, such European Union regulation overrides the
Finnish rules and the transaction must be notified to and approved by the
European Commission (although national authorities may ask to review all or part
of a transaction that significantly impedes competition within its territory).
Besides the power to block a transaction, the European Commission also has a
power to make any clearance decision conditional, among other things, upon
changes to the parties' business practices or a divestiture of assets or
businesses. Similar national merger control rules also exist in most other
countries in which we operate. These kind of regulations may negatively affect
our ability to acquire, merge with, or enter into joint ventures with other
companies, particularly in countries where we already have a large market share
or are deemed to occupy a dominant market position.

WORLD TRADE ORGANIZATION TELECOMMUNICATIONS AGREEMENT

     In February 1997, 69 governments, including Finland and other countries in
which we are active, made multilateral commitments as part of the WTO
Telecommunications Agreement to liberalize the market for basic and certain
telecommunications services. The agreement became effective on February 5, 1998.

                                        96
110

     As a member of the European Union, Finland's commitment to the WTO
Telecommunications Agreement includes complete liberalization of services
(facilities-based and resale) for all market segments (local, long distance and
international). The commitment of the European Union also covers satellite
networks and services and all mobile and personal communications services and
systems. Unlike some other European countries, Finland requested no derogation.
In addition, the European Union is committed to the Reference Paper on
Regulatory Principles. The European Commission noted in the past that a new
round of the General Agreement on Trade and Services negotiations and other
international negotiations would likely take place in conjunction with the work
on the new European Union communications regulatory framework. See "-- New
Communications Framework." The European Commission aims to ensure that the new
European Union communications regulatory framework and the results of these
negotiations are fully consistent with each other.

                             PROPERTY AND EQUIPMENT

     Our principal properties consist of telecommunications network
infrastructure located throughout Finland, including fixed network switches,
mobile switching centers, concentrators, base station control units and base
station equipment, transmission equipment, cables, equipment for radio
communication and related buildings. We lease some of the sites on which our
concentrators and base stations are located under 30-year renewable leases. We
transferred our base station operations, which include primarily the real estate
and the leases for the base station sites and related buildings to our
subsidiary Unibase Oy in 1999. We own the real estate on which our corporate
executive offices are located and a number of other office buildings. Otherwise,
we rent office space and space for our equipment and system sales operations,
generally under five to ten-year leases.

     Our principal executive offices are located at Teollisuuskatu 15, Helsinki,
Finland.

ITEM 5.  OPERATING AND FINANCIAL REVIEW AND PROSPECTS.

     You should read the following discussion in conjunction with our
consolidated financial statements and our unaudited condensed consolidated
interim financial statements, each of which are included elsewhere in this
annual report. Our consolidated financial statements and our unaudited condensed
consolidated interim financial statements have been prepared in accordance with
Finnish GAAP, which differ in certain significant respects from U.S. GAAP. See
note 21 to our consolidated financial statements for a discussion of the
principal differences between Finnish GAAP and U.S. GAAP relevant to Sonera.

                                    OVERVIEW

OVERVIEW OF 2000

     Our revenues increased by E208 million, or 11.2 percent, from 1999 to 2000.
This was principally due to an increase in revenues generated by Domestic Mobile
Communications, which accounted for approximately 54 percent of our total
revenues in 2000, as well as an increase in revenues generated by Media
Communications and New Services. Sonera Telecom business area revenues also
increased in 2000 as compared to 1999, although at a slower rate than our
Domestic Mobile Communications and Media Communications and New Services
business areas.

     Our profit before extraordinary items and taxes increased by E1,363
million, or over 270 percent, from 1999 to 2000, due to large capital gains
recorded in 2000 relating to our sale of a portion of our interest in Turkcell
and the acquisition of our interest in Aerial Communications by VoiceStream.
Excluding non-recurring items, our profit before extraordinary items and taxes
would have declined by 34 percent, principally due to higher expenses incurred
in connection with new services businesses included in our Media Communications
and New Services business area.

     Our net debt levels rose to E5,641 million at the end of 2000 as compared
to E1,181 million at the end of 1999, mainly as a consequence of our investments
in consortiums outside of Finland that received UMTS licenses.

                                        97
111

OUTLOOK FOR 2001

     We expect to experience further revenue growth in 2001. In the domestic
mobile telecommunications market, we expect that average use per subscription
will continue to increase and that the use of non-voice services will continue
to grow. We do, however, expect to experience more intense competition
domestically because of, among other things, the start up of commercial
operations of a new nationwide GSM competitor in Finland, DNA Finland, and the
increased activity of service providers on the Finnish market such as Jippii
Group. Nevertheless, we believe that we are well positioned to maintain our
strong market position in 2001 due principally to the breadth and high quality
of our services. We also expect to experience increased revenues from Media
Communications and New Services as our Sonera SmartTrust, Sonera zed and Sonera
Juxto businesses continue to increase their commercial activities. We also
expect Sonera Telecom revenues to increase in 2001 as a result of our increased
sales of capacity to international operators and broadband initiatives.

     We will record significant capital gains in 2001, primarily relating to the
sale of shares we held in VoiceStream, Powertel and TietoEnator. We are also
expecting, taking into consideration market conditions and other factors, to
sell shares we received in Deutsche Telekom as a result of the acquisition of
both VoiceStream and Powertel by Deutsche Telekom.

     We anticipate that the relative profitability of our Domestic Mobile
Communications business area will remain at approximately the level recorded in
2000 assuming no major changes take place in either the competitive environment
for mobile services in Finland or the regulatory environment in Finland. We also
believe that Sonera Telecom's profitability will remain at approximately the
level recorded in 2000.

     We expect that EBITDA, excluding capital gains and losses, will increase
(in euro terms) in 2001. Among other things, we expect that the negative EBITDA
of Media Communications and New Media will decrease slightly in 2001.

     We expect to record an equity loss from associated companies in 2001 of
approximately E350 million as compared to equity income in 2000 of E121 million.
Both Turkcell and Fintur are expected to report losses in 2001 and we expect to
incur equity losses from our associated company Gruppe 3G due to start-up costs.

     Financial expenses will grow in 2001 as compared to 2000 as a result of the
increase in debt, which we used principally to finance our acquisition of
interests in consortiums which hold UMTS licenses. We do not currently expect to
make any significant equity investments in 2001 in new ventures that would
materially increase our debt levels.

     We plan to reduce our debt in 2001 through, among other actions, disposals
of non-core assets. In May 2001, we sold VoiceStream shares and Powertel shares
for which we received proceeds of approximately E430 million in the aggregate.
On May 31, 2001, Deutsche Telekom completed the acquisitions of VoiceStream and
Powertel. Under the terms of the acquisition, we received approximately E290
million in cash and received approximately 72 million shares of Deutsche Telekom
as consideration. We plan to dispose of our shareholdings in Deutsche Telekom,
taking into consideration market conditions and our lock-up obligations, in an
effort to maximize the returns on the shares.

FACTORS AFFECTING OUR BUSINESS

     Our business has been affected in recent years by a number of important
trends. One of the most important trends in Finland has been the growth of the
mobile telecommunications market. In step with this trend, we have continued to
transform our Company into a provider of advanced telecommunications services
increasingly focused on mobile communications. In 2000, we derived approximately
54 percent of our revenues from domestic mobile operations. Another important
trend is the ongoing liberalization of the European markets and the resultant
increase in competition in both mobile and fixed-line telecommunications. Other
important factors which are expected to affect our operating results and
financial condition include the development of the market for next generation
mobile services based on UMTS technology, ongoing developments in the regulatory
and legal environment in which we operate, and our ongoing investment in and the
success of our new service businesses.

                                        98
112

INCREASING FOCUS ON MOBILE COMMUNICATIONS

     Finland's mobile telecommunications market has demonstrated strong growth
in recent years. In Finland, the mobile penetration rate increased from
approximately 42 percent at the beginning of 1998 to over 70 percent at the end
of 2000. This growth was driven primarily by lower acquisition costs for mobile
handsets, lower tariffs and the introduction of new value-added products and
services to the market. Penetration growth rates, however, slowed considerably
in 2000 as compared to 1999 and we believe that while the penetration rate will
continue to grow, it will be at a slower rate than in the past several years.
Growth in the mobile telecommunications market is expected to be driven in part
by the development of new services for mobile handsets, including wireless data
capabilities and wireless transaction based services. Future growth is also
expected to result from the continuing evolution of Finland as a wireless
communications environment in which subscribers have more than one mobile
connection. However, we also believe that revenues generated by new services for
mobile handsets and multiple mobile connections are unlikely to sustain the
rates of revenue and profit growth generated from enrolling new subscribers and
that, accordingly, the Finnish mobile communications market in the future is
likely to grow at a slower rate than in the past several years.

     Because of the expected slowdown in the rate of growth in the Finnish
mobile market, we have been actively pursuing a dual-part growth strategy. One
part of this strategy is to grow internationally by acquiring interests in
mobile operators outside of Finland. Our acquisition of interests in consortia
that acquired UMTS licenses in Germany, Italy, Spain and Norway reflects this
strategy. The second part of this growth strategy is the development and
marketing of network independent mobile communications services and
technologies, including our Sonera SmartTrust products and our Sonera zed
services. In 2000, we began to market these technologies and services to other
mobile communications providers, financial institutions and other service
providers.

ONGOING LIBERALIZATION

     The telecommunications market in Finland was fully liberalized in 1994,
more than three years ahead of most other European countries, and since that
time every segment of the market has been subject to competition. Because we
have experienced competition in all of our markets since 1994, the European
Union requirement that all European telecommunications markets be liberalized by
1998 has not had as significant an impact on us as on other providers of
telecommunications services in Europe. Nonetheless, the liberalization in other
parts of Europe has resulted in increased competition in each of our business
areas as new entrants from other European countries and North America enter our
markets. Because of continued market liberalization, we expect to face
increasing competition from a variety of international and domestic providers.

     In the mobile market we have begun to experience increased competition in
the GSM market because of, among other things, the start up of commercial
operations of a new nationwide GSM competitor in Finland, DNA Finland, and the
increased activity of service providers on the Finnish market such as Jippii
Group. The introduction in December 2000 of GPRS, a GSM-based packet switched
mobile data transmission technology, and other high speed and advanced mobile
technologies, as well as the greater variety of new services these technologies
are capable of supporting, are also expected to have a significant impact on the
future competitive environment in the Finnish mobile market. In addition, the
commercial introduction of services based on UMTS technology will open the
market for one additional mobile operator, Finnish 3G Ltd., and strengthen the
position of Telia Mobile Finland which, together with Sonera and Radiolinja,
received third generation mobile licenses in 1999. Third generation mobile
services will allow for the provision of new value-added services. Our ability
to compete will therefore be largely dependent upon our ability to develop and
introduce such services.

     In the fixed-line segment, we have experienced steadily increasing
competition in the international and long-distance call market. Increased mobile
handset usage has also contributed to the decline in long distance and
international traffic volumes. This has resulted in a gradual loss of market
share and lower tariffs. In the local market, there has been relatively little
competition, as incumbent local operators continue to control the market. We
have experienced a gradual decline in revenues from the local access market as
residential subscribers have moved away from our traditional service areas
located mainly in the more sparsely populated areas of eastern and northern
Finland. Despite this increasing competition, we continue to maintain a high
market share in the domestic long distance and international call market and on
the local access market. New demand for fixed-line

                                        99
113

services has been generated largely due to the increasing number of faster
digital lines, and we are increasingly focusing on providing customers with
higher capacity broadband connections. New regulations relating to the shared
use of the local loop by fixed-line telecommunications operators may have a
material effect on the development of competition in the Finnish fixed
telecommunications market. Finnish regulatory authorities have also recently
required that fixed network operators with significant market power, such as
Sonera, offer subscribers the ability to pre-select their local, long-distance
and international voice carrier. This may have a significant effect on the
competitive situation in the fixed network voice traffic market.

INVESTMENT IN UMTS LICENSES

     In 1999 and 2000, a number of European countries offered licenses for the
next generation of mobile communications technology known as Universal Mobile
Telecommunications Systems, or UMTS. As part of our growth strategy, we have
invested in UMTS licenses in a number of European markets. In 1999, we received
a UMTS license in Finland. In 2000, consortiums of which we are a member were
granted UMTS licenses in Germany, Italy, Spain and Norway. See "Item 4.
Information on the Company -- International and Other Significant Investments --
Investments in UMTS Licenses." Since UMTS technology is expected to facilitate
the provision of certain services more efficiently, such as mobile data
transmission, we believe that the third generation licenses we have acquired are
important for the future expansion and success of our business. The economic
success of these investments will depend on the availability of services based
on UMTS technology that will be attractive enough to customers to generate
sufficient traffic volume and sufficiently high prices. The level of demand for
such UMTS services that will prevail in the future is unknown, however, and may
not justify the cost of providing UMTS services.

     Moreover, our UMTS strategy has been expensive. We paid a total of
approximately E4 billion for UMTS licenses in 2000, which required us to take on
a significant amount of debt. As a result of this increase in debt, we will have
higher financial expenses in the near future. Our high debt levels will also
limit our ability to use operating cash flow in other areas of our business. In
addition, the roll out of the UMTS networks of our third generation joint
ventures will cause those joint ventures to incur significant operating expenses
and to make significant capital expenditures, which may require their
shareholders, including Sonera, to provide them with additional funds. In light
of the expected high cost of rolling out the UMTS networks and the uncertainty
of the commercial success of third generation services, our management will
continue to review our third generation strategy.

REGULATORY AND OTHER LEGAL DEVELOPMENTS

     Our business has been and continues to be strongly influenced by the
regulatory regime applicable to telecommunications service providers in Finland.
The Ministry of Transport and Communications has determined that we have
significant market power in the local, long distance, international and mobile
telecommunications in Finland. As a result, many of our tariffs and other
activities are subject to enhanced regulatory scrutiny. For a full description
of the regulatory regime to which we are subject, see "Item 4. Information on
the Company -- Regulation." In addition, we are involved in a number of legal
proceedings, including cases related to our interconnection fees and to national
roaming, that may affect our business in the future. For a full description of
the material legal proceedings in which we are involved see "Item 8. Financial
Information -- Legal and Regulatory Proceedings."

ONGOING INVESTMENT IN MEDIA COMMUNICATIONS AND NEW SERVICES BUSINESS AREA

     As an integral part of our growth strategy, we are developing and
commercializing a wide variety of advanced mobile communications services and
technologies that are designed to function on other mobile networks as well as
our own. These services and technologies include new mobile transaction security
applications, such as Sonera SmartTrust, advanced mobile portal services, such
as Sonera zed, and ASP services, such as Sonera Juxto. We expect these services
and technologies to be an important contributor to our revenue growth in the
future. We have, however, incurred significant expenses to develop these new
service businesses, which has had a material impact on our results of
operations. For instance, the EBITDA loss of Media Communications and New
Services increased from E47 million in 1999 to E303 million in 2000. Our Media
                                       100
114

Communications and New Services business area has also been the focus of much of
our increase in capital expenditures. Our Media Communications and New Services
Businesses recorded capital expenditures of E104 million in 2000 as compared to
E15 million in 1999, a significant portion due to the building of data centers
for Sonera zed. We plan to continue to make significant outlays and capital
expenditures to further develop and market our advanced mobile communications
services and technologies, which is expected to have a negative effect on our
consolidated results of operations and cash flows for at least the next two
years. In addition, we have recently lowered our future cash flow expectations
of some of our new service businesses. In particular, our future cash flow
expectations of Sonera SmartTrust are lower than then they were in 2000 at the
time we concluded our acquisitions of Across Holding and iD2 Holding. As a
result of these and other findings, we have recorded an impairment loss of E704
million under U.S. GAAP for the year ended December 31, 2000 to reduce the
carrying value of the goodwill and identified intangible assets related to the
acquisitions of Across and iD2.

REORGANIZATION OF BUSINESS AREAS

     Beginning January 1, 2001, we changed our method of presenting segment
information. We now have the following operating segments: (1) Domestic Mobile
Communications, (2) International Mobile Communications, (3) Media
Communications and New Services, (4) Sonera Telecom and (5) Other Operations.
Previously, we had the following operating segments: (1) Mobile Communications,
(2) Media Communications and New Services, (3) Fixed Network Voice and Data
Services, (4) Equipment Sales and Other Operations and (5) International and
Other Significant Investments. We now treat International Mobile Communications
as a separate business segment which is primarily responsible for administering
our holdings in, and providing services to, our international GSM operators and
third generation joint ventures. In addition, the separate business areas, Fixed
Network Voice and Data Services and Equipment Sales and Other Operations, have
been combined to form a single business segment, Sonera Telecom. As a reflection
of this, in June 2001, we announced that the assets and liabilities related to
our Sonera Telecom business segment will be transferred to a separate
subsidiary, Sonera Telecom Oy, in the second half of 2001. We no longer treat
International and Other Significant Investments as a separate business segment.
In addition, in accordance with SFAS. 131, we have restated our business segment
information as of and for the years ended December 31, 1998, 1999 and 2000, so
that it corresponds with the way in which we present our segment information
beginning as of January 1, 2001. In presenting segment information, we make
various adjustments to properly allocate the costs of internal services and
certain administrative overhead expenses. Due to significant interdependencies
and overlaps among the various operating units, the information on operating
profits with respect to each segment may not be indicative of the amounts that
would have been reported if these segments were operationally or legally
independent of one another. However, we believe that such allocations accurately
reflect the degree of utilization by such business segments of Sonera's
corporate resources. See Note 19 to our consolidated financial statements.

INVESTMENTS IN ASSOCIATED COMPANIES AND OTHER EQUITY INTERESTS

     Earnings in companies in which we have a significant influence ("associated
companies") are included in our consolidated accounts in accordance with the
equity method of accounting. Generally we consider ourselves to have significant
influence when we hold between 20 to 50 percent of the share capital and voting
rights of another company. Our principal GSM investments have been substantial
minority positions in providers of mobile telecommunications services in rapidly
growing developing markets such as Turkey, the Baltic States and Hungary where
we have been able to leverage our expertise in building and operating advanced
GSM networks as well as our strength in the areas of sales, marketing and
customer service. In 2000, we also made significant investments in consortia
which received UMTS licenses in a number of European markets. We have also made
substantial investments in providers of fixed network communications in the
Baltic States. While our equity income from associated companies had shown
strong growth in prior years, increasing from E59 million in 1998 to E110
million in 1999 and E121 million in 2000, we currently expect to record an
equity loss of approximately E350 million in 2001. Both Turkcell and Fintur are
expected to report losses in 2001 due, among other things, to the slowdown in
the Turkish telecommunications market, the continuation of a temporary tax on
mobile phone subscriptions in Turkey, the devaluation of the Turkish lira and
increased expenses for the development of new services. We also expect to incur
significant equity losses from our associated company Gruppe 3G due to start-up
costs.
                                       101
115

     A number of transactions and other events have occurred since the beginning
of 2000 that have affected our associated companies and other equity interests,
including the following:

     -  In February 2000, in connection with the merger of VoiceStream and
        Omnipoint Corporation, a U.S. PCS operator, we purchased VoiceStream
        shares representing 3.6 percent of its outstanding share capital for a
        purchase price of U.S.$500 million.

     -  On May 4, 2000, Aerial and VoiceStream merged. Pursuant to the merger
        agreement, our Aerial common shares were exchanged for VoiceStream
        shares. After the completion of the merger, we held approximately 7.9
        percent of VoiceStream's outstanding shares on a fully diluted basis.

     -  In January 2001, we purchased approximately 1.7 million shares of
        Powertel for an aggregate purchase price of U.S.$125 million. We also
        invested U.S.$75 million for a 30.1 percent interest in Eliska Wireless
        Ventures Holding Company, Inc., a newly established U.S. company formed
        to offer PCS services.

     -  In May 2001, we sold 3,300,000 VoiceStream shares and sold 1,100,000
        Powertel shares for which we received proceeds of approximately E430
        million in the aggregate.

     -  On May 31, 2001, Deutsche Telekom completed the acquisitions of
        VoiceStream and Powertel. In connection with the resulting mergers, our
        holdings in VoiceStream and Powertel shares were converted into
        approximately 72 million shares of Deutsche Telekom and approximately
        E290 million in cash.

     -  In May 2000, we invested U.S.$127 million in the share capital of Fintur
        Holding B.V., thus acquiring a 35.3 percent holding in the company, the
        principal purpose of which is to hold Turkcell's non-GSM investments,
        investments in other businesses, including GSM operator businesses,
        outside of Turkey and certain interests in businesses contributed by the
        other Fintur shareholders.

     -  In July 2000, we sold a portion of our interest in Turkcell as part of
        Turkcell's initial public offering. Prior to the offering, (1) we made a
        capital contribution to Turkcell in the amount of E113 million as part
        of a share capital increase and (2) we purchased an additional holding
        of approximately 0.6 percent in Turkcell, increasing our total interest
        to approximately 41.6 percent of the company. In the offering, we sold
        approximately one tenth of the Turkcell shares we owned prior to the
        offering. After the underwriting discounts, the total sales proceeds to
        us from the offering totaled E735 million and we recorded a gain of E680
        million from the sale in our third quarter results. We currently hold
        approximately 37.3 percent of Turkcell's equity. In June 2001, we
        announced that we would participate in a rights offering by Turkcell to
        existing shareholders. Our pro rata participation in the offer would
        amount to approximately U.S.$75 million.

     -  In September 2000, we invested E908 million in the share capital of
        Gruppe 3G, which holds a German UMTS license, in exchange for a 42.8
        percent interest in the company. In addition, we granted a shareholder
        loan of E2,719 million to Gruppe 3G. As of December 31, 2000, we had
        invested a total of E913 million in the share capital of Gruppe 3G.

     -  In March 2000, we made an initial equity investment in Xfera Moviles
        S.A., which holds a Spanish UMTS license. As of December 31, 2000, we
        had invested a total of E43 million in the share capital of Xfera. We
        hold a 14.25 percent indirect interest in Xfera Moviles.

     -  In December 2000, we made an equity investment of approximately E270
        million in Ipse 2000 S.p.A. consortium, which holds an Italian UMTS
        license. We hold a 12.55 percent interest in Ipse 2000.

     -  In the first quarter of 2001, we made an equity investment of
        approximately E16 million in Broadband Mobile ASA, which holds a
        Norwegian UMTS license. We made the investment by converting into equity
        a shareholder loan of E16 million that we had granted to the company in
        the last quarter of 2000. We hold a 50 percent interest in Broadband
        Mobile.

     -  In May 2000, we sold our 50 percent holding in the German service
        provider HanseNet Telefongesellschaft mbH & Co. KG to the other partner
        of the joint venture. We recorded a E22 million gain from this
        transaction.

                                       102
116

     -  In September 2000, we sold our 40 percent holding in Transmast Oy to
        Fortum. We recorded a E12 million gain from the transaction.

     -  In the first quarter of 2001, we acquired a 24.1 percent interest in
        Loimaan Seudun Puhelin Oy, a local telephone operator based in
        south-western Finland, for approximately E25 million. The transaction is
        subject to the approval of the competition authorities.

     -  In February 2001, we acquired a 25.5 percent holding in Metro One
        Telecommunications Inc., a Nasdaq quoted provider of directory services
        for mobile handset subscribers in the United States, for E75 million.

     -  During the third quarter of 2000, our holding in TietoEnator fell below
        20 percent as a result of directed equity issues by TietoEnator in
        connection with its acquisitions. Beginning with the final quarter of
        2000, we no longer included TietoEnator as an associated company in our
        consolidated financial statements. In March 2001, we sold all of our
        remaining equity interest in TietoEnator for E424 million.

     We plan to enhance the value of our existing investments, by using our
technical and commercial know-how developed in the Finnish home market and in
connection with our international activities to assist our associated or
affiliated companies in improving their operations.

ACQUISITIONS OF ACROSS HOLDING AND ID2 HOLDING; IMPAIRMENT LOSS RELATING TO THE
ACQUISITIONS UNDER U.S. GAAP

     We completed two acquisitions in 2000 that are expected to enhance our
Sonera SmartTrust business. In April 2000, we acquired the entire share capital
of Across Holding AB of Sweden, a provider of wireless Internet-based service
platforms. The Across Holding interest was subsequently transferred to our
Sonera SmartTrust subsidiary. We paid for the acquisition by issuing 16,732,055
new shares valued at E897 million at the time of the completion of the
transaction.

     In June 2000, we acquired the entire share capital of iD2 Holding AB of
Sweden, a provider of secure authentication solutions based on PKI (Public Key
Infrastructure) and smart card technology. The iD2 interest was subsequently
transferred to our Sonera SmartTrust subsidiary. We paid for the acquisition by
issuing 4,802,431 new shares valued at E250 million at the time of the
completion of the transaction.

     Under Finnish GAAP, we recorded no goodwill from the acquisitions of Across
and iD2. Under U.S. GAAP, however, we accounted for both transactions using the
purchase method of accounting which resulted in us recording goodwill in the
amount of E861 million and E243 million for Across and iD2, respectively. The
amortization period for goodwill is five years under both acquisitions.

     At the end of 2000, our management saw clear indications that the decline
in the market values of publicly listed companies that operate in comparable
lines of business to Sonera SmartTrust might require us to record an impairment
loss in the carrying value of the goodwill that arose from our acquisitions of
Across and iD2. Moreover, in the course of the recent updating of the strategy
and business plan of our Sonera SmartTrust subsidiary, it became evident to us
that the future cash flow expectations of Sonera SmartTrust were lower than what
they were at the time we completed the acquisitions of Across and iD2. As a
result of these findings, we performed an impairment test for all of the assets
of Sonera SmartTrust, including goodwill arising from the acquisition of Across
and iD2. The impairment test did not support the ultimate recoverability of the
total carrying value of the assets. As a result of the test, we recorded an
impairment loss of E704 million under U.S. GAAP for the year ended December 31,
2000 to reduce the carrying value of the goodwill and identified intangible
assets related to the acquisitions of Across and iD2 to their estimated fair
value. Under Finnish GAAP, there was no impairment loss, as there was no
goodwill recorded from the acquisitions.

INTERCONNECTION ARRANGEMENTS

     Interconnection allows a telecommunications operator to connect its network
to the network of another telecommunications operator. Interconnection therefore
ensures that subscribers to one network can contact subscribers to other
networks and access the services of other telecommunications operators.
Historically, Finnish

                                       103
117

operators have entered into bilateral interconnection agreements on a collective
basis. These interconnection agreements establish interconnection and related
charges for the term of such agreements. Current interconnection agreements
between Sonera, Elisa Communications, Radiolinja, Kaukoverkko Ysi Oy and Finnet
International Oy became effective as of May 1, 1999 (the "1999 Interconnection
Regime"). During 1999, we entered into interconnection agreements with terms
similar to the 1999 Interconnection Regime with a majority of the other Finnish
operators. See "Item 8. Financial Information -- Legal and Regulatory
Proceedings" and "Item 4. Information on the Company -- Regulation."

     The 1999 Interconnection Regime had a negative effect upon our
interconnection revenues, and, in particular, revenues generated by our
fixed-line trunk services and mobile network services. This is principally
because the 1999 Interconnection Regime provides for higher fees for access and
termination of calls which benefits the local fixed-line operators at the
expense of trunk and mobile operators. The net effect on our annual operating
profit was a reduction of approximately E15 million in 1999. In order to partly
offset the negative impact on profitability of domestic calls as a result of the
new regime, we changed our pricing in July 1999 by raising the per-call charge
and lowering the time charge. As a result interconnection revenue generated by
our fixed line and mobile services increased in 2000 as compared to 1999. Mobile
termination fees charged by us under the 1999 Interconnection Regime are
currently under legal challenge, and may therefore be subject to revision. See
"Item 8. Financial Information -- Legal and Regulatory Proceedings" and "Item 4.
Information on the Company -- Regulation -- Interconnection." In June 2001, we
concluded new commercial interconnection agreements with Telia Mobile and
Radiolinja, and we are continuing to negotiate with other Finnish mobile
operators on the Finnish market regarding interconnection.

                              RECENT DEVELOPMENTS

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2001

     In the three months ended March 31, 2001, our revenues were E525 million,
an increase of eight percent from revenues of E487 million for the corresponding
period in 2000. The growth in revenues was mainly attributable to Domestic
Mobile Communications.

     The following table sets forth our revenues by business area for the
periods indicated:
THREE MONTHS ENDED MARCH 31,     YEAR ENDED
                                                       ----------------------------    DECEMBER 31,
                                                                         2001/2000     ------------
                                                       2000    2001     (% CHANGE)         2000
                                                       ----    -----    -----------    ------------
                                                        (UNAUDITED)
                                                           (IN E MILLIONS, EXCEPT PERCENTAGES)
Domestic Mobile Communications.....................    264      290             10            1,134
International Mobile Communications................     --        2            n/a                5
Media Communications and New Services..............     51       63             24              254
Sonera Telecom.....................................    243      245              1            1,020
Other Operations...................................     23       31             35               85
Intra-Group Sales(1)...............................    (94)    (106)            13             (441)
                                                       ---     ----     ----------     ------------
Total..............................................    487      525              8            2,057
                                                       ===     ====     ==========     ============
------------------------------

(1) For each of the periods presented in the table above, Intra-Group sales
    consisted primarily of the following: (1) sale of network capacity and
    construction and maintenance services by Sonera Telecom to Domestic Mobile
    Communications, (2) sales of products by Domestic Mobile Communications and
    Media Communications and New Services to Sonera Telecom for further resale
    by Sonera Telecom to its corporate customers and (3) centralized services
    provided and invoiced by Other Operations to each of the other business
    segments.

     For the three months ended March 31, 2001, EBITDA was E384 million and the
EBITDA margin was 73 percent as compared with EBITDA of E162 million and an
EBITDA margin of 33 percent for the corresponding period in 2000. EBITDA
includes a gain on the sale of shares of TietoEnator which was completed in
March 2001. The comparable EBITDA excluding non-recurring items was E102 million
for the first three months of 2001 as compared to E158 million for the first
three months of 2000, and E91 million for the last three

                                       104
118

months of 2000. Operating expenses grew by 29 percent in the three months ended
March 31, 2001 as compared to the corresponding period in 2000, largely due to
major outlays on new services and an increase in the number of personnel. The
most significant contributors to the increase in operating expenses in the first
quarter of 2001 were the cost of developing and marketing new services and an
increase in the number of personnel.

     The following table sets forth our EBITDA by business area for the periods
indicated:
THREE MONTHS       YEAR ENDED
                                                                ENDED MARCH 31,     DECEMBER 31,
                                                                ----------------    ------------
                                                                 2000      2001         2000
                                                                ------    ------    ------------
                                                                  (UNAUDITED)
                                                                        (IN E MILLIONS)
Domestic Mobile Communications..............................      132       144              543
International Mobile Communications.........................       (6)       (3)           1,502
Media Communications and New Services.......................      (31)      (89)            (303)
Sonera Telecom..............................................       63        59              300
Other Operations............................................        4       273                5
                                                                -----     -----     ------------
Total.......................................................      162       384            2,047
                                                                =====     =====     ============
Operating profit amounted to E300 million for the three months ended March
31, 2001, compared to E90 million for the corresponding period in 2000.
Depreciation and amortization for the three months ended March 31, 2001 totaled
E84 million compared to E72 million for the three months ended March 31, 2000.

     The following table sets forth our operating profit by business area for
the periods indicated:
THREE MONTHS       YEAR ENDED
                                                                ENDED MARCH 31,     DECEMBER 31,
                                                                ----------------    ------------
                                                                 2000      2001         2000
                                                                ------    ------    ------------
                                                                  (UNAUDITED)
                                                                        (IN E MILLIONS)
Domestic Mobile Communications..............................      102       113              414
International Mobile Communications.........................       (6)       (4)           1,502
Media Communications and New Services.......................      (36)     (100)            (335)
Sonera Telecom..............................................       26        26              162
Other Operations............................................        4       265                5
                                                                -----     -----     ------------
Total.......................................................       90       300            1,748
                                                                =====     =====     ============
We recorded an equity loss in associated companies of E38 million for the
three months ended March 31, 2001 as compared to equity income of E20 million in
the corresponding period in 2000. Equity income in associated companies was
weakened by the net losses of Turkcell and Fintur Holding B.V.

     Our net financial expenses were E17 million for the three months ended
March 31, 2001 as compared with net financial income of E3 million for the
corresponding period in 2000. Interest income rose to E51 million for the three
months ended March 31, 2001 as compared with interest income of E4 million for
the corresponding period in 2000 due to a shareholder loan granted to Gruppe 3G.
Interest expenses grew to E68 million for the three months ended March 31, 2001
as compared with interest expenses of E17 million for the corresponding period
in 2000 due to increased debt. In addition, interest expenses of E15 million
were capitalized on the balance sheet for the three months ended March 31, 2001.

     In the three months ended March 31, 2001, profit before extraordinary items
and taxes was E245 million, an increase of approximately 117 percent as compared
to E113 million for the corresponding period in 2000. Income taxes amounted to
E81 million in the first three months of 2001 as compared to E31 million in the
corresponding period in 2000.

     Earnings per share were E0.22 for the three months ended March 31, 2001, an
increase from E0.06 for the corresponding period in 2000.

                                       105
119

     For the three months ended March 31, 2001, return on capital employed was
14 percent, and return on shareholders' equity was 20 percent compared with 15
percent and 18 percent, respectively, for the corresponding period in 2000.

BUSINESS AREAS

Domestic Mobile Communications

     Revenues from Domestic Mobile Communications totaled E290 million for the
three months ended March 31, 2001, an increase of ten percent as compared to the
corresponding period in 2000 principally due to higher traffic volumes and
increased demand for value added services. EBITDA rose to E144 million in the
three months ended March 31, 2001, a nine percent increase from E132 million in
the corresponding period in 2000. Operating profit was E113 million in the three
months ended March 31, 2001, an increase of 11 percent from E102 million in the
corresponding period in 2001. The improvement in EBITDA and operating profit was
principally due to growth in revenues.

     In the three months ended March 31, 2001, the average monthly use of our
mobile subscribers grew to 139 minutes, a six percent increase as compared to
131 minutes in the corresponding period in 2000, and average monthly revenues
per subscriber rose to E39.5 compared with E38.8 for the corresponding period in
2000. Revenue from non-voice services, including SMS text messages and content
services, was E33 million for the three months ended March 31, 2001, as compared
to E28 million for the corresponding period in 2000, an increase of 18 percent.
In the three months ended March 31, 2001, each Sonera GSM subscriber transmitted
25 text messages per month on average as compared to 23 per month for the
corresponding period in 2000.

     Approximately 70 percent of Sonera GSM subscribers used SMS text messages
on a monthly basis during the three months ended March 31, 2001, as compared to
approximately 66 percent in 2000, and 32 percent of the subscribers used content
services on a monthly basis, as compared to 30 percent in the corresponding
period in 2000.

     The number of Sonera GSM subscriptions grew by one percent in the three
months ended March 31, 2001, totaling 2,307,014 at the end of the first quarter
of 2001 as compared to 2,281,916 at December 31, 2000. The total number of all
of our mobile subscriptions amounted to 2,403,586 at the end of the period, as
compared to 2,364,562 on December 31, 2000. The figure also includes 51,437 NMT
450 subscriptions and approximately 45,000 Jippii Group Oyj and RSL COM Finland
Oy service provider subscriptions.

     The annualized churn rate for GSM customers in the three months ended March
31, 2001 was 10.3 percent as compared to 9.7 percent for the corresponding
period in 2000. According to the definition of customer churn adopted in 2000,
customer churn does not include cases in which the owner of the subscription
changes but the user remains the same.

     In the three months ended March 31, 2001, we continued to expand our
value-added services and improve customer care. In February 2001, we introduced
the GSM Recharging Card, through which talk time and text message balance can be
loaded onto a handset. In March 2001, we launched Sonera Talonmies (Sonera
Janitor), a remote-control system designed for households for monitoring and
controlling the equipment in the home by means of a mobile phone. Also in March
2001, we launched the Mconsole service, developed by Sonera Mspace. With the
Mconsole program, service and content providers can develop their own Java
applications for the Mconsole environment. Sonera Mspace is our open test
environment for testing and developing third generation mobile communications
services.

     We also expanded our roaming cooperation during the three months ended
March 31, 2001. Thanks to our new roaming partners, Sonera GSM functioned on the
networks of 205 operators in 101 countries or areas at the end of March 2001. At
the beginning of February 2001, we became one of the first in the world to
launch GPRS roaming. In addition to Finland, our customers can now use Sonera's
GPRS services in Denmark and Norway.

     On April 24, 2001, the TAC issued a decision on the complaint that had been
filed by Telia Finland in November 1998 concerning our domestic mobile
interconnection charges. Based on its calculations, the TAC has concluded that
our domestic mobile interconnection charges are not in proportion to related
expenses. The TAC

                                       106
120

also stated that, in its opinion, our interconnection fees violated the
Telecommunications Market Act and ordered us to revise our interconnection fees.
We appealed the TAC's decision to the Helsinki Administrative Court in May 2001.
In June 2001, we concluded commercial interconnection agreements with Telia
Mobile and Radiolinja, and we are continuing to negotiate with other mobile
operators on the Finnish market regarding interconnection.

     At the end of 2000, we detected a software fault in some of our SIM cards.
To remedy the fault, we began a program to replace 360,000 faulty SIM cards with
new ones starting in May 2001. As the fault did not result from the technology
that we developed, we are negotiating with the card manufacturer to cover the
cost of replacing the cards. We believe that the card replacement will not have
a material adverse effect on our mobile communications business.

International Mobile Communications

     Beginning January 1, 2001, we began treating International Mobile
Communications as a separate business segment for financial reporting purposes.
From that time, we have been administering our holdings in our associated GSM
operating companies and third generation joint ventures through our
International Mobile Communications business area. Earnings in these associated
companies continue to be included in our consolidated accounts in accordance
with the equity method of accounting. The International Mobile Communications
business area derives revenues and expenses from ongoing business conducted with
our associated GSM operating companies and our third generation joint ventures.
For example, the International Mobile Communications business area derives
substantially all of its revenues from the provision of technical, management
and other services by Sonera to our associated GSM operating companies and our
third generation joint ventures, including the temporary transfer of Sonera
employees to such companies. International Mobile Communications' expenses
consist mainly of personnel expenses related to employees who administer our GSM
and UMTS investments, employees who have been temporarily transferred to our
associated GSM operating companies and our third generation joint ventures,
travel expenses and consultant service fees.

     International Mobile Communications recorded revenues of E2 million in the
three months ended March 31, 2001. This business area recorded insignificant
revenue in the corresponding period of 2000. International Mobile Communications
recorded EBITDA of negative E3 million in the three months ended March 31, 2001,
as compared to negative E6 million in the corresponding period in 2000.
International Mobile Communications recorded an operating loss of E4 million in
the three months ended March 31, 2001, as compared to a loss of E6 million in
the corresponding period in 2000.

Media Communications and New Services

     Revenues from Media Communications and New Services were up 24 percent to
E63 million in the three months ended March 31, 2001 as compared to E51 million
for the corresponding period in 2000. For the three months ended March 31, 2001,
Media Communications and New Services recorded EBITDA of negative E89 million
and an operating loss of E100 million as compared with EBITDA of negative E31
million and an operating loss of E36 million for the corresponding period in
2000. Profitability was weakened by major outlays on Sonera zed.

     During the three months ended on March 31, 2001, Sonera zed had on average
352,000 users in Finland using Sonera zed services at least once a month, as
compared to 384,000 in the comparable period of 2000. The decrease in users may
be the result of a considerable increase in competition on the Finnish market
during the first three months of 2001. Globally, Sonera zed services had on
average 800,000 users per month.

     At the end of March 2001, Sonera zed's SMS-based services became available
to the customers of mobile communications operator Vodafone in the United
Kingdom. We also introduced zed services in Germany at the same time. In January
2001, zed concluded a cooperation agreement with Telecom Italia Mobile of Italy
pursuant to which zed will start to offer its SMS and WAP based services to
Telecom Italia Mobile's customers during the first half of 2001. In February
2000, Sonera zed also signed a distribution agreement with Radiolinja on the
Finnish market.

                                       107
121

     In February 2001, we purchased a 25.5 percent interest in Metro One
Telecommunications, Inc. of the United States for E75 million.

     The number of Sonera Internet subscriptions grew in the first three months
of 2001 by approximately two percent, amounting to approximately 244,000 on
March 31, 2001, as compared to 239,000 on December 31, 2000. In January 2001,
Sonera Plaza signed a letter of intent with eQ Online Corporation for the
provision of online brokerage services to Sonera's customers towards the end of
2001. The service will be part of Sonera Plaza's online financial services,
which are currently being reorganized.

     In February 2001, Juxto chose Fenestrae to be its technology partner in the
implementation of wireless ASP services. We expect that Juxto's wireless ASP
services will become available in Finland by the summer of 2001 and in Sweden
during the autumn of 2001. We completed the integration of the operations of
Frontec Support and Operations AB, which we purchased in December 2000, into
Sonera Juxto in the first quarter of 2001.

Sonera Telecom

     Sonera Telecom, which began operating as a separate business area from the
beginning of 2001, combines our former Fixed Network and Data Services business
area and our Equipment Sales and Other Operations business area. Sonera Telecom
is comprised of fixed network domestic and international voice services, data
services, leased lines, equipment sales and construction and maintenance
services. Five separate subsidiaries carry out the principal operations of the
Sonera Telecom business area:

     -  Sonera Entrum Ltd is engaged in the fixed network access business and
        offers voice and data services to consumers as well as to small- and
        medium-sized companies in Finland.

     -  Sonera Telecom's equipment sales operations are carried out primarily by
        Sonera Solutions Ltd. and Telering Ltd.

     -  Sonera Solutions Ltd. provides services to our major customers,
        marketing and selling telecommunications solutions primarily to Finnish
        companies that operate in the domestic market.

     -  Sonera Carrier Networks Ltd. owns and operates our fixed-line network
        infrastructure and acts as a wholesaler of narrowband and broadband
        capacity to other telecommunications operators and service operators.

     -  Sonera Telecom's construction and maintenance services are carried out
        primarily by Primatel Ltd.

     In June 2001, we announced that the assets and liabilities related to our
Sonera Telecom business area will be transferred to a separate subsidiary,
Sonera Telecom Oy, in the second half of 2001.

     Sonera Telecom recorded revenues of E245 million for the three months ended
March 31, 2001, a one percent increase as compared to revenues of E243 million
for the corresponding period in 2000. Sonera Telecom recorded EBITDA of E59
million, and operating profit of E26 million for the corresponding period in
2001 as compared to E63 million and E26 million, respectively, for the
corresponding period in 2000. An increase in the expenses related to mobile
terminated international calls resulted in an approximate E3 million decrease in
EBITDA.

     In the three months ended March 31, 2001, aggregate revenues from domestic
voice services were E59 million for the three months ended March 31, 2001, a
nine percent decrease as compared to E65 million for the corresponding period in
2000. The reduction was attributable to the decrease in the number of
long-distance call minutes and subscriptions. Revenues from international voice
services were E34 million for the three months ended March 31, 2001, a 17
percent increase as compared to E29 million for the corresponding period in
2000. The growth was attributable to the increase in the number of call minutes
and the introduction of an international termination fee for mobile calls.

     For the three months ended March 31, 2001, we generated aggregate revenues
from data services and leased lines of E54 million, the same level as in the
corresponding period in 2000. Increased revenues from leased lines increased as
a result of the leasing of new capacity on the fiber optic cable between St.
Petersburg and Moscow

                                       108
122

were offset by the transfer of certain data product groups from data services to
Sonera Juxto, which has been part of the Media Communications and New Services
as from June 2000.

     In January 2001, Sonera Solutions Ltd supplied the Finnish Meteorological
Institute (FMI) with the first Finnish-language speech recognition application
in Finland usable by phone. The application has been tailored to FMI from the
Sonera Say It service concept. FMI expects that, from May 2001 onwards, customer
contacts to the Finnish Agricultural Weather Service will function with speech
recognition software.

     In February 2001, the ownership arrangement between us and ICL Invia Oyj
related to the sale of DataInfo Oy shares was canceled. The cancellation
occurred because no new reseller agreements could be negotiated between DataInfo
Oy and the independent resellers of the DataInfo Oy chain, the negotiation of
which was a condition of the transaction. DataInfo Oy remains a wholly-owned
subsidiary of Sonera.

     In March 2001, a new sea cable connection for high-rate data transmission
between Europe and the United States was launched. The cable line, on which we
rent space, will double our trans-Atlantic transmission capacity. The cable is
part of Sonera Carrier Networks Ltd's international broadband solution that
connects Moscow, Western Europe and the United States.

     Revenues generated by equipment sales increased by 16 percent to E29
million for the three months ended March 31, 2001 as compared to E25 million for
the corresponding period in 2000. External revenues from construction and
maintenance were E3 million for the three months ended March 31, 2001 as
compared to E4 million for the corresponding period in 2000.

ASSOCIATED COMPANIES AND OTHER SIGNIFICANT HOLDINGS

     The following table shows the equity income we have derived from our
associated companies for the periods indicated.
THREE MONTHS      YEAR ENDED
                                                                ENDED MARCH 31,    DECEMBER 31,
                                                                ---------------    ------------
                                                                 2000      2001            2000
                                                                -----     -----    ------------
                                                                  (UNAUDITED)
                                                                        (IN E MILLIONS)
Turkcell lletisim Hizmetleri A.S............................       33       (10)            130
Fintur Holding B.V..........................................       --       (28)            (13)
Aerial Communications, Inc.(1)..............................      (12)       --             (12)
Gruppe 3G and Broadband ASA.................................       --        (2)             (2)
Other mobile operators......................................        9        11              42
Fixed network operators.....................................       12         6              38
Service providers...........................................       (1)       --              (1)
Other associated companies..................................        2        --               5
Amortization of goodwill....................................      (23)      (15)            (66)
                                                                -----     -----    ------------
Total.......................................................       20       (38)            121
                                                                =====     =====    ============
------------------------------

(1) Aerial merged with VoiceStream effective May 4, 2000. As a result of the
    merger, we received a 7.9 percent interest, on a fully diluted basis, in
    VoiceStream and discontinued the equity methods of accounting for Aerial.
    VoiceStream was not treated as an associated company.

     In compliance with new accounting practices adopted in 2000, our results of
operations for each quarter include the results generated by Turkcell and Fintur
in the preceding quarter. In the three months ended March 31, 2001, Turkcell
recorded a loss of E10 million, as compared to net income of E33 million for the
corresponding period in 2000, while Fintur recorded a loss of E28 million. As
Fintur was established after the first quarter of 2000, there are no
corresponding figures for the first quarter of 2000. Equity income in other
associated GSM operating companies amounted, in the aggregate, to E11 million
for the three months ended March 31, 2001, as compared to a loss of E3 million
for the corresponding period in 2000. The comparative figure for the previous
year includes a loss of E12 million recorded from Aerial Communications, Inc. We
estimate that we will

                                       109
123

record a significant equity loss from our associated companies in 2001 resulting
from, among other things, start-up losses of our third generation joint
ventures, losses at Turkcell caused by the devaluation of the Turkish lira, the
negative effects on Turkcell of a weakening Turkish economy, the potential
payment to the Turkish Government of VAT on Turkcell's GSM license, and outlays
on digital TV and Internet businesses by Fintur.

     During the three months ended March 31, 2001, estimated total revenues
generated by our associated companies in the area of mobile communications rose
by 35 percent to E937 million from E693 million in the corresponding period in
2000. The aggregate number of customers of these associated companies was
approximately 14.1 million on March 31, 2001, as compared to 13.1 million on
December 31, 2000, and 8.3 million on March 31, 2000. The aggregate number of
customers of mobile communications companies in which we have a minority holding
but which are not our associated companies was estimated to be approximately 5.8
million on March 31, 2001, as compared to 5.4 million on December 31, 2000 and
1.0 million on March 31, 2000.

     In relation to our investments in Germany, we and Telefonica Moviles are
preparing a new business plan for the German consortium Gruppe 3G, of which we
are a 42.8 percent shareholder and Telefonica Moviles is a 57.2 percent
shareholder. We and Telefonica Moviles are revising the business plan in light
of recent major changes in the economic and legal environment for mobile
operators, including the possibility of lowering both investment and operating
expenses through the partial joint use of networks by the license companies. In
June 2001, the principal telecommunications regulator in Germany, Reg TP,
announced that it would allow UMTS licensees to cooperate in the construction
and operation of UMTS networks. There can be no assurance, however, that Reg
TP's decision will not be modified or blocked by relevant competition
authorities or objected to by other telecommunication operators. See
"Information on the Company -- Business Overview -- International and Other
Significant Investments -- Investments in UMTS Licenses -- Germany." Partial
joint use of the third generation networks would lower Gruppe 3G's capital
expenditures for the build-out of its third generation network and lower the
amount of non-recourse project financing Gruppe 3G would require.

     In addition, on April 30, 2000, Gruppe 3G signed a national GPRS/GSM
roaming agreement with German mobile network operator E-Plus. The roaming
agreement covers all of Germany and is valid until 2012. Gruppe 3G plans to
launch GSM services on the German market in the second half of 2001. Gruppe 3G
does not plan to commence the build-out of a third generation network until
third generation mobile handsets are available.

     We believe that the implementation of Gruppe 3G's new business plan will
result in lower capital expenditures and operating expenses for Gruppe 3G than
earlier forecast. Furthermore, it will push the capital expenditures on fixed
assets and the operating expenses to a date subsequent to one that was initially
set out in the earlier business plan. In light of current negotiations with
vendors and financial institutions, as well as the new business plan, we and
Telefonica Moviles do not currently anticipate any need for additional equity
contributions once the current shareholder loans made to Gruppe 3G are converted
into shareholders' equity.

     In the three months ended March 31, 2001, we recorded an equity loss from
our UMTS participations in Germany and Norway of E2 million.

     In January 2001, we purchased 16.7 percent of the share capital of Loimaan
Seudun Puhelin Oy, a regional telephone company in Finland, and in February 2001
we raised our holding to 24.1 percent. The overall purchase price was
approximately E25 million. The transaction remains subject to the approval of
the Finnish competition authority. In December 2000, Loimaan Seudun Puhelin
acquired a majority interest in Turun Puhelin Oy, another regional telephone
company in Finland. At the end of March 2001, the companies' aggregate number of
fixed-line subscriptions was approximately 137,000.

FINANCIAL POSITION

     For the three months ended March 31, 2001, cash flow provided by our
operating activities amounted to E25 million as compared to E74 million for the
corresponding period in 2000. This decrease was principally a result of lower
EBITDA levels, excluding capital gains we recorded, and higher net interest
payments.

     The amount of net interest-bearing debt increased during the three months
ended March 31, 2001, and was E5,661 million at March 31, 2001, a slight
increase from E5,641 million at December 31, 2000. On March 31,
                                       110
124

2001, the equity-to-assets ratio was 33 percent and the gearing ratio 169
percent as compared to 33 percent and 174 percent, respectively, on December 31,
2000.

     Net financial expenses totaled E17 million for the three months ended March
31, 2001, as compared to net financial income of E3 million for the
corresponding period in 2000. Interest income rose to E51 million for the three
months ended March 31, 2001, as compared to E4 million for the corresponding
period in 2000. The increase in interest income was due to the shareholder loan
granted to the UMTS associated company in Germany. Interest expenses increased
to E68 million in the three months ended March 31, 2001 as compared to E17
million for the corresponding period in 2000 due to an increased level of
indebtedness. In addition, interest expenses of E15 million were capitalized on
the balance sheet for the three months ended March 31, 2001; there was no
comparable capitalization in 2000.

     On March 31, 2001, our current liabilities totaled E4,037 million and
current assets E3,666 million. Our cash and short-term investments totaled E270
million. In addition, we had E253 million of undrawn committed long-term credit
facilities, E200 million of unused long-term bond-based credit facilities as
well as unused commercial paper credit facilities amounting to approximately
E450 million.

     In June 2001, we entered into a E1.33 billion variable rate loan facility.
We plan to draw the entire principal amount of the facility in July 2001 to
prepay a portion of our other indebtedness.

     In light of the E1.33 billion long-term refinancing, unused credit
facilities, cash and short-term investments and the anticipated proceeds from
pending asset sales, we believe that, together with cash provided by operations,
we will have sufficient funds to meet our financial obligations and to carry on
our business operations for the foreseeable future.

Financial Income and Expenses
THREE MONTHS      YEAR ENDED
                                                                 ENDED MARCH 31,    DECEMBER 31,
                                                                ----------------    ------------
                                                                  2000      2001            2000
                                                                ------    ------    ------------
                                                                  (UNAUDITED)
                                                                        (IN E MILLIONS)
Dividend income.............................................       14        --               21
Interest income.............................................        4        51               82
Interest expense............................................      (17)      (83)            (155)
Capitalized interest expenses...............................       --        15               20
Other financial income and expenses.........................        1         1               23
Exchange rate gains and losses..............................        1        (1)              --
                                                                 ----      ----     ------------
Total.......................................................        3       (17)              (9)
                                                                 ====      ====     ============
In February 2001, we issued floating rate notes with a principal amount of
E500 million and a term of 18 months under our EMTN program. In May 2001, we
issued fixed rate notes with a principal amount of E150 million and a term of 12
months. In May 2001, we also issued zero coupon notes in the principal amount of
E50 million and a term of 6 months. Each of these tranches of notes were issued
under our EMTN facility and together they represent our total borrowings under
this facility. Furthermore on May 11, 2001, we increased the maximum drawable
amount of our EMTN facility to E3 billion. With these notes, we diversified our
funding and refinanced a portion of our existing short-term credit facilities.

     On February 20, 2001, Standard & Poor's lowered our long-term corporate
credit and senior unsecured ratings from A to A- and lowered our short-term
corporate credit and commercial paper rating from A-1 to A-2. Our debt ratings
were also placed on CreditWatch with negative implications. On May 3, 2001,
Moody's Investor Services downgraded our senior unsecured long-term debt ratings
from A2 to Baa2 and our short-term debt rating from Prime-1 to Prime-2. Moody's
kept our debt ratings on review for possible further downgrade.

                                       111
125

INVESTMENTS AND DIVESTMENTS

     During the three months ended March 31, 2001, our capital expenditures on
fixed assets amounted to E82 million as compared to E64 million during the
corresponding period in 2000. Investments in shares totaled E400 million as
compared to E519 million for the corresponding period in 2000.

     The most significant share investments since January 1, 2001 have included:

     -  an additional investment in Powertel of the United States of
        approximately U.S.$125 million in January 2001;

     -  an investment of U.S. $75 million in January 2001 in EWV Holding
        Company, Inc., a newly formed company which acquired the PCS licenses
        and other assets of DiGiPH PCS, a GSM operator in Alabama, Mississippi
        and Florida in January 2001;

     -  the acquisition of a 25.5 percent interest in Metro One
        Telecommunications, a developer and provider of enhanced directory
        assistance and information services for the U.S. telecommunications
        carriers, for U.S. $68 million in February 2001;

     -  an increase in our interest in Fintur's share capital of E54 million in
        February 2001; and

     -  an investment of E25 million in January and February 2001 for a 24.1
        percent interest in Loimaan Seudun Puhelin Oy, a regional telephone
        company in Finland.

     In March 2001, we sold our 18.7 percent interest in TietoEnator Corporation
shares for E424 million. We recorded a E286 million gain from the transaction.
In May 2001, we sold 3,300,000 VoiceStream shares and 1,100,000 Powertel shares
for which we received proceeds of approximately E430 million in the aggregate.
On May 31, 2001, Deutsche Telekom completed the acquisitions of VoiceStream and
Powertel. Under the terms of the acquisition, we received approximately E290
million in cash and received approximately 72 million shares of Deutsche Telekom
as consideration. Based on agreements entered into by our Company in connection
with the mergers of Deutsche Telekom and both VoiceStream and Powertel, we are
subject to certain restrictions on selling additional shares of Deutsche Telekom
that we have received in the merger. See "Item 4. Information on the Company --
International and Other Significant Investments -- Deutsche Telekom."

     In May 2001, we entered into an agreement to sell a portion of our Sonera
Sverige AB fixed-network business targeted at Swedish companies to Song
Networks, for approximately SEK 200 million, subject to adjustments.

     In June 2001, we announced that we would participate in a rights offering
by Turkcell to existing shareholders. Our pro rata participation in the offer
would amount to approximately U.S. $75 million.

PERSONNEL

     For the three months ended March 31, 2001, our average payroll was 11,155,
as compared with 9,399 for the corresponding period in 2000. Most new employees
were hired to fill positions in the Media Communications and New Services
business area. On March 31, 2001, we had 11,229 employees, as compared to 11,271
on December 31, 2000.

CHANGES TO SONERA SMARTTRUST AND SONERA PLAZA OPTION PLANS

     In June 2001, in response to the adverse market conditions facing the
telecommunications and related industries, we decided to establish a new 2001
employee stock option program for Sonera SmartTrust. Based on the sharp downward
revision in our estimate of the market value of Sonera SmartTrust (we currently
estimate that the market value of Sonera SmartTrust is approximately E250
million, an approximate 80 percent drop from its estimated market value at the
time the Sonera SmartTrust stock option program was established in November
2000), we set the warrant subscription price for the 2001 warrants at E0.933,
significantly below the warrant subscription price of E6.27 set under the Sonera
SmartTrust 2000 stock option program. Under the terms of the program, the
combined Sonera SmartTrust 2000 and 2001 stock option programs cannot dilute our
holding in Sonera SmartTrust by more than 15 percent. At the same time, as a
reflection of the change in our service strategy
                                       112
126

and our plan to retain full ownership of Sonera Plaza, we decided to terminate
Sonera Plaza's separate employee option plan. Sonera Plaza's employees will,
instead, be given the opportunity to participate in Sonera's 1999 and 2000
incentive programs. We did not revise the terms of the Sonera zed employee stock
option plan.

PRESIDENT AND CHIEF EXECUTIVE OFFICER, AND MANAGEMENT GROUP

     Aulis Salin, our President and Chief Executive Officer, retired on January
1, 2001. On March 22, 2000, our Board of Directors appointed Kaj-Erik Relander
as our Deputy Chief Executive Officer as of March 22, 2000, and as President and
Chief Executive Officer as of January 1, 2001. On June 8, 2001, Kaj-Erik
Relander announced that he would resign effective August 1, 2001. Aimo Eloholma
will serve as Deputy Chief Executive Officer until Mr. Relander's resignation,
when he will become acting President and Chief Executive Officer if another
Chief Executive Officer has not been appointed by the time Mr. Relander resigns.
Kim Ignatius will assume the responsibilities of Deputy Chief Executive Officer
if Mr. Eloholma becomes the acting President and Chief Executive Officer on
August 1, 2001.

                               OPERATING RESULTS

REVENUES

     Our revenues are derived from the following business segments:

     -  Domestic Mobile Communications;

     -  International Mobile Communications;

     -  Media Communications and New Services;

     -  Sonera Telecom; and

     -  Other Operations.

     The separately incorporated businesses organized within the Media
Communications and New Services business area include: (1) Sonera SmartTrust,
(2) Sonera zed, (3) Sonera Info Communications, (4) Sonera Plaza, (5) Sonera
Juxto and (6) Other New Services.

     Sonera Telecom consists of the following lines of business: (1) fixed
network voice services, (2) data services, (3) leased lines, (4) equipment
sales, (5) construction and maintenance and (6) other services.

     Other Operations includes other businesses, such as ticket sales services,
as well as Sonera's administrative functions and centralized services, which
generate primarily intra-Group revenues.

     Earnings from associated companies are included in our consolidated
accounts in accordance with the equity method of accounting under "Equity income
in associated companies" and are not included as part of our revenues.

                                       113
127

     The following table sets forth our revenues by business area and line of
business and as a percentage of total revenues for the periods indicated:
YEAR ENDED DECEMBER 31,
                                                  ---------------------------------------------
                                                      1998            1999            2000
                                                  -------------   -------------   -------------
                                                    E       %       E       %       E       %
                                                        (IN MILLIONS, EXCEPT PERCENTAGES)
DOMESTIC MOBILE COMMUNICATIONS:
Subscription, connection and other charges.....      96     5.9     103     5.6     122     5.9
Traffic revenues...............................     675    41.6     829    44.8     936    45.5
Other wireless services........................      55     3.4      52     2.8      76     3.7
                                                  -----   -----   -----   -----   -----   -----
  Subtotal.....................................     826    50.9     984    53.2   1,134    55.1
                                                  -----   -----   -----   -----   -----   -----
INTERNATIONAL MOBILE COMMUNICATIONS............       2     0.1       4     0.2       5     0.2
MEDIA COMMUNICATIONS AND NEW SERVICES..........     127     7.8     175     9.5     254    12.3
SONERA TELECOM:
Fixed network voice services:
  Domestic voice...............................     258    15.9     250    13.5     247    12.0
  International voice..........................     128     7.9     120     6.5     109     5.3
Data Services..................................     149     9.2     168     9.1     165     8.0
Leased lines and network capacity..............      25     1.5      32     1.7      52     2.5
Equipment sales................................      96     5.9     114     6.2     125     6.1
Construction and maintenance...................      31     1.9      24     1.3      34     1.7
Other services.................................     260    16.0     272    14.7     288    14.0
                                                  -----   -----   -----   -----   -----   -----
  Subtotal.....................................     947    58.3     980    53.0   1,020    49.6
                                                  -----   -----   -----   -----   -----   -----
OTHER OPERATIONS...............................      22     1.4      98     5.3      85     4.1
Intra-Group sales(1)...........................    (301)  (18.5)   (392)  (21.2)   (441)  (21.4)
                                                  -----   -----   -----   -----   -----   -----
  Total........................................   1,623   100.0   1,849   100.0   2,057   100.0
                                                  =====   =====   =====   =====   =====   =====
------------------------------

(1) For each of the periods presented in the table above, Intra-Group sales
    consisted primarily of the following: (1) sale of network capacity and
    construction and maintenance services by Sonera Telecom to Domestic Mobile
    Communications, (2) sales of products by Domestic Mobile Communications and
    Media Communications and New Services to Sonera Telecom for further resale
    by Sonera Telecom to its corporate customers and (3) centralized services
    provided and invoiced by Other Operations to each of the other business
    segments.

DOMESTIC MOBILE COMMUNICATIONS

     Revenues from Domestic Mobile Communications are derived principally from
the provision of GSM and NMT mobile communications services. Revenues generated
by GSM and NMT communications services include connection fees and monthly
subscription charges and traffic revenues. Revenues from Domestic Mobile
Communications also include revenues derived from other wireless services such
as paging services, satellite and closed network radio services (which were
partly divested in December 2000), logistical control services, mobile
consultancy services and special products.

     Revenues from subscription, connection and other charges consist of
revenues from monthly subscription charges, initial connection fees and
complementary service charges, including fees for value-added services such as
voice mail and call waiting, for our GSM and NMT services. Revenues from
subscription, connection and other charges depend primarily on the total number
of subscribers, the mix of services utilized by subscribers and charges
applicable to such services.

     Traffic revenues consist of traffic charges paid by mobile subscribers,
interconnection fees and roaming fees from calls made by subscribers of
international mobile network operators while in Finland and calls made or
received outside of Finland by our subscribers using another mobile provider's
network. Traffic revenues also include revenues from SMS messages, SMS-based
content and transaction services, and other value-added services. SMS (short
message service) is a GSM technology based mobile communication service which
allows users to send messages from a mobile handset or an Internet site to
another mobile handset directly or via a

                                       114
128

message center operator. Traffic revenues depend principally upon the total
number of subscribers, traffic volume, the mix of services utilized by
subscribers and tariffs applicable to such services.

     The table below sets forth revenues and other statistical information
regarding our subscription, connection and other charges and traffic revenues in
respect of our GSM and NMT mobile services for the periods indicated:
YEAR ENDED
                                               YEAR ENDED DECEMBER 31,            DECEMBER 31,
                                          ---------------------------------   ---------------------
                                            1998        1999        2000      1999/1998   2000/1999
                                          ---------   ---------   ---------   ---------   ---------
                                                   (IN E MILLIONS)                 (% CHANGE)
Revenues:
  Subscription, connection and other
     charges...........................          96         103         122       7.3        18.4
  Traffic revenues.....................         675         829         936      22.8        12.9
Average number of subscriptions:
  Separated by type of service:
     GSM...............................   1,314,509   1,767,771   2,083,128      34.5        17.8
     NMT...............................     444,484     266,292     145,959     (40.1)      (54.8)
                                          ---------   ---------   ---------     -----       -----
       Total...........................   1,758,993   2,034,063   2,229,087       5.6         9.6
                                          =========   =========   =========     =====       =====
  Separated by type of subscription:
     Business(1).......................     417,282     442,677     467,668       6.1         5.6
     Residential(1)....................   1,341,711   1,591,386   1,761,419      18.6        10.7
                                          ---------   ---------   ---------     -----       -----
       Total...........................   1,758,993   2,034,063   2,229,087      15.6         9.6
                                          =========   =========   =========     =====       =====
Total traffic (millions of
  minutes)(2)..........................       2,452       3,173       3,724      29.4        17.4
Total number of SMS messages (millions
  of messages).........................       206.4       438.8       618.3     112.6        40.9
Average monthly minutes of use per
  subscription (minutes)(3)............         116         130         139      12.1         6.9
Average monthly SMS messages per
  subscription.........................        13.0        20.7        25.2      59.2        21.7
Average monthly revenue per
  subscription (in euros)(4)...........        36.5        38.8        40.4       6.3         4.1
------------------------------

(1) Business and residential subscriptions have been divided according to tax
    identification number.

(2) Includes outgoing mobile to mobile and mobile to fixed-line voice calls and
    calls from subscribers of other operators roaming in our network.

(3) Average monthly minutes of use per subscription is calculated by dividing
    total outgoing traffic for our NMT and GSM services for the period by the
    average number of subscriptions for the period for both types of service
    divided by the number of months in the period.

(4) Average monthly revenue per subscription is calculated by dividing revenues
    for the period of our NMT and GSM services by the average number of
    subscriptions for the period for both types of service divided by the number
    of months in the period.

     In 2000, revenues from Domestic Mobile Communications amounted to E1,134
million, an increase of approximately 15.2 percent as compared to E984 million
in 1999. The growth was particularly strong in non-voice services, where
revenues grew by 35.7 percent to E114 million in 2000 as compared to E84 million
in 1999.

Subscription, connection and other charges

     Revenues from subscription, connection and other charges increased in 2000
as compared to 1999 and in 1999 as compared to 1998 primarily due to an increase
in the number of our GSM subscriptions. The number of Sonera GSM subscriptions
grew by 18 percent in 2000, and stood at 2,281,916 at December 31, 2000 compared
to 1,938,644 at December 31, 1999. Our average initial connection fees, monthly
subscription charges and

                                       115
129

charges for other services have decreased since 1997 principally due to the drop
in connection charges under certain pricing plans and corporate discounts.

     We believe our GSM subscription growth reflects an expanding market for
mobile telecommunications services in Finland. Mobile penetration rates in
Finland have increased from approximately 42 percent from the beginning of 1998
to over 70 percent at the end of 2000. The mobile penetration growth rate in
Finland has, however, been decreasing since 1998. We believe that declining
mobile tariffs, the availability of smaller, more versatile mobile handsets,
improved service offerings and changes in consumer behavior were significant
factors in the increase in our GSM subscription base from December 31, 1997
through December 31, 2000. The recent increase in our GSM subscription base has
mainly been attributable to growth in the number of residential users.

     The subscription attrition or "churn rate" of our GSM service, which has
traditionally been low by international standards, also plays an important role
in determining the size of our subscription base. Our GSM churn rate, which
reflects the total number of GSM subscription deactivations during a period as a
percentage of the average number of our GSM subscriptions for the period was
14.0 percent, 14.6 percent and 12.4 percent in 1998, 1999 and 2000,
respectively. Customer churn, which excludes cases in which the registered owner
of the subscription changes but the user remains the same (as in the case where
a person has his or her individual subscription transferred to a company
subscription), was significantly lower at 9.7 percent in 2000, as compared to
12.1 percent in 1999.

     Subscription, connection and other charges from our NMT services decreased
in 2000 as compared to 1999 and in 1998, primarily due to a decrease in NMT 900
subscribers as a growing number of such subscribers migrated to GSM services
prior to the termination of NMT 900 services on December 31, 2000. The number of
subscribers to our NMT 450 services declined at a slower pace than NMT 900
service during 2000 as compared to 1999 and in 1999 as compared to 1998
principally due to continued use of our NMT 450 network by its core subscriber
base of certain niche groups such as a freight transport operators and seasonal
users who rely on NMT 450 for its coverage of remote areas. Our total NMT
subscriber base decreased by 40 percent in 1998 and 41 percent in 1999 as
compared to a decrease of 71.7 percent in 2000. The number of NMT subscriptions
at December 31, 2000 was 55,863 as compared to 197,597 in 1999. The dramatic
decrease in NMT subscriptions in 2000 is primarily due to the 109,251 NMT 900
subscriptions which were removed from the network when we discontinued NMT 900
network services on December 31, 2000. The operation of our NMT 450 network has
continued in its existing format. We expect revenues from our NMT services to
continue to decline in the future.

Traffic revenues

     Traffic revenues consist of traffic charges paid by our mobile subscribers,
interconnection fees and roaming fees. Traffic revenues also include revenues
from SMS messages, SMS based content and transaction services, and other
value-added services. Traffic revenues increased substantially in 2000 and in
1999 as compared to the previous year primarily as a result of growth in the GSM
subscription base, an increase in average monthly usage per GSM subscription and
increased use of SMS services, as well as increases in roaming revenues and
mobile interconnection fee revenues. Increases in traffic revenues were
partially offset by a decline in the NMT subscriber base and a decrease in the
average monthly minutes of use per NMT subscription, as well as decreases in GSM
and NMT traffic tariffs.

     Average monthly revenue per subscription for our mobile services increased
in 2000 as compared to 1999 and in 1999 as compared to 1998 primarily as a
result of increased usage of mobile phones by our GSM subscribers and the
substantial increase in the usage of value-added services, including SMS. NMT
subscribers generally generate lower revenues than GSM subscribers. Average
monthly revenue per subscription for our mobile services increased despite (1)
the negative effect of tariff reductions implemented throughout the period in
response to increased competition in the market and (2) the overall increase in
the number of residential subscriptions as a percentage of our total GSM
subscription base. Residential subscribers generally generate lower revenues
than business subscribers due to different tariff packages and calling habits.

     The increase in average monthly usage by GSM residential and business
subscriptions was due to declining mobile tariffs, the availability of smaller,
more versatile mobile handsets with improved battery lives, and the development
of new applications for mobile phones as well as the introduction of additional
value-added services
                                       116
130

to our customers. Increases in average monthly usage have, however, been partly
offset by an increase in the number of lower volume users in the subscription
base. We expect that, as the mobile penetration rate in Finland increases,
growth in the average monthly usage per GSM subscription will continue to be
affected by the inclusion of an increased number of lower volume users in the
subscription base.

     An increase in the use of SMS, a service we first began offering in May
1995, by our GSM subscribers has also contributed to the increase of our mobile
communications traffic revenues. SMS messages, which are billed on a per message
basis, do not, however, have an effect on the average monthly minutes of use per
subscriber due to the extremely short airtime per message required for
transmitting SMS traffic. The number of SMS messages sent by our GSM subscribers
increased approximately six times from 1997 to 1998 and more than doubled from
1998 to 1999. During 2000, non-voice services generated approximately 11 percent
of total mobile communications revenues as compared to approximately eight
percent in 1999 and approximately 4.5 percent in 1998. This increase resulted
primarily from the increase in the number of SMS messages from 206 million in
1998 and 439 million in 1999 to 618 million in 2000.

     Our management believes that we can continue to increase average revenue
per customer and we are pursuing such a strategy through strategic service
enhancement. One important initiative is the provision of packet-switched GPRS
services which are able to transmit data to mobile handsets more efficiently
than GSM. In December 2000, we began offering GPRS services in the major cities
in Finland on a commercial basis and made such services available throughout
Finland in early 2001. We have also decided to start providing international
test connections in the GPRS interconnection network for packet-switched mobile
communications operators. In September 2000, we began offering Nokia GRX-based
GPRS roaming to our subscribers. GRX is a centralized IP routing network for
interconnecting GPRS networks operators.

     Average monthly usage by our NMT subscribers decreased in 2000, 1999 and
1998 as compared to previous years, primarily due to the continued migration of
higher volume NMT 900 subscribers to GSM services influenced in part by the GSM
handset exchange offers extended by us and by other Finnish mobile operators to
our NMT subscribers, and our termination of our NMT 900 service on December 31,
2000. The average monthly usage of our NMT 450 subscribers declined only
slightly during 2000, principally due to continued use of our NMT 450 network by
its core subscriber base who rely on NMT 450 for its ability to reach remote
areas.

     Our GSM and NMT traffic tariffs have declined since 1998 primarily in
response to increased competition from Radiolinja's GSM 900 services, and more
recently from other GSM operators and service providers.

     Roaming revenues consist of (1) the total amounts we bill for calls made
outside Finland by our customers using another GSM network and (2) amounts paid
to us by foreign GSM network operators with respect to calls made by customers
of such operators while in Finland. Roaming revenues accounted for approximately
nine percent, eight percent and eight percent of our Domestic Mobile
Communications traffic revenues in 1998, 1999, and 2000, respectively. Roaming
revenues increased in absolute terms in 2000 as compared to 1999 and in 1999 as
compared to 1998 due to both increased revenues generated by our GSM subscribers
traveling outside of Finland and by subscribers of international GSM network
operators visiting Finland. These increases have resulted primarily from higher
GSM penetration rates across much of Europe and from our completion of new
roaming agreements which have increased the geographical scope of roaming
coverage throughout the period.

     Mobile interconnection fees, which only include fees charged to other
Finnish mobile operators for terminating calls on our mobile network, accounted
for approximately six percent, nine percent and ten percent of our Domestic
Mobile Communications traffic revenues in 1998, 1999 and 2000, respectively.
Revenues from mobile interconnection fees increased in 2000 as compared to 1999
and in 1999 as compared to 1998, reflecting the increase in calls originating on
other operators' mobile networks which terminated on our mobile network as a
result of the increased size of our and other operators' subscriber bases.

     Mobile interconnection fees, including fees for terminating traffic to our
mobile network, are covered by bilateral interconnection agreements. Mobile
interconnection tariffs have been generally stable since 1996. Mobile
termination fees charged by us under the interconnection agreements currently in
effect are under legal challenge, and may therefore be subject to revision. See
"Item 8. Financial Information -- Legal and Regulatory Proceedings --
Interconnection Fees."

                                       117
131

Other wireless services

     Other wireless services comprise our paging services, satellite services,
closed network radio services (which were divested in 2000), logistical control
services, mobile consultancy services and special products. The following table
sets forth certain information regarding revenues from other wireless services
for the periods indicated:
YEAR ENDED            YEAR ENDED
                                                           DECEMBER 31,          DECEMBER 31,
                                                        ------------------   ---------------------
                                                        1998   1999   2000   1999/1998   2000/1999
                                                        ----   ----   ----   ---------   ---------
                                                         (IN E MILLIONS)          (% CHANGE)
Other wireless services..............................    55     52     76      (5.5)       46.2
Revenues from other wireless services increased in 2000 as compared to 1999
principally due to increased revenues from radio services, mobile consultancy
services and various special products. These increases were partially offset by
declining revenues from paging services and ARP services, our mobile vehicle
radio telephone system which predates NMT and GSM. We discontinued all of our
ARP network operations as of December 31, 2000. Revenues derived from logistical
control services were generally stable throughout the period. We expect that
revenues from our paging services will continue to decline as users of these
services migrate to GSM services. Revenues for other wireless services also
include certain intra-Group sales made by Domestic Mobile Communications to
other business areas, including mobile products sold to customers of Sonera
Telecom and mobile products sold to Sonera's personnel employed by other
business areas. Intra-Group sales have witnessed steady growth since 1998.

INTERNATIONAL MOBILE COMMUNICATIONS

     International Mobile Communications focuses principally on administering
our holdings in international GSM operators and third generation joint ventures.
Earnings in these associated companies continue to be included in our
consolidated accounts in accordance with the equity method of accounting. The
International Mobile Communications area derives revenues and expenses from
ongoing business conducted with our associated GSM operating companies and our
third generation joint ventures. In particular, the International Mobile
Communications business area derives substantially all of its revenues from the
provision of technical, management and other services by us to our associated
GSM operating companies and our third generation joint ventures, including the
temporary transfer of Sonera employees to such companies. International Mobile
Communications' expenses consist mainly of personnel expenses related to
employees who administer our GSM and UMTS investments, employees who have been
temporarily transferred to our associated GSM operating companies and our third
generation joint ventures, travel expenses and consultant service fees.
International Mobile Communications generated revenues of E5 million, E4 million
and E2 million in 2000, 1999 and 1998, respectively.

MEDIA COMMUNICATIONS AND NEW SERVICES

     In total, our Media Communications and New Services business area generated
revenues of E254 million in 2000, or approximately 12 percent of our total
revenues for the year.

     The following table sets forth the revenues of our Media Communications and
New Services business area by for the periods specified:
YEAR ENDED               YEAR ENDED
                                                        DECEMBER 31,             DECEMBER 31,
                                                    --------------------    ----------------------
                                                    1998    1999    2000    1999/1998    2000/1999
                                                    ----    ----    ----    ---------    ---------
                                                      (IN E MILLIONS)             (% CHANGE)
Media Communications and New Services...........    127     175     254       37.8         45.1
118
132

Media Communications

     Media Communications consists of new media and business media operations.
Our new media services include consumer and corporate Internet services, cable
TV services and special calling services. Our business media operations offer a
variety of communications, marketing and customer care solutions for business
customers, such as toll-free numbers and local access charge corporate numbers,
multifax services, telephone and video conference calling and remote working, as
well as e-commerce services. Revenues from Media Communications are generated
from subscription fees, rental fees for hosting services, on-line advertising
fees, calling and transaction fees for services. Revenues from media services
depend on the cost and mix of services subscribed, tariff levels and the mix of
transmission volumes, durations and combinations.

     Revenues from our Media Communications increased in 2000 as compared to
1999 and in 1999 as compared to 1998 principally as a result of the growth in
the number of subscribers to its Internet access and hosting services, as well
as increased use of our Internet services provided by our foreign subsidiaries.
The number of subscribers to our Internet access services, which are provided by
our subsidiary Sonera Plaza, increased from approximately 100,000 in February
1998 to more than 239,000 subscribers in December 2000. We expect our Internet
access subscriber growth to continue as Internet penetration rates in Finland
increase and Internet portal services continue to develop. Increased demand for
calling plan services, including toll free numbers, also contributed to the
increase in media services revenue for the period, as well as revenues from
remote work services. Revenues from cable TV services, fax services and
telephone and video conference calling were generally stable throughout the
period. Revenues from charged service calls, on the other hand, have been
declining since 1997, principally due to increased competition and decreased
demand.

     Due to the increased pricing pressures on Internet service access,
including the increasing trend of offering Internet access service at no charge,
we believe that revenue growth from media communications is likely to be
dependent upon growth in content-based services and advertising revenue in the
future, such as that to be provided by Sonera Plaza Finanssipalvelut, a service
started in September 2000 with the OKOBANK Group to provide online financial and
related value added services to retail customers.

New Services

     Our New Services businesses are still largely in their early stage of
commercial development and, with the exception of our Sonera Info Communications
directory services business and our Sonera Plaza Internet access service
business, did not generate significant revenues prior to 2000.

     Prior to 2000 Sonera SmartTrust derived most of its revenue from its
operation of a secure electronic payment network for Finnish customers.
Beginning in 2000, Sonera SmartTrust generates revenues primarily from licensing
the rights to its wireless security solutions to service providers, such as
banks and brokers, and wireless operators, as well as to certificate
authorities, smart card manufacturers and systems integrators. In 2000, Sonera
SmartTrust had revenues of E18 million, largely from its Across and iD2 business
activities. As of December 31, 2000, Sonera SmartTrust had an order backlog of
over E11 million. We also made two acquisitions in 2000 that management expects
will generate additional revenues for Sonera SmartTrust services. In April 2000,
we acquired the entire share capital of Across Holding AB of Sweden, a provider
of wireless Internet-based service platforms. In June 2000, we acquired the
entire share capital of iD2 Holding AB of Sweden, a provider of secure
authentication solutions based on PKI (Public Key Infrastructure) and smart card
technology. Both Across and iD2 have become wholly-owned subsidiaries of Sonera
SmartTrust Ltd.

     However, in the course of the updating of the strategy and business plan
for Sonera SmartTrust, it has become evident that the future cash flow
expectations of Sonera SmartTrust are lower than at the time we completed the
acquisitions of Across and iD2 in April and June of 2000, respectively. As a
result of these and other findings, we have recorded an impairment loss of E704
million under U.S. GAAP for the year ended December 31, 2000 to reduce the
carrying value of the goodwill and identified intangible assets related to the
acquisitions of Across and iD2.

     In 2000, Sonera zed generated revenues of E7 million, principally from
services offered to our mobile customers in Finland. Sonera zed seeks to offer a
range of customized zed mobile value-added services to mobile

                                       119
133

operators and their customers throughout the world. During 2000, Sonera zed has
entered into agreements with various mobile operators including E-Plus, D1 and
D2 in Germany, Smart Communications in the Philippines, KPN Mobile and Libertel
in the Netherlands, MobileOne (M1) of Singapore, as well as Powertel (which has
subsequently been acquired by Deutsche Telekom) of the United States, Vodafone
in the United Kingdom and Turkcell in Turkey to provide Zed services in the
markets of these operators. As of December 31, 2000, the number of registered
Sonera zed users totaled approximately 223,000 as compared to 127,000 as of
December 31, 1999. In August 2000, Sonera zed launched its mobile non-voice
services in the Netherlands.

     Sonera Plaza, Sonera Info Communications and Sonera Juxto generated
approximately two-thirds of the revenue recorded by the Media Communications and
New Services business area in 2000. Sonera Plaza generated revenues principally
from its Internet access service business. Sonera Info Communications generated
revenues from both electronic and operator assisted directory services and
printed telephone directories. Sonera Juxto, which began providing ASP and
management services in June 2000, was also a significant contributor to the
revenues of Media Communications and New Services in 2000. Some of the advanced
systems management services provided by Sonera Juxto were previously included as
part of Sonera Telecom's data service business.

SONERA TELECOM

     Sonera Telecom is comprised of fixed network domestic and international
voice services, data services, leased lines, equipment sales, construction and
maintenance and other services. Revenues from Sonera Telecom were E947 million,
E980 million and E1,020 million in 1998, 1999, and 2000, respectively. The
increase in revenues in 2000 as compared to 1999 was primarily due to increased
leased line revenues and the increase in 1999 as compared to 1998 was primarily
due to increased revenues from data services.

Fixed Network Voice Services

     Revenues from fixed network voice services consist of domestic voice
revenues and international voice revenues.

     Domestic voice revenues.  Domestic voice revenues consist of (1)
subscription, connection and other charges, (2) traffic charges for local and
long distance calls placed by our subscribers and (3) interconnection revenues.
Revenues from subscription, connection and other charges consist principally of
revenues from monthly subscription charges, initial connection fees,
complementary service charges, including monthly fees for services such as voice
mail, call waiting and other value-added services, and certain equipment rental
charges. Revenues from subscription, connection and other charges depend
primarily on the total number of lines subscribed and the mix of standard lines
(traditional copper wire access lines), ISDN lines (copper wire access lines
with a transmission system which allows for the transmission of two streams of
information at the same time) and 2 Mbps lines (copper wire access lines with a
transmission system which allows for the transmission of multiple streams of
information at the same time). Revenues from traffic charges for local and long
distance calls are dependent upon the number of calls made, the mix between
local calls and higher priced long distance calls, call duration and applicable
tariffs.

     Interconnection revenues include fees paid to us by the local operators of
the Finnet Group and other operators of fixed networks in Finland as well as by
Radiolinja, Telia Finland, DNA Finland and other mobile operators for
interconnection with our fixed-line network. Interconnection revenues consist of
three main components: access, transit and termination fees. Smaller items which
are also counted in calculating interconnection revenue include routing service
fees and international pre-selection fees. See "Item 4. Information on the
Company -- Regulation -- Interconnection" and "Item 8. Financial Information --
Legal and Regulatory Proceedings -- Interconnection Fees."

                                       120
134

     The table below sets forth domestic voice revenues and certain information
regarding traffic and our access lines for the periods indicated:
YEAR ENDED
                                                     YEAR ENDED DECEMBER 31,              DECEMBER 31,
                                               ------------------------------------   ---------------------
                                                  1998         1999         2000      1999/1998   2000/1999
                                               ----------   ----------   ----------   ---------   ---------
                                               (IN E MILLIONS, EXCEPT AS INDICATED)        (% CHANGE)
Domestic voice revenues:
Local calls(1)
Subscription, connection and other
  charges...................................        169          199          198        17.8        (0.5)
Long distance calls(2)......................         26           28           25         7.7       (10.7)
Interconnection revenues....................         63           23           24       (63.5)        4.3
                                                -------      -------      -------       -----       -----
  Total.....................................        258          250          247        (3.1)       (1.2)
                                                =======      =======      =======       =====       =====
Domestic traffic (in millions of minutes):
Local calls(1)..............................      1,994        1,869        1,834        (6.3)       (1.9)
Long distance calls(2)......................        749          667          588       (10.9)      (11.8)
                                                -------      -------      -------       -----       -----
  Total.....................................      2,743        2,536        2,422        (7.5)       (4.5)
                                                =======      =======      =======       =====       =====
Number of access lines at end of period:(4)
Standard....................................    656,524      592,337      541,612        (9.8)       (8.6)
ISDN........................................     24,772       36,413       45,931        47.0        26.1
2 Mbps......................................      2,820        3,509        3,612        24.4         2.9
                                                -------      -------      -------       -----       -----
  Total equivalent lines(3).................    790,668      770,433      741,834        (2.6)       (3.7)
                                                =======      =======      =======       =====       =====
------------------------------

(1) Revenues and minutes accrued from calls originating on our fixed network and
    terminated within the same telecommunications area.

(2) Revenues and minutes accrued from calls utilizing our trunk network
    including long distance calls placed by subscribers of other service
    operators which are routed through our trunk network. Revenues from long
    distance calls exclude interconnection revenues.

(3) For purposes of calculating total equivalent lines, ISDN lines are counted
    as two standard lines and 2 Mbps lines are counted as 30 standard lines.

(4) Principles for keeping access lines statistics was changed in the beginning
    of 1999. Prior to the change, residential ISDN lines were registered both as
    standard and ISDN lines. Certain 2Mbps lines were also registered both as
    standard and as 2Mbps lines. Information for periods prior to 1999 has not
    been restated.

     Domestic voice revenues decreased slightly in 2000 as compared to 1999
principally as a result of lower local and long distance calling minutes partly
offset by higher tariffs. Domestic voice revenues decreased in 1999 as compared
to 1998 mainly due to decreases in long distance voice calling minutes and lower
local network interconnection charges partly offset by increases in
subscription, connection and other charges. In 1998 and 1999, as part of our
overall strategy of continuing to rebalance our fee and tariff structure, we
increased our basic monthly subscription charge for standard access lines,
whereas we lowered our connection fee in 1999. On the other hand, revenues from
subscription, connection and other charges have been negatively affected by the
decrease in the number of standard access line connections as residential
subscribers have moved away from our traditional service areas located
principally in the more sparsely populated areas of eastern and northern
Finland. Although the number of equivalent lines has generally been stable,
mainly attributable to an increase in the number of ISDN and 2 Mbps lines, these
higher capacity lines typically have lower monthly subscription charges than
standard access lines on a per equivalent line basis. The growth in the number
of ISDN and 2 Mbps lines throughout the period reflects our strategy of building
fiber optic local loop infrastructure in the largest cities in Finland primarily
to attract business subscribers. We have recently introduced a new pricing
structure for local calls in which we raised the call connection charge and
lowered the time-based charges in order to stimulate increased Internet usage.

     Long distance call revenues decreased slightly in 2000 as compared to 1999
and increased in 1999 as compared to 1998. On July 1, 1999, we increased our
domestic long distance tariff in response to both increased costs and the
decline in domestic long distance traffic. We believe that we will continue to
experience a gradual

                                       121
135

decline in domestic long distance traffic in the future as subscribers switch
from fixed-line services to mobile telecommunications services.

     Interconnection revenues generally remained level in 2000 as compared to
1999. Interconnection revenues are gross amounts before deduction of
interconnection fees we pay to other telecommunications operators, which are
included as expenses under "services bought" in the income statement. In 1999
interconnection revenues decreased as compared to 1998 principally due to the
impact of the 1999 Interconnection Regime. See "-- Overview -- Interconnection
Arrangements."

     International voice revenues.  Revenues from international voice services
consist of revenues from outgoing international calls and incoming international
calls, including charges with respect to international transit traffic, and
calls generated by our foreign subsidiaries. Revenues from international voice
services depend on (1) the total number, duration and destination of outgoing
calls originating in Finland and the applicable tariffs, (2) the total number
and duration of incoming calls and the rates we charge to foreign operators for
carrying such calls on our network, (3) the total number and duration of
international transit traffic calls and (4) the total number, duration and
destination of outgoing calls made through services provided by our consolidated
foreign subsidiaries. In addition, we have launched a new tariff structure
effective as of January 1, 2001, under which international tariffs for outgoing
calls vary depending on whether the call terminates on a mobile or fixed-line
outside of Finland.

     The following table sets forth information concerning international traffic
revenues and outgoing and incoming international traffic for the periods
indicated:
YEAR ENDED               YEAR ENDED
                                                        DECEMBER 31,             DECEMBER 31,
                                                    --------------------    ----------------------
                                                    1998    1999    2000    1999/1998    2000/1999
                                                    ----    ----    ----    ---------    ---------
                                                      (IN E MILLIONS)             (% CHANGE)
International traffic revenues:
  Outgoing international(1).....................     67      66      69        (1.5)         4.5
  Incoming international(2).....................     51      44      33       (13.7)       (25.0)
  Foreign subsidiaries..........................     10      10       7          --        (30.0)
                                                    ---     ---     ---       -----        -----
     Total......................................    128     120     109        (6.3)        (9.2)
                                                    ===     ===     ===       =====        =====
International traffic (in millions of minutes):
  Outgoing international(3).....................    225     229     231         1.8          0.9
  Incoming international(4)(5)..................    278     277     283        (0.4)         2.2
------------------------------

(1) Outgoing international revenues include revenues generated from
    Finland-originated international calls, including calls placed by
    subscribers of other service operators which are routed through our
    international network. These amounts show gross revenues before deduction of
    settlement payments to foreign operators to carry our outgoing traffic,
    which are reflected as "external services" expenses in the income statement.

(2) Incoming international revenues include revenues generated from
    Finland-terminated international calls, including calls terminating with
    subscribers of other service operators which are routed through our
    international network, as well as international transit traffic utilizing
    our international network.

(3) Outgoing international traffic includes Finland-originated international
    calls, including calls placed by subscribers of other service operators
    which are routed through our international network.

(4) Incoming international traffic includes all Finland-terminated international
    calls, including calls terminating with subscribers of other service
    operators which are routed through our international network, as well as
    international transit traffic utilizing our international network.

(5) Principles for keeping international incoming and transit traffic statistics
    changed in 1999. Prior to 1999, the calculation was based on payments from
    foreign operators instead of directly from the network. Information for
    periods prior to 1999 has not been restated.

     Revenues from outgoing international traffic were substantially unchanged
in 2000 as compared to 1999 and in 1999 as compared to 1998. We expect revenues
from outgoing international traffic to decrease in the future due to the impact
of anticipated price reductions. Revenues from incoming international traffic
decreased in 2000 as compared to 1999 and in 1999 as compared to 1998 largely
due to decreases in the settlement rates we charge to foreign telecommunications
operators for terminating calls on our networks. Under international
telecommunica-

                                       122
136

tions settlement arrangements, we receive payments from other carriers for the
use of our network for international calls terminating in or transferred via our
network. Settlement rates will vary depending upon whether the international
call terminates on a mobile or a fixed-line. We expect that settlement rates
will decline, particularly between Finland and other member states of the
European Union and between Finland and the United States.

     The implementation of regulations requiring pre-selection of international
operators has not materially affected our market share of international traffic.
However, international pre-selection may, together with the anticipated increase
in competition from providers of Internet telephony services, have an adverse
effect upon our future international traffic revenues. See "Item 4. Information
on the Company -- Regulation -- Numbering and Carrier Selection."

     We make settlement payments to foreign operators to complete or route
outgoing calls after they leave our network. Such payments are shown as a cost
under "services bought" which is a component of "operating expenses" in the
income statement. See "-- Operating Expenses."

Data Services

     Data services consists of basic data services, (i.e., digital transmission
of packet switched data through wired networks) as well as LAN services and
intranet services, which consist of network maintenance and management services
provided for companies to support their internal networks. Our basic data
services comprise our managed leased line service, FastNet, and our managed
packet-switched services, DataPak. Our LAN and intranet services include our
DataNet LAN interconnection and system management services for corporate
customers. Revenues from basic data services are generated from monthly
subscriptions and additional fees based on usage (with respect to DataPak
services) or capacity (with respect to FastNet services). Revenues from LAN and
intranet services are generated from monthly subscriptions based on service
levels as well as fees from system management services. Revenues from data
services depend on the cost and mix of services subscribed, tariff levels and
the mix of transmission volumes, durations and combinations.

     The following table sets forth information concerning revenues from data
services for the periods indicated:
YEAR ENDED               YEAR ENDED
                                                        DECEMBER 31,             DECEMBER 31,
                                                    --------------------    ----------------------
                                                    1998    1999    2000    1999/1998    2000/1999
                                                    ----    ----    ----    ---------    ---------
                                                      (IN E MILLIONS)             (% CHANGE)
Data Services...................................    149     168     165       12.8         (1.8)
Revenues from data services decreased slightly in 2000 as compared to 1999
principally as a result of the transfer of some advanced systems management
services from the data services area to Sonera Juxto. Excluding the effects of
this transfer, data services would have recorded an increase in revenues of
approximately ten percent in 2000 as compared to 1999. The growth in revenues
from data services in 1999 as compared to 1998 primarily reflected increased
demand for systems solutions, including LAN management services and systems
integration and management services, as well as increased use of our data
services provided by our foreign subsidiaries. While the estimated number of
connections to our DataNet services have increased from 1998 to 2000, the
estimated number of connections to our FastNet increased and DataPak have
decreased during the same period. We expect revenues from our basic data
services to remain relatively stable over the next few years while revenues from
our DataNet LAN and intranet services and system management business are
expected to increase modestly.

                                       123
137

Leased Lines

     The following table sets forth information with respect to revenues from
leased lines for the periods indicated:
YEAR ENDED               YEAR ENDED
                                                        DECEMBER 31,             DECEMBER 31,
                                                    --------------------    ----------------------
                                                    1998    1999    2000    1999/1998    2000/1999
                                                    ----    ----    ----    ---------    ---------
                                                      (IN E MILLIONS)             (% CHANGE)
Leased lines and capacity.......................     25      32      52        28.0        62.5
Revenues from leased lines are generated from initial connection fees and
monthly rental charges which vary upon the type of the leased line and the total
transmission capacity. Revenues from leased lines increased in 2000 as compared
to 1999 primarily due to the significant amount of data traffic generated by our
fiber optic connection between St. Petersburg and Moscow for which we received a
license in February 2000.

Equipment Sales
YEAR ENDED               YEAR ENDED
                                                        DECEMBER 31,             DECEMBER 31,
                                                    --------------------    ----------------------
                                                    1998    1999    2000    1999/1998    2000/1999
                                                    ----    ----    ----    ---------    ---------
                                                      (IN E MILLIONS)             (% CHANGE)
Equipment Sales.................................     96     114     125        18.8         9.6
Revenues from telecommunications equipment sales include revenues from the
sale of individual telephones, mobile handsets and computers targeted at
residential customers, and the sale, construction and maintenance of more
complex telephone terminals, private computerized telephone switching systems
(PBXs or private branch exchanges), electronic payment terminals and complete
network systems targeted at business customers. Revenues from our equipment
sales also include sales financed by Sonera Gateway Ltd. (formerly Sonera Credit
Ltd.), which provides lease financing for our customers.

     The increase in revenues from equipment sales in 2000 as compared to 1999
was primarily due to very strong Christmas sales of mobile handsets and related
accessories. Increase in revenues in 1999 as compared to 1998 was due in part to
increased volumes of mobile handsets sold as customers upgraded handsets to dual
band service and smaller models as well as to our purchase of additional retail
outlet chains. These acquisitions include a 59 percent majority holding in
Paamies-kauppiaat Oy, a joint marketing company for a chain of mobile phone
distributors with 54 stores around Finland, in January 1999. In 2000, 1999 and
1998 our equipment sale revenues benefited from increased sales volumes of
mobile handsets, PBX equipment, Internet service packages and LAN systems
equipment.

Construction and Maintenance
YEAR ENDED               YEAR ENDED
                                                        DECEMBER 31,             DECEMBER 31,
                                                    --------------------    ----------------------
                                                    1998    1999    2000    1999/1998    2000/1999
                                                    ----    ----    ----    ---------    ---------
                                                      (IN E MILLIONS)             (% CHANGE)
Construction and Maintenance....................     31      24      34       (22.6)       41.7
In July 1999, our construction and maintenance services business was
transferred to a wholly-owned subsidiary, Primatel Ltd. Primatel provides
installation and maintenance services both to Sonera and third parties,
including other telecommunications operators and end-users such as public
utilities, corporations and residential customers.

     Revenues from construction and maintenance increased in 2000 as compared to
1999 primarily as a result of orders from other telecommunications operators
which are laying new cables in Helsinki and other major cities in Finland.

                                       124
138

     Revenues derived from construction and maintenance fluctuate based upon the
level of network construction orders. Primatel's principal customers have been
our mobile and fixed-line network operations. Our goal is to increase the amount
of construction and maintenance services Primatel provides to third parties in
the future.

Other Services
YEAR ENDED               YEAR ENDED
                                                        DECEMBER 31,             DECEMBER 31,
                                                    --------------------    ----------------------
                                                    1998    1999    2000    1999/1998    2000/1999
                                                    ----    ----    ----    ---------    ---------
                                                      (IN E MILLIONS)             (% CHANGE)
Other Services..................................    260     272     288        4.6          5.9
Revenues from Other Services consist of revenues from various non-core
fixed-line related businesses including network consulting services and public
phones, as well as intra-Group operations such as network capacity sales to
other business areas, reselling products of other business areas to corporate
customers of Sonera Telecom and the provision of construction and maintenance
services to Domestic Mobile Communications. Revenues from Other Services
increased in 2000 as compared to 1999 and 1999 as compared to 1998, principally
as a result of increases in network capacity sales, higher resales of products
purchased from Domestic Mobile Communications and Media Communications and New
Services and increased provision of construction and maintenance services to
Domestic Mobile Communications.

OTHER OPERATIONS

     Revenues from Other Operations consist principally of revenues generated
from the provision of administrative functions and centralized services to
Sonera's other business segments, as well as sales generated from other non-core
businesses such as ticket sales. Revenues from Other Operations decreased in
2000 as compared to 1999 largely due to the transfer of certain technology
servicing operations to Isoworks Oy, an associated company. In 1999 as compared
to 1998, revenues from Other Operations increased primarily as a result of a
growth in demand for network consulting services provided to our associated
companies and other customers and as a result of growing intra-Group sales of
administrative and centralized services.

OTHER OPERATING INCOME

     Other operating income consist mainly of revenues from rental income, gains
from the sale of business operations, gains from the sale of fixed assets and
penalty fees charged to subscribers in connection with the collection of overdue
receivables.

     The following table sets forth information concerning other operating
income for the periods indicated:
YEAR ENDED DECEMBER 31,
                                                                ------------------------
                                                                1998     1999      2000
                                                                -----    -----    ------
                                                                    (IN E MILLIONS)
Rental income...............................................      3        3          4
Gains from sales of business operations and shares..........      4       24        729
Gains from sales of fixed assets............................      2        1         --
Fees charged on collection of overdue receivables...........      9       11         13
Gain from Aerial/VoiceStream merger.........................     --       --        835
Other items.................................................      6        6          8
                                                                 --       --      -----
  Total.....................................................     24       45      1,589
                                                                 ==       ==      =====
Other operating income increased dramatically in 2000 compared to 1999
principally due to (1) the non-cash gain of E835 million related to the
Aerial-VoiceStream merger and the conversion of our shares of Aerial into shares
of VoiceStream in connection with the merger, and (2) a gain of E680 million
relating to our sale of Turkcell shares in connection with the Turkcell initial
public offering.

                                       125
139

OPERATING EXPENSES

     Operating expenses consist of (1) the cost of sold equipment and materials,
(2) services bought, (3) personnel expenses, (4) rental expenses and (5) other
operating expenses. The following table sets forth our operating expenses broken
down by type and as a percentage of total revenues for the periods indicated:
YEAR ENDED DECEMBER 31,
                                                ---------------------------------------------------
                                                     1998              1999               2000
                                                --------------    ---------------    --------------
                                                  E        %        E         %        E        %
                                                -----    -----    ------    -----    ------    ----
                                                         (IN MILLIONS, EXCEPT PERCENTAGES)
Cost of equipment and materials.............      116     7.2       142      7.7       160      7.8
Services bought.............................      367    22.6       431     23.3       511     24.8
Personnel expenses..........................      309    19.0       340     18.4       445     21.6
Rental expenses.............................       40     2.5        47      2.5        65      3.2
Other operating expenses....................      228    14.0       266     14.4       418     20.3
                                                -----    ----     -----     ----     -----     ----
  Total.....................................    1,060    65.3     1,226     66.3     1,599     77.7
                                                =====    ====     =====     ====     =====     ====
COST OF EQUIPMENT AND MATERIALS

     Cost of equipment and materials consists of costs (1) incurred with respect
to the purchase of equipment for resale to customers and (2) associated with
telecommunications hardware and materials to provide and maintain services
rendered to customers.

     In 2000 as compared to 1999 and in 1999 as compared to 1998, the cost of
equipment and materials increased principally as a result of increases in the
purchases of mobile handsets, Internet packages, LAN systems equipment and other
telecommunications equipment for resale.

SERVICES BOUGHT

     Expenses associated with services bought include (1) payments made to other
telecommunications operators, including interconnection fees to domestic
telecommunications operators, leased line fees and settlement payments (payments
to foreign operators for carrying and terminating international traffic
originating from our network) to international network operators, and (2)
payments for other services bought, including network repair and maintenance
subcontracting and other subcontracting services and commissions to dealers for
new mobile subscriptions and to vendors for sales of public telephone cards. The
following table sets forth our costs of services bought and the percentage
changes therein for the periods indicated:
YEAR ENDED               YEAR ENDED
                                                        DECEMBER 31,             DECEMBER 31,
                                                    --------------------    ----------------------
                                                    1998    1999    2000    1999/1998    2000/1999
                                                    ----    ----    ----    ---------    ---------
                                                      (IN E MILLIONS)             (% CHANGE)
Payments to other operators for use of
  networks......................................    227     263     317          15.9         20.5
Payments for other external services............    140     168     194          20.0         15.5
                                                    ---     ---     ---     ---------    ---------
Total...........................................    367     431     511          17.4         18.6
                                                    ===     ===     ===     =========    =========
Costs of services bought increased in 2000 as compared to 1999 and in 1999
as compared to 1998 as a result of increased payments to other operators and
payments for other external services. Payments to other operators increased
throughout the period principally due to increased mobile interconnection costs
arising out of the growth in mobile traffic volumes. External service payments
increased substantially in line with revenue growth.

                                       126
140

PERSONNEL EXPENSES

     Personnel expenses include wages and salaries, pension expenses and certain
other expenses such as social security, insurance and other legally mandated
payroll costs. The following table sets forth our personnel expenses and the
percentage changes therein for the periods indicated:
YEAR ENDED               YEAR ENDED
                                                        DECEMBER 31,             DECEMBER 31,
                                                    --------------------    ----------------------
                                                    1998    1999    2000    1999/1998    2000/1999
                                                    ----    ----    ----    ---------    ---------
                                                      (IN E MILLIONS)             (% CHANGE)
Wages and salaries..............................    248     279     369       12.5         32.3
Pension expenses................................     30      29      45       (3.3)        55.2
Other personnel expenses........................     31      32      31        3.2         (3.1)
                                                    ---     ---     ---       ----         ----
  Total.........................................    309     340     445       10.0         30.9
                                                    ===     ===     ===       ====         ====
Wages and salaries increased sharply in 2000 as compared to 1999
principally due to significant increases in the number of employees and the
hiring of a greater number of higher paid employees in our Media Communications
and New Services business area. Our acquisitions of Across Wireless and iD2 in
2000 contributed to this increase in our personnel expenses. Overall, the
average number of our employees grew by 11 percent in 2000 as compared to 1999.
Wages and salaries increased in 1999 as compared to 1998 due to an eight percent
increase in the average number of employees and the recruitment of a greater
number of higher paid skilled and managerial employees in the mobile and data
communications fields as well as in our international operations. Personnel
costs relating to the construction of telecommunications networks in the amounts
of E16 million, E19 million and E17 million for 2000, 1999 and 1998,
respectively, have been capitalized and are not presented as personnel expenses
in our income statement. We do not expect the number of our employees will grow
in 2001 as compared to 2000, and plan to downsize some of our units through
reduced hiring, redeployment to other areas within Sonera, early retirement,
selective dismissals and layoffs.

     As required by Finnish pension legislation, we make monthly contributions
to the PT Pension Fund to fund pension obligations for most of our employees.
Other personnel expenses consist of amounts paid in respect of social security
and other legally mandated payments which depend on the base level of wages and
salaries and the number of employees.

RENTAL EXPENSES

     Rental expenses, which relate primarily to the lease of office space,
increased in 2000 and 1999, as compared to 1999 and 1998, respectively, due to
our leasing of additional office space to accommodate the increased number of
employees throughout the period.

OTHER OPERATING EXPENSES

     Other operating expenses include marketing costs, general administration
costs, certain research and development expenses, office maintenance, voluntary
personnel costs such as education and health care programs offered to employees,
travel costs, insurance, consulting and certain other expenses. The following
table sets forth our other operating expenses and the percentage changes therein
for the periods indicated:
YEAR ENDED               YEAR ENDED
                                                        DECEMBER 31,             DECEMBER 31,
                                                    --------------------    ----------------------
                                                    1998    1999    2000    1999/1998    2000/1999
                                                    ----    ----    ----    ---------    ---------
                                                      (IN E MILLIONS)             (% CHANGE)
Other operating expenses........................    228     266     418       16.7         57.1
Other operating expenses increased significantly in 2000 as compared to
1999 and in 1999 as compared to 1998 primarily as a result of increased
marketing expenses, research and development expenses and general and
administrative expenses. In 2000 as compared to 1999, other operating expenses
increased as a result of higher spending on the development, start-up and
marketing of our new service businesses, including, in particular,

                                       127
141

Sonera zed, Sonera Plaza and Sonera SmartTrust. Increased marketing expenses in
1999 related principally to brand marketing and advertising campaigns for our
mobile communications, international voice and Internet services. Increased
administration expenses in 1999 included expenses related to the implementation
of a new management software system, SAP R/3, a new sales and customer software
system, and increased consultancy expenses. Other expenses, including office
space maintenance costs and bad debt costs remained largely unchanged.

DEPRECIATION AND AMORTIZATION

     The following table sets forth depreciation and amortization and the
percentage changes therein for the periods indicated:
YEAR ENDED               YEAR ENDED
                                                        DECEMBER 31,             DECEMBER 31,
                                                    --------------------    ----------------------
                                                    1998    1999    2000    1999/1998    2000/1999
                                                    ----    ----    ----    ---------    ---------
                                                      (IN E MILLIONS)             (% CHANGE)
Telecommunications networks.....................    206     211     214        2.4          1.4
Other property, plant and equipment.............     43      52      66       20.9         26.9
Amortization of intangible assets...............     12      18      19       50.0          5.6
                                                    ---     ---     ---       ----         ----
  Subtotal......................................    261     281     299        7.7          6.4
                                                    ---     ---     ---       ----         ----
Write-downs
  Telecommunication networks....................     34      --      --         --           --
  Buildings.....................................      3      --      --         --           --
                                                    ---     ---     ---       ----         ----
  Subtotal......................................     37      --      --         --           --
                                                    ===     ===     ===       ====         ====
  Total.........................................    298     281     299       (5.7)         6.4
                                                    ===     ===     ===       ====         ====
Depreciation increased in 2000 as compared to 1999 primarily as a result of
capital expenditures related to the development of our new service business.
Depreciation increased in 1999 as compared to 1998 primarily as a result of
continued capital expenditure to digitalize our fixed network and to broaden the
coverage and capacity of our mobile network.

EBITDA AND OPERATING PROFIT

     EBITDA equals operating profit before depreciation, amortization and
write-downs on fixed assets. EBITDA should not be considered as an alternative
to net income as an indicator of our operating performance, or as an alternative
to cash flow from operations as a measure of liquidity. We believe that EBITDA
is a standard measure commonly reported and widely used by analysts, investors
and other interested parties in the telecommunications industry. Accordingly,
this information has been disclosed to permit a more complete comparative
analysis of our operating performance relative to other companies in the
industry. However, our definition of EBITDA may differ from the definition of
EBITDA used by other companies.

     EBITDA does not show significant trends related to the following items:
depreciation and amortization; write-downs on fixed assets; equity income in
associated companies; financial income and expense; and income taxes. For a
discussion of the trends relating to these items, see "-- Depreciation and
Amortization," "-- Equity Income in Associated Companies," "-- Financial Income
and Expense" and "-- Income Taxes."

                                       128
142

     The following table sets forth EBITDA and operating profit for Sonera and
our four operating business areas for the periods indicated:
YEAR ENDED DECEMBER 31,
                                                                -------------------------
                                                                1998      1999      2000
                                                                -----    ------    ------
                                                                 (IN E MILLIONS, EXCEPT
                                                                      PERCENTAGES)
EBITDA (in euro millions):
Domestic Mobile Communications..............................      362       472       543
International Mobile Communications.........................       (1)       (4)    1,502
Media Communications and New Services.......................       21       (47)     (303)
Sonera Telecom..............................................      205       247       300
Other Operations............................................       --        --         5
                                                                -----    ------    ------
Sonera......................................................      587       668     2,047
                                                                =====    ======    ======
EBITDA margin (%)(1):
Domestic Mobile Communications..............................     43.8      48.0      47.9
International Mobile Communications.........................    (50.0)   (100.0)    300.4
Media Communications and New Services.......................     16.5     (26.9)   (119.3)
Sonera Telecom..............................................     21.6      25.2      29.4
Other Operations............................................       --        --       5.9
Sonera......................................................     36.2      36.1      99.5
Operating profit (in euro millions)
Domestic Mobile Communications..............................      223       349       414
International Mobile Communications.........................       (1)       (4)    1,502
Media Communications and New Services.......................       14       (60)     (335)
Sonera Telecom..............................................       53       102       162
Other Operations............................................       --        --         5
                                                                -----    ------    ------
Sonera......................................................      289       387     1,748
                                                                =====    ======    ======
Operating profit margin (%)(2)
Domestic Mobile Communications..............................     27.0      35.5      36.5
International Mobile Communications.........................    (50.0)   (100.0)    300.4
Media Communications and New Services.......................     11.0     (34.3)   (131.9)
Sonera Telecom..............................................      5.6      10.4      15.9
Other Operations............................................       --        --       5.9
Sonera......................................................     17.8      20.9      85.0
------------------------------

(1) EBITDA margin is the ratio of EBITDA to revenues, expressed as a percentage.
    In calculating EBITDA margin for each business area, the EBITDA for each
    business area is divided by the total revenues for such business area.
    Internal revenues and expenses for each business area are included in the
    calculation of EBITDA margin for each business area. See Note 19 to our
    consolidated financial statements.

(2) Operating profit margin is the ratio of operating profit to revenues,
    expressed as a percentage. In calculating operating profit margin for each
    business area, the operating profit for each business area is divided by the
    total revenues for such business area. Internal revenues and expenses for
    each business area are included in the calculation of operating profit
    margin for each business area. See Note 19 to our consolidated financial
    statements.

     Sonera's EBITDA increased in 2000 as compared to 1999 primarily due to
non-recurring capital gains. The biggest items were an E835 million non-cash
gain relating to the merger of Aerial and VoiceStream, and a E680 million gain
relating to our sale of Turkcell shares. Comparable EBITDA, excluding all
capital gains and losses and similar non-recurring items was E501 million in
2000 compared to E647 in 1999, and the comparable EBITDA margin was 24% in 2000
compared to 35% in 1999. The comparable EBITDA fell due to outlays made on new
service businesses. Excluding the additional outlays, the comparable EBITDA
margin was higher in 2000 than in 1999. Our EBITDA increased in 1999 compared to
1998 primarily as a result of revenue growth from Domestic Mobile
Communications. In 1999, the increase was partly offset by the negative EBITDA
recorded by

                                       129
143

Media Communications and New Services. Our EBITDA margin (excluding
non-recurring capital gains) decreased in 2000 as compared to 1999 due to heavy
outlays on new service businesses. We believe that our EBITDA margin will be
lower in 2001 than 2000 due to continuing heavy outlays on new service
businesses.

     Domestic Mobile Communications' EBITDA increased in 2000 to E543 million
compared to E472 million in 1999. The increase is in line with the revenue
growth of Domestic Mobile Communications in 2000 as compared to 1999. Mobile
Communication EBITDA margin was essentially level between 2000 and 1999.

     International Mobile Communications' EBITDA increased dramatically in 2000
as compared to 1999 as a result of the capital gains from the Aerial merger with
VoiceStream and the Turkcell offering.

     The EBITDA loss for Media Communications and New Services increased
significantly in 2000 as compared to 1999 and in 1999 as compared to 1998,
principally due to substantial research and development costs for new services
and products in the new service businesses unit and start-up and marketing costs
for new businesses. In 2000, Sonera zed accounted for more than 40 percent of
the increase in outlays affecting EBITDA and Sonera SmartTrust accounted for 25
percent of such outlays. In 2000, Media Communications and New Services' EBITDA
also included approximately E13 million of capital losses. Sonera Plaza, Sonera
Juxto and a number of other development projects also contributed to the
increase in negative EBITDA experienced by Media Communications and New Services
in 2000.

     Sonera Telecom's EBITDA increased in 2000 as compared to 1999 principally
due to capital gains booked on the sales of the associated companies HanseNet
and Transmast Oy and improvements in efficiency. Sonera Telecom's EBITDA
increased in 1999 as compared to 1998 principally due to proportionately lower
operating expenses and capital gains on the disposal of businesses.

     Other Operations' EBITDA increased in 2000 as compared to 1999 because of
capital gains related to non-core business disposals.

     Our operating profit, which is equal to EBITDA after taking into account
depreciation and amortization and write-downs on fixed assets, increased in 2000
and 1999 as compared to 1999 and 1998, respectively.

     Our operating profit increased during these periods as a result of
increases in revenues, particularly from Domestic Mobile Communications and
Sonera Telecom, which increases were partially offset by increases in operating
expenses and depreciation and amortization expenses. The increased depreciation
and amortization expenses resulted from increased capital expenditures in 2000,
largely related to the development of new service business and, in 1999, on our
fixed network and GSM networks in recent years.

EQUITY INCOME IN ASSOCIATED COMPANIES

     Investments accounted for by using the equity method of consolidation are
investments in associated companies that we do not control but over which we
exercise a significant influence. Generally, we consider that we have
significant influence when we hold between 20 to 50 percent of the share capital
and voting rights of another company.

                                       130
144

     In 2000, equity income in our associated companies was affected mainly by
the results of the following companies:
OUR EQUITY INTEREST
                                                              AS OF DECEMBER 31, 2000
                                                              -----------------------
Mobile network operators:
Turkcell Iletisim Hizmetleri A.S.(1)........................           37.3
Fintur Holdings B.V.(2).....................................           35.3
AS EMT(3)...................................................           24.5
Latvijas Mobilais Telefons SIA(4)...........................           24.5
UAB Omnitel(5)..............................................           27.5
Pannon GSM Rt.(6)...........................................           23.0
ZAO North-West GSM(7).......................................           23.5
Aerial Communications, Inc(8)...............................             --
Fixed network operators:
AS Eesti Telefon(9).........................................           24.5
Lattelekom SIA(10)..........................................           44.1
AB Lietuvos Telekomas(11)...................................           30.0
------------------------------

(1) Between June 1993 and April 1998, we held a 34.0 percent interest in
    Turkcell. We increased our percentage interest in Turkcell to 41.0 percent
    in April 1998. In connection with Turkcell's initial public offering in July
    2001, we reduced our percentage interest in Turkcell to 37.3 percent.

(2) We acquired our interest in Fintur in May 2000, prior to Turkcell's initial
    public offering.

(3) AS EMT is a wholly-owned subsidiary of AS Eesti Telekom, a publicly listed
    Estonian corporation, in which we have a partly indirect 24.5 percent equity
    interest.

(4) We acquired our 24.5 percent interest in Latvijas Mobilais Telefons SIA in
    October 1991.

(5) We acquired our 27.5 percent interest in UAB Omnitel in September 1998.

(6) Between October 1993 and October 1996, we held a 14.6 percent interest in,
    and from November 1996 to July 1998 held an 18.1 percent interest in,
    Pannon. We increased our percentage interest in Pannon to 23.0 percent in
    August 1998.

(7) We established North-West GSM ZAO in June 1993, together with other
    shareholders acquiring our 23.5 percent initial interest in it.

(8) We acquired our initial 19.4 percent interest in Aerial Operating Co., Inc.
    in September 1998. We made an additional investment in the company in
    November 1999 together with the majority owner. Our ownership has been
    calculated as if our shares in Aerial Operating Co., Inc. had been converted
    into shares of Aerial Communications, Inc. In May 2000, as a result of the
    Aerial/VoiceStream merger, our shares of Aerial were converted into shares
    of VoiceStream. As a result of that merger, we stopped treating Aerial as an
    associated company.

(9) AS Eesti Telefon is a wholly-owned subsidiary of AS Eesti Telekom, a
    publicly listed Estonian corporation, in which we have a partly indirect
    24.5 percent equity interest.

(10) In September 1998, we increased our interest in Lattelekom to 44.1 percent.
     Previously, we had a 13.2 percent interest in the company.

(11) We acquired our 30.0 percent interest in Lietuvos Telekomas in July 1998.

     Our share of profit from associated companies increased to E121 million in
2000 from E110 million in 1999 and E59 million in 1998. In each of those years,
Turkcell has been the largest contributor to our equity income. While Turkcell's
profitability increased in 1999 as compared to 1998, it decreased in 2000 as
compared to 1999. Turkcell's profitability was negatively affected in 2000 by a
number of factors, including the ongoing effects of a mobile phone use tax in
Turkey, accruals made in connection with legal disputes and the effects of the
Turkish banking crisis in November 2000. The mobile phone use tax, which was
levied in 1999 in response to earthquakes in the Marmara region of Turkey and
which amounts to 25 percent of a subscriber's monthly phone bill, exclusive of
VAT, and is expected to be effective until the end of 2002, has had a negative
effect on mobile phone usage in Turkey. Accruals relating to amounts that
Turkcell paid to the Turkish Treasury for ongoing license fees in connection
with a dispute with the Turkish Treasury and Ministry of Transportation over the
calculation of the license fees increased Turkcell's direct cost of revenues in
2000. Turkcell also recorded significantly higher interconnection fees in 2000
as compared to 1999 relating to a dispute between Turkcell and Turk Telekom
regarding the calculation of interconnection fees. A banking crisis in Turkey in
November 2000 also had a negative effect on Turkcell's net income.

                                       131
145

     In addition, our equity loss in Fintur had a negative effect on our equity
income in 2000. Several of the former Turkcell businesses included within Fintur
are in their start-up phase of operation and incurred substantial losses in
2000. Our equity income was also reduced by our share of net loss of Aerial of
E34 million in 1999 and E12 million in 2000.

     Turkcell is expected to report a loss in 2001 due to, among other things,
the slowdown in the Turkish telecommunications market, the continuation of the
temporary mobile phone use tax in Turkey and the devaluation of the Turkish lira
in the beginning of 2001. In addition, the results of certain legal proceedings
involving Turkcell may adversely affect the equity income we receive from
Turkcell in the future. Based on Turkcell's interim financial statements of
March 31, 2001, Turkcell was in breach of certain of its bank loan covenants. In
the event Turkcell were to default on its bank loans, it could have a material
adverse effect on Turkcell and could negatively impact us. See "Item 4.
Information on the Company -- Business Overview -- International and Other
Significant Investments -- Turkcell and Fintur."

     As of the beginning of 2000, we changed our accounting practice as regards
Turkcell in such a manner that our results for each quarter include the results
generated by Turkcell in the preceding quarter. The accounting practice was
changed because of the Turkcell initial public offering and listing, carried out
in July 2000, after which we have only reported and will only report on a
going-forward basis information published by Turkcell that is made available to
all of its shareholders.

     Gruppe 3G, a German UMTS license holder in which we hold a 42.8 percent
interest, and Broadband Mobile ASA, a Norwegian UMTS license holder in which we
hold a 50 percent interest, are both treated as associated companies. Gruppe 3G
observes an accounting policy according to which amortization of the acquisition
cost of its UMTS license will not begin until the network being built by Gruppe
3G is substantially completed and it puts the UMTS network into commercial
operation. Similarly, the interest expenses incurred during the build out of the
network will be capitalized as part of the network's acquisition cost. We expect
that amortization costs relating to the UMTS licenses to be recorded by Gruppe
3G once its third generation network is rolled out will have a negative effect
on the equity income we record from our associated companies in the future. We
currently do not treat Ipse 2000, an Italian UMTS license holder in which we
hold a 12.55 percent interest, or Xfera Moviles, a Spanish UMTS license holder
in which we hold a 14.25 percent interest, as associated companies and,
accordingly, the earnings of these license holding companies have not had a
direct effect on our consolidated earnings.

FINANCIAL INCOME AND EXPENSE

     The following table sets forth financial income and expense for the periods
indicated:
YEAR ENDED DECEMBER 31,
                                                                -----------------------
                                                                1998     1999     2000
                                                                -----    -----    -----
                                                                    (IN E MILLIONS)
Dividend income.............................................       5       21       21
Interest income.............................................      12       14       82
Other financial income......................................       2        6       28
Interest expense............................................     (19)     (40)    (155)
Capitalized interest(1).....................................      --       --       20
Other financial expenses....................................      (1)      (1)      (5)
Net exchange gains (losses).................................      (1)      --       --
                                                                 ---      ---     ----
Net financial income (expense)..............................      (2)      --       (9)
                                                                 ===      ===     ====
------------------------------

(1) In 2000, we adopted an accounting practice according to which interest
    expenses related to construction in progress are capitalized in the balance
    sheet and charged to expense in the coming years as part of depreciation on
    fixed assets. See Notes 5 and 7 to our consolidated financial statements.

     Our net financial expenses increased principally due to an increase in the
interest expenses we paid for our interest-bearing debt, partially offset by an
increase in interest income we received, principally as a result of our

                                       132
146

shareholder loan in favor of Gruppe 3G. Our interest-bearing debt amounted to
E5,797 million as of December 31, 2000, a more than 500 percent increase over
E923 million of interest-bearing debt as of December 31, 1998. The substantial
increase in interest-bearing debt since 1998 was due to debt incurred to finance
the significant investments in associated companies in 1998, 1999 and 2000,
including, in particular, our proportional share of contributions to fund
acquisitions of UMTS licenses in Germany, Italy, Spain and Norway in 2000. See
"-- Capital Resources" and Note 5 to our consolidated financial statements.

     Dividend income for 2000 included E17 million of dividend income from
investments in venture capital funds and E4 million from LibanCell S.A.L. In
1999, we recorded E18 million in dividend income from investments in venture
capital funds and E3 million from LibanCell S.A.L. Interest expense in 2000
amounted to E155 million, a 228 percent increase over interest expense of E40
million in 1999 primarily as a result of higher debt levels in 2000.

     In the third quarter of 2000, we adopted an accounting practice that
management believes will give a fairer view of our results of operations and
financial position in the future. Starting in the third quarter of 2000,
interest expenses related to construction in progress are capitalized in the
balance sheet and charged to expense in the future years as part of depreciation
on fixed assets. In practice, the change does not have an impact on the
comparability of the previous periods, and management believes that it will
present a fairer view of our results of operations and financial position in the
future. In 2000, we capitalized E20 million of interest expenses.

INCOME TAXES

     The following table sets forth the tax charges we incurred, the percentage
of income taxes we paid relative to our profit before income taxes and minority
interest, and the Finnish statutory income tax rate for the periods indicated:
YEAR ENDED DECEMBER 31,
                                                                -----------------------
                                                                 1998     1999     2000
                                                                -----    -----    -----
                                                                (IN E MILLIONS, EXCEPT
                                                                     PERCENTAGES)
Current tax expense.........................................      76      108      277
Deferred tax expense........................................      18       18       41
                                                                ----     ----     ----
     Total..................................................      94      126      318
                                                                ====     ====     ====
Income taxes, in relation to profit before taxes (%)........    27.2     25.4     17.1
Finnish statutory income tax rate (%).......................    28.0     28.0     29.0
Under Finnish tax legislation, companies are required to pay taxes on an
individual entity basis, regardless of whether they belong to a consolidated
group. However, individual companies within a consolidated group are permitted
under certain circumstances to transfer income to other Finnish entities within
the consolidated group within a tax period. Such transfers are referred to as
group contributions. In each of the years presented, as is common practice in
Finland, subsidiaries transferred a portion of their taxable profits to Sonera
(or PT Finland, as the case may be) to finance the dividends paid by Sonera (or
PT Finland, as the case may be).

     Deferred tax expenses result primarily from the difference between tax
depreciation under Finnish tax legislation and depreciation calculated for
purposes of our financial statements as well as provisions for withholding taxes
on profits of associated companies.

     The applicable Finnish corporate income tax rate was 28 percent in 1998 and
1999. However, the corporate income tax was raised to 29 percent, with effect
from January 1, 2000. In 2000, the difference between income tax expense as a
percentage of profit before income taxes and minority interest and the statutory
rate was mainly due to the fact that the capital gains on the sale of Turkcell
shares were not taxable in Finland. For 1998 and 1999, the difference between
income tax expense as a percentage of profit before income taxes and minority
interest and the statutory tax rate was mainly due to equity income in
associated companies which is not reflected in the individual accounts of our
Company or of any of our subsidiaries and thus not subject to taxation in
Finland. See Note 6 to our consolidated financial statements.

                                       133
147

     In 2000, the increase in current tax expense resulted primarily from the
increase in other operating income relating to the non-cash gain of E835 million
in connection with the Aerial-VoiceStream merger.

     On May 4, 2000, VoiceStream completed its merger with Aerial. Our
consolidated earnings for 2000 included the non-recurring gain of E835 million
from the merger as a result of the unrealized gain from our receipt of
VoiceStream shares in connection with the merger. The gain from the merger had
no cash flow effect on us. In 2000, we received an advance ruling from the
Finnish Central Tax Board, which was subsequently upheld by the Finnish Supreme
Administrative Court, according to which the Aerial-VoiceStream merger was
considered a transaction for which we were liable to pay tax in Finland. As a
result, we had to pay a tax of approximately E216 million in connection with the
transaction, which has been included in our results of operations for 2000.

     In recent years, we have been actively restructuring our organization,
which has included the incorporation of many of our separate businesses, in
response to changing industry and business developments. We believe that all of
the transactions carried out in connection with our restructuring have been made
in compliance with Finnish tax legislation and, where applicable, foreign tax
regulations. We have also requested advanced tax rulings for certain significant
transactions, in an effort to ascertain the applicable tax treatment of such
transactions. However, Sonera has not undergone a Finnish income tax audit for
any fiscal year starting from 1994. We are currently unable to assess the timing
or likely outcome of an income tax audit in Finland.

NET INCOME

     The following table sets forth our net income and earnings per share
information for the periods indicated:
YEAR ENDED
                                                 YEAR ENDED DECEMBER 31,         DECEMBER 31,
                                               ---------------------------   ---------------------
                                                1998      1999      2000     1999/1998   2000/1999
                                               -------   -------   -------   ---------   ---------
                                                                                  (% CHANGE)
Net income (in E millions)..................       251       370     1,506      47.4       307.0
Number of shares at end of period
  (thousands)...............................   722,000   722,000   743,534        --         3.0
Average during the period (thousands).......   720,247   722,000   735,917       0.2         1.9
Earnings per share (in euros)(1)............      0.35      0.51      2.05      45.7       302.0
------------------------------

(1) Net income divided by the average number of shares outstanding during the
    period.

     Net income grew in 2000 as compared to 1999 primarily due to the impact of
the non-cash gain of the Aerial/VoiceStream merger and the gain from the
Turkcell offering. Net income also grew in 1999 and in 1998 as compared to the
previous year principally as a result of the growth in revenues from Domestic
Mobile Communications and, to a lesser extent, due to increased revenues from
Sonera Telecom as well as increased equity income from associated companies.

                                   LIQUIDITY

     The following table sets forth our cash flows for the periods indicated:
YEAR ENDED DECEMBER 31,
                                                                --------------------------
                                                                  1998      1999      2000
                                                                ------    ------    ------
                                                                     (IN E MILLIONS)
Cash provided by operating activities.......................       508       442       227
Cash used in investing activities...........................    (1,126)     (771)   (4,572)
Cash provided by financing activities.......................       632       309     4,394
Effect of exchange rate changes on cash and cash
  equivalents...............................................        (1)        1         1
                                                                ------    ------    ------
Net increase (decrease) in cash and cash equivalents........        13       (19)       50
Cash and cash equivalents at the beginning of the year......        44        57        38
                                                                ------    ------    ------
Cash and cash equivalents at the end of the period..........        57        38        88
                                                                ======    ======    ======
134
148

CASH PROVIDED BY OPERATING ACTIVITIES

     Cash provided by operating activities has been the primary source of
funding for our capital expenditures and dividend payments. Net cash provided by
operating activities reflects funds generated from operations and changes in
operating assets and liabilities. Cash provided by operating activities
decreased by E215 million in 2000 as compared to 1999 principally due to
significantly larger tax payments and higher interest payments. Cash provided by
operating activities in 1999 as compared to 1998 decreased primarily due to an
increase in working capital and larger tax payments.

CASH USED IN INVESTING ACTIVITIES

     Cash flows used in investing activities are primarily driven by our equity
investments and capital expenditures. Equity investments were E2,117 million in
2000, E410 million in 1999 and E898 million in 1998. This increase in equity
investment in 2000 as compared to 1999 was mainly due to investments in our
third generation joint ventures. In addition, we granted a loan of E2,719
million to our German UMTS consortium, Gruppe 3G. Capital expenditures amounted
to E430 million in 2000, E338 million in 1999 and E351 million in 1998. Cash
used in investing activities was partially offset by proceeds of E735 million
from the sale of Turkcell shares in July 2000.

CASH PROVIDED BY FINANCING ACTIVITIES

     Cash provided by financing activities is primarily driven by our borrowing
activities offset by repayments of debt and dividend payments. We received net
proceeds from current and long-term debt of E4,509 million in 2000, E370 million
in 1999 and E750 million in 1998. We made dividend payments of E87 million in
2000, E61 million in 1999 and E132 million in 1998. In 2000, we also repurchased
550,000 Sonera shares for a consideration of approximately E28 million.

     At March 31, 2001, our current liabilities, which totalled E4,037 million,
exceeded our current assets, which totalled E3,666 million. A significant
portion of our current liabilities related to a short-term credit facility we
entered into in August 2000 to finance our investment in Gruppe 3G. We are,
however, in the process of reducing our short-term debt through cash generated
from the disposition of equity investments, including (1) the sale of
VoiceStream and Powertel shares in May 2001, which generated cash proceeds of
approximately E430 million, (2) cash proceeds received in connection with the
merger of Deutsche Telekom, VoiceStream and Powertel, which amounted to
approximately E290 million, and (3) the expected sale of shares in Deutsche
Telekom that we currently hold. We also entered into a E1.33 billion variable
rate loan facility in June 2001 which we intend to draw on in July 2001 to
refinance a portion of our short-term debt. As a result of these steps, together
with cash provided by operating activities, we believe we are capable of funding
our current business plan, capital expenditures and interest and financing
costs, and to settle or refinance our short-term liabilities.

     The amount of net interest-bearing debt increased in 2000 primarily due to
new share investments and was E5,641 million as of December 31, 2000, as
compared to E1,181 million as of December 31, 1999. At December 31, 2000, the
equity-to-assets ratio was 33 percent and the gearing ratio was 174 percent. On
December 31, 1999, the equity-to-assets ratio was 51 percent and the gearing
ratio was 65 percent. If the interest-bearing loan receivables of E2.8 billion
were deducted from the net interest-bearing debt, the resulting gearing ratio
would have been 86 percent as of December 31, 2000. Following the resolution of
the Annual General Meeting of March 22, 2000, dividends totaling E87 million
were paid to the shareholders on April 3, 2000.

                               CAPITAL RESOURCES

     In general, we meet our long-term financing needs through borrowings under
syndicated and bilateral bank facilities and debt issuance programs.

     In February 2001, Standard & Poor's lowered our long-term credit rating to
a single-A-minus from single-A and the short-term rating to A-2 from A-1. In
addition, the ratings were placed on CreditWatch with negative implications. Our
credit ratings may be subject to further downgrades. On May 3, 2001, Moody's
Investor
                                       135
149

Services downgraded our senior unsecured long-term debt ratings from A2 to Baa2
and our short-term debt rating from Prime-1 to Prime-2. Moody's also kept our
debt ratings on review for possible further downgrade. See "Item 3. Key
Information -- Risk Factors. S&P and Moody's have downgraded our credit ratings
and our credit ratings may be downgraded further. These downgrades may make it
more difficult and expensive for us to finance our operations."

     Our principal long-term credit facilities consist of the following:

     -  E100 million syndicated term loan due in 2001 that bears a variable
        interest rate based on LIBOR;

     -  E50 million term loan due in 2001 that bears a variable interest rate
        based on Euribor;

     -  E44 million term loan due in 2008 that bears a variable interest rate
        based on LIBOR;

     -  E42 million term loan due in 2008 that bears a variable interest rate
        based on Euribor;

     -  E200 million term loan due in installments from 2003 to 2009 based on
        the EIB reference rate;

     -  DEM 300 syndicated revolving credit facility due in installments in 2002
        to 2004 with a variable interest rate based on LIBOR, of which E53
        million was undrawn as of March 31, 2001; and

     -  DEM 1,000 syndicated revolving credit facility due in installments in
        2003 to 2005 with a variable interest rate based on LIBOR, of which E200
        million was undrawn as of March 31, 2001.

     In addition, in June 2001, we entered into a E1.33 billion variable rate
loan facility which loan matures in 2004 and carries interest at a rate based on
Euribor. We plan to draw the entire principal amount of the facility in July
2001 to prepay a portion of our other indebtedness.

     In addition, we have a E3 billion Euro Medium Term Note program, under
which we currently have total borrowings of E2 billion. The securities we have
issued from the program include:

     -  E300 million notes due in 2009 with a fixed interest rate of 4.625
        percent;

     -  E1 billion notes due in 2005 with a fixed interest rate of 5.625
        percent;

     -  E500 million Floating Rate Notes due August 2002;

     -  E150 million Fixed Rate Notes due May 2002; and

     -  E50 million Zero Coupon Notes due in November 2001.

     On October 31, 2000, we entered into a 359-day term loan facility arranged
by Citibank, N.A., Deutsche Bank AG, Dresdner Bank AG, J.P. Morgan Securities
Ltd and Merita Bank Plc, in the aggregate amount of E3,250 million. We have used
the entire amount of the loan facility to refinance the Group's existing
indebtedness, including a E3.5 billion credit facility arranged by Sonera and
Citibank, N.A. and Dresdner Bank AG dated August 25, 2000 to finance costs
incurred in connection with the award to Gruppe 3G of a UMTS license in Germany.
Loans drawn under the facility carry a floating interest rate based on Euribor.
As of May 31, 2001, E2.55 billion was outstanding under the facility. We plan to
use the cash proceeds received in connection with the merger of Deutsche
Telekom, VoiceStream and Powertel as well as any proceeds from other sales of
equity securities prior to the maturity date of the facility, including sales of
Deutsche Telekom shares, together with funds drawn from the E1.33 billion
facility, to pay down outstanding amounts under the short-term debt facility.

     To meet our short-term financing needs, we can deploy a E500 million Euro
Commercial Paper Program and domestic E300 million Commercial Paper Program.

     At March 31, 2001, we had undrawn committed long-term revolving credit
facilities of approximately E253 million and cash and short-term investments
amounting to E270 million. Management believes that our cash provided by
operations, together with cash and short-term investments and expected proceeds
from our sale of shares in Deutsche Telekom and credit facilities, are
sufficient to meet our present funding needs. We may, however, enter into
additional financing arrangements to fund capital investments in the future.

                                       136
150

     To help implement our growth strategy, we plan to commit significant funds
for the further development and commercialization of services and products,
including e-commerce solutions, currently being developed by our new services
business unit, assuming certain growth targets and other conditions are met.
These operating expenditures are expected to be funded primarily from cash
provided by operations and capital markets transactions, including possible
partial spin-offs or sales of the businesses included within the new services
business unit. As part of our longer-term growth strategy, we may also make
significant investments in mobile and other service providers, or providers of
related technology or services, in the future which we expect to fund primarily
from cash provided by operations, capital markets transactions and bank debt.

     Our total indebtedness was E5,931 million at March 31, 2001 compared to
E1,296 million at December 31, 1999 and E923 million at December 31, 1998. Total
indebtedness increased between December 31, 1998 and March 31, 2001 due to
increased long-term borrowings principally to finance our international
investments and UMTS commitments. Scheduled repayments of indebtedness and
possible prepayments are expected to be financed from cash provided by operating
activities, sales of equity stakes and from undrawn committed credit facilities,
as well as additional financing arrangements, as needed. See Note 12 to our
consolidated financial statements.

     As of December 31, 2000, after taking into account our interest rate swaps
and options, approximately 70 percent of our net indebtedness bore interest
based on floating rates and approximately 30 percent bore interest at fixed
rates (with interest maturities ranging from 12 months to five years). Our long-
and short-term borrowings are primarily arranged by Sonera Corporation and, with
limited exceptions, individual subsidiaries may not enter into their own
financing arrangements.

     As of December 31, 2000, we had outstanding guarantees with respect to E85
million on behalf of our associated companies principally representing
guarantees for the debt incurred in connection with the purchase of network
equipment by Turkcell and Fintur. As of December 31, 2000, Turkcell Holding
A.S., our associated company which holds a portion of our interests in Turkcell,
had pledged one-fourth of its shareholding in Turkcell as security for
Turkcell's debt-financing arrangements. See Note 16 to our consolidated
financial statements. Based on Turkcell's interim financial statements of March
31, 2001, Turkcell was in breach of certain of its bank loan covenants. In the
event Turkcell were to default on its bank loans, we might be required to
forfeit a portion of our holdings in Turkcell and satisfy our obligations under
the guarantee. See "Item 4. Information on the Company -- International and
Other Significant Investments -- Mobile Telecommunications Operators -- Turkcell
and Fintur."

     Our loan agreements contain certain standard covenant restrictions. As of
December 31, 2000, we were in compliance with these requirements.

     In December 1998, we entered into a cross-border finance lease-leaseback
agreement under which we leased some of our mobile telecommunications network
equipment to a group of U.S. equity trusts which simultaneously leased the
equipment back to us. The ownership of the equipment, the total book value of
which was E151 million, E128 million and E96 million on December 31, 1998, 1999
and 2000, respectively, is retained by us. Both the receivables from the lease
and the obligations from the leaseback were settled at the inception of the
lease agreements, and we received a net cash consideration of E9 million. We may
consider the use of similar specialized financing techniques again in the
future. See Notes 13 and 16 to our consolidated financial statements.

     Our net debt-to-book capitalization ratio, calculated as the ratio of total
debt less cash and short-term investments to total debt plus shareholders'
equity and minority interest was 62.4 percent, 38.0 percent and 35.2 percent as
of December 31, 2000, 1999 and 1998, respectively. Our equity-to-assets ratio,
calculated as the ratio of shareholders' equity and minority interest to total
assets less advances received, was 33.4 percent, 50.6 percent, and 51.5 percent
as of December 31, 2000, 1999 and 1998, respectively. The increase in our net
debt-to-book capitalization ratio between December 31, 1998 and December 31,
2000 is attributable to the increase in net debt, primarily to finance equity
investments in foreign minority shareholdings.

                                       137
151

                      CAPITAL EXPENDITURES AND INVESTMENTS

     The table below sets forth our capital expenditures and equity investments
for the periods indicated:
YEAR ENDED DECEMBER 31,
                                                                -----------------------
                                                                1998     1999     2000
                                                                -----    -----    -----
                                                                    (IN E MILLIONS)
Capital expenditures........................................      351      338      430
Investments in shares.......................................      898      410    2,117
CAPITAL EXPENDITURES

     From 1998 through the end of 2000, we made significant capital expenditures
in connection with our mobile and fixed-line networks. In addition, in 2000, we
made significant capital expenditures in connection with our Media
Communications and New Services businesses, in particular in relation to the
international launch of Sonera zed's data centers and Sonera Plaza. In 1998 and
1999, capital expenditures with respect to our mobile network were used
principally to expand the coverage and capacity of the network and to build out
our GSM 1800 network. In 2000, with the build out of our GSM 1800 network
largely complete, we recorded lower capital expenditures on our mobile network.
Equipping our network with GPRS capacity did not increase our capital
expenditures significantly in 2000. In 1998 and 1999, capital expenditures with
respect to our fixed-line network were used primarily to fully digitalize the
network, to install fiber optic loops in the largest cities in Finland and to
update our switching technologies. In 2000, fixed-line capital expenditures
focused largely on our international operations, including our Russian fiber
optic lines. Capital expenditures for Domestic Mobile Communications accounted
for 47.3 percent, 43.8 percent and 28.8 percent of total capital expenditures in
1998, 1999 and 2000, respectively; capital expenditures for Sonera Telecom
accounted for 49.9 percent, 51.8 percent and 47.0 percent of the total capital
expenditures in 1998, 1999 and 2000, respectively; capital expenditures for
Media Communications and New Services accounted for 2.8 percent, 4.4 percent and
24.2 percent of the total capital expenditures in 1998, 1999 and 2000,
respectively.

     Our annual capital expenditures, including investment in the third
generation mobile network in Finland, are expected to be approximately E450
million in 2001 and approximately E400 million per year in the next few years.
Capital expenditures for our new services businesses will continue to be
significant in 2001, and are expected to be lower in 2002 and thereafter. We do
not expect that the further expansion of our GPRS coverage or the roll out of
our UMTS network in Finland will significantly increase capital expenditures of
Domestic Mobile Communications. We expect to finance capital expenditures over
the next few years primarily from cash flow from operations.

INVESTMENTS IN SHARES

     As of December 31, 2000, the carrying value of our equity investments was
E4,737 million. Since December 31, 1999, we have made a number of investments
which have substantially expanded our total level of investment in international
associated companies and other minority shareholdings. See "-- Investments in
Associated Companies and Other Equity Interests" for a description of the
principal investments we have made in shares since the beginning of 2000.

     We continuously evaluate potential acquisitions and business opportunities
and may, depending, among other things, on the availability and cost of
financing, make investments in furtherance of our strategic plans that offer
attractive potential for return on investment. See "Item 4. Information on the
Company -- Strategy." On the other hand, in an attempt to maximize the return on
our investments, we may also decide to dispose of certain of our investments in
our international associated companies either in whole or in part.

SHARE REPURCHASE AUTHORITY

     In March 2001, our annual general meeting of shareholders authorized the
Board of Directors to repurchase shares of Sonera Corporation. The authorization
is valid until March 21, 2002. The maximum number of shares to be repurchased
under the authorization is 2,000,000, representing 0.3 percent of the total
shares of Sonera

                                       138
152

Corporation. These shares can be used as consideration for our acquisition of
property related to our business, as consideration for acquisitions, or for
hedging against social security costs resulting from stock options held by our
employees in a manner and scope decided on by the Board of Directors. Our social
security costs are calculated based on the total compensation of employees,
including the value of stock options when they are exercised or sold by
employees. As a result, we can hedge the possible appreciation of the stock
options held by our employees by maintaining shares in treasury and selling
those shares when the social security payments are realized. Any shares
repurchased will be acquired on the Helsinki Exchanges for the publicly traded
price at the time of the acquisition. Any acquisition of shares will reduce our
distributable equity.

                            RESEARCH AND DEVELOPMENT

     We have long considered research and development to be of paramount
strategic importance. Our annual research and development expenditures have
averaged between three to four percent of revenues between 1994 and 2000 and
totaled E70 million in 2000, an as compared to 64 million in 1999. In recent
years, our research and development has focused on mobile and new service
businesses.

     Our research and development program has resulted in our being among the
first telecommunications operators in Europe and the world to commercially
introduce a number of advanced mobile, fixed-line and data and media
communications products and services. We were the first telecommunications
operator in Europe to offer commercial LAN interconnection, frame relay and ATM
services. We were also one of the first telecommunications operators in Europe
to introduce networked multimedia Internet services and in 1998 became the first
telecommunications operator in Europe to offer cable TV Internet access service.
In the field of mobile telecommunications, in 1998, we became the first operator
in the world to introduce digital dual band service. We have also pioneered a
number of value-added SMS applications, including wireless telebanking. In 1997,
we also became one of the first telecommunications operators to introduce a
service that carries voice traffic over data networks using IP technology. In
August 1999, we became the first operator in the world to launch information
services intended for WAP compliant mobile phones.

     In light of the increasingly competitive and rapidly evolving Finnish,
European and global telecommunications markets, we expect to continue to devote
significant resources to the research and development of new products, services
and technologies. Currently, our principal research and development priorities
include UMTS mobile communications, customer service and billing solutions,
wireless Internet applications, data security for electronic and wireless
commerce and global IP-based roaming. In furtherance of our international
strategy, we are giving increasing priority to research projects that develop
products and services that can be applied in our overseas ventures.

     We currently employ more than 600 engineers, researchers and other experts
in our research and development units. Research and development activities are
carried out both within Sonera and in cooperation with equipment manufacturers,
research institutions and other operators.

     We have a number of patent applications pending as well as several patents
and licenses, none of which, individually, is material to our business. However,
certain of our subsidiaries and growth businesses may have patents and other
intellectual property that are material to their respective businesses. We plan
to continue to leverage our investment in research and development by seeking,
where appropriate, international patent protection on our innovations. There can
be no assurance, however, that any patent, if granted, will not be invalidated,
circumvented, opposed or canceled, or that the steps taken by us to protect our
rights will be adequate to prevent unauthorized use of our technology or to
preclude competitors from developing products with features similar to our
products. Third parties have opposed some Sonera patents and patent applications
including patents relating to our Sonera SmartTrust solution. Management is
currently in the process of reviewing these third party oppositions related to
these challenges and is not in a position to predict the likely outcome of these
opposition proceedings.

                                       139
153

MOBILE COMMUNICATIONS

     In our mobile communications research and development efforts we
concentrate on developing and commercializing new applications for mobile
communications. The current focus of our mobile communications research and
development is on (1) smart communications, including the utilization of agent
technology and location information in the provision of SMS and other services,
(2) mobile multimedia, i.e., the development of new computer graphics based
services using new mobile technologies, such as UMTS, and (3) network planning
and implementation of UMTS.

     We are adopting and installing new network technologies with higher
transmission speeds. To improve the data transmission capacity of our mobile
network, we have installed multiple time slot technology in our network, which
allows for data transmission speeds of up to 43.2 Kbps. We have also focused on
the implementation of GPRS, a packet-switched technology whereby cellular base
stations can be connected directly to the Internet, bypassing the switching
systems presently used to connect mobile traffic to the fixed-line network,
improving mobile data transmission. We launched our GPRS service in December
2000 in the Helsinki area as well as in Turku, Tampere and Oulu with their
immediate surroundings. The GPRS service was added as a supplementary feature to
Sonera GSM subscriptions, and has been functioning throughout Finland since
March 2001. Our GPRS service currently achieves a transmission rate of up to 100
kbits/s, however, the first terminals entering the market can only operate up to
a speed of approximately 20 kbits/s. Sonera has also played an active role in
the development and advancement of the GRX system for GPRS roaming. We are also
developing new wireless data applications, which will use new high speed mobile
communications network as a platform.

     As part of our development of new wireless data solutions, we are also
focusing on UMTS mobile communications. UMTS, which is based on CDMA (Code
Division Multiple Access) as opposed to TDMA (Time Division Multiple Access)
technology underlying the GSM system, would support broadband access at speeds
ranging from 144 Kbps to 2 Mbps, and thus provide a foundation for a mobile
telecommunications system with greater multimedia capability such as
videoconferencing and efficient intranet and Internet access. UMTS is also
expected to provide improved transmission quality and security.

     In February 2001, we announced our endorsement of the Intel Personal
Internet Client Architecture (PCA), a scaleable architecture that enables
development and delivery of Internet, voice and data solutions to the wireless
devices. Intel PCA was chosen since it is an open architecture that enables the
proliferation and rapid deployment of software and Internet services across
standards and devices. Additionally, we announced our cooperation with Intel
Communications Fund in identifying investment opportunities in companies with
technologies that help shape and grow next-generation Internet applications for
wireless devices. The two companies will endeavor to co-invest globally in new
services that support open platforms and interoperable technology solutions.

     Our current research and development activities include a joint research
project, called "Mobile City Oulu," with the Finnish municipality of Oulu, Oulu
University, the Technical Research Center of Finland and a number of mobile
telecommunications equipment manufacturers, computer companies and retailers.
The project is aimed at developing new mobile telecommunications services and
applications for UMTS technology. We also have a number of ongoing research and
development projects with Nokia, some of which are focused on the development of
new services using UMTS. We seek to capitalize on our development projects
involving UMTS by being among the first operators to offer new services and
advanced applications utilizing the new mobile technology. We actively
participate in the development of UMTS-networks through international mobile
forums, which are preparing the standardization of UMTS technology. In addition,
in 1997, we entered into a joint research project with NTT Mobile Communications
Network, Inc. (NTT DoCoMo), regarding the development and testing of UMTS
networks. The project has provided us the opportunity to test UMTS radio
technology in DoCoMo's pilot third generation network and an opportunity to
participate in the development and commercialization of new service applications
for high speed mobile networks, prior to developing our own pilot network. In
2000, we launched Sonera Mspace, a service offering that concentrates on
developing and validating 3G service concepts by running real-world trials with
actual customers. Early adopters get to test cutting-edge applications and
services currently under development by Sonera and our partners. We believe that
this type of open laboratory test environment is the first of its kind
world-wide. Mspace has already conducted the first

                                       140
154

consumer trial simulating next generation mobile services, the results of which
were announced in December 2000.

     We are a member of the Joint Initiative Towards Mobile Multimedia ("JIMM"),
a mobile operator's forum which seeks common technical approaches to enable
speedier development of envisioned mobile multimedia technology. JIMM promotes a
common platform of wireless applications and services based on third generation
technology in order to be able to meet customer demand for global mobile
multimedia. In addition to Sonera, members of JIMM include AT&T Wireless
Services, Inc., British Telecom, Deutsche Telekom MobilNet GmbH, France Telecom,
NTT DoCoMo, Singapore Telecom Mobile Pte Ltd., SK Telecom Co., Ltd., TIM and
Vodafone.

MEDIA COMMUNICATIONS AND NEW SERVICES

     We will continue to invest in electronic commerce solutions, which are
still primarily in the early commercial development phase. These include
electronic trading and EDI (Electronic Document Interchange) messaging, which is
a service for transmitting legally binding documents over an electronic network
in a standardized format, as well as services that facilitate e-commerce such as
telecommunications links to banks and credit card service providers. We are also
investigating further cooperation with TietoEnator, with a view to the
development of advanced billing systems and customer management systems. We are
exploring the possibility of marketing such services to other telecommunications
operators.

SONERA TELECOM

     Our Sonera Telecom business area is currently focusing on the delivery of
new broadband services, IP-based products, customized services based on
intelligent networks and electronic commerce. In conjunction with our launch of
ADSL services in certain large cities in Finland in the first half of 1998, we
are seeking to develop a range of new broadband services for our ADSL customers.
In those areas where it would otherwise be difficult to offer fixed-line
broadband access service, we are investigating the use of systems based on LMDS,
a platform that allows for the wireless delivery of broadband services through
radio technology. We are also conducting research on the delivery of new
value-added services through our new Nokia switching platform.

     We are one of the leading developers of services based on the transmission
of voice traffic over controlled networks using IP technology. In 1997, we
introduced Neophone service, which enables the transmission of voice calls
through our data networks, and we are researching ways to increase the
efficiency and quality of our IP telephony services. In addition, we are
developing new services that can be offered through the use of intelligent
networks, which facilitate the delivery of customized telecommunications
services to customers.

                                   INFLATION

     Inflation in Finland as measured by the consumer price index during the
years ended December 31, 2000, 1999, and 1998 was 3.4 percent, 1.2 percent and
1.4 percent, respectively. During the periods under review, inflation in Finland
has not had a significant impact on our operating results. However, most of our
associated companies operate in countries with rates of inflation higher than
that of Finland. Other than Turkey and Russia, in which our associated companies
Turkcell, Fintur and North-West GSM operate, respectively, none of such
countries is currently experiencing hyperinflation. Changes in rates of exchange
may or may not reflect differences in rates of inflation, making it difficult to
quantify the individual or combined effects of these factors on reported income.

                          RESULTS OF YEAR 2000 PROGRAM

     We experienced no Year 2000 related disruptions to business operations. To
prepare for potential Year 2000 related issues, we established our Year 2000
task force in February 1996. The task force was organized into separate teams
which covered our business and administration IT-systems, products and services,
telecommunications networks, customer interface (sales, marketing and customer
service), legal affairs (agreements and vendor management), risk management,
real estate and public relations. Our Year 2000 task force was coordinated by

                                       141
155

a Year 2000 steering group which consisted of members of our upper management
and a number of Year 2000 specialists.

     In 1998, we began changing and upgrading our fixed network switching
platform hardware. This work was completed in September 1999. The remaining
upgrades of the fixed network and the process of upgrading our mobile networks
with respect to basic services and network components was completed in late
1999.

     Although we had little control over the Year 2000 readiness of our
customers, suppliers and third party providers, we took appropriate action to
determine their level of Year 2000 readiness and the potential impact on our
operations. Year 2000 readiness, including the business continuity of key
suppliers and third parties, was assessed by conducting surveys on such items as
purchased services, software, hardware and other components. Year 2000 readiness
of our interconnection partners was monitored through participation in European
and international telecommunication specific Year 2000 programs, including ETIS
AD2000 and ITU. As part of our Year 2000 project, we sent out tens of thousands
of letters to customers concerning the Year 2000 activities we carried out.

     We also prepared contingency plans which considered the critical functions
of our business including our products and services, as well as our customer
care, finance, telecommunication and IT systems and real estate in our different
business divisions. We identified and prepared plans for addressing the most
likely Year 2000 risk scenarios in all critical business and telephone network
processes, including faults in power supplies, interruptions in
telecommunications devices and unexpected errors in products, services and
computer systems. Also, as part of our Year 2000 contingency planning, we
established special recovery teams to support business continuity before and
after January 1, 2000 as needed.

     Our Year 2000 project progressed according to plan and within budget. Our
total cost for Year 2000 compliance was approximately E15 million including all
direct external year 2000 costs related to IT and non-IT items but excluding
indirect external and internal costs which were treated as normal business
development and maintenance costs. As a part of our normal operating procedure,
we will continue to monitor any potential Year 2000 related issues which may
arise. Year 2000 related costs in 2000 or beyond, if any, are not expected to be
material.

                            INTRODUCTION OF THE EURO

     In the beginning of May 1998, Finland was approved as one of the first 11
European Union member states to join Stage Three of the Economic and Monetary
Union from its commencement date. Stage Three, which commenced on January 1,
1999, involves the eventual replacement of participating countries' national
currencies with the euro. The final conversion rates of the euro and the
currencies of the member states participating in Stage Three became effective
from January 1, 1999. For the Finnish markka, such conversion rate is FIM
5.94573 to one euro. The euro is being introduced as an account currency through
a transitional period which began January 1, 1999 and ends December 31, 2001.
Beginning on January 1, 2002, euro notes and coins will be introduced and, from
March 1, 2002, the euro will be the only means of payment in Finland and the
other member states of the European Union.

     We established a management group in the first quarter of 1997 to analyze
and establish guidelines for the conversion to a euro-operating environment. Our
EMU management group and several working committees of the group have been
analyzing the impact of the euro on a number of aspects of our business,
including corporate finance, accounting, human resources, invoicing, pricing and
legal matters. Each of our operating units has also established its own EMU
working group to develop unit-specific strategies and operating plans to convert
to a euro-operating environment and to analyze both threats and opportunities
created by the introduction of the euro.

     We began providing customers with invoices in both euros and Finnish
markkas as of January 1, 1999. We began reporting in euros for financial
accounting purposes for the financial year that began on January 1, 1999. We
also anticipate that we will set and pay our wages and salaries in euros and
price our services in euros beginning January 1, 2002. We have not made any
provision for the costs to prepare us for conversion to a euro-operating
environment, and management is not currently in a position to make an accurate
estimate of the
                                       142
156

amount of such future costs. However, as part of our year 2000 program and other
ongoing systems updates, we are concurrently making the necessary modifications
to our existing telecommunications network and information technology software
to permit us to bill, invoice and report in euros.

     We do not believe that the euro conversion will have a material competitive
impact on our business operations. However, management does expect that we will
face pressure from our subscribers to round down charges when publishing price
lists in euros, especially with respect to retail price lists.

     We are not a party to any derivatives or other financial instruments that
will need to be modified or closed out as a result of the euro conversion.

     We believe that the euro conversion will not result in the termination of
any of our operative contracts which are material to our business or enable one
party to break or change its contractual obligations. Furthermore, since the
fall of 1997 we have been adding a clause to each of the contracts we enter into
that provides for a substitution of the contract currency into euros (to the
extent applicable) at or prior to the end of the transitional period.

ITEM 6.  DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

     Sonera Corporation's corporate governance is the responsibility of the
Board of Directors and the President and Chief Executive Officer. On March 21,
2001, our annual general shareholders meeting resolved to abolish the
Supervisory Board which had previously shared some corporate governance
responsibilities with the Board of Directors and the President and Chief
Executive Officer. The Board of Directors is responsible for carrying out the
duties specified for it under the Companies Act and Sonera's articles of
association.

     The President and Chief Executive Officer attends to Sonera Corporation's
day-to-day administration in accordance with the instructions and regulations
issued by the Board of Directors. In managing our corporate business, the
President and Chief Executive Officer is assisted by the Executive Management
Team. Sonera Corporation's administration is overseen by statutory independent
auditors as well as the Group's Internal Audit function.

                               BOARD OF DIRECTORS

     The Board of Directors has general responsibility for our management in
accordance with law and the articles of association of Sonera Corporation. The
Board of Directors is composed of the Chairman, the Vice Chairman and between
three and eight members, who may be no more than 65 years of age. Currently, the
Board of Directors consists of a Chairman, a Vice Chairman and five members.
Members of the Board of Directors are elected by the Annual General Meeting of
shareholders for terms of one year. In addition, Sonera and its employee groups
agreed on April 5, 2001 that one employee representative will serve on the
Board. The employee representative has the right to attend, speak, and with
certain exceptions, to vote at the meetings of the Board of Directors. The
employee representative also has an alternate, who has the right to be a
participant in the meeting, but does not have voting rights. Maire Laitinen,
Group General Counsel, acts as Secretary of the Board of Directors.

                                       143
157

     The present members of the Board of Directors, their respective years of
birth, their respective years of nomination, number of our shares owned by them
as of June 25, 2001, and their positions are as follows:
SHARES
                                                        PURSUANT
                                    DIRECTOR   SHARES   TO STOCK
NAME                    YEAR BORN    SINCE     OWNED    OPTIONS                  POSITION
----                    ---------   --------   ------   --------                 --------
Tapio Hintikka.......     1942        2001       --         --     Chairman
Jussi Lansio.........     1952        2000       --         --     Vice Chairman
Jorma Laakkonen......     1943        2001      500         --     Member
Eva Liljeblom........     1958        2001      440         --     Member
Roger Talermo........     1955        2001       --         --     Member
Esa Tihila...........     1964        2001       --         --     Member
Tom von Weymarn......     1944        2001       --         --     Member
Tapio Vaahtokivi.....     1942        1998      841      1,400     Employee Representative
Kari Vilkman.........     1951        1998      869      1,400     Alternate Employee Representative
Tapio Hintikka was elected as Chairman of the Board of Directors at the
Annual General Meeting held on March 21, 2001. Mr. Hintikka is the President and
Chief Executive Officer of Hackman Oyj Abp. He holds a Master of Science degree
in Engineering.

     Jussi Lansio has been on the Board of Directors since March 2000, and was
elected as Vice Chairman of the Board of Directors at the Annual General Meeting
held on March 21, 2001. Mr. Lansio is the President and Chief Executive Officer
of Oyj Hartwall Abp. He holds a Bachelor of Science degree in Economics.

     Jorma Laakkonen was elected to the Board of Directors at the Annual General
Meeting held on March 21, 2001. Until last year, Mr. Laakkonen was the Executive
Vice President and Head of Large Corporate Business for MeritaNordbanken Plc. He
holds a Master of Laws degree.

     Eva Liljeblom was elected to the Board of Directors at the Annual General
Meeting held on March 21, 2001. Ms. Liljeblom is a Professor of Finance and the
Head of the Department of Finance at the Swedish School of Economic and Business
Administration in Helsinki, Finland. She holds a Master of Science degree in
Finance, a Licentiate of Economics and a Doctorate from the Swedish School of
Economic and Business Administration in Helsinki, Finland.

     Roger Talermo was elected to the Board of Directors at the Annual General
Meeting held on March 21, 2001. Mr. Talermo is the President and Chief Executive
Officer of the Amer Group Plc. He holds a Bachelor of Science degree with majors
in Business Administration and Marketing and a Master of Science degree in
International and Industrial Marketing.

     Esa Tihila was elected to the Board of Directors at the Annual General
Meeting held on March 21, 2001. Mr. Tihila is the Group Executive Director of
ICL EMEA. He holds a degree in economics.

     Tom von Weymarn was elected to the Board of Directors at the Annual General
Meeting held on March 21, 2001. Mr. von Weymarn is the President and Chief
Executive Officer of Oy Rettig Ab. He holds a Master of Science degree in
Chemical Engineering.

     Tapio Vaahtokivi was elected to the Board of Directors by Sonera
Corporation and our Company's employee groups on April 5, 2001. He has been an
employee representative on the Board of Directors since 1998, and, prior to the
demerger of PT Finland, was an employee representative on the Board of Directors
of Telecom Finland. Mr. Vaahtokivi is the Chairman of the Telecommunications
Union, a labor union for telecommunications employees. He holds a Bachelor of
Science degree in Engineering.

     Kari Vilkman was elected as an alternate for the employee representative's
position to the Board of Directors by Sonera Corporation and our Company's
employee groups on April 5, 2001. Mr. Vilkman has been an employee
representative or alternate to the employee representative on the Board of
Directors since 1998. Prior to the demerger of PT Finland, he was an employee
representative on the Board of Directors of Telecom Finland. Mr. Vilkman holds a
Technician's degree in Telecommunications.

                                       144
158

                           CORPORATE MANAGEMENT GROUP

     Our Management Group consists of the President and Chief Executive Officer
and the executive officers of Sonera Corporation. Our Management Group assists
our President and Chief Executive Officer in the management and coordination of
the implementation of our strategic and operational goals and deals with all
matters that are to be brought up before or decided by our Board of Directors.
The present members of the Management Group, their respective years of birth,
years in which they first joined our Company (or any of our predecessor
companies), number of our shares and stock options owned by them as of June 25,
2001 and their positions are as follows:
YEAR
                        YEAR   FIRST    SHARES   SHARES PURSUANT
NAME                    BORN   JOINED   OWNED    TO STOCK OPTIONS              POSITION
----                    ----   ------   ------   ----------------              --------
Kaj-Erik Relander....   1962    1994     3,225   510,000 in Sonera       President and Chief
                                                 Corporation; 51,192     Executive Officer; to
                                                 in Sonera Plaza Ltd;    resign effective
                                                 218,826 in Sonera zed   August 1, 2001
                                                 Ltd; and 530,046 in
                                                 Sonera SmartTrust
                                                 Ltd.
Aimo Eloholma........   1949    1974    12,368   245,000                 Executive Vice
                                                                         President and Deputy
                                                                         Chief Executive
                                                                         Officer; to become
                                                                         acting President and
                                                                         Chief Executive
                                                                         Officer effective
                                                                         August 1, 2001
Kim Ignatius.........   1956    2000        --   175,000                 Executive Vice
                                                                         President and Chief
                                                                         Financial Officer; to
                                                                         become acting Deputy
                                                                         Chief Executive
                                                                         Officer effective
                                                                         August 1, 2001
Jari Jaakkola........   1961    1997     5,225   240,000                 Executive Vice
                                                                         President
Juha Varelius........   1963    1993     2,638   255,000 in Sonera       Executive Vice
                                                 Corporation; and        President
                                                 218,826 in Sonera zed
                                                 Ltd.
Jaakko Nevanlinna....   1956    1991       628   75,000                  Senior Vice President
Aimo Olkkonen........   1946   1969/        --   35,000                  Senior Vice President
                                1988
Niklas Sonkin........   1967    1988        --   90,000                  Senior Vice President
Anni Vepsalainen.....   1963    1987        --   185,000                 Senior Vice President
Kaj-Erik Relander has been our President and Chief Executive Officer since
January 1, 2001 and will resign effective August 1, 2001. Mr. Relander joined
Sonera in 1994 and he has held a number of positions in Sonera prior to becoming
President and Chief Executive Officer, including Executive Vice President of our
Mobile and Media area and Deputy Chief Executive Officer. In August 2001, Mr.
Relander will resign to join Accel Partners Venture Capital company in London.
Prior to joining Sonera, Mr. Relander worked for SITRA, a Finnish private equity
fund. He holds a Master of Science of Economics and a Masters of Business
Administration degree.

     Aimo Eloholma is our Deputy Chief Executive Officer and the Executive Vice
President of the newly formed Sonera Telecom area. As of August 1, 2001, Mr.
Eloholma will serve as our acting President and Chief Executive Officer. Mr.
Eloholma joined Sonera in 1974 and he has held a number of positions in various
fields of operation within Sonera including data communications, business
development and sales and marketing. He holds a Master of Science degree in
Engineering.

                                       145
159

     Kim Ignatius has been an Executive Vice President and the Chief Financial
Officer of Sonera since April 1, 2000. As of August 1, 2001, Mr. Ignatius will
also serve as our acting Deputy Chief Executive Officer. Prior to joining
Sonera, Mr. Ignatius was the chief financial officer and a member of the
executive board of Tamro Corporation, a Nordic pharmaceutical distributor and
healthcare group. He holds a Bachelor of Science degree in Economics.

     Jari Jaakkola is the Executive Vice President of corporate communications
and investor relations. Prior to joining Sonera in 1997, Mr. Jaakkola was the
director of corporate communications at Metsa-Serla Corporation. He holds a
Bachelors of Arts degree in Journalism.

     Juha Varelius has been the Executive Vice President responsible for Sonera
Services since April 1, 2000. Mr. Varelius joined Sonera in 1993. He holds a
Masters of Science degree in Economics.

     Jaakko Nevanlinna has been the President of Sonera Carrier Networks since
January 1, 2001 and, before assuming that position, was the President of Sonera
Systems Ltd. since January 1, 1995. Mr. Nevanlinna joined Sonera in 1991. He
holds a Masters of Science degree.

     Aimo Olkkonen has been the Chief Executive Officer of Sonera Holding B.V.
since January 22, 2001 and, before that position, was the Senior Vice President
of Sonera Wireless Ventures. Mr. Olkkonen first joined Sonera in 1969, spent the
years between 1978-1988 as a consultant and project coordinator of the
International Telecommunications Union and returned to Sonera in 1988. He holds
a Masters of Science degree in Engineering and has taken an Advanced Management
Program at Harvard Business School.

     Niklas Sonkin has been the Chief Strategy Officer for Sonera since April
25, 2001, and before assuming that position was the Senior Vice President of
Corporate Strategy since September 1, 2000. Mr. Sonkin joined Sonera in 1988. He
holds a Masters of Science degree in Engineering.

     Anni Vepsalainen has been the Senior Vice President of Mobile Operations
since January 2000 and, before assuming that position, represented Sonera as the
Vice President of Product Development and Business Process Improvement at Aerial
Communications since December 1998. Ms. Vepsalainen joined Sonera in 1987. She
holds a Master of Science degree in Production Economics.

     The business address of each member of the Board of Directors, the
President and Chief Executive Officer of Sonera Corporation and each other
member of our Management Group is c/o Sonera Corporation, Teollisuuskatu 15,
FIN-00510 Helsinki.

                                    AUDITORS

     Pursuant to its articles of association, Sonera Corporation is required to
have one to three auditors. Auditors are elected by the shareholders annually.
Each auditor must be authorized by the Finnish Central Chamber of Commerce or a
public accounting corporation authorized by the Finnish Central Chamber of
Commerce. Our auditors are Jorma Heikkinen, Authorized Public Accountant, and
KPMG Wideri Oy Ab, independent accountants, with Solveig Tornroos-Huhtamaki,
Authorized Public Accountant as the chief auditor. KPMG Wideri Oy Ab was elected
as our auditors at the April 23, 1999 Annual General Meeting of shareholders and
re-elected at the Annual General Meeting of March 21, 2001. Prior thereto,
Tilintarkastajien Oy - Ernst & Young, independent accountants, with Jorma Jaske
as the responsible auditor, were our auditors.

                             EMPLOYMENT AGREEMENTS

     Members of our Management Group and other executive officers have entered
into employment agreements with Sonera, which, among other things, provide
standard employment terms, including compensation and termination provisions.
Pursuant to such agreements, executive officers receive a base salary and are
eligible for a performance related bonus on an annual basis. In addition, all
executive officers receive certain fringe benefits. Pursuant to these employment
agreements, employment can typically be terminated upon six months' notice after
which each executive remains subject to a confidentiality requirement and
non-competition clauses. Retirement age for the members of the management team
is between 60 and 65.

                                       146
160

                     COMPENSATION OF DIRECTORS AND OFFICERS

     The aggregate compensation of members of the Supervisory Board, the Board
of Directors, the President and Chief Executive Officer, and the Executive Vice
Presidents for the year ended December 31, 2000, was approximately E4.7 million.
Part of the aggregate compensation to the President and the Executive Vice
Presidents was paid in the form of annual bonuses which were paid pursuant to
our executive incentive program. The executive incentive program is based on our
performance and provides executive officers and certain key employees with
annual incentive payments based upon our financial results for the most recent
financial year in comparison to past performance and budgeted performance
targets. Members of the Board of Directors (apart from employee representatives,
who receive no monthly fee) are paid a monthly fee and a fee for attending
meetings of the Board of Directors. Members of the Supervisory Board were also
paid a monthly fee and a fee for attending meetings of the Supervisory Board
before the Supervisory Board was abolished on March 21, 2001. At the annual
meeting of shareholders held March 22, 2000, our shareholders resolved that
effective June 16, 2000, the Chairmanship of the Board of Directors would be a
full-time position and the Chairman would be an executive officer of Sonera. In
connection with this change, the Chairman of the Board of Directors was paid a
monthly fee of FIM 250,000 and was entitled to participate in the incentive
schemes available to our management and employees as applicable. At the annual
meeting of shareholders on March 21, 2001, our shareholders resolved to make the
Chairmanship of the Board of Directors a part-time position again and to pay to
the Chairman a monthly fee of FIM 30,000. It was also resolved at the 2001
annual meeting of shareholders that the monthly fees of the Vice Chairman would
be FIM 20,000 per month, and that the monthly fees of the other members of the
Board of Directors (apart from employee representatives, who receive no monthly
fee), would be FIM 18,000 per month. In addition to the monthly fees, the
Chairman, Vice-Chairman and the other members of the Board of Directors receive
a fees per meeting of the Board of Directors of FIM 1,000.

                                BOARD PRACTICES

     Members of our Board of Directors are elected for a term of one year that
begins at the end of the general meeting of shareholders at which they are
elected and terminates at the end of the next following annual general meeting
of shareholders. Members of the Board of Directors may be elected or removed
only by a resolution of shareholders in general meeting, and there are no
benefits provided upon termination of employment.

     On March 6, 2000, the Board of Directors voted to create an Audit
Committee, and established guidelines under which the Audit Committee would
operate. The current members of the Audit Committee are Tapio Hintikka, Eva
Liljeblom and Jorma Laakkonen.

     The Audit Committee's charter is dated April 2001. The charter states that
the purpose of the committee is to assist the Board of Directors in fulfilling
its oversight responsibilities by reviewing our financial reports and other
financial information, our system of internal controls regarding finance,
accounting and legal compliance that management and the Board of Directors have
established, and other auditing, accounting and financial processes. The Audit
Committee's primary duties and responsibilities are:

     -  To serve as an independent and objective party to monitor our financial
        reporting process and internal control system;

     -  To review and appraise the audit efforts of our independent auditors and
        internal audit group; and

     -  To provide an open avenue of communication among the independent
        auditors, financial and senior management, the internal audit group, and
        the Board of Directors.

     The Audit Committee is comprised of three directors, all of whom are
elected by the Board of Directors at their first meeting after the annual
general meeting of shareholders and one of whom is elected to serve as the
Chairman of the committee. The Committee must meet at least three times annually
and at least once annually with management, the directors of the internal audit
and risk management groups and the independent auditors in separate executive
sessions. In addition, the Chairman of the Audit Committee should meet with the
independent auditors and management quarterly to review our financial
statements.

     The Audit Committee has a list of responsibilities and duties based around
the following six categories:
                                       147
161

     -  Documents and Reports Review, including reports prepared by independent
        and internal auditors,

     -  Independent Auditors, including a review of the performance and
        independence of the independent auditors,

     -  Financial Reporting Processes, including a review of the integrity of
        our accounting principles and financial reporting process,

     -  Process Improvement, including addressing any significant disagreements
        between the independent auditors and our internal auditors,

     -  Risk Management, including ensuring that our review system adequately
        complies with legal requirements and that the risks that we face have
        been identified and analyzed, and

     -  Ethical and Legal Compliance, including a review of the activities,
        organizational structure and qualifications of our internal audit and
        risk management groups, legal compliance matters, and other activities
        as consistent with our by-laws and governing law, as the Committee or
        the Board deems necessary or appropriate.

                                   EMPLOYEES

     Between 1991 and 1994, we carried out a major reorganization of our
workforce, which resulted in a 32 percent reduction in the average number of
employees, from 10,174 in 1991 to 6,930 in 1994. The reorganization was driven
by a number of factors, including the opening of the Finnish telecommunications
market to competition, the digitalization of the network, which lessened the
need for construction and maintenance staff to service the network, and a severe
economic recession in Finland from 1991 to 1993. Since 1994, the average number
of persons we employ has risen gradually, reaching 10,305 for the year ended
December 31, 2000. In our recent recruitment efforts, we have concentrated on
hiring highly educated technical and business professionals for our high growth
businesses, such as mobile communications and media communications and new
services, but we have recently shifted to an employment policy focused on
retaining key current employees and maintaining employee numbers at the present
level.

     The average number of employees by business area during the years indicated
was as follows:
1998     1999      2000
                                                                -----    -----    ------
AVERAGE NUMBER OF PERSONNEL BY BUSINESS AREA(1)
Mobile Communications.......................................    1,114    1,280     1,626
Media Communications and New Services.......................      555    1,346     2,810
Fixed Network Voice and Data Services.......................    2,485    2,442     2,555
Equipment Sales and Other Operations........................    4,455    4,202     3,314
                                                                -----    -----    ------
  Total.....................................................    8,609    9,270    10,305
                                                                =====    =====    ======
------------------------------

(1) The average number of employees for a given year is calculated by averaging
    the number of employees at the end of each month of such year. When
    calculating the average number of employees during a given period, the
    number of part-time employees is converted into an equivalent number of
    full-time employees.

     As of December 31, 2000, approximately 58 percent of our employees were
members of unions, with our field engineers belonging primarily to the Finnish
Metal Workers' Union and the majority of our other unionized workers belonging
to the Finnish Telecommunications Union. Our unionized employees are covered by
one collective bargaining agreement which is valid until January 31, 2003. We
believe that our relations with our employees are good.

     Each active and retired employee of Sonera is entitled to statutory pension
benefits. The statutory pension scheme in Finland for employees in the private
sector is provided pursuant to the Finnish Employees' Pension Act (395/1961), as
amended (TEL), a defined benefit pension arrangement with retirement,
disability, unemploy-

                                       148
162

ment and death benefits. In addition, we have complemented the pension coverage
of our employees through a voluntary supplemental pension.

     Our statutory pension obligations as well as certain supplemental pension
obligations for our employees and the employees of our principal subsidiaries in
Finland have been funded through the PT Pension Fund since January 1, 1994. PT
Pension Fund was originally established to fund the pension obligations of PT
Finland. Until the March 26, 2001 resolution of the Sonera Board of Directors
demerging the PT Pension Fund interests is put into effect as described below,
PT Pension Fund continues to fund the pension obligations of both Sonera and the
Finland Post Group Ltd. We make monthly contributions to PT Pension Fund, which
in 2000 amounted to 13.2 percent of the total wages and salaries paid to our
employees prior to social costs. Pension obligations accrued with respect to our
employees before the separation of our current operations from the Finnish State
budget in 1994 are covered by the Finnish State. We are responsible for ensuring
that our pension obligations are fully funded at all times. Currently, our
additional benefit obligations are fully funded. The PT Pension Fund is now
closed to new beneficiaries with respect to additional benefits. Our statutory
benefit obligations are also fully funded except for certain amounts to be paid
in the future under the Act for the Temporary Reduction in Insurance Premiums
(1536/1993). The statutory benefits of certain of our minor Finnish subsidiaries
are funded through pension insurance. In addition, our pension obligations for
subsidiaries located outside of Finland are covered according to local
regulation and practice, generally through the payments to pension insurance
companies. Contributions to our various pension schemes are based on periodic
actuarial calculations and are charged to income when incurred. See Notes 1 and
21(b) to our consolidated financial statements.

     On March 26, 2001, the Board of Directors of Sonera resolved to demerge the
PT Pension Fund to create two legal entities, the Sonera Pension Fund and the
Finnish Post Pension Fund. The demerger plan has been approved and the process
will take place some time during 2001 so that the first operative year of the
Sonera Pension Fund will be 2002. The assets of PT Pension Fund will be
separated with both Sonera and Finland Post receiving a proportionate share of
plan assets in relation to their respective shares of total liabilities of the
PT Pension Fund. We estimate that the separation will not significantly change
our pension obligations and the funding status of those obligations.

     The annual general meeting of shareholders of Sonera Group plc (presently,
Sonera Corporation) held on April 23, 1999 approved an incentive program for our
entire personnel in the form of a bond loan with warrants. The subscription
period for the bond loan with warrants concluded on May 21, 1999, and 5,326
employees, constituting approximately 60 percent of our personnel, subscribed to
the loan. Our wholly-owned subsidiary Telibra Oy subscribed for the remaining
part of the issued loan, which may be offered to current and new employees in
the future. The employee incentive program is intended to ensure the commitment
of our employees and to enable us to continue to attract highly qualified
personnel and to support the development of our business, with a continued focus
on shareholder value.

     At the annual general meeting of shareholders in 2000, our shareholders
approved the proposal of the Board of Directors to establish a similar incentive
program for 2000 consisting of a bond loan with warrants attached to be offered
to our personnel and to Telibra Oy, which may later offer the bond loan with
warrants to persons employed by us or to persons we seek to recruit. The
warrants attached to the loan entitle the holders to subscribe to a maximum of
20,000,000 million shares in the aggregate. The subscription period for the bond
loan with warrants attached was from May 15, 2000 to June 30, 2000.
Subscriptions for the bond loan with warrants are subject to the approval of our
Board of Directors. The bond portion of the loan with warrants carries no
interest and matures on June 1, 2002. On May 18, 2000, the Board of Directors
established an employee incentive plan under which certain of our Russian
employees will be entitled to receive cash compensation based upon the
appreciation in value of the shares of Sonera Corporation and upon terms similar
to the 2000 incentive program consisting of bond loans with warrants attached.

     At the annual general meeting of shareholders in 2001, our shareholders did
not approve a proposal of the Board of Directors for an incentive program
similar to that offered in 2000.

     In November 2000, our subsidiaries Sonera zed Ltd., Sonera SmartTrust Ltd.
and Sonera Plaza Ltd. decided, with the approval of our Board of Directors, to
establish their own stock option programs. Under the terms of each program, each
subsidiary's stock option program cannot dilute our holding in the subsidiary by
more than
                                       149
163

15 percent. The programs allow employees of the respective subsidiaries to
subscribe for warrants to purchase such subsidiary's shares after such
subsidiary has been publicly listed. The initial subscription period for the
warrants of each subsidiary ended on December 15, 2000, and all of the warrants
offered were subscribed for. The period for share subscription based on the
exercise of warrants will begin at each company one year from the commencement
of public trading in the subsidiary's shares and will end for Sonera zed's
warrants by December 31, 2010 at the latest and for Sonera SmartTrust's and
Sonera Plaza's warrants by January 31, 2011 at the latest. The warrants intended
for the remainder of the personnel will be offered for subscription after the
listing of each subsidiary on a stock exchange. Of the warrants for top
management and key employees, 50 percent will entitle their holders to subscribe
for a subsidiary's shares at a predetermined price. The setting of the
subscription price was based on an estimate by an independent external party of
the subsidiaries' fair values at the time of introducing the option scheme. The
remaining 50 percent of top management's and key employees' warrants, as well as
all the warrants intended for the remainder of the personnel will entitle their
holders to subscribe for the subsidiary's shares at a price equal to the sale
price to retail investors in each subsidiary's planned initial public offering
and/or sale of shares.

     In June 2001, in response to the adverse market conditions facing the
telecommunications and related industries, we decided to establish a new 2001
employee stock option program for Sonera SmartTrust. Based on the sharp downward
revision in our estimate of the market value of Sonera SmartTrust (we currently
estimate that the market value of Sonera SmartTrust is approximately E250
million, an approximate 80 percent drop from its estimated market value at the
time the Sonera SmartTrust stock option program was established in November
2000), we set the warrant subscription price for the 2001 warrants at E0.933,
significantly below the warrant subscription price of E6.27 set under the Sonera
SmartTrust 2000 stock option program. Under the terms of the program, the
combined Sonera SmartTrust 2000 and 2001 stock option programs cannot dilute our
holding in Sonera SmartTrust by more than 15 percent. At the same time, as a
reflection of the change in our service strategy and our plan to retain full
ownership of Sonera Plaza, we decided to terminate Sonera Plaza's separate
employee option plan. Sonera Plaza's employees will, instead, be given the
opportunity to participate in Sonera's 1999 and 2000 incentive programs. We did
not revise the terms of the Sonera zed employee stock option plan.

ITEM 7.  MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

                               MAJOR SHAREHOLDERS

     The issued registered share capital of Sonera Corporation is
E319,719,828.98 consisting of 743,534,486 shares with no nominal value. Each
share entitles the holder to one vote at general meetings of shareholders.

     The following table lists, as of June 25, 2001, the total number of our
shares owned by (1) the Finnish State, the only person or entity known by us to
be the beneficial owner of five percent or more of our shares, and (2) members
of our Board of Directors and Management Group, as a group:
SHAREHOLDER                                                    NUMBER OF SHARES    HOLDING, %
-----------                                                    ----------------    ----------
Finnish State...............................................        392,620,585          52.8
Members of the Board of Directors and Management Group (as a
  group)(1).................................................             26,734            --*
------------------------------

* Less than 0.1 percent.

(1) Members of Sonera's Board of Directors and Management Group also hold
    warrants exercisable for 1,812,800 shares, which represents approximately
    0.2 percent of the total number of shares of Sonera Corporation, 51,192
    shares of Sonera Plaza Ltd., 437,652 shares of Sonera zed Ltd., and 530,046
    shares of Sonera SmartTrust Ltd.

RELATIONSHIP WITH THE FINNISH STATE

     The Finnish State currently owns 52.8 percent of the outstanding share
capital of our Company. From September 28 to October 12, 1999, the Finnish State
arranged an offering in which it offered 127 million Sonera shares to domestic
and international investors as well as retail investors. As a result, the
Finnish State's holding in Sonera fell from 77.8 percent to 60.2 percent. In
addition, the managers in the offering announced on October 20,
                                       150
164

1999, that they would exercise the entire over-allotment option of 16.95 million
shares, after which the Finnish State's holding in Sonera fell to 57.9 percent.
The bonus shares in the offering arranged by the Finnish State in 1998 were
entered in the book-entry accounts of those entitled to them on November 17,
1999, after which the State's holding fell to 57.6 percent. In March 2000, the
Finnish State sold an additional 22 million shares at the price of E92 per share
to institutional investors on a private placement basis. As a result of the
offering, the State's holding fell from 57.6 percent to 54.5 percent. Following
our directed issues in April and June of 2000, the State's holding fell from
54.5 percent to 52.9 percent. On the basis of the 1999 offering, the Finnish
State gave approximately 1 million bonus shares on October 19, 2000 to those
entitled to such shares, which diminished the State's shareholding in Sonera to
52.8 percent. See "Item 4. Information on the Company -- History -- Follow-On
Offerings of Sonera Shares." In November 1999, the Finnish Parliament authorized
the Finnish State to lower its holding further to a floor of 34 percent and on
June 21, 2000 the Finnish Parliament authorized a reduction of the Finnish
State's shareholding to zero.

     It has been the practice of the Finnish State not to intervene in our
day-to-day management, and we have conducted and conduct our day-to-day
operations in a manner similar to that of other Finnish corporations. Management
believes that the Finnish State will continue to observe such a practice of
non-intervention.

     As the owner of a majority of the outstanding share capital of Sonera
Corporation, the Finnish State has the power to decide matters submitted for a
vote of shareholders, including matters such as the approval of the annual
financial statements, declarations of annual dividends, capital increases and
the election and removal of the members of the board of directors of Sonera. See
"Item 6. Directors, Senior Management and Employees -- Board of Directors."

     Under the Finnish Act on Audits of State-Controlled Companies (968/1947),
the Finnish State Audit Office has the right to conduct audits of companies that
are state-controlled, as defined in this act. In connection with an audit,
companies are required to disclose such documents as the Audit Office may
demand.

GUIDELINES ON THE FINNISH STATE'S SHAREHOLDING POLICY

     On September 16, 1999, the Finnish Council of State approved a policy
decision (the "guidelines") on the principles and goals for the Finnish State's
policies as a shareholder in companies in which the Finnish State has a
significant ownership interest (each, a "state-controlled company"). The
guidelines, which replaced similar guidelines adopted on June 23, 1994, provide
general principles that each of the ministries responsible for the supervision
of state-controlled companies is to observe in connection with the exercise of
the Finnish State's shareholder rights and in connection with the Finnish
State's internal decision-making in relation to the administration of its
ownership interests in such companies. The guidelines relate to companies in
which the Finnish State is a majority shareholder as well as, within the limits
permitted by the particular company's ownership structure, companies in which
the Finnish State maintains a significant minority shareholding. The guidelines
are not binding upon the state-controlled companies or their governing bodies
but rather serve as guidelines for each of the ministries responsible for the
supervision of such companies.

     The guidelines provide that state-controlled companies are required to be
operated profitably in accordance with sound business principles and with good
capital adequacy. In addition, state-controlled companies should be able to
operate on the same basis as other comparable companies and should operate in
accordance with the Finnish Companies Act (734/1978), as amended (the "Companies
Act"), and other applicable laws and regulations.

     As regards dividend distributions, the guidelines provide that dividends to
be paid by state-controlled companies shall be determined separately for each
company with a goal of supporting the positive value development and that
dividend distributions should be at a level comparable to general dividend
payment levels in the particular company's industry sector and should be
internationally competitive with a view to the company's valuation. Dividend
policies for each company shall be determined primarily on the basis of the
particular company's profitability with a goal of securing a relatively stable
annual dividend flow. Dividend policies should also take into account any
specific considerations related to the particular company's capital adequacy as
well as its market conditions and competitive situation.

                                       151
165

     Pursuant to the guidelines, decisions relating to expansion of a particular
company's operations within its existing field of business, through acquisitions
or the establishment of subsidiaries, shall be made by the appropriate governing
bodies of such company. The guidelines, however, require that decisions
involving expansion beyond a company's existing field of business as well as
other strategic decisions be consented to by the principal shareholder of the
company. Under the Companies Act, an amendment to a Finnish corporation's field
of business specified in its articles of association requires approval by a
shareholders' meeting. Under the guidelines, if such company has a special
position in Finland due to government action or other circumstances, changes in
the company's field of business and any acquisitions by the company are to be
monitored by the appropriate ministry.

     Under the guidelines, expansion of the state-controlled companies'
operations outside of Finland is considered appropriate particularly if such
expansion is necessary in order to secure a sufficiently large market area,
receipt of technology, procurement of raw materials or other similar reasons.
Foreign investments that are of particular importance with respect to the
operations of a particular state-controlled company or the Finnish economy are
to be approved by the principal shareholder of the company prior to a final
decision by the company with respect thereto.

     The guidelines set a goal for state-controlled companies to be exemplary
employers that act in accordance with the prevailing contracts with labor unions
and continuously and actively develop their personnel policies. Each
state-controlled company is required to give reasonable advance notice to the
relevant ministry of any temporary or permanent termination of a substantial
number of employees.

     The guidelines provide that the operations of each state-controlled company
shall be the responsibility of the management and governing bodies of such
company in accordance with the Companies Act. The principal governing party of
each state-controlled company shall be the board of directors of such company,
which typically should include outside experts and a representative of the
appropriate ministry. On May 31, 2000, the Government of Finland amended the
guidelines with respect to use of supervisory boards in state-controlled
companies. Pursuant to the amendment, if the Finnish State's sole or principal
interest in the company in question is that of an investor, a supervisory board
is not deemed the appropriate corporate body to exercise the Finnish State's
shareholder rights and, accordingly, supervisory boards in such companies should
be discontinued. Only in situations where the Finnish State has a considerable
special interest (e.g., society as a whole) in such company in addition to a
strong investor interest is a supervisory board deemed an appropriate body. In
these situations, the tasks of the supervisory board should be limited to the
minimum requirements of the Finnish Companies Act. If such company currently has
a supervisory board with broader powers, the company's articles of association
should be amended so that the powers of the supervisory board do not exceed the
minimum level specified in the Companies Act. Finally, if the Finnish State has
a strong special interest in a company and no material investor interest, it is
deemed appropriate that the company in question have a supervisory board with
additional powers in addition to the minimum level specified in the Companies
Act. In the event that a particular ministry, as the Finnish State's principal
representative, exceptionally wishes to effect a business decision having an
impact on a state-controlled company that is contrary to the position of the
management of such company, the relevant decision shall be taken at such
company's shareholders' meeting. Under the guidelines, the development of the
management of state-controlled companies shall be carried out so as to secure an
effective management and supervision by the owner as regards the shareholding of
the Finnish State as well as possible special interests of the Finnish public.

     In relation to incentive programs to be adopted by state-controlled
companies, the guidelines provide that decisions concerning incentive programs
shall be taken separately for each company with a goal of securing the
competitiveness of such company in recruiting management personnel. For
publicly-listed companies, the goal is to encourage management ownership of
shares in the company. At the time of the implementation of an incentive program
for a particular company's management, incentive programs for other personnel of
such company should also be simultaneously developed and adopted.

     The guidelines also include general principles for any future broadening of
the ownership base in a state-controlled company and other transactions
affecting the Finnish State's ownership, including that decisions shall be taken
separately for each company, that the goal for each company shall be a stable
ownership base, that

                                       152
166

representatives of the Finnish State should be appointed to the governing bodies
of each company in proportion to the Finnish State's ownership interest, and
that, as regards foreign ownership, the rules applicable to state-controlled
companies shall be the same as for other Finnish companies, unless specific
reasons exist for limiting foreign ownership.

                           RELATED PARTY TRANSACTIONS

     As a general matter, we deal at arms-length with our associated companies.
We have entered into technical assistance agreements with most of our associated
companies. Under the agreements, we supply those companies with technical
assistance relating to planning, constructing, operating and maintaining their
networks. In addition, we have entered into a significant loan agreement with
Gruppe 3G, our associated company in Germany that received a UMTS license in
2000.

     The table below summarizes the transactions between Sonera and our
associated companies for the periods indicated:
1999       2000
                                                                -----    -------
                                                                (IN E MILLIONS)
Long-term loans receivable..................................      11          7
Current loans receivable....................................       9      2,737
Trade accounts receivable...................................      13          7
Prepaid expenses and accrued income.........................       1        102
Other long-term liabilities.................................       4         --
Advances received...........................................       1         --
Trade accounts payable......................................      17          6
Accrued expenses and prepaid income.........................       1          1
Other short-term liabilities................................       2         --
Fees charged from associated companies......................      28         24
Payments made for the services provided by associated
  companies.................................................      72         41
ARRANGEMENTS WITH GRUPPE 3G

     In September 2000, we, together with one of our subsidiaries, entered into
a loan agreement with Gruppe 3G. The loan agreement confirms in writing the
terms of an oral loan agreement we had made with Gruppe 3G on August 28, 2000
for an aggregate of E2,719 million. According to the loan agreement, the
proceeds of the loan were to be applied to the cost of the license fee for the
UMTS license awarded to Gruppe 3G by the Regulatory Authority for
Telecommunications and Posts in Germany. According to the written terms of the
loan agreement, the proceeds of the loan were to be repaid on December 31, 2000,
but the maturity of the loan has been extended orally to the end of June 2001.

ARRANGEMENTS WITH TURKCELL

     We have entered into a technical assistance agreement with Turkcell through
our subsidiary Sonera Turkey. The agreement expired on December 31, 2000 and so
far the agreement has not been renewed. Under the agreement, we supply technical
assistance relating to the construction, operation and maintenance of Turkcell's
network. We supply technical assistance relating to planning and construction
services, site management, and the organization and supervision of the
construction and installation work of Turkcell's equipment supplier. We also
provide technical assistance on the planning, building up, facilitating,
training and tutoring of Turkcell's business and technical departments.

     As of December 31, we had outstanding guarantees to various lenders with
respect to E66 million in debt incurred by Turkcell and Fintur in connection
with the purchase of network equipment and the draw-downs on bank facilities. In
addition, as of December 31, 2000, Turkcell Holding, our 47.1 percent owned
associated company which holds the majority of our interest in Turkcell, has
pledged 25 percent of its Turkcell shares as security for Turkcell's loan
financing.

                                       153
167

ARRANGEMENTS WITH LATTELEKOM

     Tilts Communications, our 90 percent owned subsidiary for which the only
significant asset is a 49 percent equity interest in the Latvian
telecommunications provider Lattelekom, provides Lattelekom management services,
employee training and assistance in the procurement of equipment and supplies
for which we receive fees. Tilts Communications has also agreed to improve
Lattelekom's network and infrastructure, and we have provided performance
guarantees to Lattelekom in respect of Tilts Communications' foregoing
obligations.

RELATIONSHIP WITH THE FINNISH STATE

     Except for the equity transactions between Sonera and the Ministry of
Transport and Communications as a shareholder, transactions with the Finnish
State and other companies owned by the Finnish State only include services
provided and purchased by us in the ordinary course of our business. These
transactions are made on an arm's length basis and on commercial terms similar
to those of our other customers and suppliers with the same size and location.

NO SIGNIFICANT LOANS TO MANAGEMENT

     With certain limitations, the Finnish Companies Act permits members of our
Board of Directors to borrow money from us, so long as such loan is secured and
is within the limits of our distributable equity. However, none of our directors
or executive officers and none of our ten percent shareholders owes any
significant amount of debt to us.

ITEM 8.  FINANCIAL INFORMATION.

                       CONSOLIDATED FINANCIAL STATEMENTS

     See "Item 18. Financial Statements."

                        LEGAL AND REGULATORY PROCEEDINGS

     We are involved in a number of legal proceedings in the ordinary course of
our business. These proceedings primarily involve claims arising out of
commercial law issues and regulatory matters. We are also involved in
administrative proceedings relating principally to competition law and consumer
protection issues. Except for the administrative proceedings described below,
which relate primarily to our alleged abuse of dominant market power, neither
Sonera Corporation nor any of our subsidiaries is involved in any legal,
arbitration or regulatory proceedings, which, if adversely decided, could have a
material adverse effect on our results of operations or financial condition.
However, the possibility of additional claims by competitors or other
proceedings, particularly in reliance on competition law, cannot be ruled out
and such claims or proceedings could have a material adverse effect on our
results of operations and financial condition.

INTERCONNECTION FEES

     On November 20, 1998, Telia Finland filed a complaint with the TAC relating
to the termination charges we applied on calls terminating in our mobile
network. Among other things, Telia Finland claims that the termination fees we
charged are not reasonably related to the actual costs of providing such
services and that the fees are thus contrary to the decisions issued by the
Ministry of Transport and Communications. We denied the allegations in responses
submitted to the TAC. On April 24, 2001, the TAC issued a decision in which it
stated that the interconnection fees we charged for calls terminating on our
domestic mobile network are not reasonable in relation to the actual costs of
providing such services. The TAC also stated that, in its opinion, our
interconnection fees violated the Telecommunications Market Act and the Ministry
of Transport and Communications' decisions on interconnection and ordered us to
revise our interconnection fees. We appealed the TAC's decision to the Helsinki
Administrative Court on May 25, 2001. We continue to believe that
interconnection pricing should be based on commercial negotiations among
operators. The decision of the TAC does not have binding effect prior to a
ruling by the Helsinki Administrative Court. In June 2001, we concluded
commercial
                                       154
168

interconnection agreements with Telia Mobile and Radiolinja, and we are
continuing to negotiate with other mobile operators on the Finnish market
regarding interconnection.

NATIONAL ROAMING CASES

     On September 23, 1998, Telia Finland filed a complaint with the TAC and the
FCA claiming that both Sonera and Radiolinja were in violation of the
Telecommunications Market Act and Finnish competition law in refusing to
conclude national roaming agreements with Telia Finland. We have responded to
the complaints by denying Telia Finland's claims and stating that we view the
failure to conclude a national roaming agreement with Telia Finland as a
disagreement concerning the pricing of a commercially based service. On March
12, 1999, the TAC issued a decision on the complaint in our favor, which was
subsequently upheld in procedural appeals in the Helsinki Administrative Court
and the Supreme Administrative Court. On January 12, 2000, the FCA issued a
decision maintaining that the pricing of national roaming we applied does not
require any action on the part of the FCA. The FCA is of the opinion that a
telecommunications operator has several different ways of gaining access to a
national telecommunications network, e.g. a service provider agreement. In its
decision, the FCA further stated that we do not, either alone or together with
Radiolinja, have a dominant market position in the access markets of national
mobile networks. Telia Finland has filed an appeal with the Finnish Competition
Council with respect to the FCA's decision in our favor. Radiolinja was,
however, not named as a party to the appeal. We filed several responses to the
appeal in 2000. The European Commission filed a submission with the Competition
Council, and on June 15, 2001, we filed a response to the European Commission's
submission. The European Commission's submission included its general views on
market definitions and the issue of collective dominance. The appeal is still
pending and we are not currently in a position to assess when the proceedings
will be brought to a conclusion or what the final outcome of the proceedings
will be.

     In March 1999, Telia Finland introduced national roaming for its GSM 1800
service in our network through the international roaming arrangement that we had
with Swisscom AG. In April 1999, we announced that because of certain technical
hazards found in the technical solution, which among others would interfere with
the proper functioning of emergency calls and blocking of pay-per-call numbers,
we would have to discontinue connecting traffic to the numbers that Swisscom has
reserved for Telia Finland's Dual service, unless Telia Finland would indemnify
us for possible legal claims. In accordance with this announcement, we started
to close off our mobile network of Telia Finland's GSM Dual subscriptions on
April 16, 1999. On April 16, 1999, Telia Finland filed a complaint with the
European Commission (DG Competition) claiming that Sonera and Radiolinja had
abused their dominant positions in the mobile market in Finland by interfering
with Telia Finland's service provider agreement with Swisscom. However, as a
consequence of Telia Finland's execution of a service provider agreement with
Radiolinja in the latter part of 1999, Radiolinja is no longer a party to the
action. On April 28, 1999, the European Commission requested that the Ministry
of Transport and Communications should act as an intermediary in a conciliation
procedure to resolve the dispute. On June 23, 1999, Telia Finland discontinued
negotiations and resubmitted its complaint to the European Commission. We have
responded to the European Commission's request for information. The European
Commission informed us in October 1999 that pursuant to Article 6 of Commission
Regulation 2842/98 it had notified Telia Finland that, in the Commission's
preliminary view, Telia Finland's application for interim measures was not
justified. We entered into a new international roaming agreement with Swisscom
which came into effect on March 16, 2000. On November 21, 2000, we received
Telia's supplementary submission to the European Commission to which we
submitted our observations on December 22, 2000. Telia Finland's complaint
against us before the European Commission is still pending and it cannot be
excluded that the European Commission may open formal proceedings against us. We
are currently not in a position to predict with any certainty the timing or
likely outcome of the proceedings. We remain prepared to offer Telia Mobile
Finland national roaming services on a commercial basis.

     The TAC is currently investigating pricing and discount policies of several
Finnish telecommunications operators with respect to their leased line
operations. We received a request for information from the TAC on January 29,
1999, to which we have duly responded by providing the requested information. On
January 25, 2000, Telepohja Oy filed a complaint with the FCA requesting the FCA
to investigate whether we are abusing our alleged dominant position in the local
telecommunications market of our traditional local network areas. In the
complaint, Telepohja asserted that (1) our monthly rental prices for subscriber
lines and leased lines are

                                       155
169

excessive, especially in rural areas; (2) the difference in prices charged in
urban areas as compared to rural areas are not related to costs; and (3) the
installation fees we charge are unreasonable. On January 25, 2000, Telepohja
also filed a complaint with the TAC on the same issue. Telepohja asked the TAC
to investigate whether our pricing described above is in compliance with the
Telecommunications Market Act, in view of our significant market power in
certain local telecommunications markets. The complaints are still pending and
management is currently not in a position to assess when the proceedings will be
brought to a conclusion or what the final outcome of the proceedings will be.

     On February 1, 2001 we received a request from the TAC for information
concerning interconnection fees and our compliance with the Telecommunications
Market Act with respect to our fixed network activities. We submitted our
response on April 30, 2001.

     In November 1999, MTV 3--Tele Oy filed a complaint against us with the FCA
claiming that the fees we charge for commercial SMS services are excessive. Our
response to the complaint on November 29, 1999 stated that the SMS services we
offer are reasonably priced and explained the division of SMS fees and costs as
between service providers and the content providers. On May 2, 2000, in a
related action, Televerkko Oy filed a complaint with the FCA against us claiming
that we are abusing our dominant market position in the market for mobile
services in connection with the pricing of our SMS services to content
providers. The FCA is investigating the pricing of our SMS services as well as
the actual costs we incur to provide SMS services to content providers. The FCA
has notified us that the pricing of our SMS services should be cost based,
non-discriminatory and transparent. On May 31, 2000, we responded to the FCA's
initial request for information. On April 10, 2001 we received a supplementary
request for information focusing on the pricing and billing of SMS services,
volumes of SMS traffic and market shares. According to a preliminary competition
analysis carried out by the FCA, we have a dominant market position in the
market of SMS based content services provided in its own network. We have
responded to the supplementary request for information on May 25 and June 8,
2001. These complaints are still pending. We are currently not in a position to
predict with any certainty the timing or likely outcome of the proceedings.

     In June 2000, the FCA sent a letter to Sonera and the Finnet companies
alleging that, based on complaints received by the FCA, we are abusing our
dominant position by refusing to deliver identification data on our mobile
subscribers and by discriminatory pricing of data on subscribers of the fixed
network in Finland. The FCA also alleges that Sonera and the Finnet companies
have violated the terms of the exemption that the FCA has granted to the
Directory Assistance Services Finland (Suomen Numeropalvelu Oy), which maintains
a joint database of Sonera's and Finnet companies' subscribers. We own 40
percent of Directory Assistance Services Finland. In the letter, the FCA
indicated that it may ask the Competition Council to revoke the exemption. A
similar proceeding is also pending at the TAC.

CONTROL OF CONCENTRATIONS

     On January 2001, we purchased a 24.1 per cent holding in Loimaan Seudun
Puhelin Oy, a local telephone company operating in the Western part of Finland.
We notified the FCA of the share purchase as required under Finnish control of
concentrations regulations. The closing of the purchase is conditional upon FCA
approval. The matter is still pending.

     In March 2001, a group of local Finnish telephone companies filed an
application with the Board of Arbitration of the Central Chamber of Commerce of
Finland requesting the commencement of arbitration proceedings regarding Loimaan
Seudun Puhelin Oy's 33 percent holding in Turun Puhelin Oy. The applicants have
demanded that the Court of Arbitration affirm that they have the right to have
their shares in Turun Puhelin Oy redeemed by us. The applicants base their claim
on the argument that Loimaan Seudun Puhelin Oy has acted merely as our
intermediary and that the actual owner of the 33 percent holding shares is
Sonera. The case is still pending and we are currently not in a position to
predict with any certainty the timing or likely outcome of the proceedings.

                                       156
170

EUROPEAN UNION SECTOR INQUIRIES

     On July 27, 1999, the European Commission commenced a sector inquiry across
the European Union focusing on three areas of the telecommunications sector:
leased lines, mobile roaming and access to and use of the residential local
loop. The sector inquiry has been carried out in three phases. We responded to
the Commission's inquiry into leased lines in December 1999 and mobile roaming
in March 2000. We received a second set of questions relating to mobile roaming
on July 2000 to which we responded in August 2000. In July 2000, we also
received a request for information on unbundled access to the local loop and the
provision of DSL services to which we responded in September 2000.

     Except as noted above, we have responded to all requests for information
issued by the FCA, the TAC and the European Commission in relation to all above
matters, and the agencies are currently evaluating such responses, as well as
certain submissions by other interested parties. We are unable to predict with
any certainty the timing or the likely outcome of the disposition of the
proceedings pending before the FCA, the TAC and the European Commission.

     Since the liberalization of the Finnish telecommunications market in 1994,
Sonera and other telecommunications operators in Finland have been subject to
increased administrative and legal scrutiny, often in the form of an
administrative investigation initiated by Finnish or European Union regulatory
bodies and legal claims brought with little or no notice. Management expects
that administrative oversight of the Finnish telecommunications industry will
gradually shift to European Union institutions as a consequence of the recent
liberalization of the markets of most European Union member states. Therefore,
the possibility of additional claims by competitors or other proceedings,
particularly in reliance on competition law, cannot be ruled out and such claims
or proceedings could have a material adverse effect on our results of operations
and financial condition.

OTHER MATTERS

     In August 2000, Tilts Communications A/S, a Danish subsidiary of which we
own 90 percent, started arbitration proceedings against the Republic of Latvia
under the rules of the International Chamber of Commerce (ICC) in Stockholm. The
reason for initiating arbitration was the agreement signed in 1993 between the
Republic of Latvia and Tilts. According to this agreement, the Latvian
fixed-line operator, Lattelekom SIA, of which Tilts owns 49 percent and the
State of Latvia 51 percent, has exclusive rights to provide basic fixed network
services in Latvia until December 31, 2013. However, contrary to the agreement,
the Republic of Latvia has made a commitment to the World Trade Organization
that Lattelekom's exclusive rights will be revoked by January 1, 2003. A
decision in this case is not expected before 2002.

     On July 20, 1998, Swisscom AG filed an opposition with the European Patent
Office (EPO) to a patent related to technology used by Sonera SmartTrust. In its
filing, Swisscom AG requested that the opposed patent be revoked in its
entirety. The EPO's Opposition Division has revoked the current scope of the
patent and has summoned both Swisscom and Sonera to attend hearings on the
matter. We believe that, through the EPO appeals process, we will be successful
in getting the patent restated, even if the scope of the patent's claims are
narrower than in the patent as initially granted. We also believe that the end
of the EPO appeals process the scope of claims of the patent will provide Sonera
SmartTrust with adequate patent protection regarding our current products and
services.

     In connection with our termination of the executive agreement between
Sonera Corporation and Harri Vatanen, former Chief Executive Officer of Sonera
SmartTrust, we initiated legal proceedings on March 2, 2001 in Finland to
confirm, among other things, that the technology agreement we concluded with
Vatanen in 1998 is legally binding and in force and that we have fulfilled our
obligations under such agreement. We have commenced this action in order to
protect our interests in light of the termination of Vatanen's employment. In
this connection, Vatanen has brought a claim against Sonera and certain of its
subsidiaries in the Superior Court of California, County of Santa Clara, in the
United States for rescission of the technology agreement, alleged
misrepresentation and fraud in relation to entering into such agreement and
certain other related claims seeking, among other things, rescission of such
agreement, confirmation that Vatanen is the rightful owner of the intellectual
property covered thereby and award of compensatory damages in an unspecified
amount. Sonera

                                       157
171

continues to pursue the legal proceedings initiated by it in Finland and
disputes both the jurisdiction of the Superior Court of California in the matter
and the claims brought by Vatanen therein.

     In April 2001, Murray L. Swanson, the former Managing Director and Chief
Executive Officer of Sonera Corporation U.S., our wholly-owned subsidiary,
brought a complaint in the Circuit Court of Cook County, Illinois County
Department, Law Division, against Sonera Corporation and Sonera Corporation U.S.
alleging breach of contract and fraudulent inducement in relation to the
employment agreement entered into between Sonera Corporation U.S. and Swanson on
October 7, 1998. In the complaint, Swanson claims that Sonera Corporation and
Sonera Corporation U.S. have failed to fulfill their obligations under the terms
of the employment agreement and that Sonera Corporation and Sonera Corporation
U.S. had made false representations in relation thereto. Swanson seeks, among
other things, recovery of his alleged damages, which he states are in excess of
U.S. $75 million, and punitive damages in an unspecified amount. We have denied
any basis for liability on our part and intend to defend vigorously against his
complaint.

                                DIVIDEND POLICY

     At our annual general meeting held on March 21, 2001, we declared a
dividend of E0.09 per share in respect of fiscal year 2000. The dividend,
totaling E67 million was paid on April 3, 2001 to shareholders of record on
March 26, 2001.

     PT Finland paid total cash dividends of E54 million and E185 million to the
Finnish State, its sole shareholder, for the fiscal years ended December 31,
1996 and 1997, respectively. These dividends were funded mainly through group
contributions made to PT Finland by Telecom Finland, Finland Post Ltd. and other
subsidiaries of PT Finland in accordance with their respective profitability
during such years. Accordingly, we have recorded in our consolidated financial
statements, as our share of dividends paid by PT Finland, dividends paid of E38
million and E132 million in respect of the fiscal years ended December 31, 1996
and 1997, respectively. We paid total cash dividends of E61 million and E87
million to our shareholders in respect of the fiscal years ended December 31,
1998 and 1999, respectively. These dividends may not be indicative of future
dividend payments we may make.

     The following table sets forth the annual dividends per share paid during
each of the financial years indicated:
DIVIDEND PAID
                                                                  PER SHARE
                                                                -------------
YEAR ENDED DECEMBER 31,                                          E      U.S.$
-----------------------                                         ----    -----
1996........................................................    0.04    0.05
1997........................................................    0.05    0.06
1998........................................................    0.18    0.20
1999........................................................    0.08    0.09
2000........................................................    0.12    0.11
2001........................................................    0.09    0.08
------------------------------

(1) After the annual general meeting of shareholders has approved the annual
    financial statements and the amount of dividends, the amount is deducted
    from retained earnings and recorded as a liability until the time of
    payment. Dividend amounts have been restated in euros using the irrevocable
    conversion rate of E1.00 = FIM 5.94573 and translated into U.S. dollars at
    the Noon Buying Rate for the relevant dividend payment date.

     The determination to pay dividends, and the amount of the dividends, will
depend upon, among other things, the following:

     -  our earnings;

     -  our financial condition;

     -  our capital requirements;

     -  development requirements;
                                       158
172

     -  cash provided by operating activities;

     -  applicable restrictions on the payment of dividends under Finnish law;
        and

     -  other factors as our Board of Directors may deem relevant.

     Subject to the foregoing constraints, the objective of our Board of
Directors is to recommend to shareholders the payment of an aggregate dividend
representing approximately one-fourth of our annual consolidated net income for
any particular year.

     Under the Finnish Companies Act, the amount of any dividend is limited to
the profits and other distributable funds available at the end of the preceding
fiscal year for Sonera Corporation or for Sonera on a consolidated basis,
whichever is lower. As of December 31, 2000, the total distributable funds of
Sonera Corporation amounted to E1,665 million and, for Sonera on a consolidated
basis, to E2,722 million.

     Dividends paid to holders of our shares (in the form of shares or ADSs) who
are non-residents of Finland will generally be subject to Finnish withholding
tax at a rate of 29 percent. Such shareholders may, however, be subject to a
lower withholding tax rate and may be allowed an imputation tax credit to reduce
the tax on dividends where there is a double taxation treaty with Finland that
contains appropriate provisions. The current convention between the Government
of the United States of America and the Government of the Republic of Finland
for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with
Respect to Taxes on Income and on Capital does not contain provisions that
extend such imputation credits to U.S. Holders of our shares (in the form of
shares or ADSs). See "Item 10. Additional Information -- Taxation -- Finnish
Taxation."

                              SIGNIFICANT CHANGES

     Except as otherwise disclosed in this annual report, there have been no
significant changes in our business or financial condition since March 31, 2001.

ITEM 9.  THE OFFER AND LISTING.

                            NATURE OF TRADING MARKET

     The principal trading market for our shares is the Helsinki Exchanges. The
following table below sets forth, for the periods indicated, the reported high
and low market quotations for our shares on the Helsinki Exchanges based on its
Daily Official List.

                                       159
173
{PRICE PER SHARE}
                                                                ------------------
                                                                 HIGH        LOW
                                                                -------    -------
                                                                      (IN E)
1998
Fourth Quarter (from November 10, 1998).....................     16.82       9.92
1999
First Quarter...............................................     17.35      12.40
Second Quarter..............................................     23.00      15.32
Third Quarter...............................................     28.00      20.31
Fourth Quarter..............................................     71.10      23.95
2000
First Quarter...............................................     97.00      47.50
Second Quarter..............................................     71.00      39.70
Third Quarter...............................................     56.80      26.50
Fourth Quarter..............................................     30.90      17.15
2001
First Quarter...............................................     25.10       8.13
January.....................................................     25.10      17.40
February....................................................     22.11      10.52
March.......................................................     13.90       8.13
Second Quarter..............................................     12.99       7.10
April.......................................................     12.49       7.10
May.........................................................     12.99      10.10
June........................................................     10.79       8.21
Effective as of January 1, 1999, shares of companies listed on the Helsinki
Exchanges trade in euros. The share price information set forth above for 1998
represents the euro equivalent of such share prices in Finnish markka at the
conversion rate of FIM 5.94573 to one euro.

     Since October 13, 1999, our shares have been traded in the United States on
the Nasdaq National Market under the symbol "SNRA" in the form of American
Depositary Shares ("ADSs"), which are evidenced by American Depositary Receipts
("ADRs"). Each ADS represents one share. The depositary for the ADSs is
Citibank, N.A. (the "Depositary").

     The Depositary has advised us that, as of June 27, 2001, 1.2 percent of our
outstanding shares were held in the United States in the form of ADSs by 76
record holders. A significant number of ADSs are held of record by broker
nominees. The number of beneficial owners is unknown but is considered to be
materially higher than the number of record holders.

     The table below sets forth the high and low sales prices quoted for our
ADSs on the Nasdaq National Market.

                                       160
174
U.S. DOLLARS PER ADS
                                                                --------------------
                                                                 HIGH          LOW
                                                                -------      -------
1999
Fourth Quarter (from October 13, 1999)......................     73.13        25.19
2000
First Quarter...............................................     93.13        53.50
Second Quarter..............................................     66.86        35.94
Third Quarter...............................................     53.38        24.75
Fourth Quarter..............................................     26.86        16.00
2001
First Quarter...............................................     23.13         7.25
January.....................................................     16.63        23.13
February....................................................     20.69         9.94
March.......................................................     12.94         7.25
Second Quarter..............................................     11.31         6.16
April.......................................................     11.14         6.16
May.........................................................     11.31         8.52
June........................................................      9.31         7.27
TRADING MARKETS

TRADING AND SETTLEMENT ON THE HELSINKI EXCHANGES

     Trading in, and clearing of, securities on the Helsinki Securities and
Derivatives Exchange, Clearing House Ltd. (Helsinki Exchanges) takes place in
euros, with the minimum tick size for trading quotations being one euro cent.
All price information is produced and published only in euros.

     The trading system of the Helsinki Exchanges, the Helsinki Exchanges
Automated Trading and Information System, is a decentralized and fully automated
order-driven system. Trading is conducted on the basis of trading lots, which
are fixed separately for each share series.

     Official share trading takes place from 10:00 a.m. to 6:00 p.m. and evening
trading from 6:03 to 9:00 p.m. Helsinki time on each trading day. The official
closing prices are confirmed at the end of the official share trading at 6:00
p.m. Offers may be placed in the system beginning at 9:00 a.m. during a
pretrading period. Offers are matched from 09:40 to 10:00 a.m. to determine the
opening quotations of the day. Contract transactions may continue to be
registered during aftermarket trading from 6:03 to 6:30 p.m. and from 8:30 to
9:00 a.m. the following morning within the price limits arrived at during the
official share trading.

     The transactions are normally cleared in the Finnish Central Securities
Depository's automated clearing and settlement system on the third banking day
after the trade date unless otherwise agreed by the parties.

REGULATION OF THE FINNISH SECURITIES MARKET

     The principal statute governing the securities market is the Securities
Market Act of 1989, as amended (the "Securities Market Act"). The Securities
Market Act contains regulations with respect to company and shareholder
disclosure obligations, admission to listing and trading of listed securities
and public takeovers, among other things. The securities market in Finland is
supervised by the Finnish Financial Supervision Authority, who monitors
compliance with these regulations.

     The Securities Market Act specifies minimum disclosure requirements for
Finnish companies applying for listing on the Helsinki Exchanges or making a
public offering of securities in Finland. The information provided must be
sufficient to enable investors to make a sound evaluation of the security being
offered and the issuing company. Finnish listed companies have a continuing
obligation to publish regular financial information, and to inform the market of
any matters likely to have a material impact on the value of their securities.

                                       161
175

     A shareholder is required to notify a Finnish listed company and the
Finnish Financial Supervision Authority when its voting participation in, or its
percentage ownership of, issued share capital of such Finnish listed company
reaches, exceeds or falls below five percent, ten percent, 15 percent, 20
percent, 25 percent, 33 1/3 percent, 50 percent or 66 2/3 percent, calculated in
accordance with the Securities Market Act, or when it enters into an agreement
or other arrangement that, when effected, has such effect. If a Finnish listed
company receives information indicating that a voting interest or ownership
interest has reached, exceeded or fallen below the aforementioned thresholds, it
must disclose such information to the public and to the Helsinki Exchanges.

     Pursuant to the Securities Market Act, a shareholder whose holding in a
listed company increases above two-thirds of the total voting rights attached to
the shares of the company after the commencement of a public quotation of such
shares must offer to purchase the remaining shares of such company for fair
market value. Under the Companies Act, a shareholder holding shares representing
more than 90 percent of all the share capital in a company and more than 90
percent of the shares and the votes entitled to be cast at a general meeting of
shareholders has the right to require the minority shareholders to sell the
remaining shares of such company to such shareholder for fair market value. In
addition, any minority shareholder that possesses shares that may be so
purchased by a majority shareholder is entitled to require such majority
shareholder to purchase its shares. Detailed rules apply for the calculation of
the above proportions of shares and votes.

     The Finnish Criminal Code also contains provisions relating to the misuse
of privileged or inside information and market manipulation. Breach of these
provisions constitutes a criminal offense.

THE FINNISH BOOK-ENTRY SECURITIES SYSTEM

     Finland has made a gradual changeover from a certificated securities system
to a book-entry securities system since August 1, 1991, when the relevant
legislation came into effect. Use of the book-entry securities system is
mandatory for shares listed on the Helsinki Exchanges. The shares of the Sonera
Corporation were entered into the book-entry system on May 2, 1996.

     The book-entry securities system is centralized at the Finnish Central
Securities Depository, which provides national clearing and registration
services for securities. The Finnish Central Securities Depository maintains a
central book-entry securities system for both equity and debt securities.

     The Finnish Central Securities Depository maintains a register of
shareholders of listed companies and book-entry accounts for shareholders that
do not wish to utilize the services of a commercial account operator, such as
credit institutions, investment services companies and other institutions
licensed to act as account operators by the Finnish Central Securities
Depositary (each, an "Account Operator"). The expenses incurred by the Finnish
Central Securities Depository in connection with maintaining such accounts are
borne by the issuers participating in the book-entry securities system and the
Account Operators. In addition to the Finnish Central Securities Depository, the
Account Operators are entitled to make entries in the book-entry register.

REGISTRATION

     In order to effect entries in the Finnish book-entry securities system, a
security holder or such holder's nominee must establish a book-entry account
with the Finnish Central Securities Depository or an Account Operator or
register its securities through nominee registration. All transactions in
securities registered with the book-entry securities system are executed as
computerized book-entry transfers. The Account Operator confirms book-entry
transfers by sending notifications of transactions to the investor holding the
respective book-entry account. Investors also receive an annual statement of
their holdings as of the end of each calendar year.

     Each book-entry account is required to contain specified information with
respect to the account holder or the custodian administering the assets of a
custodial nominee account. Such information includes the type and number of
book-entry securities registered and the rights and restrictions pertaining to
the account and to the book-entry securities registered in the account. A
custodial nominee account is identified as such on the entry. The Finnish
Central Securities Depository and the Account Operators are required to observe
strict confidentiality, although certain information (for example the name,
nationality and address of each account holder) contained in the registers must
be made available to the public.

                                       162
176

     Each Account Operator is strictly liable for errors and omissions on the
registers maintained by it and for any unauthorized disclosure of information.
However, if an account holder has suffered a loss as a result of a faulty
registration or an amendment to, or deletion of, rights in respect of registered
securities and the Account Operator is unable to compensate such loss, such
account holder is entitled to receive compensation from the Finnish Central
Securities Depository. To cover this contingency, the Finnish Central Securities
Depository maintains a statutory registration fund. The capital of the fund is
at least 0.000048 percent of the average of the total market value of the book
entries kept in the book-entry system during the last five years, however, no
less than E20 million. The maximum compensation to be paid to one injured party
shall be equal to the amount of damages suffered by such injured party from a
single Account Operator, however, not more than E25,000. Furthermore, the
liability of the registration fund is limited to E10 million per incident.

CUSTODY OF THE SHARES AND NOMINEES

     Shares may be held in the book-entry register of the Finnish Central
Securities Depository. A non-Finnish shareholder may appoint a custodian (or
certain non-Finnish organizations approved by the Finnish Central Securities
Depository) to act as a nominee shareholder on its behalf. A nominee shareholder
is entitled to receive dividends and to exercise all share subscription rights
and other financial rights attaching to the shares held in its name. It may not,
however, exercise any administrative rights attaching to such shares, such as
the right to attend and vote at general meetings of the company. A beneficial
owner wishing to exercise such rights must seek a temporary registration in the
register of shareholders not later than ten days prior to the relevant general
meeting. A nominee is required to disclose to the Finnish Financial Supervision
Authority and the relevant company on request the name of the beneficial owner
of any shares registered in the name of such nominee, where the beneficial owner
is known, as well as the number of shares owned by such beneficial owner.

     Finnish Depositories for both Clearstream Banking and Euroclear have
nominee accounts within the book-entry securities system and, accordingly,
non-Finnish shareholders may hold their shares through their accounts with
Clearstream Banking or Euroclear.

     Shareholders wishing to hold their shares in the book-entry securities
system in their name and who do not maintain a custody account in Finland are
required to open a book-entry account at an authorized Account Operator in
Finland and a convertible Finnish markka or euro account.

ITEM 10.  ADDITIONAL INFORMATION.

                     MEMORANDUM AND ARTICLES OF ASSOCIATION

ORGANIZATION AND REGISTER

     Sonera Corporation is incorporated as a stock corporation (julkinen
osakeyhtio) organized under the laws of the Republic of Finland. Sonera
Corporation is registered in the Trade Register maintained by the National Board
of Patents and Registration of Finland, under the business code 1475607-9.

LINE OF BUSINESS

     Pursuant to Section 2 of the articles of association, the line of business
of Sonera Corporation is general telecommunications operations, building and
maintenance of telecommunications networks, and routing of telecommunications;
the provision of various telecommunications, data communications, Internet and
value-added services; publications, content provision and information service
business; electronic commerce; planning, development, manufacture, marketing and
sales of terminal equipment, information systems, software, services and other
products, and related research, consulting and maintenance operations, and other
business related to them or supporting them. We conduct our business either
directly or through our subsidiaries or joint ventures, and we have the right to
own shares and real property, trade in securities, and conduct other investment
business.

                                       163
177

SHARE CAPITAL

     For a description of our share capital, see "Item 5. Operating and
Financial Review and Prospects -- Authorized Share Capital."

CORPORATE GOVERNANCE

     Matters pertaining to corporate governance are mainly regulated under the
Finnish Companies Act. Pursuant to the Companies Act, members of our Board of
Directors are prohibited from participating in the negotiation or performance,
or otherwise having an involvement in connection with, a contract between
themselves and Sonera. This prohibition includes contracts between Sonera and a
third party if such director would receive a material benefit in conflict with
the interests of Sonera. For a discussion of corporate governance relevant to
us, see "Item 6. Directors, Senior Management and Employees."

PRE-EMPTIVE RIGHTS AND POSSIBLE UNAVAILABILITY OF PRE-EMPTIVE RIGHTS FOR U.S.
HOLDERS

     U.S. holders of the shares and ADSs may not be able to exercise any
preemptive rights and preferential rights in respect of their shares unless a
registration statement under the Securities Act of 1933 is effective with
respect to these rights or an exemption from the registration requirements
thereunder is available.

     Under Finnish law, existing shareholders of Finnish companies have
preferential rights to subscribe, in proportion to their shareholdings, for new
shares of such companies as well as for issues of subscription warrants or debt
instruments convertible into shares or carrying warrants to subscribe for
shares, unless the corporate resolution approving such issue provides otherwise.
Under the Companies Act, a resolution waiving pre-emptive rights must be
approved by at least two-thirds of all votes cast and all shares represented at
the general meeting of shareholders.

GENERAL MEETING OF SHAREHOLDERS

     Under the Companies Act, shareholders exercise their power to decide on
corporate matters at general meetings of shareholders. Section 13 of the
articles of association require that a general meeting of shareholders be held
annually within four months of the end of the financial year, on a date decided
by the Board of Directors. At the annual general meeting of shareholders, the
financial statements, including the income statement, balance sheet and annual
report, the consolidated income statement and balance sheet, and the auditor's
report are presented to the shareholders for adoption. Also at the annual
general meeting of shareholders, the shareholders decide any measure warranted
by the profit or loss shown in the adopted balance sheet or consolidated balance
sheet, discharge members of the Board of Directors and the President and the
Chief Executive Officer from liability, elect the Chairman, Vice Chairman and
members of the Board of Directors, and decide on the number of members of the
Board of Directors and auditors and their remuneration.

     Under the articles of association, a shareholder must give notice to the
Sonera Corporation of his or her intention to attend a general meeting no later
than the date and time specified by the Board of Directors in the notice of the
general meeting, which may not be earlier than five days before the general
meeting (the "Registration Date"). Under the articles of association, notices of
general meetings must be given not earlier than two months prior to the
Registration Date and not later than 12 days before the meeting by publishing an
announcement of the meeting in at least two Finnish daily newspapers designated
by the Board of Directors at its discretion.

     Inasmuch as the shares have been transferred to the Finnish Book-Entry
Securities System, in order to have the right to attend and vote at a general
meeting, a shareholder must be registered not later than ten days prior to the
relevant general meeting in the register of shareholders kept by the Finnish
Central Securities Depository in accordance with the Companies Act and the Act
on the Book-Entry Securities System. See "Item 9. The Offer and Listing --
Trading Markets -- The Finnish Book-Entry Securities System." Voting rights may
not be exercised by a shareholder if such shareholder's shares are registered in
the name of a nominee. A beneficial owner wishing to exercise such rights should
seek a temporary registration in the register of shareholders not later

                                       164
178

than ten days prior to the relevant general meeting. There are no quorum
requirements for general meetings in the Companies Act or the articles of
association.

VOTING

     A shareholder may attend and vote at a general meeting in person or through
an authorized representative. Each share is entitled to one vote. In order to
attend and vote at a general meeting, a shareholder generally must be registered
in the register of shareholders, which is kept by the Finnish Central Securities
Depository, Ltd. in accordance with the Companies Act and the Act on the
Book-Entry Securities System of 1991, as amended. Voting rights may not be
exercised by a shareholder if his shares are registered in the name of a
nominee, as is the case for registered holders and beneficial owners of the
ADSs. A registered holder or a beneficial owner of the ADSs, like other
beneficial owners whose shares are registered in the name of a nominee, may vote
such shares provided that he arranges to have his name entered in the register
of shareholders as of the record date of meeting, which must be no later than
ten days prior to a general meeting, until the day of meeting.

     Shareholders that have not transferred their shares to the Finnish
Book-Entry Securities System may also attend and vote at general meetings if
they were registered in the share register maintained by the Company before the
date on which the shares should have been transferred to the book-entry system
at the latest and provide evidence of their ownership of shares on the date of
the general meeting. In addition, in order to attend and vote at a general
meeting, a shareholder must notify the Company of its intention to do so no
later than the last registration date specified in the notice concerning the
general meeting, which under our articles of association may not be earlier than
two months before the Registration Date and not later than 12 days before the
meeting.

     A shareholder whose shareholding is registered in the name of a nominee may
not attend and vote at a general meeting. A beneficial owner wishing to exercise
such rights must cancel the nominee arrangements and seek individual
registration no later than ten days prior to the relevant general meeting.

     There are no quorum requirements for general meetings.

     At a general meeting, most resolutions are passed by a majority of the
votes cast. However, certain resolutions, such as a resolution to amend the
articles of association, a resolution to issue shares in contravention of
shareholders' preferential subscription rights and, in certain cases, a
resolution regarding a merger or liquidation of Sonera, require a majority of
two-thirds of the votes cast and shares represented at the general meeting.
Further, if an amendment to our articles of association would diminish the
rights of an entire class of shares, the resolution, in addition to the above
majority requirement, requires the consent of shares representing at least
one-half of all the shares of such class and two-thirds of the shares of such
class represented at the general meeting of shareholders.

LIQUIDATION

     If Sonera Corporation were to be liquidated, any liquidation proceeds
remaining after all of our liabilities were paid would be distributed to our
shareholders in proportion to their shareholdings.

PURCHASE OBLIGATIONS

     Pursuant to the Securities Market Act, a shareholder who acquires in excess
of two-thirds of the total voting rights of the shares of a company after the
commencement of a public quotation of the shares must offer to purchase the
remaining shares of the company.

CONTROL OF FOREIGN OWNERSHIP

     Restrictions on foreign ownership of Finnish companies were abolished as of
January 1, 1993. However, under the Act on the Control of Foreigners'
Acquisition of Finnish Companies of 1992, clearance by the Finnish Ministry of
Trade and Industry would be required if a foreign person or entity, other than a
person or entity from another member state of the European Economic Area or the
Organization for Economic Cooperation and Development, or a Finnish entity
controlled by one or more such foreign persons or entities, were to acquire
                                       165
179

a holding of one-third or more of the voting power of the Company. The Ministry
of Trade and Industry could refuse clearance where the acquisition would
jeopardize important national interests, in which case the matter would be
referred to the government of Finland.

                               MATERIAL CONTRACTS

CONTRACTUAL ARRANGEMENTS RELATING TO OUR INVESTMENT IN GRUPPE 3G

     In August 2000, Gruppe 3G, a consortium in which we hold a 42.8 percent
interest, was awarded a 20 year UMTS license as the result of an auction process
in Germany for a total purchase price of E 8,408 million. Telefonica Moviles
S.A., a subsidiary of Telefonica S.A., a major Spanish wireless communications
company, holds the remaining 57.2 percent interest in Gruppe 3G.

ARTICLES OF ASSOCIATION OF GRUPPE 3G

     Gruppe 3G is incorporated in Germany. The purpose of Gruppe 3G is the
acquisition, holding and disposal of interests in domestic and foreign
enterprises and contributing to the expansion of UMTS services. Gruppe 3G may
acquire shares in, participate in, or lease other businesses to carry out its
purposes.

     The articles of association of Gruppe 3G establish an advisory board of
five members for the company. The members of the advisory board shall be
appointed and removed by the shareholders. The number of members of the advisory
board may be increased to seven by shareholders' resolution with a 75 percent
majority. The members of the advisory board and one substitute for each member
are appointed and removed by a shareholders' resolution with a simple majority.
Members of the advisory board are appointed for a term of three years. They can
be reappointed. A managing director or employee of the company may not be a
member of the advisory board. An employee or agent of an enterprise in which
Gruppe 3G holds a substantial number of shares also may not be a member of the
advisory board.

     The articles of association of Gruppe 3G create rights and duties on the
management. The document lists corporate actions that management may not
undertake without an advisory board resolution. Among others, the restricted
actions include the approval of major budgets and business plans, major
strategic alliances, investments, divestments, borrowing, employment agreements,
transfers of interest, pledges of assets, or changes in the articles of
association, the name of Gruppe 3G or the names of any of Gruppe 3G's
subsidiaries.

     The articles of association require that the following matters require the
approval of at least 90 percent of the votes cast as shareholders: any changes
to the name of Gruppe 3G; Gruppe 3G's transformation, merger, consolidation, or
division; any increase or decrease of the registered capital of Gruppe 3G; the
liquidation or winding up of Gruppe 3G; or the appointment of the auditor of
Gruppe 3G.

     Certain restrictions apply to the capital shares of Gruppe 3G. There is a
general restriction on capital shares requiring that they not be sold until
either (1) two years have passed from the date of the award of the UMTS license
in Germany or (2) one year from the clearly identifiable date of the launch of
the consortium's telecommunications services by subsidiaries of Gruppe 3G
(except for a sale to an affiliated enterprise as described in the articles of
association). There are procedural restrictions granting sub-participation,
silent participation or similar participation rights to third parties. There are
also procedural restrictions for shares transferred after the lock-up period.
Except for sales to affiliated parties, the shareholders not wishing to sell
their shares have a preemptive right to purchase the shares of the shareholder
that wishes to sell its shares, according to the terms of the articles of
association. The articles of association also provide for the procedures for
shareholders' meetings and accounting.

CONSORTIUM AGREEMENT

     The consortium agreement entered into on August 16, 2000 between Telefonica
Intercontinental S.A., a subsidiary of Telefonica Moviles, and Sonera 3G Holding
B.V., a subsidiary of Sonera, provides terms and conditions for, among other
things:

                                       166
180

     -  the structure of the Gruppe 3G joint venture;

     -  the requirements relating to the auction of the German third generation
        license;

     -  the principles of corporate governance to be followed by the joint
        venture;

     -  the effects of a change of control in either signatory; and

     -  funding.

     The Gruppe 3G joint venture was initially created to participate in the
German UMTS license auction. As a part of the consortium agreement, the
signatories of the consortium agreement agreed to establish a company to conduct
Gruppe 3G's business utilizing the bandwidth available under the German UMTS
license. The terms of the business established were to be on arms-length
commercial terms. The consortium agreement states that one of the objectives of
Gruppe 3G is to undertake an initial public offering within five years of the
signing date, depending on market conditions.

     The signatories agreed that the joint venture would be managed on a
day-to-day basis by one or more managing directors. The managing directors are
chosen by the advisory board of Gruppe 3G. The advisory board is created
pursuant to the articles of association of Gruppe 3G and allows each shareholder
or group of shareholders representing 25 percent of the shares of Gruppe 3G to
appoint one member and a substitute to the advisory board. The term of office,
powers, duties and remuneration of the managing directors are also determined by
the advisory board, in accordance with the articles of association of Gruppe 3G
and the consortium agreement. The managing directors may include the chief
financial officer, the chief technical officer, or the chairman of the
management board (Vorsitzender der Geschaftsfuhrung, also known as the "CEO").
There is only a CEO if there are more than one managing director. As long as
Telefonica Moviles holds a greater than 30 percent beneficial interest in Gruppe
3G, Telefonica Moviles has the right to nominate the sole managing director, if
there is only one managing director, or the CEO. Our consent is required to
appoint the Managing Director or the CEO, which consent may not be unreasonably
withheld or delayed.

f The sole managing director, if there is only one managing director, or the
CEO, have the maximum powers and responsibilities accorded under the laws of
Germany, and either one is in principle responsible for the management of all
activities of Gruppe 3G, the implementation of the business plan created by the
signatories to the consortium agreement, and the provision of information to the
advisory board relating to all major activities of Gruppe 3G and its
subsidiaries.

     In addition to the advisory board, a supervisory board will be elected by
the shareholders in conformity with German law. The members of the supervisory
board will represent the shareholders in proportion to their percentage interest
in Gruppe 3G.

     The consortium agreement has specific conditions concerning a change of
control in either Telefonica Intercontinental or Sonera 3G Holding or their
respective parent companies. Upon a change of control of either party that
results in that party being controlled by a competitor of the other party,
Gruppe 3G or Gruppe 3G's operating subsidiary, a call right is triggered under
which the party which was not the subject of the change of control may purchase
the other party's interest. In addition, the consortium agreement provides that
upon a change of control of either party which results in a regulatory
determination that causes such party to dispose of its interest in Gruppe 3G,
then we have the right to require Telefonica Moviles to purchase, or to cause a
third party to purchase, all of our interest in Gruppe 3G. Any payment would be
based on the cost of the license until August 2001 and, thereafter, fair market
value.

     Funding both for the German UMTS license and the business to exploit that
license is to be provided according to UMTS each shareholder's percentage
interest in Gruppe 3G.

IRREVOCABLE OFFERS FOR REMAINING SHARES

     The Gruppe 3G subsidiaries of both Telefonica Moviles and Sonera have
signed agreements which provide that in the event that either party should want
to sell its shares, that party must first give the other party the right

                                       167
181

to purchase, or to designate a third party to purchase, those shares at a price
determined under the rules of the agreement.

LOCK-UP ARRANGEMENTS RELATING TO OUR SHAREHOLDINGS IN DEUTSCHE TELEKOM

     We own approximately 72 million shares of Deutsche Telekom, representing
less than two percent of its outstanding shares. Deutsche Telekom is the largest
provider of telecommunications services in Europe. We acquired our interest in
Deutsche Telekom as a result of a number of different transactions relating to
our investment in the U.S. PCS operators, Aerial Communications, Inc., Powertel,
Inc. and VoiceStream Wireless Corporation. These transactions, which culminated
in the three-way merger of Deutsche Telekom, Powertel and VoiceStream, are
summarized in "Item 4. Information on the Company -- International and Other
Significant Investments -- Deutsche Telekom."

     In connection with the merger of Deutsche Telekom, VoiceStream and
Powertel, we, as a former significant shareholder of VoiceStream and Powertel,
entered into two stockholders agreements, a Stockholders Agreement dated as of
July 23, 2000, by and among certain former shareholders of VoiceStream and
Deutsche Telekom, and a Stockholders Agreement, dated as of August 26, 2000, by
and among certain former shareholders of Powertel and Deutsche Telekom, under
which we agreed, among other things, not to transfer any Deutsche Telekom shares
received with respect to our VoiceStream and Powertel shares tendered in
connection with mergers except for the percentage of our holdings set forth
below, subject to certain exceptions:

     1.    For the three-month period following the merger: none.

     2.    For the three-month period ending six months after the merger: 40
        percent. This percentage is calculated based on the number of Deutsche
        Telekom shares we would have received in the merger, assuming (1) we
        held the number of shares at the time of the merger as we held at the
        time of the respective shareholders' meetings of VoiceStream and
        Powertel approving the merger with Deutsche Telekom (both of which
        occurred in March 2001) and (2) we had elected to receive a "mixed
        consideration" of Deutsche Telekom shares and cash in connection with
        our tender of VoiceStream shares as provided in the VoiceStream-Deutsche
        Telekom merger agreement. Based on our interpretation of the
        stockholders agreements, we believe that we will be able to sell an
        aggregate of approximately 34.5 million shares we hold in Deutsche
        Telekom during the period from September 1 to December 1, 2001.

     3.    After six months after the merger: 100 percent.

MATERIAL INDEBTEDNESS

SHORT-TERM LOAN FACILITY

     On October 31, 2000, we entered into a 359-day term loan facility arranged
by Citibank, N.A., Deutsche Bank AG, Dresdner Bank AG, J.P. Morgan Securities
Ltd. and Merita Bank PLC, in the aggregate amount of E3,250 million. We have
used the entire amount of the loan facility to refinance the Group's existing
indebtedness, including a E3.5 billion credit facility arranged by Sonera and
Citibank, N.A. and Dresdner Bank AG, dated August 25, 2000, to finance costs
occurred in connection with the award to Gruppe 3G of a UMTS license in Germany.

     Loans drawn under the facility carry an interest rate of Euribor plus a
margin of 0.40 percent together with certain costs required to compensate the
arrangers for expenses relating to the U.K. Financial Services Authority and the
European Central Bank.

     The loan facility agreement contains important prepayment and negative
pledge clauses. In the event that we receive over E100 million in aggregate net
proceeds from asset disposals or disposals of interests in subsidiaries or
affiliates (with certain exceptions) during the term of the term loan facility
(except in the case of a disposal of any interest in Gruppe 3G, this provision
applies only to disposals where all or any part of the consideration for such
disposal is payable in cash or cash equivalents) we are required to apply such
net proceeds to the prepayment of the loan. In addition, in the event that we or
any of our subsidiaries receives (1) aggregate net

                                       168
182

proceeds from borrowings during the life of the facility through the issuance of
debt securities or bilateral or syndicated loan facilities (with certain
exceptions) which exceed E950 million or (2) aggregate net proceeds from equity
issuances during the life of the facility which exceed E50 million, we are
required to apply such net proceeds to the prepayment of the loan.

     The term loan facility contains a negative pledge covenant which states
that we may not create or maintain any security interest on any of our assets
(subject to certain exceptions) unless (1) the aggregate book value of our
assets subject to security interests does not exceed 30 percent of our
consolidated assets or (2) the aggregate amount of indebtedness secured by
security interests does not exceed 30 percent of our consolidated assets. The
loan facility also restricts us and our material subsidiaries from disposing of
any of our assets unless such disposals are made (1) in the ordinary course of
business, (2) with the consent of the majority banks (as defined in the loan
facility) or (3) for fair market value and at arm's length, except that in
certain circumstances the majority banks may require the repayment of the loan
in the event of a disposal that would reasonably be expected to materially and
adversely affect our ability to perform our obligations under the term loan
facility. The term loan agreement also restricts the levels of indebtedness of
our subsidiaries and contains other standard loan covenants.

THREE-YEAR TERM LOAN FACILITY

     On June 15, 2001, we entered into a three-year term loan facility arranged
by Citibank, N.A., Deutsche Bank AG, Dresdner Bank AG, J.P. Morgan plc and
Merita Bank PLC, in the aggregate amount of E1,330 million. We plan to use the
entire amount of the loan facility to refinance a portion of our existing
indebtedness, including indebtedness under the E3,250 billion term loan facility
we entered into on October 31, 2000.

     Loans drawn under the facility carry a rate of Euribor plus a margin
together with certain costs required to compensate the arrangers for expenses
relating to the U.K. Financial Services Authority and the European Central Bank.
The margin ranges from 0.60 percent per annum to 1.50 percent per annum
depending upon the published long-term credit ratings assigned to us by S&P and
Moody's.

     The term loan facility contains a negative pledge covenant which states
that we may not create or maintain any security interest on any of our assets
(subject to certain exceptions) unless (1) the aggregate book value of our
assets subject to security interests does not exceed 20 percent of our
consolidated assets or (2) the aggregate amount of our indebtedness secured by
security interests does not exceed 20 percent of our consolidated assets. The
loan facility also restricts us and our material subsidiaries from disposing of
any of our assets unless such disposals are made (1) in the ordinary course of
business, (2) with the consent of the majority banks (as defined in the loan
facility) or (3) for fair market value and at arm's length, except that in
certain circumstances the majority banks may require the repayment of the loan
in the event of a disposal that would reasonably be expected to materially and
adversely affect our ability to perform our obligations under the term loan
facility. The term loan agreement also restricts the levels of indebtedness of
our subsidiaries and contains other standard loan covenants.

EURO MEDIUM TERM NOTE (EMTN) PROGRAM

     In March 1999, we established a E1.0 billion Euro Medium Term Note Program
under which we issued notes in the principal amount of E300 million, which
mature in 2009 and carry interest at a rate of 4.625 percent. In February 2000,
we increased the maximum amount drawable under the EMTN program to E2 billion
and, in March 2000, we issued notes in the principal amount of E1 billion, which
mature in 2008 and carry an interest rate of 5.625 percent. In February 2001, we
issued floating rate notes under the EMTN program in the principal amount of
E500 million with terms of 18 months. In May 2001, we issued one-year fixed rate
notes under the program in the principal amount of E150 million and six-month
zero coupon notes in the principal amount of E50 million. In May 2001 we also
increased the maximum amount drawable under the facility to E3 billion.

                               EXCHANGE CONTROLS

     The shares may be bought by non-residents of Finland ("non-residents") on
the Helsinki Exchanges without any Finnish exchange control consent. Furthermore
non-residents may receive dividends without a Finnish exchange control consent,
the transfer out of Finland being subject to payment by the Company of
withholding

                                       169
183

taxes. Non-residents having acquired shares may receive shares pursuant to a
bonus issue or through participation in a new issue without Finnish exchange
control consent. Shares may be sold in Finland by non-residents, and the
proceeds of such sale may be transferred out of Finland in any convertible
currency. There are no Finnish exchange control regulations applying to the sale
of shares by non-residents to other non-residents.

                                    TAXATION

     The following summary is based on tax laws of Finland and the United States
on the date of this report, and is subject to changes in Finnish or United
States law, including changes that could have a retroactive effect. The
following summary is not exhaustive and does not take into account or discuss
the tax laws of any country other than Finland or the United States. Prospective
investors are advised to consult their own tax advisors as to the Finnish,
United States or other tax consequences of the purchase, ownership and
disposition of shares or ADSs, including, in particular, the effect of tax laws
in any other jurisdiction.

FINNISH TAXATION

     Residents and non-residents of Finland are treated differently for tax
purposes. The worldwide income and net wealth of persons resident in Finland is
subject to taxation in Finland. Non-residents who are not generally liable for
tax in Finland are taxed on Finnish source income and net wealth located in
Finland only. In addition, all income of a non-resident derived from and net
wealth allocable in a permanent establishment located in Finland will be taxed
in Finland.

     Generally, an individual is deemed a resident of Finland if such individual
resides in Finland for more than six consecutive months or if the permanent home
or dwelling of such individual is in Finland. Earned income, including salary,
is taxed at progressive rates while capital income, including dividend income
from a company listed on the Main List of the Helsinki Exchanges, is currently
taxed at a flat rate of 29 percent. Entities established under the laws of
Finland are regarded as residents of Finland.

COMPANIES

     Finnish companies are subject to national corporate income tax on their
worldwide income. Currently, the rate of such tax is 29 percent.

     Finland applies an imputation tax credit or avoir fiscal system for profits
distributed as dividends in order to eliminate double taxation of companies and
their shareholders. Under the avoir fiscal system, a Finnish company pays each
year the higher of its minimum tax and its comparison tax. The applicable
minimum tax payable to the Finnish tax authorities by a Finnish company depends
on the amount of profit distributed as dividends. The applicable minimum tax is
currently 29/71 of the dividends distributed to the shareholders. The comparison
tax is the tax payable on the amount of taxable corporate income. To the extent
that the minimum tax exceeds or is less than the comparison tax payable to the
Finnish taxation authorities, a supplementary tax liability will be imposed or a
tax surplus established as appropriate. Any surplus generated may generally be
carried over and used, for a period of ten years, to offset any supplementary
tax which may become payable in subsequent years.

SHAREHOLDERS

     The following is a summary of certain Finnish tax consequences relating to
the purchase, ownership and disposition of shares.

Tax Credit on Dividends

     The dividend income received from a company listed on the Helsinki
Exchanges and the related tax credit are taxable income for shareholders who are
residents of Finland. As of January 1, 2000, dividend payments have been subject
to a tax rate of 29 percent. Under the avoir fiscal system, a tax credit is
available to resident shareholders on the payment of dividends by a Finnish
company. As of January 1, 2000, the amount of tax credit have been equal to
29/71 of the dividends received. In taxation, the tax credit is offset against
the resident

                                       170
184

shareholder's tax liability and, thus, no taxes are generally payable by
resident shareholders in respect of dividends received from a Finnish company
listed on the Main List of the Helsinki Exchanges.

     The tax credit is not available to non-residents, unless so provided in a
double taxation treaty with Finland that contains the appropriate provisions.
Currently, the only such tax treaty in force is with Ireland, entitling certain
shareholders resident in Ireland to a tax credit equal to one-half of the credit
available to residents in Finland. A Finnish permanent establishment of a
company resident in the EEA, however, is entitled to the imputation tax credit
if the shares are deemed to belong to the Finnish permanent establishment.

Withholding Tax on Dividends

     Non-residents are subject to Finnish withholding tax on dividends paid by a
Finnish company. In the absence of any applicable treaty, the rate of such
withholding tax is currently 29 percent. Finland has entered into double
taxation treaties with many countries pursuant to which the withholding tax rate
is reduced on dividends paid to persons entitled to the benefits under such
treaties. In the case of the treaties with the following countries, Finnish
withholding tax rates are generally reduced to the percentages given: Austria:
ten percent; Canada: 15 percent; Denmark: 15 percent; France: zero; Germany: 15
percent; Ireland: 15 percent; Italy: 15 percent; Japan: 15 percent; The
Netherlands: zero; Norway: 15 percent; Spain: 15 percent; Sweden: 15 percent;
Switzerland: five percent; the United Kingdom: zero; and the United States: 15
percent. A further reduction in the withholding tax rate is usually available to
corporate shareholders for distributions on qualifying holdings (usually at
least ten or 25 percent of the capital of the distributing company). The Finnish
company paying the dividend is responsible for deducting any applicable Finnish
withholding tax.

     A reduction of such withholding tax rate can be obtained at source upon the
submission of a Source Tax Card or the required information (name, date of
birth, any personal or corporate code in the home country and address) to the
payer prior to the payment of dividends. If such a Source Tax Card or such
information is not submitted in a timely manner, a refund of tax withheld in
excess of the applicable treaty rate can be obtained upon application to the
local tax authority.

     No withholding tax is levied under Finnish laws on dividends paid to
corporate entities which reside in the European Union and directly hold at least
25 percent of the capital of the distributing Finnish company, provided that
such entities are not entitled to the tax credit under the Finnish avoir fiscal
system and are subject to a general corporation tax in their respective
countries of residency, as specified in Directive 90/435/EEC.

Finnish Capital Gains and Other Taxes

     Any capital gains arising from the sale of shares by Finnish resident
individuals and estates are taxed as capital income. Any gain or loss is
calculated as the sales price less the original acquisition costs and the
selling expenses. Alternatively, in lieu of applying the actual acquisition
costs, individuals and estates may choose to apply a presumptive acquisition
cost equal to 20 percent of the sales price, or, if the shares sold have been
held for a minimum of ten years, 50 percent of the sales price. If the
presumptive acquisition cost is used instead of the actual acquisition cost, any
selling expenses are deemed to be included therein and, therefore, not be
deducted in addition to the presumptive acquisition cost.

     Finnish residents must report any sales of securities made in the tax year
on their tax return. Capital gains of individuals and estates are currently
taxed at a flat rate of 29 percent. For individuals and estates, capital losses
are primarily deductible from capital gains arising in the same year and the
following three years.

     Revenues arising from the sale of shares by Finnish resident companies are
counted as part of gross income, while the acquisition cost of the shares is
deductible in the taxation of the relevant company. The applicable corporate tax
rate is currently 29 percent.

     Non-residents who are not generally liable for tax in Finland will normally
not be subject to Finnish taxes on capital gains realized in the transfer of
shares of a Finnish company, except when more than 50 percent of the total
assets of the company in question consists of real estate located in Finland or
unless the capital gains realized in the transfer of shares relate to business
carried on in Finland by a foreign seller. Transfers of the shares by
non-residents by way of gift or by reason of the death of the owner are subject
to Finnish gift or inheritance
                                       171
185

tax, respectively, if either the transferor or the transferee was a resident of
Finland at the time of death or when the gift was given or if more than 50
percent of the total assets of the company in question consist of real estate
located in Finland. Inheritance tax treaties may limit the taxation of
inheritance received by a non-resident in Finland.

     The shares are included in the taxable net wealth of individuals resident
in Finland, Finnish estates and Finnish legal entities that are subject to net
wealth tax. The shares are valued for net wealth tax purposes at 70 percent of
their market value at the end of the relevant tax year. While non-resident
individuals and legal entities are generally subject to net wealth tax in
Finland on their Finnish net assets, the shares will not be included in the tax
base when computing such tax liability of a non-resident, unless the shares are
related to the business of a permanent establishment located in Finland.

Finnish Transfer Tax

     There is no transfer tax payable in Finland on share transfers made on the
Helsinki Exchanges. If the transfer is not made on the Helsinki Exchanges, a
transfer tax at the rate of 1.6 percent of the relevant sales price is payable
by the buyer. However, if the buyer is neither a resident of Finland nor a
Finnish branch of a foreign credit institution nor a Finnish branch of a foreign
investment firm, the seller must collect the tax from the buyer. If neither the
buyer nor the seller is a resident of Finland or a Finnish branch of a foreign
credit institution or a Finnish branch of a foreign investment firm, and it is
not a question of transfer of shares in a housing or real estate company, the
transfer of shares will be exempt from Finnish transfer tax. No transfer tax is
payable in connection with the issuance of new shares.

UNITED STATES FEDERAL INCOME TAXATION

     The following is a summary of the principal United States federal income
tax consequences that may be relevant with respect to the acquisition, ownership
and disposition of shares or ADSs, which are evidenced by American Depositary
Receipts. This summary addresses only the United States federal income tax
considerations of holders that are initial purchasers of the shares or ADSs at
the initial issue price and that will hold shares or ADSs as capital assets.
This summary does not address tax considerations applicable to holders that may
be subject to special tax rules, such as financial institutions, insurance
companies, real estate investment trusts, grantor trusts, regulated investment
companies, dealers or traders in securities or currencies, tax-exempt entities,
persons that will hold shares or ADSs as part of a "hedging" or "conversion"
transaction or as a position in a "straddle" for United States federal income
tax purposes, persons that have a "functional currency" other than the United
States dollar or holders that own (or are deemed to own) ten percent or more (by
voting power or value) of the stock of Sonera. Moreover, this summary does not
address the U.S. federal estate and gift or alternative minimum tax consequences
of the acquisition, ownership and disposition of shares or ADSs. This summary is
based on the Internal Revenue Code of 1986, as amended (the "Code"), United
States Treasury Regulations and judicial and administrative interpretations
thereof, in each case as in effect and available on the date of this annual
report. All of the foregoing are subject to change, which change could apply
retroactively and could affect the tax consequences described below.

     The United States Treasury Department has expressed concern that
depositaries for American Depositary Receipts, or other intermediaries between
the holders of shares of an issuer and the issuer, may be taking actions that
are inconsistent with the claiming of United States foreign tax credits by
United States holders of such receipts or shares. Accordingly, the analysis
regarding the availability of a United States foreign tax credit for Finnish
taxes and sourcing rules described below could be affected by future actions
that may be taken by the United States Treasury Department.

     For purposes of this summary, a "United States Holder" is a beneficial
owner of shares or ADSs that, for United States federal income tax purposes, is:
(1) a citizen or resident of the United States, (2) a partnership or corporation
created or organized in or under the laws of the United States or any state
thereof (including the District of Columbia), (3) an estate the income of which
is subject to United States federal income taxation regardless of its source, or
(4) a trust, if such trust validly elects to be treated as a United States
person for United States federal income tax purposes or if (i) a court within
the United States is able to exercise primary

                                       172
186

supervision over its administration and (ii) one or more United States persons
have the authority to control all of the substantial decisions of such trust. A
"Non-United States Holder" is a beneficial owner of shares or ADSs that is not a
United States Holder.

OWNERSHIP OF ADSS IN GENERAL

     For United States federal income tax purposes, a holder of ADSs generally
will be treated as the owner of the shares represented by such ADSs.

DISTRIBUTIONS

     Subject to the discussion below under "Passive Foreign Investment Company
Considerations," the gross amount of any distribution by Sonera of cash or
property (other than certain distributions, if any, of shares or ADSs
distributed pro rata to all shareholders of Sonera including holders of ADSs)
with respect to shares or ADSs will be includible in income by a United States
Holder as dividend income to the extent such distributions are paid out of the
current or accumulated earnings and profits of our Company as determined under
United States federal income tax principles. Such dividends will not be eligible
for the dividends received deduction generally allowed to corporate United
States Holders. To the extent, if any, that the amount of any distribution by
our Company exceeds our current and accumulated earnings and profits as
determined under United States federal income tax principles, it will be treated
first as a tax-free return of the United States Holder's adjusted tax basis in
the shares or ADSs and thereafter as capital gain. Our Company does not maintain
calculations of our earnings and profits under United States federal income tax
principles.

     Any such dividend paid in euros (or any currency other than U.S. dollars)
will be included in the gross income of a United States Holder in an amount
equal to the U.S. dollar value of the euro (or, if not euros, the currency in
which the dividend was paid) on the date of receipt. The amount of any
distribution of property other than cash will be the fair market value of such
property on the date of distribution.

     Dividends received by a United States Holder with respect to shares or ADSs
will be treated as foreign source income, which may be relevant in calculating
such holder's foreign tax credit limitation. Subject to certain conditions and
limitations, any Finnish tax withheld on dividends may be deducted from taxable
income or credited against a United States Holder's United States federal income
tax liability. The limitation on foreign taxes eligible for credit is calculated
separately with respect to specific classes of income. For this purpose,
dividends distributed by us generally will constitute "passive income," or, in
the case of certain United States Holders, "financial services income."

     Subject to the discussion below under "Backup Withholding Tax and
Information Reporting Requirements," a Non-United States Holder of shares or
ADSs generally will not be subject to United States federal income or
withholding tax on dividends received on shares or ADSs, unless such income is
effectively connected with the conduct by such Non-United States Holder of a
trade or business in the United States.

SHARES RECEIVED BY EMPLOYEES SUBJECT TO UNITED STATES TAXATION

     Any employee who is subject to United States federal income tax on his or
her compensation from Sonera who purchases shares or ADSs at a price
representing a discount from the fair market value of those shares or ADSs will
be subject to United States federal income and employment taxes with respect to
such discount. Such employee should recognize ordinary income at the time of the
receipt of such shares or ADSs equal to the fair market value of such shares or
ADSs minus the amount paid for such shares or ADSs. The issuance of such shares
or ADSs at a discount to such employee may be subject to United States wage
withholding.

SALE OR EXCHANGE OF SHARES OR ADSS

     Subject to the discussion below under "Passive Foreign Investment Company
Considerations," a United States Holder generally will recognize gain or loss on
the sale or exchange of shares or ADSs equal to the difference between the
amount realized on such sale or exchange and the United States Holder's adjusted
tax basis in the shares or ADSs. Such gain or loss will be capital gain or loss.
In the case of a noncorporate

                                       173
187

United States Holder, the maximum marginal United States federal income tax rate
applicable to such gain will be lower than the maximum marginal United States
federal income tax rate applicable to ordinary income if such United States
Holder's holding period for such shares or ADSs exceeds one year and, in the
case of shares or ADSs acquired on or after January 1, 2001 will be further
reduced if such holding period exceeds five years. Gain or loss, if any,
recognized by a United States Holder generally will be treated as United States
source income or loss for United States foreign tax credit purposes. The
deductibility of capital losses is subject to limitations.

     The initial tax basis of shares or ADSs to a United States Holder will be
the U.S. dollar value of the euro denominated purchase price determined on the
date of purchase. If the shares or ADSs are treated as traded on an "established
securities market," a cash basis United States Holder (or, if it elects, an
accrual basis United States Holder) will determine the dollar value of the cost
of such shares or ADSs by translating the amount paid at the spot rate of
exchange on the settlement date of the purchase. The conversion of U.S. dollars
to euros and the immediate use of that currency to purchase shares or ADSs
generally will not result in taxable gain or loss for a United States Holder.

     With respect to the sale or exchange of shares or ADSs, the amount realized
generally will be the U.S. dollar value of the payment received determined on
(1) the date of receipt of payment in the case of a cash basis United States
Holder and (2) the date of disposition in the case of an accrual basis United
States Holder. If the shares or ADSs are treated as traded on an "established
securities market," a cash basis taxpayer (or, if it elects, an accrual basis
taxpayer) will determine the U.S. dollar value of the amount realized by
translating the amount received at the spot rate of exchange on the settlement
date of the sale.

     Subject to the discussion below under "Backup Withholding Tax and
Information Reporting Requirements," a Non-United States Holder of shares or
ADSs generally will not be subject to United States federal income or
withholding tax on any gain realized on the sale or exchange of such shares or
ADSs unless (1) such gain is effectively connected with the conduct by such
Non-United States Holder of a trade or business in the United States or (2) in
the case of any gain realized by an individual Non-United States Holder, such
holder is present in the United States for 183 days or more in the taxable year
of such sale or exchange and certain other conditions are met.

PASSIVE FOREIGN INVESTMENT COMPANY CONSIDERATIONS

     A Non-U.S corporation will be classified as a passive foreign investment
company (a PFIC) for U.S. federal income tax purposes in any taxable year in
which, after applying the look-through rules for 25 percent or more owned
subsidiaries, either (1) at least 75 percent of its gross income is passive
income or (2) on average at least 50 percent of the gross value of its assets is
attributable to assets that produce passive income or are held for the
production of passive income. Passive income for this purpose includes
dividends, interest, royalties, rents and gains from commodities and securities
transactions.

     We believe that we were not a PFIC in our 2000 taxable year. Our status in
future years will depend on our assets and activities in those years. We have no
reason to believe that our assets or activities will change in a manner that
would cause us to be classified as a PFIC. However, since our status will depend
on the nature of our income, assets and business from time to time, we can not
give you assurance that we will not be a PFIC in any future year.

     Notwithstanding the discussions above under the captions "Distributions"
and "Sale or Exchange of Shares or American Depositary Shares" if we were to
become a PFIC, a United States Holder of shares or ADSs would be subject to
imputed interest charges and other disadvantageous tax treatment with respect to
any gain from the sale or exchange of, and excess distributions with respect to,
the shares or ADSs. If we were to become a PFIC, a United States Holder of
shares or ADSs could make a variety of elections that may alleviate the tax
consequences referred to above, and one of these elections may be made
retroactively. However, it is expected that the conditions necessary for making
some of these elections will not apply in the case of the shares or ADSs. United
States Holders should consult their own tax advisors regarding the tax
consequences that would arise if we were to become a PFIC.

                                       174
188

BACKUP WITHHOLDING TAX AND INFORMATION REPORTING REQUIREMENTS

     United States backup withholding tax and information reporting requirements
generally apply to certain payments to certain noncorporate holders of stock.
Information reporting generally will apply to payments of dividends on, and to
proceeds from the sale or redemption of, shares or ADSs made within the United
States to a holder of shares or ADSs (other than an "exempt recipient,"
including a corporation, a payee that is not a United States person that
provides an appropriate certification and certain other persons). A payor will
be required to withhold backup withholding tax from any payments of, dividends
on, or the proceeds from the sale or redemption of shares or ADSs within the
United States to a holder (other than an "exempt recipient") if such holder
fails to furnish its correct taxpayer identification number or otherwise fails
to comply with such backup withholding tax requirements. Under recently enacted
legislation, the backup withholding tax rate of 31 percent will be reduced as of
August 7, 2001 to 30.5 percent. That rate will be further reduced to 30 percent
for years 2002 and 2003, 29 percent for years 2004 and 2005, and 28 percent for
2006 and thereafter.

     In the case of such payments made within the United States to a foreign
simple trust, foreign grantor trust or foreign partnership (other than a payment
to a foreign simple trust, foreign grantor trust or foreign partnership that
qualifies as a "withholding foreign trust" or a "withholding foreign
partnership" within the meaning of such United States Treasury Regulations and a
payment to a foreign simple trust, foreign grantor trust or foreign partnership
that is effectively connected with the conduct of a trade or business in the
United States), the beneficiaries of the foreign simple trust, the persons
treated as the owners of the foreign grantor trust or the partners of the
foreign partnership, as the case may be, will be required to provide the
certification discussed above in order to establish an exemption from backup
withholding tax and information reporting requirements. Moreover, a payor may
rely on a certification provided by a payee that is not a United States person
only if such payor does not have actual knowledge or a reason to know that any
information or certification stated in such certificate is incorrect.

                              DOCUMENTS ON DISPLAY

     We are subject to the informational requirements of the Securities Exchange
Act of 1934, as amended. In accordance with these requirements, we file reports
and other information with the Securities and Exchange Commission. These
materials, including this annual report and the exhibits thereto, may be
inspected and copied at the Commission's Public Reference Room at 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the Commission's regional offices at
500 West Madison Street, Suite 1400, Chicago, Illinois 60661, and 7 World Trade
Center, New York, New York 10048. Copies of the materials may be obtained from
the Public Reference Room of the Commission at 450 Fifth Street, Washington,
D.C. 20549 at prescribed rates. The public may obtain information on the
operation of the Commission's Public Reference Room by calling the Commission in
the United States at 1-800-SEC-0330. The Commission also maintains a web site at
http://www.sec.gov that contains reports and other information regarding
registrants that file electronically with the Commission. This annual report and
some of the other information submitted by us to the Commission may be accessed
through this web site.

ITEM 11.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

GENERAL PRINCIPLES FOR FINANCING AND FINANCIAL RISK MANAGEMENT

     Our financing and our financial risks are managed according to directives
issued by, and under the control of, our Board of Directors and our President
and Chief Executive Officer. Our financial management operations are centralized
in our Treasury and Corporate Finance functions. Our Treasury operates as our
internal bank, and is responsible for the management of financing and financial
risks.

     The financial management policy approved by the Board of Directors defines
operational principles for the management of our finances, and the limits for
financial risks. Our financial position and financial risks are reported to the
Board of Directors on a regular basis. The objectives of the financial risk
management policy are to identify financial risks relating to Sonera, including
foreign exchange, interest rate, liquidity and credit risks, and to hedge those
risks to provide financially stable conditions for the development of our
business.

                                       175
189

     Derivative financial instruments are used in hedging foreign exchange and
interest rate risks. We do not hold positions in derivative instruments for
speculative purposes.

     We continuously evaluate the market risks of financial assets and
liabilities and derivative instruments, and the potential impact of these risks
on our results of operations by comparing the components of our financial
instruments to market values and by estimating the sensitivity of value changes
to market factors.

EXCHANGE RATE RISK

     We seek to minimize the effects of exchange rate fluctuations on our
results of operations and financial position. We conduct our business mainly in
euros.

     Changes in exchange rates between the euro (previously, the Finnish markka)
and other currencies in which we have receivables, payables or other contractual
items generate exchange gains and losses which impact our results of operations
(transaction risk). Under our financial management policy, we hedge all
significant transaction risks with forward foreign exchange contracts, currency
swaps and options. As of December 31, 2000, 1999 and 1998, the post-hedging open
transaction risk of our Finnish companies group was E1 million, E1 million and
E5 million, respectively. A ten percent change in the value of the euro against
all other currencies would have had an immediate impact of E0.1 million, E0.1
million and E0.5 million on our net income, assuming that the open transaction
exposure would have been at the level of December 31, 2000, 1999 and 1998,
respectively, and that no new hedging measures would have been taken.

     Changes in exchange rates between the euro (previously, the Finnish markka)
and other currencies in which our foreign subsidiaries and associated companies
report their results of operations and shareholders' equity to be included in
our consolidated financial statements generate translation differences that
affect consolidated shareholders' equity (translation risk). On December 31,
2000, our pro rata share of shareholders' equity in our non-euro subsidiaries
and associated companies was E1,093 million as compared with E835 million and
E465 million at the end of 1999 and 1998, respectively. During 1998, 1999 and
2000, we did not hedge our translation risks. The decision whether to hedge in
each case is made by taking into account the impact of hedging on our results of
operations and cash flows, as well as the circumstances in local currency and
capital markets, including the level of interest rates and the liquidity of the
market. As of December 31, 2000, 1999 and 1998, a ten percent change in the
value of the euro against all other currencies would have had an immediate
impact of E109 million, E84 million and E45 million, respectively, on our
consolidated shareholders' equity, assuming that our pro rata share of
shareholders' equity in our foreign subsidiaries and associated companies would
have been at the level of December 31, 2000, 1999 and 1998, respectively, and
that no new hedging measures would have been taken.

     Turkcell and certain other subsidiaries and associated companies in
highly-inflationary countries report their financial statements either adjusted
for inflation, or in U.S. dollars instead of the local currency.

     The following table sets forth a breakdown of our consolidated
shareholders' equity by currency on December 31, 1998, 1999 and 2000:
AS OF DECEMBER 31,
                                                                --------------------
                          CURRENCY                              1998    1999    2000
                          --------                              ----    ----    ----
                                                                        (%)
Euro........................................................     68      54      66
Turkish lira................................................     11      19      20
Latvian lat.................................................      8      10       6
U.S. dollar.................................................     --       7      --
Lithuanian lita.............................................      6       5       4
Estonian kroon..............................................      2       3       2
Other currencies............................................      5       2       2
                                                                ---     ---     ---
  Total.....................................................    100     100     100
                                                                ===     ===     ===
176
190

INTEREST RATE RISK

     Our net interest-bearing debt as of December 31, 2000 was E5,641 million,
consisting of E5,794 million of interest-bearing loans and a E3 million bond
loan with warrants issued to Sonera employees, partially offset by E156 million
of cash and short-term investments. Our borrowings and the management of liquid
funds are centralized in the Treasury and Corporate Finance functions. With
limited exceptions, subsidiaries manage their financing with intra-group loans.

     Interest rate risks include cash flow risk (changes in interest income and
expenses when interest rates change) and price risk (changes in values of
financial instruments when interest rates change). We manage our interest rate
risks by diversifying our portfolio of investments and loans in fixed and
floating rate instruments, and by using interest rate swaps, interest rate
options and forward rate agreements.

     The calculation of interest rate risk exposure is based on the interest
rate maturities of loans and other financial instruments used. We seek to
minimize the impact of a rise in interest rates, taking into account the
prevailing interest rate levels, yield curves and volatilities. In accordance
with our financial management policy, approximately 70 percent of our net
interest-bearing debt on December 31, 2000 had floating interest rates (with
interest rate maturities less than 12 months) and approximately 30 percent had
fixed interest rates (with interest rate maturities ranging from 12 months to
five years).

     The average interest rate for our interest-bearing debt, including the
impact of hedging measures, was 5.37 percent and 3.75 percent on December 31,
2000 and 1999, respectively. A parallel change of one percentage point in the
level of interest rates would have had an impact of approximately E19 million
and E8 million on the annual net interest expense, assuming that our net
interest-bearing debt were to remain at the level of December 31, 2000 and 1999,
respectively, and that no new hedging measures were taken.

LIQUIDITY RISK

     Liquidity risks relate to the availability of sufficient funding for debt
service, dividend payment, capital expenditure and working capital requirements.
We seek to minimize our liquidity risks by maintaining sufficient cash flow from
operations, by having sufficient financing reserves, and by distributing the
maturities of our loan portfolio across different years.

     In accordance with our financial management policy, we seek to maintain our
liquidity position (i.e., cash and short-term investments and committed
long-term undrawn credit facilities less borrowings maturing within the next 12
months) at the level of at least E350 million. On December 31, 2000, our
liquidity position totaled approximately E292 million, consisting of E156
million of liquid funds and E465 million of undrawn revolving credit facilities
less E329 million of loans falling due during 2001. Loans falling due in 2001 do
not include our E3.626 million short-term loan portion of the German UMTS
license because we intend to finance the increase in short-term borrowings
resulting therefrom through disposals of certain investments and through
external non-recourse financing that will be arranged for the license-holding
company in Germany. In addition, in June 2001, we entered into a E1.33 billion
three-year variable rate loan facility which we plan to draw on in its entirety
in July 2001 to prepay a portion of our short-term debt. Additionally, we have
available E1 billion in undrawn amounts under a long-term euro medium term note
facility. To meet our short-term financing needs, we can also deploy a E500
million Euro Commercial Paper Program and a E300 million domestic Commercial
Paper Program.

                                       177
191

     The following table sets forth maturities of long-term drawn-down loans and
undrawn committed credit facilities on December 31, 2000 as well as amounts
drawn and undrawn under such long-term loans and facilities:
MATURITIES                                                      DRAWN DOWN    UNDRAWN    TOTAL
----------                                                      ----------    -------    -----
                                                                       (IN E MILLIONS)
Fall due by December 31, 2001...............................        107          --        107
Fall due by December 31, 2002...............................          4          62         66
Fall due by December 31, 2003...............................        131         186        317
Fall due by December 31, 2004...............................        114         155        269
Fall due by December 31, 2005...............................      1,073          62      1,135
Fall due by December 31, 2006...............................         33          --         33
Fall due by December 31, 2007...............................         33          --         33
Fall due by December 31, 2008...............................        121          --        121
Fall due by December 31, 2009...............................        333          --        333
                                                                  -----         ---      -----
  Total.....................................................      1,949         465      2,414
                                                                  =====         ===      =====
In January 1999, we received long-term and short-term corporate credit
ratings. In January 1999, Standard & Poor's Ratings Group assigned an
AA-long-term rating and an A1+ short-term rating to Sonera. In January 1999,
Moody's Investor Services assigned an A-2 long-term credit rating and a Prime-1
short-term credit rating. In February 2001, Standard & Poor's lowered our
long-term credit rating to single-"A"-minus and lowered the short-term rating to
"A-2". In addition, the ratings were placed on CreditWatch with negative
implications. On May 3, 2001, Moody's Investor Services downgraded our senior
unsecured long-term debt ratings from A2 to Baa2 and our short-term debt rating
from Prime-1 to Prime-2. Moody's kept our debt ratings on review for possible
further downgrade. See "Item 3. Key Information -- Risk Factors -- S&P and
Moody's have downgraded our credit ratings and our credit ratings may be
downgraded further. These downgrades may make it more difficult and expensive
for us to finance our operations."

CREDIT RISK

     Financial instruments are subject to the risk that counterparties may be
unable to meet their contractual commitments. Investments in financial
instruments, including short-term investments of excess cash, long-term
investments in debt securities and loans receivable, as well as the use of
derivative instruments, are centrally managed by the Treasury, and are limited
to such counterparties and amounts as are approved by our Board of Directors.

     The credit risk with respect to our trade receivables is diversified among
a large number of customers, both private individuals and companies in various
industries. Exposure to credit loss and subscriber fraud is actively monitored
on a daily basis. Our credit monitoring includes processing current credit
information on subscribers from third-party sources. Bad debt expense in
relation to consolidated revenues was 0.4 percent, 0.3 percent and 0.3 percent
in 1998, 1999 and 2000, respectively.

                                       178
192

FAIR VALUES OF DERIVATIVE FINANCIAL INSTRUMENTS

     The following table presents the carrying values and fair values for
derivative financial instruments, using exchange and interest rates current at
the indicated balance sheet date. While the contract amounts presented for
derivative instruments illustrate the scope of our hedging activities, they do
not necessarily represent amounts exchanged by the parties and, when considered
separately, are not a measure of our risk exposure.
AS OF DECEMBER 31, 1998                  AS OF DECEMBER 31, 1999
                                --------------------------------------   --------------------------------------
                                CONTRACT   CARRYING   FAIR    AVERAGE    CONTRACT   CARRYING   FAIR    AVERAGE
                                 AMOUNT     VALUE     VALUE   MATURITY    AMOUNT     VALUE     VALUE   MATURITY
                                --------   --------   -----   --------   --------   --------   -----   --------
                                      (IN E MILLIONS)         (MONTHS)         (IN E MILLIONS)         (MONTHS)
Forward selling of foreign
  exchange
  USD.........................     39         --       (2)        2         43         (2)       (2)       2
  SEK.........................      1         --       --        --         19         --        --        5
  HKD.........................     14         --       --        --         --         --        --       --
  GBP.........................
  NOK.........................
Other currencies..............      1         --       --        --         --         --        --       --
Forward buying of foreign
  exchange
  USD.........................     --         --       --        --         61          3         2        2
  DEM.........................    576         --       --        --         --         --        --       --
  ECU.........................    194         (1)      --        --         --         --        --       --
  SEK.........................
Currency swaps -- sell
  SEK.........................      2         --       --         1         --         --        --       --
Interest rate swaps
  Euribor.....................    244         --       (3)       32        604          7       (15)      69
Purchased interest rate
  options Cap options,
  Euribor.....................     --         --       --        --        120          1         3       38
AS OF DECEMBER 31, 2000
                                --------------------------------------
                                CONTRACT   CARRYING   FAIR    AVERAGE
                                 AMOUNT     VALUE     VALUE   MATURITY
                                --------   --------   -----   --------
                                      (IN E MILLIONS)         (MONTHS)
Forward selling of foreign
  exchange
  USD.........................      50         3         4        3
  SEK.........................      48         1         1        3
  HKD.........................      --        --        --       --
  GBP.........................      17        --        --        5
  NOK.........................      16        --        --        1
Other currencies..............       9        --        --        6
Forward buying of foreign
  exchange
  USD.........................     125       (12)      (14)       3
  DEM.........................
  ECU.........................
  SEK.........................       3        --        --        1
Currency swaps -- sell
  SEK.........................                                   --
Interest rate swaps
  Euribor.....................   2,103        36        36       48
Purchased interest rate
  options Cap options,
  Euribor.....................     200         1         1       24
------------------------------

For the carrying values and fair values of derivative instruments, a positive
value represents receivable and a negative value represents liability.

ITEM 12.  DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES.

     Not Applicable.

                                       179
193

                                    PART II

ITEM 13.  DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES.

     None.

ITEM 14.  MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
          PROCEEDS.

     Not applicable.

ITEM 15.  RESERVED

     Not applicable.

ITEM 16.  RESERVED

     Not applicable.

                                    PART III

ITEM 17.  FINANCIAL STATEMENTS.

     Not applicable.

ITEM 18.  FINANCIAL STATEMENTS.

     See pages F-1 through F-147, incorporated herein by reference.

ITEM 19.  EXHIBITS.

     Documents filed as exhibits to this annual report.

1.1 Memorandum and Articles of Association of Sonera Corporation as amended to
     date (English translation included).

4.1 Shareholders' Agreement, dated as of August 16, 2000, between Telefonica
     International SA and Sonera 3G Holding B.V. regarding the corporate
     governance and administration of Marabu (Group 3G GmbH).

4.2 Stockholders' Agreement, dated as of July 23, 2000, among Sonera Holding
     B.V., Sonera Corporation and Deutsche Telekom, relating to Sonera's
     shareholding in VoiceStream.

4.3 Stockholders' Agreement, dated as of August 26, 2000, among Sonera Holding
     B.V., Sonera Corporation and Deutsche Telekom, relating to Sonera's
     shareholding in Powertel.

4.4 E3,250,000,000 Term Loan Facility Agreement among Sonera Corporation and
     Citibank, N.A., Deutsche Bank AG London, Dresdner Bank AG London Branch,
     J.P. Morgan Securities Ltd. and Merita Bank PLC with Dresdner Bank AG
     London Branch acting as Agent, dated October 31, 2000.

4.5 E1,330,000,000 Term Loan Facility Agreement among Sonera Corporation and
     Citibank, N.A., Deutsche Bank AG London, Dresdner Bank AG London Branch,
     J.P. Morgan plc and Merita Bank PLC with Citibank International plc, acting
     as Agent, dated June 15, 2001.

8.1 Significant subsidiaries as of the end of the year covered by this annual
     report: See "Item 4. Information on the Company -- Description of Group
     Operations -- Significant Subsidiaries."

                                       180
194

                                   SIGNATURES

     Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant certifies that it meets all of the requirements for
filing on Form 20-F and has duly caused this Annual Report to be signed on its
behalf by the undersigned, thereunto duly authorized.

Date: June 29, 2001
                                          SONERA CORPORATION

                                                  /s/ KAJ-ERIK RELANDER
                                          By:
                                          --------------------------------------

                                            Name: Kaj-Erik Relander
                                            Title: President and Chief Executive
                                              Officer

                                                     /s/ AIMO ELOHOLMA
                                            By:
                                            ------------------------------------

                                              Name: Aimo Eloholma
                                              Title: Deputy Chief Executive
                                                Officer

                                       181
195

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
                                                              -----
CONSOLIDATED FINANCIAL STATEMENTS OF SONERA CORPORATION AND
  SUBSIDIARIES..............................................  F-2
  Report of Independent Accountants.........................  F-3
  Consolidated Income Statements............................  F-4
  Consolidated Balance Sheets...............................  F-5
  Consolidated Statements of Cash Flows.....................  F-7
  Notes to Consolidated Financial Statements................  F-8
  Unaudited Condensed Consolidated Interim Financial
     Statements.............................................  F-77
CONSOLIDATED FINANCIAL STATEMENTS OF TURKCELL ILETISIM
  HIZMETLERI ANONIM SIRKETI AND
  ITS SUBSIDIARIES..........................................  F-84
  Independent Auditors' Report..............................  F-85
  Consolidated Balance Sheets...............................  F-86
  Consolidated Statements of Operations.....................  F-87
  Consolidated Statements of Changes in Shareholders' Equity
     and Comprehensive Income...............................  F-88
  Consolidated Statements of Cash Flows.....................  F-89
  Notes to Consolidated Financial Statements................  F-90
CONSOLIDATED FINANCIAL STATEMENTS OF ORLA SIEBZEHNTE
  VERMOGENSVERWALTUNG GMBH
  (A DEVELOPMENT STAGE COMPANY) AND ITS SUBSIDIARIES........  F-136
  Report of Independent Public Accountants..................  F-137
  Consolidated Balance Sheet................................  F-138
  Consolidated Statement of Operations......................  F-139
  Consolidated Statement of Shareholders' Equity............  F-140
  Consolidated Statement of Cash Flows......................  F-141
  Notes to Consolidated Financial Statements................  F-142
F-1
196

                       CONSOLIDATED FINANCIAL STATEMENTS
                     OF SONERA CORPORATION AND SUBSIDIARIES
                         AS OF AND FOR THE YEARS ENDED
                        DECEMBER 31, 1998, 1999 AND 2000

                                       F-2
197

                       REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors of Sonera Corporation

     We have audited the consolidated balance sheets of Sonera Corporation and
subsidiaries as of December 31, 1998, 1999 and 2000, and the related
consolidated statements of income and cash flows for the years then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.

     We conducted our audit in accordance with auditing standards generally
accepted in Finland and the United States of America. Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit also
includes examining, on a test basis, amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

     In our opinion, the consolidated financial statements present fairly, in
all material respects, the financial position of Sonera Corporation and
subsidiaries as of December 31, 1998, 1999 and 2000, and the results of their
operations and their cash flows for the three years then ended in conformity
with generally accepted accounting principles in Finland.

     Generally accepted accounting principles in Finland vary in certain
significant respects from generally accepted accounting principles in the United
States. Application of generally accepted accounting principles in the United
States would have affected results of operations for the years ended December
31, 1998, 1999 and 2000, and shareholders' equity as of December 31, 1998, 1999
and 2000, to the extent summarized in Note 21 to the consolidated financial
statements.

Helsinki, Finland
February 26, 2001 (except for Notes 12 and 21
as to which the date is June 14, 2001)

KPMG WIDERI OY AB

Solveig Tornroos-Huhtamaki
Authorized Public Accountant

                                       F-3
198

                      SONERA CORPORATION AND SUBSIDIARIES

                         CONSOLIDATED INCOME STATEMENTS
YEAR ENDED DECEMBER 31,
                                                                 -----------------------------
                                                         NOTE     1998       1999       2000
                                                         ----    -------    -------    -------
                                                                    E          E          E
                                                                  (IN MILLIONS, EXCEPT SHARES
                                                                    AND PER SHARE AMOUNTS)
REVENUES...............................................  (19)      1,623      1,849      2,057
Other operating income.................................   (2)         24         45      1,589
Operating expenses:....................................   (3)
  Cost of sold equipment and materials.................             (116)      (142)      (160)
  Services bought......................................             (367)      (431)      (511)
  Personnel expenses...................................             (309)      (340)      (445)
  Rental expenses......................................              (40)       (47)       (65)
  Other operating expenses.............................             (228)      (266)      (418)
                                                                 -------    -------    -------
     Total operating expenses..........................           (1,060)    (1,226)    (1,599)
Depreciation and amortization..........................   (4)       (261)      (281)      (299)
Write-downs on fixed assets............................   (4)        (37)        --         --
                                                                 -------    -------    -------
OPERATING PROFIT.......................................              289        387      1,748
Equity income in associated companies..................  (10)         59        110        121
Financial income and expenses..........................   (5)         (2)        --         (9)
                                                                 -------    -------    -------
PROFIT BEFORE INCOME TAXES, MINORITY INTEREST AND
  EXTRAORDINARY ITEMS..................................              346        497      1,860
Income taxes...........................................   (6)        (94)      (126)      (318)
Minority interest......................................               (1)        (1)        (1)
                                                                 -------    -------    -------
PROFIT BEFORE EXTRAORDINARY ITEMS......................              251        370      1,541
Cumulative effect of accounting changes, net of income
  taxes................................................   (7)         --         --        (35)
                                                                 -------    -------    -------
NET INCOME.............................................              251        370      1,506
                                                                 =======    =======    =======
EARNINGS PER SHARE, BEFORE EXTRAORDINARY ITEMS.........             0.35       0.51       2.09
                                                                 =======    =======    =======
Cumulative effect of accounting changes, net of income
  taxes................................................               --         --      (0.04)
                                                                 -------    -------    -------
EARNINGS PER SHARE.....................................   (8)       0.35       0.51       2.05
                                                                 =======    =======    =======
Average number of shares (1,000).......................          720,247    722,000    735,917
                                                                 =======    =======    =======
Cash dividends per share...............................             0.18       0.08       0.12
                                                                 =======    =======    =======
The accompanying notes are an integral part of these Consolidated Financial
                                  Statements.

                                       F-4
199

                      SONERA CORPORATION AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31,
                                                                      -----------------------
                                                              NOTE    1998     1999     2000
                                                              ----    -----    -----    -----
                                                                        E        E        E
                                                                           (IN MILLIONS)
ASSETS
FIXED ASSETS AND OTHER LONG-TERM INVESTMENTS................   (9)
Intangible assets...........................................             53       69      116
Property, plant and equipment
  Land......................................................             15       17       20
  Buildings.................................................            125      114      121
  Machinery and equipment...................................             70       95      119
  Telecommunications networks...............................            835      858      848
  Other tangible assets.....................................             32       45       54
  Advances paid and construction in progress................             46       30      103
                                                                      -----    -----    -----
                                                                      1,123    1,159    1,265
Long-term investments and receivables
  Investments in associated companies.......................  (10)    1,148    1,637    2,367
  Other shares and holdings.................................  (20)       54      154    2,370
  Long-term loans receivable................................             29       35       42
                                                                      -----    -----    -----
                                                                      1,231    1,826    4,779
                                                                      -----    -----    -----
  TOTAL FIXED ASSETS AND OTHER LONG-TERM INVESTMENTS........          2,407    3,054    6,160
                                                                      -----    -----    -----
CURRENT ASSETS
Inventories.................................................             22       36       40
Receivables
  Trade accounts receivable.................................            271      335      413
  Loans receivable..........................................              1       19    2,817
  Prepaid expenses and accrued income.......................             16       42      154
  Other receivables.........................................              4        8       34
                                                                      -----    -----    -----
                                                                        292      404    3,418
Cash and short-term investments
  Short-term investments....................................             36       77       68
  Cash and cash equivalents.................................             57       38       88
                                                                      -----    -----    -----
                                                                         93      115      156
                                                                      -----    -----    -----
  TOTAL CURRENT ASSETS......................................            407      555    3,614
                                                                      -----    -----    -----
TOTAL ASSETS................................................          2,814    3,609    9,774
                                                                      =====    =====    =====
The accompanying notes are an integral part of these Consolidated Financial
                                  Statements.

                                       F-5
200

                      SONERA CORPORATION AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31,
                                                                      -----------------------
                                                              NOTE    1998     1999     2000
                                                              ----    -----    -----    -----
                                                                        E        E        E
                                                                           (IN MILLIONS)
SHAREHOLDERS' EQUITY AND LIABILITIES
SHAREHOLDERS' EQUITY........................................  (11)
Share capital...............................................            304      310      320
Share premium fund..........................................             13       13       14
Treasury shares.............................................             --       --      (28)
Additional paid-in capital..................................            511      505      505
Accumulated currency translation adjustment.................            (12)      55       85
Retained earnings...........................................            357      548      831
Net income for the year.....................................            251      370    1,506
                                                                      -----    -----    -----
                                                                      1,424    1,801    3,233
MINORITY INTEREST...........................................             12       14       16
                                                                      -----    -----    -----
  TOTAL SHAREHOLDERS' EQUITY AND MINORITY INTEREST..........          1,436    1,815    3,249
                                                                      -----    -----    -----
NON-CURRENT LIABILITIES
Long-term debt..............................................  (12)      788    1,124    1,842
Deferred tax liability......................................   (6)       76       95      139
Other long-term liabilities.................................  (13)       15       20       32
                                                                      -----    -----    -----
                                                                        879    1,239    2,013
CURRENT LIABILITIES
Current debt................................................  (12)      135      172    3,848
Current portion of long-term debt...........................  (12)       --       --      107
Advances received...........................................             16       11       15
Trade accounts payable......................................            187      194      298
Accrued expenses and prepaid income.........................            158      172      215
Other current liabilities...................................              3        6       29
                                                                      -----    -----    -----
                                                                        499      555    4,512
                                                                      -----    -----    -----
  TOTAL LIABILITIES.........................................          1,378    1,794    6,525
                                                                      -----    -----    -----
TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES..................          2,814    3,609    9,774
                                                                      =====    =====    =====
The accompanying notes are an integral part of these Consolidated Financial
                                  Statements.

                                       F-6
201

                      SONERA CORPORATION AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
                                                               ------------------------
                                                                1998     1999     2000
                                                               ------    ----    ------
                                                                 E        E        E
                                                                    (IN MILLIONS)
OPERATING ACTIVITIES
Net income..................................................      251     370     1,506
Depreciation, amortization and write-downs on fixed
  assets....................................................      298     281       299
Gain from Aerial/VoiceStream merger.........................       --      --      (835)
Gain from sale of Turkcell shares...........................       --      --      (680)
Net loss (gain) on disposal of fixed assets and business
  operations................................................        4     (24)      (35)
Equity income in associated companies.......................      (59)   (110)     (121)
Dividends received from associated companies................        9      14        30
Deferred taxes..............................................       18      18        41
Effect of accounting changes................................       --      --        35
Other adjustments to cash...................................       (4)    (28)       (8)
Change in working capital, net of acquisitions and disposals
  Decrease in inventories...................................       (7)    (14)       (3)
  Increase in non-interest bearing receivables..............      (43)   (108)     (190)
  Increase in non-interest bearing liabilities..............       41      43       188
                                                               ------    ----    ------
CASH PROVIDED BY OPERATING ACTIVITIES.......................      508     442       227
INVESTING ACTIVITIES
Capital expenditures........................................     (351)   (338)     (430)
Acquisitions of subsidiaries, net of cash acquired..........       (2)     (9)      (20)
Investments in associated companies.........................     (860)   (266)   (1,195)
Investments in other shares and holdings....................      (36)   (135)     (902)
Proceeds from sale of fixed assets..........................       12       7         1
Proceeds from sale of subsidiaries, net of cash disposed....       --       2         9
Proceeds from sale of associated companies..................        3       2       770
Proceeds from sale of other shares and holdings.............       --      10         6
Decrease (increase) in long-term loans receivable...........        4      (1)       (4)
Decrease (increase) in current loans receivable.............       38      (2)   (2,815)
Decrease (increase) in short-term investments...............       66     (41)        8
                                                               ------    ----    ------
CASH USED IN INVESTING ACTIVITIES...........................   (1,126)   (771)   (4,572)
FINANCING ACTIVITIES
Withdrawals of long-term debt...............................      617     545     1,004
Repayments of long-term debt................................       --    (210)     (179)
Increase in current debt....................................      133      35     3,684
Equity issue................................................       14      --        --
Dividends paid..............................................     (132)    (61)      (87)
Repurchase of shares........................................       --      --       (28)
                                                               ------    ----    ------
CASH PROVIDED BY FINANCING ACTIVITIES.......................      632     309     4,394
Effect of exchange rate changes on cash and cash
  equivalents...............................................       (1)      1         1
                                                               ------    ----    ------
Net increase (decrease) in cash and cash equivalents........       13     (19)       50
Cash and cash equivalents at beginning of year..............       44      57        38
                                                               ------    ----    ------
CASH AND CASH EQUIVALENTS AT END OF YEAR....................       57      38        88
                                                               ======    ====    ======
The accompanying notes are an integral part of these Consolidated Financial
                                  Statements.

                                       F-7
202

                      SONERA CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ACCOUNTING POLICIES

DESCRIPTION OF BUSINESS

     Sonera Corporation (the "Parent Company") and its subsidiaries (together,
"Sonera", the "Company" or the "Group") provide a wide range of
telecommunication services to residential and business customers, primarily in
Finland. Sonera's major lines of business include mobile communications
services, media communications and new services, fixed network domestic and
international voice and data services, equipment sales, construction and
maintenance services, and certain other services relating to the Group's
operations. Sonera currently generates approximately 95 percent of its
consolidated revenues from sales to customers in Finland. Sonera has also
significant minority shareholdings in mobile and fixed network
telecommunications operators abroad.

BASIS OF PRESENTATION

     The Consolidated Financial Statements include the financial statements of
Sonera Corporation and its subsidiaries. The predecessor entity of Sonera
Corporation was incorporated under the name of Telecom Finland Ltd on January 1,
1994, when the operations of Posts and Telecommunications of Finland, the
Finnish national postal and telecommunications authority, were separated into
Telecom Finland Ltd and Finland Post Ltd. Both companies were wholly-owned
subsidiaries of the state-owned management holding company PT Finland Ltd. On
July 1, 1998, PT Finland Ltd demerged into two state-owned management holding
companies, Sonera Group plc and Finland Post Group Ltd (the "Demerger"). On
September 30, 1999, Sonera Group plc was merged with its principal operating
subsidiary Sonera Ltd, and was renamed Sonera Corporation.

     The Consolidated Financial Statements for the year ended December 31, 1998
have been prepared by separating the telecommunications related businesses from
the audited consolidated financial statements of PT Finland Ltd, and presenting
the results of operations, financial position and cash flows of such businesses
as if they had formed a separately reporting consolidated group with the same
structure as that of Sonera subsequent to the Demerger, already during the first
six months of 1998. The accompanying Consolidated Income Statement for the year
ended December 31, 1998 includes allocations of certain corporate costs and
expenses of PT Finland Ltd. Although such costs may not necessarily be
indicative of the costs that would have been incurred by Sonera on a stand-alone
basis, management believes that the resulting amounts are reasonable.

     The Consolidated Financial Statements have been prepared in accordance with
Finnish generally accepted accounting principles ("Finnish GAAP"), as stipulated
in the Finnish Accounting Act 1336/1997. Finnish GAAP and accounting principles
adopted by Sonera differ in certain respects from accounting principles
generally accepted in the United States ("U.S. GAAP"). See Note 21 to the
Consolidated Financial Statements for a discussion of the principal differences
between Finnish GAAP and U.S. GAAP that would affect Sonera's consolidated net
income and shareholders' equity if U.S. GAAP had been applied instead of Finnish
GAAP in the preparation of the Consolidated Financial Statements.

     The Consolidated Financial Statements are presented in millions of euros,
except for share and per share amounts. The Consolidated Financial Statements
for the year ended December 31, 1998 were prepared in Finnish markka ("FIM"),
and have been restated into euros using the fixed exchange rate effective as of
January 1, 1999 which was E1.00 = FIM 5.94573. The Consolidated Financial
Statements for all periods presented depict the same trends as would have been
presented if the Company had continued to present consolidated financial
statements in FIM. However, the Consolidated Financial Statements of the Company
for periods prior to January 1, 1999 are not comparable to the financial
statements of other companies that currently report in euros and that have
restated their financial statements from a currency other than FIM.

     The Consolidated Financial Statements are prepared under the historical
cost convention. Estimates and assumptions used by management in preparing these
Consolidated Financial Statements were determined using the most recent and
accurate information available. Actual results could differ from those
estimates.

                                       F-8
203
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. ACCOUNTING POLICIES (CONTINUED)

PRINCIPLES OF CONSOLIDATION

     The Consolidated Financial Statements include the accounts of Sonera
Corporation and those companies in which it holds, directly or indirectly
through subsidiaries, over 50 percent of the shares and voting rights.

     The companies acquired or established during the financial period have been
consolidated from the month of acquisition or formation. The companies disposed
of during the financial period have been consolidated up to the month of
disposal.

     All intercompany transactions and balances are eliminated as part of the
consolidation process. Minority interests in earnings and shareholders' equity
are presented separately in the income statement and balance sheet.

     Acquisitions of companies are accounted for by using the purchase method.
The cost of acquired shares is allocated to the fair values of acquired assets
and liabilities. The remaining difference is carried as goodwill on
consolidation and amortized over its estimated useful life, generally not
exceeding ten years.

     In April 2000, Sonera acquired all shares in Across Holding AB of Sweden.
Sonera paid for the acquisition by issuing 16,732,055 new shares to the sellers.
In June 2000, Sonera acquired all shares in iD2 Holding AB of Sweden. The
acquisition was paid for by issuing 4,802,431 new shares. Sonera has recorded
both transactions in accordance with the interpretation No. 1591/199 by the
Finnish Accounting Board. Therefore, under Finnish GAAP, Sonera has not recorded
goodwill from these acquisitions.

     The total number of shares issued in connection with Across and iD2
acquisitions was 21,534,486 and the fair value of shares issued, based on the
time of issuance, totaled E1,147 million. If fair value had been used to record
the transactions, Sonera would have recorded goodwill and a corresponding
increase in share premium fund totaling E1,136 million. Assuming a five-year
amortization period for goodwill, Sonera would have recorded amortization of
goodwill of E148 million for the year ended December 31, 2000.

     Earnings in companies in which Sonera has significant influence (associated
companies) are included in the consolidated accounts in accordance with the
equity method of accounting. Generally, Sonera is considered to have significant
influence when it holds 20 to 50 percent of the shares and voting rights.
Additionally, Aerial Communications, Inc. was treated earlier as an associated
company, even though Sonera's ownership was under 20 percent since Sonera had
significant influence in the company and had a right to increase its interest in
the company to 20 percent, at Sonera's option. In May 2000, Aerial merged with
VoiceStream Wireless Corporation, after which Sonera does not treat the merged
entity as an associated company. Any goodwill arising from the acquisition of
shares in associated companies is included in the carrying value of investments
in associated companies and amortized over estimated useful life, generally not
exceeding ten years.

     Shareholdings which are not treated as subsidiaries or associated companies
are carried at cost or at a written-down amount, and only dividends received are
included in the consolidated income statement.

FOREIGN CURRENCY TRANSLATION

     Transactions in foreign currencies are recorded at the rates of exchange
prevailing at the date of transaction. At the end of the accounting period,
unsettled foreign currency balances are translated at the closing rate on the
balance sheet date. Foreign exchange gains and losses on trade accounts
receivable and payable are credited or charged to revenues and operating
expenses, respectively. In relation to revenues and operating expenses, these
exchange gains and losses are insignificant. Other foreign exchange gains and
losses are recorded as financial income and expenses.

     All receivables and payables on December 31, 1998, which were denominated
in currencies of the euro zone were translated into Finnish markka at the fixed
exchange rates effective as of January 1, 1999, and the resulting exchange gains
and losses were recognized as realized gains and losses for the year ended
December 31, 1998.

                                       F-9
204
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. ACCOUNTING POLICIES (CONTINUED)

     The income statements of foreign subsidiaries are translated at the average
exchange rates for the accounting period, and the balance sheets are translated
at the closing rate at the balance sheet date.

     All translation differences arising from the consolidation of foreign
subsidiaries and associated companies are credited or charged directly to
retained earnings.

DERIVATIVE FINANCIAL INSTRUMENTS

     The business operations of Sonera give rise to certain exposure to risks
related to interest rates and foreign currency. These risks are managed to
minimize their impact on Sonera's profitability and financial position.

     Sonera considers its derivative financial instruments to be hedging
instruments when certain criteria are met:

     -  For an interest rate derivative instrument to qualify as a hedge, the
        instrument must

       (a)   relate to an asset or a liability, or to a portfolio of assets and
             liabilities; and

       (b)   change the character of the interest rate by converting variable
             rate to a fixed rate or by converting fixed rate to a variable
             rate.

     -  For a foreign currency derivative instrument to qualify as a hedge, the
        instrument must

       (a)   be related to a foreign currency asset, liability or firm
             commitment, or a portfolio of assets, liabilities and firm
             commitments, the characteristics of which have been identified;

       (b)   involve the same currency as the hedged item; and

       (c)   reduce the risk of foreign currency exchange movements on Sonera's
             operations.

     Derivative financial instruments are not used for speculative purposes.

Interest rate swaps

     Interest rate swap agreements that are designated as hedges of a debt
obligation are accounted for on an accrual basis. That is, the interest payable
and interest receivable under the swap terms are accrued and recorded as an
adjustment to the interest expense of the designated liability.

     Amounts due from and payable to the counterparties of interest rate swaps
are recorded on an accrual basis at each reporting date based on amounts
computed by reference to the respective interest rate swap contract. Realized
gains and losses that occur from the early termination or expiration of
contracts are recorded in income over the remaining period of the original swap
agreement.

Forward exchange contracts and currency swaps

     Gains and losses on forward exchange contracts and currency swaps that are
designated and effective as hedges of firm commitments are deferred and
recognized in income or as adjustments of carrying amounts when the hedged
transaction occurs. The interest component determined at the inception of
contracts is accrued as interest income or expense over the contract term.

Interest rate and foreign currency options

     Gains and losses on interest rate and foreign currency options that are
designated and effective as hedges of firm commitments are deferred and
recognized in income or as adjustments of carrying amounts when the hedged
transaction occurs. Option premiums are recorded as an asset or liability and
amortized over the life of the option.

                                       F-10
205
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. ACCOUNTING POLICIES (CONTINUED)

FIXED ASSETS AND OTHER LONG-TERM INVESTMENTS

     The balance sheet values of fixed assets are stated at historical cost,
less accumulated depreciation and amortization. Construction costs include
directly allocable costs and an appropriate allocation of material and
production overheads. Production overhead does not include general and
administrative expenses.

     Starting from the year ended December 31, 2000, interest expenses related
to construction in progress are capitalized on fixed assets and charged to
expense in coming years as a part of depreciation on fixed assets. The
cumulative effect of the change in accounting practice, E6 million (net of
deferred tax effect of E2 million), was recorded for the year ended December 31,
2000. Prior year financial statements have not been restated.

     The cost of assets received from Posts and Telecommunications of Finland
upon the incorporation of Telecom Finland Ltd on January 1, 1994 was equal to
the carrying value of transferred assets on the December 31, 1993 balance sheet
of the former government authority. The carrying values of assets transferred
did not exceed fair values of those assets on January 1, 1994.

     Depreciation and amortization is calculated on a straight-line basis over
the expected useful lives of the assets, except for land, which is not
depreciated. Estimated useful lives for various assets are:
Intangible rights...............................     3 - 10 years
Goodwill........................................     5 - 10 years
Other intangible assets.........................     3 - 10 years
Buildings.......................................    15 - 40 years
Machinery and equipment.........................     3 - 13 years
Telecommunications networks.....................     4 - 20 years
Other tangible assets...........................     3 - 10 years
Sonera reviews its fixed assets and long-term investments for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable, in which case the Company estimates the future
cash flows expected to result from the use of the asset and its eventual
disposition. If the sum of the expected future cash flows, on an undiscounted
basis, is less than the carrying amount of the asset, a write-down is recognized
in an amount by which the asset's carrying value exceeds the sum of the expected
future cash flows.

     Long-term investments and receivables include financial assets which are
intended to be held for over one year. Marketable equity securities are stated
at cost, or at lower market value if the impairment in value is deemed to be
permanent. Marketable debt securities are stated at cost when intended to be
held to maturity, or at the lower of cost or market when available for sale.

LEASED ASSETS

     Sonera leases certain equipment to its customers under capital lease terms.
These lease transactions are accounted for as a sale of asset and an incurrence
of an interest-bearing receivable. Sonera considers a lease agreement to qualify
as a capital lease when one or more of the following criteria are met:

     (a)   the lease term is equal to 75 percent or more of the estimated
           economic life of the leased equipment;

     (b)   the present value at the beginning of the lease term of the minimum
           lease payments is 90 percent or more of the fair value of the leased
           equipment;

     (c)   the lease contains a bargain purchase option; or

     (d)   the lease transfers ownership of the equipment to the lessee by the
           end of the lease term.

                                       F-11
206
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. ACCOUNTING POLICIES (CONTINUED)

     Sonera does not currently hold any significant assets under capital lease
terms. Assets held under operating leases are not recorded on the balance sheet,
and the lease payments are charged to income as incurred.

INVENTORIES

     Inventories are stated at the lower of cost or net realizable value. Cost
is determined either using the first-in, first-out method or the average cost
method.

PREPAID/ACCRUED EXPENSES AND INCOME

     Prepaid expenses and accrued income mainly consist of accrued interest
income and financial fee income. Accrued expenses and prepaid income mainly
consist of accrued interest, income tax and payroll-related expenses.

CASH AND SHORT-TERM INVESTMENTS

     Cash and cash equivalents include cash on hand, cash in banks and in time
deposits with a maturity of less than three months, as well as other highly
liquid funds equivalent to cash money, with a maturity of less than three
months.

     Short-term investments include equity securities as well as time deposits
and other debt securities for which the intended holding period generally is
less than one year. Marketable debt and equity securities are stated at the
lower of cost or market.

REVENUES

     Revenues include revenue from services and goods sold, adjusted for
discounts granted, sales-related taxes and the effects of foreign exchange rate
differences.

     Revenues from connection charges (including the price of SIM cards) that
are received from the sale of new subscriptions are recognized at the time of
sale to the extent of direct costs incurred. Direct costs incurred in connection
with mobile connection revenues consist primarily of the first payment of
distributor commission, costs for credit check, cost of the SIM card, and the
cost of the printed new customer information package. For the fixed line
connection revenues, the direct costs consist primarily of installation work and
the cost of a printed telephone directory given to each new subscriber. To date
direct costs associated with connection fees (including the price of SIM cards)
have exceeded such revenues. Therefore, no connection revenues have been
deferred.

     Revenues from monthly subscription charges are recognized for the month
that they relate to. Traffic revenues and interconnection revenues are
recognized based on actual traffic.

     Other revenues are recognized when services are rendered, or when goods are
delivered to the customer, and the earnings process is complete. Sonera has no
significant long-term contract deliveries.

RESEARCH AND DEVELOPMENT

     All costs relating to research and development activities are expensed as
incurred. Research and development expenditure was approximately E52 million,
E64 million and E70 million for the years ended December 31, 1998, 1999 and
2000, respectively.

MAINTENANCE, REPAIRS AND RENEWALS

     Maintenance and repair costs are expensed as incurred. Costs from any major
improvement or renovation that extend the useful life of an asset are
capitalized as part of the carrying value of the asset. Costs from

                                       F-12
207
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. ACCOUNTING POLICIES (CONTINUED)

leasehold improvements of rental premises are capitalized as intangible assets
and amortized over 10 years or, if shorter, over the lease term.

PENSION PLANS AND COVERAGE OF PENSION LIABILITIES

     The statutory pension benefits as well as certain additional pension
benefits for most of the personnel in Finland are funded through the PT Pension
Fund. Sonera is responsible for ensuring that its pension liabilities are
sufficiently funded at all times. On December 31, 2000, both statutory and
additional pension benefits were fully funded. Under the Finnish regulations,
the funding requirements are based on book value, not fair value, of the assets
held by the pension fund.

     Sonera makes monthly contributions to the PT Pension Fund at the end of
each month and records those contributions as expenses. Other than amounts
accrued for the next contribution payable, Sonera does not record liabilities
for pensions as the Company has transferred all such funds to the PT Pension
Fund.

     The PT Pension Fund is a multi-employer plan, established to fund pension
obligations of Sonera and Finland Post Group. Even though Sonera and Finland
Post do not have a common parent company after the Demerger on July 1, 1998,
there are no legal requirements for dividing the PT Pension Fund in two as long
as the Finnish State holds at least 50 percent of all shares in both companies.
However, Sonera and Finland Post are currently planning to divide the PT Pension
Fund in two. Since the split-up would result in the separation of plan assets in
relation to the respective shares of total liabilities, management estimates
that the split-up would not significantly change Sonera's pension obligations
and the funding status of those obligations. The PT Pension Fund has received an
advance ruling from the Finnish Central Tax Board, according to which the
split-up will not be considered a taxable transaction for the PT Pension Fund.

     The statutory pension liabilities of certain minor Finnish subsidiaries are
funded through pension insurance. Subsidiaries outside Finland have various
pension schemes in accordance with the local requirements and practices. The
schemes are generally funded through payments to insurance companies.

     As of December 31, 2000, the Chairman of the Board of Directors, the
President of the Parent Company and three members of the Management Group had a
right to retire after the age of 60, at the statutory 60 percent total pension.
Additionally, one member of the Management Group had a right to retire after the
age of 60 at the total pension of 66 percent. These additional pension benefits
have been funded through a group pension insurance. There are no significant
exceptions from the normal practices in the pension benefits of Managing
Directors of subsidiaries. However, certain Managing Directors have a right to
retire at the age of 63 to 64, based on the additional pension benefit
arrangement related to the departure from the Finnish State pension plan. These
additional pension benefits have been funded through the PT Pension Fund.

COMMISSIONS PAID TO DISTRIBUTORS

     Sonera pays the distributors of Sonera's mobile subscriptions a sign-up
commission per subscription. The commission received by the distributor is
divided into five payments, the timing of which are dependent, among other
things, on the accumulated traffic produced by the new subscriber and on the
timely payment of monthly subscription charges of the new subscriber.

     The first payment of commission is a fixed amount and is earned by the
distributor at the time of sale of a new subscription, and is charged to expense
accordingly.

     The second, third and fourth payments of commission are also fixed amounts.
However, they are earned by the distributor at specific points in time if the
subscription remains active. The expense for these payments is accrued ratably
over such periods of time.

                                       F-13
208
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. ACCOUNTING POLICIES (CONTINUED)

     The fifth payment of commission is a fixed amount that is earned by the
distributor if a specific accumulation of traffic by the subscriber is achieved.
The fifth payment is accrued based on the actual traffic. If the accumulation of
traffic does not exceed the milestone the distributor receives no payment at
all.

     Once conditions for the payment have been met, amounts will be paid to the
distributor and are not subject to refund.

OTHER OPERATING INCOME AND EXPENSES

     Other operating income includes income from business activities outside
ordinary service production, such as rental income and gains from the sale of
fixed assets and other long-term investments, as well as fees charged on
collection of overdue receivables.

     Other operating expenses include expenses not directly related to the
production of services, such as expenses for marketing efforts, expenses for
research and development, and other expenses related to general administration.
Additionally, losses from the disposition of fixed assets and other long-term
investments are reported within other operating expenses.

     All advertising costs are expensed as incurred. Advertising expenses were
approximately E22 million, E37 million and E40 million for the years ended
December 31, 1998, 1999 and 2000, respectively.

PROVISIONS FOR CONTINGENT LOSSES

     Provisions are made for identified contingent losses of which the future
realization is probable and of which the amount can be reasonably estimated.
Provisions are reported as non-interest bearing liabilities in the balance
sheet. Sonera did not have any material provisions for contingent losses during
the years ended December 31, 1998, 1999 and 2000.

UNTAXED RESERVES

     In Finland and certain other countries, companies are allowed to reduce or
increase taxable income by charges or credits representing adjustments to
untaxed reserve accounts, provided that such amounts are reflected in the
company's financial statements and accumulated as untaxed reserves in the
balance sheet. The major part of Sonera's untaxed reserves relates to the
accumulated tax depreciation of telecommunications networks exceeding the
accumulated depreciation in financial statements.

     On consolidation, all allocations to untaxed reserves in the accounts of
individual Group companies are presented as retained earnings, net income and a
related deferred tax component on an aggregate basis. Under the Finnish
Companies Act, untaxed reserves presented as retained earnings are not included
when calculating the maximum amount of distributable funds.

INCOME TAXES

     Income taxes consist of current and deferred taxes. Current taxes in the
income statement include estimated taxes payable or refundable on tax returns
for the financial year, as well as adjustments to tax accruals related to
previous years.

     Deferred tax liabilities or assets are recognized for the future tax
consequences of events that have been recognized in financial statements or tax
returns, based on the tax laws and tax rates that have been enacted by the
balance sheet date. Deferred tax liabilities are recognized at their full
amounts, and deferred tax assets at estimated realizable amounts. The deferred
taxes in the income statement represent the net change during the year in
deferred tax liabilities and assets.

                                       F-14
209
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. ACCOUNTING POLICIES (CONTINUED)

DIVIDENDS

     In Finland, dividends are generally only payable annually and only after
shareholder approval of the company's annual financial statements and of the
amount proposed by the board of directors.

     Dividends proposed by the Board of Directors have not been recorded as a
liability in the Consolidated Financial Statements. Only after the annual
general meeting has approved the annual financial statements and the amount of
dividends, the amount is deducted from retained earnings.

CONSOLIDATED STATEMENT OF CASH FLOWS

     The statement of cash flows presents the annual cash flows classified as
cash flows from operating, investing and financing activities, arriving at the
change in cash and cash equivalents for the period. The consolidated statement
of cash flows has been prepared in accordance with the indirect method by
adjusting net income to reconcile it with cash flow from operating activities.

2. OTHER OPERATING INCOME

     Other operating income consists of the following:
YEAR ENDED DECEMBER 31,
                                                               ------------------------
                                                               1998     1999      2000
                                                               -----    -----    ------
                                                                   (IN E MILLIONS)
Rental income...............................................      3        3         4
Gain from Aerial/VoiceStream merger(a)......................     --       --       835
Gains from sales of business operations and shares..........     --       --        --
  Belgian, Dutch and German voice businesses................      4       --        --
  P Plus Communications Limited (28.5% associated
     company)...............................................      1       --        --
  Mobicentrex business (100% subsidiary Abacus Solutions
     Oy)(b).................................................     --       15        --
  Axxon Telecom B.V. (40% associated company)...............     --        3        --
  Star Telecom International Holding Limited (4.5%).........     --        4        --
  Turkcell Iletisim Hizmetleri A.S. initial public
     offering(c)............................................     --       --       680
  HanseNet Telefongesellschaft mbH & Co. KG
     (associated company 50%)(d)............................     --       --        22
  Transmast Oy (associated company 40%)(e)..................     --       --        12
  Suomen Erillisverkot Oy (subsidiary)(f)...................     --       --        11
  Other gains from sales of business operations and
     shares.................................................     --        2         4
Gains from sales of fixed assets............................      2        1        --
Fees charged on collection of overdue receivables...........      9       11        13
Other items.................................................      5        6         8
                                                                ---      ---     -----
Total.......................................................     24       45     1,589
                                                                ===      ===     =====
------------------------------

(a) On March 30, 2000, the United States Federal Communications Commission
    ("FCC") gave final approval to the merger of Aerial Communications, Inc.
    ("Aerial") with VoiceStream Wireless Corporation ("VoiceStream"). The merger
    was completed on May 4, 2000. After the merger and Sonera's earlier U.S.$500
    million investment in VoiceStream on February 28, 2000, Sonera's
    shareholding in VoiceStream was approximately 7.9 percent, on a fully
    diluted basis. Sonera discontinued accounting for Aerial under the equity
    method on the merger date, and Sonera's investment in VoiceStream is
    accounted for under the cost method. The cost basis of VoiceStream shares
    received in the merger is based on the fair value of the VoiceStream shares
    on the merger date. As a result, Sonera recorded a pre-tax non-cash gain of
    E835 million on the merger transaction for the second quarter of 2000. See
    also Note 22 to the Consolidated Financial Statements for unaudited
    subsequent events.

(b) In December 1999, Sonera sold its wholly-owned subsidiary Abacus Solutions
    Oy (Mobicentrex business), which is specialized in telephone exchange
    services for mobile communications, to the Swedish company Trio AB. In
    exchange for shares in Abacus Solutions
                                       F-15
210
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. OTHER OPERATING INCOME (CONTINUED)

    Oy, Sonera received 21 percent of shares in Trio AB, and recorded a capital
    gain of E15 million on the transaction. Trio AB's share is quoted on the
    Stockholm Stock Exchange.

(c) In June-July 2000, the shareholders of Turkcell Iletisim Hizmetleri A.S.
    ("Turkcell") carried out an initial public offering of the company. Before
    the offering, Sonera purchased an additional interest of approximately 0.6
    percent in Turkcell, whereby Sonera's holding in the company was
    approximately 41.6 percent. In the offering, Sonera sold 10,246,468,483
    shares, which corresponds to approximately 10.3 percent of the Turkcell
    shares owned by Sonera prior to the offering. After the offering, Sonera
    holds approximately 37.3 percent in Turkcell. After the underwriting
    discount, Sonera's share of the sales proceeds from the offering totaled
    E735 million. Sonera recorded a gain of E680 million from the sale for the
    third quarter of 2000.

(d) In May 2000, Sonera sold its 50 percent holding in the German service
    provider HanseNet Telefongesellschaft mbH & Co. KG to the other partner of
    the joint venture. The gain from the transaction recorded for the second
    quarter of 2000 amounted to E22 million.

(e) In September 2000, Sonera sold to Fortum its 40 percent holding in Transmast
    Oy, which plans and installs mast structures and delivers base stations. A
    gain of E12 million was recorded for the third quarter of 2000.

(f)  In December 2000, Sonera sold 60 percent of its wholly owned subsidiary
     Suomen Erillisverkot Oy to the Finnish Ministry of Transport and
     Communications. Suomen Erillisverkot Oy has in its balance sheet the assets
     relating to closed radio network services and certain other network
     services used by the public safety authorities, the military and various
     other emergency and rescue services. A capital gain of E11 million was
     recorded for the fourth quarter of 2000.

3. OPERATING EXPENSES AND NUMBER OF PERSONNEL

     Information regarding operating expenses is as follows:
YEAR ENDED DECEMBER 31,
                                                               -----------------------
                                                               1998     1999     2000
                                                               -----    -----    -----
                                                                   (IN E MILLIONS)
Cost of sold equipment and materials........................     116      142      160
Services bought:
  Payments to other operators for use of networks...........     227      263      317
  Payments for other external services(a)...................     140      168      194
                                                               -----    -----    -----
                                                                 367      431      511
Personnel expenses:(b)
  Wages and salaries........................................     248      279      369
  Pension expenses..........................................      30       29       45
  Other personnel expenses..................................      31       32       31
                                                               -----    -----    -----
                                                                 309      340      445
Rental expenses.............................................      40       47       65
Other operating expenses:
  Losses from disposition of fixed assets and other
     long-term investments..................................       6        1       14
  Other operating expenses(c)...............................     222      265      404
                                                               -----    -----    -----
                                                                 228      266      418
                                                               -----    -----    -----
Total operating expenses....................................   1,060    1,226    1,599
                                                               =====    =====    =====
------------------------------

(a) Other external services relate to the repair and maintenance of
    telecommunications network, and to other subcontracting services bought in
    the process of generating services provided to the customers.

(b) Personnel costs attributable to the construction of telecommunications
    networks have been capitalized as part of the carrying value of networks.
    Capitalized personnel costs totaled E17 million, E19 million and E16 million
    for the years ended December 31, 1998, 1999 and 2000, respectively. Fees and
    salaries paid to members of the Supervisory Board totaled E72 thousand, E72
    thousand and E70 thousand for the years ended December 31, 1998, 1999 and
    2000, respectively. Fees and salaries paid to Board of Directors totaled
    E108 thousand, E97 thousand and E469 thousand. Fees and salaries paid to the
    President and CEO of Sonera Corporation and the managing directors of
    subsidiaries totaled E2.5 million, E2.9 million and E4.2 million for the
    years ended December 31, 1998, 1999 and 2000, respectively.

(c) Other operating expenses include expenses not directly related to the
    production of services, such as expenses for marketing efforts, expenses for
    research and development, and other expenses related to the general
    administration.

                                       F-16
211
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

3. OPERATING EXPENSES AND NUMBER OF PERSONNEL (CONTINUED)

     Number of personnel is as follows:
AS OF OR FOR THE
                                                               YEAR ENDED DECEMBER 31,
                                                               ------------------------
                                                               1998     1999      2000
                                                               -----    -----    ------
Average number of personnel during the period...............   8,609    9,270    10,305
Number of personnel at the end of the period................   9,068    9,512    11,271
4. DEPRECIATION, AMORTIZATION AND WRITE-DOWNS

     Depreciation, amortization and write-down expenses consist of the following
components:
YEAR ENDED DECEMBER 31,
                                                               -----------------------
                                                               1998     1999     2000
                                                               -----    -----    -----
                                                                   (IN E MILLIONS)
Depreciation and amortization
  Intangible rights.........................................      6        8       12
  Goodwill..................................................      3        7        5
  Other long-term expenses..................................      3        3        2
  Buildings.................................................      9        9        8
  Machinery and equipment...................................     29       34       43
  Telecommunications networks...............................    206      211      214
  Other tangible assets.....................................      5        9       15
                                                               ----     ----     ----
                                                                261      281      299
Write-downs
  Buildings.................................................      3       --       --
  Telecommunications networks...............................     34       --       --
                                                               ----     ----     ----
                                                                 37       --       --
                                                               ----     ----     ----
Total.......................................................    298      281      299
                                                               ====     ====     ====
As a consequence of a significant reduction in the number of subscribers to
Sonera's analog NMT services during the latter part of 1998, a write-down of E34
million on certain assets related to Sonera's NMT networks was recorded for the
year ended December 31, 1998.

                                       F-17
212
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

5. FINANCIAL INCOME AND EXPENSES

     The components of financial income and expenses, net, are as follows:
YEAR ENDED DECEMBER 31,
                                                               -----------------------
                                                               1998     1999     2000
                                                               -----    -----    -----
                                                                   (IN E MILLIONS)
Dividend income.............................................      5       21       21
Interest income
  On long-term loans receivable.............................      3        4        6
  Other interest income.....................................      9       10       76
Other financial income......................................      2        6       28
Interest expense............................................    (19)     (40)    (155)
Capitalized interest........................................     --       --       20
Other financial expenses....................................     (1)      (1)      (5)
Exchange gains (losses).....................................     (1)      --       --
                                                                ---      ---     ----
Total.......................................................     (2)      --       (9)
                                                                ===      ===     ====
Dividend income includes dividends received from shareholdings which are
not accounted for as subsidiaries or associated companies. Dividend income
mainly consists of dividends received from Libancell S.A.L. for E3 million, E3
million and E4 million during the years ended December 31, 1998, 1999 and 2000,
respectively, and E2 million, E18 million and E17 million received from
investments in venture capital funds during the years ended December 31, 1998,
1999 and 2000, respectively.

     In 2000, Sonera adopted an accounting practice according to which interest
expenses related to construction in progress are capitalized in the balance
sheet and charged to expense in the coming years as part of depreciation on
fixed assets. Accumulated capitalization of interest expenses at December 31,
2000 totaled E41 million, of which E24 million has been capitalized on
telecommunications networks and E17 million on investments in associated
companies. Accumulated depreciation of capitalized amounts was E14 million, and
the carrying amount on the balance sheet of December 31, 2000 was E27 million.

6. INCOME TAXES

     The domestic and foreign components of profit before income taxes, minority
interest and extraordinary items are as follows:
YEAR ENDED DECEMBER 31,
                                                                ------------------------
                                                                1998     1999      2000
                                                                -----    -----    ------
                                                                    (IN E MILLIONS)
Finland.....................................................     313      435     1,125
Other countries.............................................      33       62       735
                                                                 ---      ---     -----
Total.......................................................     346      497     1,860
                                                                 ===      ===     =====
The components of income taxes are as follows:
YEAR ENDED DECEMBER 31,
                                                                ------------------------
                                                                1998     1999      2000
                                                                -----    -----    ------
                                                                    (IN E MILLIONS)
Current tax expense.........................................      76      108       277
Deferred tax expense........................................      18       18        41
                                                                 ---      ---     -----
Total.......................................................      94      126       318
                                                                 ===      ===     =====
F-18
213
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6. INCOME TAXES (CONTINUED)

     The differences between income tax expense computed at Finnish statutory
tax rate (28 percent in 1998 and 1999 and 29 percent in 2000) and income tax
expense recorded in income statement are as follows:
YEAR ENDED DECEMBER 31,
                                                                ------------------------
                                                                1998     1999      2000
                                                                -----    -----    ------
                                                                    (IN E MILLIONS)
Hypothetical income tax expense at Finnish tax rate.........      97      139       539
Non-deductible expenses and tax exempt income...............      --       (7)     (215)
Write-downs on subsidiary shares and use of tax loss
  carryforwards.............................................      (5)      (1)      (27)
Operating losses outside Finland with no deferred tax
  benefit recognized........................................       7        5        24
Difference between Finnish tax rate and deferred tax rate
  for associated companies..................................      (5)     (12)       (7)
Difference between Finnish tax rate and tax rate abroad.....      --       --         3
Effect of goodwill amortization.............................      --       --         1
Change in Finnish tax rate on January 1, 2000...............      --        3        --
Other items.................................................      --       (1)       --
                                                                 ---      ---     -----
Income tax expense in the income statement..................      94      126       318
                                                                 ===      ===     =====
The components of net deferred tax asset (liability) in the balance sheet
consist of the following tax consequences from temporary differences:
AS OF DECEMBER 31,
                                                               --------------------
                                                               1998    1999    2000
                                                               ----    ----    ----
                                                                 (IN E MILLIONS)
Deferred tax assets
  Tax loss carryforwards....................................     15      37      57
  Less valuation allowance..................................    (15)    (29)    (56)
  Fixed assets..............................................     --      --       4
  Investments in associated companies.......................     17      17      --
  Accrued expenses..........................................      1       3      --
                                                               ----    ----    ----
                                                                 18      28       5
Deferred tax liabilities
  Property, plant and equipment.............................    (78)    (80)    (87)
  Investments in associated companies.......................    (15)    (41)    (49)
  Other items...............................................     (1)     (1)     (8)
                                                               ----    ----    ----
                                                                (94)   (122)   (144)
                                                               ----    ----    ----
Net deferred tax liability..................................    (76)    (94)   (139)
                                                               ====    ====    ====
Sonera had tax loss carryforwards, mainly attributable to foreign
subsidiaries, of E47 million, E110 million and E184 million on December 31,
1998, 1999 and 2000, respectively. Most of the tax loss carryforwards have no
expiration.

     Sonera has recognized a deferred tax asset for its tax loss carryforwards
and established a valuation allowance against this amount. That determination
was based upon an analysis of "more likely than not" criterion applied to each
tax jurisdiction. The Company determined the amount of the valuation allowance
based upon the weight of all available evidence, both positive and negative,
including consideration of reversing taxable temporary differences in each tax
jurisdiction as well as available tax planning strategies. The valuation
allowance

                                       F-19
214
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6. INCOME TAXES (CONTINUED)

was established for tax loss carryforwards that exceeded the amount of reversing
taxable temporary differences in certain tax jurisdictions outside Finland due
to the following:

     -  history of operating losses generated by companies in those separate tax
        jurisdictions, primarily due to the start-up nature of the operations;

     -  lack of evidence that profits will be generated by those operations in
        the foreseeable future; and

     -  expenditures, which will result in further losses, to be made by those
        companies to develop media and new service businesses.

     Based on this information the Company determined that it is not "more
likely than not" that certain deferred tax assets will be realized related to
these tax loss carryforwards.

     Deferred tax liability has been provided for the undistributed earnings in
foreign associated companies because Sonera may not be able to control the
timing of dividend payments out of those earnings. The amount of deferred tax
liability is equal to the withholding tax burden of possible dividend payments,
the rate of which varies from country to country. Deferred tax liability has not
been provided on undistributed earnings of Finnish associated companies since
dividends between Finnish companies are effectively tax exempt.

     Deferred tax liability has not been provided on undistributed earnings of
foreign subsidiaries because such amounts would have been less than E1 million
for the years ended December 31, 1998, 1999 and 2000, respectively. As of
December 31, 1998, 1999 and 2000 Sonera had retained profits of E15 million, E17
million and E691 million, respectively, in its foreign subsidiaries. The
retained profits in foreign subsidiaries as of December 31, 2000 consisted
mainly of the retained profits in Sonera Holding B.V. and Sonera is able to
repatriate those retained earnings tax free.

7. EFFECT OF ACCOUNTING CHANGES

     The cumulative effect of changes in accounting practice is as follows:
AS OF DECEMBER 31,
                                                               ---------------------
                                                               1998    1999    2000
                                                               ----    ----    -----
                                                                  (IN E MILLIONS)
Change in Turkcell's equity accounting (net of deferred tax
  benefit of E4 million)....................................    --      --       (41)
Capitalized interest expenses (net of deferred tax expense
  of E2 million)............................................    --      --         6
                                                               ---     ---     -----
Total.......................................................    --      --       (35)
                                                               ===     ===     =====
Equity accounting for Turkcell

     As of the beginning of 2000, Sonera changed the practice of equity
accounting for its holding in Turkcell in such a manner that Sonera's
consolidated financial statements for each quarter include the last available
quarterly financial statements of Turkcell. Previously, Sonera's consolidated
financial statements for each quarter have included a preliminary estimated
share of Turkcell's net income for the corresponding period.

     The accounting change was made in anticipation of the Turkcell initial
public offering and stock exchange listing, after which Sonera no longer has any
other information available for the preparation of its consolidated financial
statements than the information published by Turkcell simultaneously to all of
Turkcell shareholders.

     The cumulative effect of accounting change, an expense of E41 million,
consists of the reversal of Turkcell's equity income for the last quarter of
1999 that is included in Sonera's retained earnings (expense of E33 million); an
adjustment to reflect the final results of Turkcell's 1999 audited financial
statements (expense of E12 million); and the related deferred tax effect
(benefit of E4 million).

                                       F-20
215
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

7. EFFECT OF ACCOUNTING CHANGES (CONTINUED)

     Sonera has not restated its prior-year consolidated financial statements
for the accounting change, and has recorded the cumulative effect of the
accounting change through the consolidated income statement for the first
quarter of 2000.

Capitalization of interest

     In the third quarter of 2000, Sonera adopted an accounting practice
according to which interest expenses related to construction in progress are
capitalized on fixed assets and charged to expense in the coming years as part
of depreciation on fixed assets.

     The cumulative effect of accounting change, income of E6 million, consists
of the accumulated capitalization of interest costs (income of E20 million); the
accumulated depreciation expense for the capitalized amounts (expense of E12
million); and the related deferred tax effect (expense of E2 million).

     Sonera has not restated its prior-year consolidated financial statements
for the accounting change, and has recorded the cumulative effect of the
accounting change through the consolidated income statement for the third
quarter of 2000.

8. EARNINGS PER SHARE

     Earnings per share amounts are calculated as follows:
YEAR ENDED DECEMBER 31,
                                                                -----------------------------
                                                                 1998       1999       2000
                                                                -------    -------    -------
Profit before extraordinary items (in E millions)...........        251        370      1,541
Net income (in E millions)..................................        251        370      1,506
                                                                =======    =======    =======
Average number of shares issued and outstanding (in
  thousands)................................................    720,247    722,000    735,917
Earnings per share, before extraordinary items (E)..........       0.35       0.51       2.09
Cumulative effect of accounting changes, net of income taxes
  (E).......................................................         --         --      (0.04)
                                                                -------    -------    -------
Earnings per share (E)......................................       0.35       0.51       2.05
                                                                =======    =======    =======
Immediately after the Demerger in July, 1998, the Company had a total of
180,000,000 shares issued and outstanding. After two consecutive share splits
carried out in July and September 1998, the Company had a total of 720,000,000
shares issued and outstanding. Earnings per share amounts have been calculated
as if the number of shares had been 720,000,000 also for all the periods before
the Demerger and the share splits.

     The number of shares on December 31, 1998, 1999 and 2000 was 722,000,000,
722,000,000 and 743,534,486, respectively, which includes zero, zero and 550,000
treasury shares repurchased, respectively.

     In November 1998, the Company issued 2,000,000 new shares in an employee
offering. The weighted average number of shares for the years ended December 31,
1998, 1999 and 2000 was 720,246,575, 722,000,000 and 735,916,878, respectively.

     In May 1999 and July 2000, the Company issued employee bond loans with
warrants. The fully diluted weighted average number of shares for the years
ended December 31, 1999 and 2000 was 723,233,765 and 741,742,854. The diluted
earnings per share was E0.51 and E2.03 for the years ended December 31, 1999 and
2000, respectively.

     According to Finnish GAAP, earnings per share exclude extraordinary items.
For the years ended December 31, 1998 and 1999, no extraordinary items were
reported. For the year ended December 31, 2000, extraordinary items included the
cumulative effect of accounting changes.

                                       F-21
216
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

9. FIXED ASSETS AND OTHER LONG-TERM INVESTMENTS

     Intangible assets consist of the following:
AS OF DECEMBER 31,
                                                                --------------------
                                                                1998    1999    2000
                                                                ----    ----    ----
                                                                  (IN E MILLIONS)
Intangible rights...........................................     29      40      60
Goodwill....................................................      7      12      30
Other intangible assets.....................................     17      17      26
                                                                ---     ---     ---
Total.......................................................     53      69     116
                                                                ===     ===     ===
Intangible rights primarily consist of licenses, lease rights and patents.
Other intangible assets primarily relate to the costs of leasehold improvements
on rental premises.

     Changes in fixed assets and other long-term investments during the year
ended December 31, 2000 include the following:
HISTORICAL                     DISPOSALS     ACCUMULATED       CARRYING
                                    COST ON         CAPITAL          AND      DEPRECIATION ON     VALUE ON
                                   JANUARY 1,   EXPENDITURE AND     OTHER      DECEMBER 31,     DECEMBER 31,
                                      2000      OTHER ADDITIONS   DECREASES        2000             2000
                                   ----------   ---------------   ---------   ---------------   ------------
                                                                (IN E MILLIONS)
Intangible rights...............        60              33            (1)            (32)             60
Goodwill........................        25              23            --             (18)             30
Other intangible assets.........        28              11            --             (13)             26
                                     -----           -----          ----          ------           -----
Total intangible assets.........       113              67            (1)            (63)            116

Land............................        17               3            --              --              20
Buildings.......................       157              15            --             (51)            121
Machinery and equipment.........       193              68            (1)           (141)            119
Telecommunications networks.....     1,972             208            (4)         (1,328)            848
Other tangible assets...........        62              26            (2)            (32)             54
Advances paid and construction
  in progress...................        30              94           (21)             --             103
                                     -----           -----          ----          ------           -----
Total property, plant and
  equipment.....................     2,431             414           (28)         (1,552)          1,265

Investments in associated
  companies.....................     1,637           1,344          (614)             --           2,367
Other shares and holdings.......       154           2,218            (2)             --           2,370
Long-term loans receivable......        35               8            (1)             --              42
                                     -----           -----          ----          ------           -----
Total long-term investments and
  receivables...................     1,826           3,570          (617)             --           4,779
                                     -----           -----          ----          ------           -----

Total fixed assets and other
  long-term investments.........     4,370           4,051          (646)         (1,615)          6,160
                                     =====           =====          ====          ======           =====
F-22
217
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

10. INVESTMENTS IN ASSOCIATED COMPANIES

     Sonera's significant associated companies as of December 31, 2000 consist
of the following:
AS OF DECEMBER 31, 2000
                                                           FIRST       --------------------------------
                                          PERCENT OF      YEAR OF      COST OF    REMAINING    CARRYING
COMPANY NAME                              OWNERSHIP     ACQUISITION    SHARES     GOODWILL      VALUE
------------                              ----------    -----------    -------    ---------    --------
                                             (%)                               (IN E MILLIONS)
Turkcell Iletisim Hizmetleri
  A.S.(a).............................       37.3          1995          230          29         568
Fintur Holdings B.V.(b)...............       35.3          2000          136           6         123
Latvijas Mobilais Telefons SIA........       24.5          1991           --          --          23
UAB Omnitel...........................       27.5          1998           83          59          85
Pannon GSM Rt.........................       23.0          1993           72          48          75
ZAO North-West GSM....................       23.5          1993            4          --          15
Orla Siebzehnte Vermogens-verwaltung
  GmbH(c).............................       42.8          2000          913          --         908
AS Eesti Telekom......................       24.5          1992           20          --          55
Lattelekom SIA........................       44.1          1994          209         114         289
AB Lietuvos Telekomas.................       30.0          1998          238         123         211
------------------------------

(a) Turkcell's shareholders raised the company's share capital in May 2000
    before the company's initial public offering. Sonera's portion of the
    increase in share capital amounted to E113 million. In June-July 2000,
    Turkcell's shareholders carried out the initial public offering of the
    company. After the offering, Sonera's shareholding in Turkcell is 37.3
    percent (41.0 percent on December 31, 1999).

(b) In January 2000, Turkcell and its principal shareholders, Sonera and the
    Cukurova Group, decided to establish a joint holding company named Fintur
    Holdings B.V. The company will develop and own Turkcell's stakes in GSM
    operators outside Turkey, and some of the previous subsidiaries of Turkcell
    and the Cukurova Group. Sonera acquired a 35 percent stake in Fintur by
    investing US$127 million (E136 million) in the company in May 2000.

(c) In September and December 2000, Sonera invested a total of E913 million in
    the share capital of Orla Siebzehnte Vermogensvervaltung GmbH in accordance
    with its 42.8 percent holding in the company. In addition, Sonera gave a
    shareholder loan of E2,719 million to the company, which paid for the
    license it had been awarded in the German UMTS auction using the funds it
    had received from shareholders.

     All companies in the above table are accounted for by using the equity
method of accounting. Sonera amortizes goodwill in its investments in associated
companies straight-line over estimated useful life, generally not exceeding ten
years.

     Differences between carrying and fair values of the publicly quoted
associated companies are presented in Note 18 to the Consolidated Financial
Statements.

                                       F-23
218
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

10. INVESTMENTS IN ASSOCIATED COMPANIES (CONTINUED)

     Total investments in associated companies and the changes therein include
the following:
YEAR ENDED DECEMBER 31,
                                                                -----------------------
                                                                1998     1999     2000
                                                                -----    -----    -----
                                                                    (IN E MILLIONS)
Investments in associated companies at cost:
  Historical cost of shares on January 1....................      175    1,088    1,400
  Investments in associated companies.......................      918      319    1,195
  Transfers to other shares and holdings....................       --       --     (556)
  Disposals.................................................       (5)      (7)     (77)
                                                                -----    -----    -----
  Historical cost of shares on December 31..................    1,088    1,400    1,962
Equity adjustment to investments in associated companies:
  Accumulated equity adjustment on January 1................       31       60      237
  Translation difference....................................      (11)      70       28
  Dividends received during the year........................       (9)     (14)     (30)
  Transfers to other shares and holdings....................       --       --       68
  Disposals.................................................       (3)      11      (19)
  TietoEnator Corporation repurchase and retirement of
     shares.................................................       (5)      --       --
  Equity income in associated companies.....................       59      110      121
  Other changes.............................................       (2)      --       --
                                                                -----    -----    -----
  Accumulated equity adjustment on December 31..............       60      237      405
                                                                -----    -----    -----
Carrying value of investments in associated companies on
  December 31...............................................    1,148    1,637    2,367
                                                                =====    =====    =====
The following table presents certain summarized financial information for
Sonera's associated companies:
AS OF OR FOR THE
                                                                YEAR ENDED DECEMBER 31,
                                                                ------------------------
                                                                1998     1999      2000
                                                                -----    -----    ------
                                                                    (IN E MILLIONS)
Revenues....................................................    1,845    4,077     4,981
Operating profit............................................      391      754       944
Profit before extraordinary items and taxes.................      223      501       786
Net income..................................................      204      456       690
Non-current assets..........................................    2,915    5,148    14,714
Current assets..............................................    1,001    1,686     1,908
Total assets................................................    3,916    6,834    16,622
Shareholders' equity........................................    1,344    3,018     5,541
Minority interest...........................................       --       14        52
Non-current liabilities.....................................    1,846    2,357     2,049
Current liabilities.........................................      726    1,445     8,980
F-24
219
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

10. INVESTMENTS IN ASSOCIATED COMPANIES (CONTINUED)

     Sonera's share of net income and shareholders' equity are presented in the
Consolidated Income Statement and Consolidated Balance Sheet as follows:
AS OF OR FOR THE
                                                                YEAR ENDED DECEMBER 31,
                                                                -----------------------
                                                                1998     1999     2000
                                                                -----    -----    -----
                                                                    (IN E MILLIONS)
Sonera's share of net income................................       94      188      187
Amortization of goodwill and other eliminations.............      (35)     (78)     (66)
                                                                -----    -----    -----
Equity income in associated companies.......................       59      110      121
                                                                =====    =====    =====
Sonera's share of shareholders' equity......................      474      913    1,987
Unamortized goodwill and other eliminations.................      674      724      380
                                                                -----    -----    -----
Carrying value of investments in associated companies.......    1,148    1,637    2,367
                                                                =====    =====    =====
11. SHAREHOLDERS' EQUITY

     Changes in shareholders' equity for the years ended December 31, 1998, 1999
and 2000 are as follows:
ACCUMULATED
                                     NUMBER OF                 SHARE               ADDITIONAL    CURRENCY
                                       SHARES        SHARE    PREMIUM   TREASURY    PAID-IN     TRANSLATION   RETAINED
                                    OUTSTANDING     CAPITAL    FUND      SHARES     CAPITAL     ADJUSTMENT    EARNINGS   TOTAL
                                   --------------   -------   -------   --------   ----------   -----------   --------   -----
                                   (IN THOUSANDS)                                 (IN E MILLIONS)
January 1, 1998..................     180,000         303        --        --         511             2          496     1,312
Share splits.....................     540,000          --        --        --          --            --           --        --
Equity issue.....................       2,000           1        13        --          --            --           --        14
Dividends paid...................          --          --        --        --          --            --         (132)     (132)
Currency translation
  adjustment.....................          --          --        --        --          --           (14)          --       (14)
TietoEnator Corporation
  repurchase and retirement of
  shares.........................          --          --        --        --          --            --           (5)       (5)
Other changes....................          --          --        --        --          --            --           (2)       (2)
Net income for the year..........          --          --        --        --          --            --          251       251
                                      -------         ---       ---       ---         ---           ---        -----     -----
December 31, 1998................     722,000         304        13        --         511           (12)         608     1,424
Bonus issue......................          --           6        --        --          (6)           --           --        --
Dividends paid...................          --          --        --        --          --            --          (61)      (61)
Currency translation
  adjustment.....................          --          --        --        --          --            67           --        67
Other changes....................          --          --        --        --          --            --            1         1
Net income for the year..........          --          --        --        --          --            --          370       370
                                      -------         ---       ---       ---         ---           ---        -----     -----
December 31, 1999................     722,000         310        13        --         505            55          918     1,801
Equity issues....................      21,534          10         1        --          --            --           --        11
Dividends paid...................          --          --        --        --          --            --          (87)      (87)
Treasury shares repurchased......        (550)         --        --       (28)         --            --           --       (28)
Currency translation
  adjustment.....................          --          --        --        --          --            30           --        30
Net income for the year..........          --          --        --        --          --            --        1,506     1,506
                                      -------         ---       ---       ---         ---           ---        -----     -----
December 31, 2000................     742,984         320        14       (28)        505            85        2,337     3,233
                                      =======         ===       ===       ===         ===           ===        =====     =====
Share capital and share premium fund

     Immediately after the Demerger on July 1, 1998, the Company had a total of
180,000,000 shares issued and outstanding, nominal value of FIM 10 each. Two
consecutive share splits were carried out in July and September 1998, after
which the Company had a total of 720,000,000 shares issued and outstanding,
nominal value of

                                       F-25
220
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

11. SHAREHOLDERS' EQUITY (CONTINUED)

FIM 2.50 each (approximately E0.42 each). Share capital totaled FIM 1,800
million (E303 million) after the Demerger.

     In the employee offering carried out in November 1998, the Company issued
2,000,000 new shares for a price of FIM 40.50 (E6.81) each. The price of shares
issued to the employees was equal to 90 percent of the price at which the
Finnish State sold part of its shares to other investors at the same time. New
shares were registered on November 17, 1998. FIM 5 million (E0.8 million) of the
proceeds from the offering were recorded as share capital and FIM 76 million
(E12.8 million) were recorded to the share premium fund. On December 31, 1998,
the number of shares issued and outstanding was 722,000,000 and the amount of
share capital was FIM 1,805 million (E304 million).

     In January 1999, share capital was redenominated in euro and the nominal
value of shares was abolished. In May 1999, the accountable par value of the
share was increased to exactly 43 cents through a bonus issue by transferring
the corresponding amount from additional paid-in capital to share capital. On
December 31, 1999, the number of shares was 722,000,000 and share capital was
E310,460,000.

     In April 2000, Sonera acquired the entire share capital of Across Holding
AB of Sweden. Sonera paid for the acquisition by issuing 16,732,055 new shares
to the sellers. The share capital was increased by E8 million and E1 million was
recorded in additional paid-in capital. In June 2000, Sonera acquired the entire
share capital of iD2 Holding AB of Sweden. Sonera paid for the acquisition by
issuing 4,802,431 new shares to the sellers. The share capital was increased by
E2 million E0.3 million was recorded in additional paid-in capital. Sonera has
recorded both transactions in accordance with the interpretation No. 1591/1999
by the Finnish Accounting Board. That interpretation allows the acquirer to
record the equity issue and the cost of acquired shares at an amount equal to
the shareholders' equity of the acquired company at the time of acquisition. On
December 31, 2000, the total number of shares issued was 743,534,000 and share
capital was E319,720,000.

     Under the Company's Articles of Association, the Company's authorized share
capital may not be less than E309.6 million or more than E1,238.4 million. The
issued share capital may be increased or decreased within these limits through a
resolution by a general meeting of shareholders, without amendment to the
Articles of Association. On December 31, 2000, the Company's Board of Directors
held an authorization to issue a maximum of 18,465,514 shares. The authorization
was valid until March 21, 2001.

Treasury shares

     On March 22, 2000, the Annual General Meeting of Sonera Corporation
authorized the Board of Directors to repurchase a maximum of 14,440,000 Sonera
shares. The authorization was valid until March 22, 2001, and by virtue of the
authorization, shares can be repurchased with a view to using them as
consideration in acquisitions or when the company purchases assets related to
its business. By December 31, 2000, Sonera had repurchased 550,000 shares with
an accountable par of E236,500, and the shares constitute approximately 0.07
percent of the entire share capital. The shares were repurchased during May 2000
at an average price of E51.36 per share and a total price of E28 million.

Additional paid-in capital

     Additional paid-in capital is classified as unrestricted shareholders'
equity and can be used for dividend distribution or for other purposes resolved
by a general meeting of shareholders.

                                       F-26
221
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

11. SHAREHOLDERS' EQUITY (CONTINUED)

Dividend payments

     Dividend payments for the year ended December 31, 1998 represent Sonera's
share of the cash dividends paid by PT Finland Ltd. The total cash dividend paid
by PT Finland Ltd to the Finnish State was E185 million during the year ended
December 31, 1998.

     As of January 1, 2000, Sonera has declared and paid dividends in euros.
Past dividends have been declared and paid in Finnish markka.

Distributable funds

     On a consolidated level, retained earnings include untaxed reserves which
the Finnish Companies Act classifies as undistributable earnings. On a
consolidated basis, the shareholders' equity available for distribution on
December 31 was as follows:
AS OF DECEMBER 31,
                                                               ----------------------
                                                               1998    1999     2000
                                                               ----    -----    -----
                                                                  (IN E MILLIONS)
Retained earnings...........................................    608      918    2,337
Less untaxed reserves in retained earnings..................   (186)    (185)    (177)
Other undistributable retained earnings.....................     --       (1)      --
                                                               ----    -----    -----
Distributable retained earnings.............................    422      732    2,160
Accumulated currency translation adjustment.................    (12)      55       85
Additional paid-in capital..................................    511      505      505
Treasury shares.............................................     --       --      (28)
                                                               ----    -----    -----
Total distributable funds...................................    921    1,292    2,722
                                                               ====    =====    =====
The Finnish Companies Act restricts dividend distribution to the lower of
distributable funds of the Parent Company and distributable funds of the
Consolidated Balance Sheet. The distributable funds of the Parent Company Sonera
Corporation were E674 million, E1,139 million and E1,665 million on December 31,
1998, 1999 and 2000, respectively.

     Untaxed reserves in the consolidated retained earnings relate to
accelerated tax depreciations in Sonera's Finnish Group companies and consist of
the following:
AS OF DECEMBER 31,
                                                               ----------------------
                                                               1998    1999     2000
                                                               ----    -----    -----
                                                                  (IN E MILLIONS)
Accelerated tax depreciation
  Intangible rights.........................................     4         5        8
  Other long-term expenses..................................     1         2        2
  Buildings.................................................    14        15       15
  Machinery and equipment...................................     9         5       (2)
  Telecommunications networks...............................   226       226      209
  Other tangible assets.....................................     5         8       17
                                                               ---     -----    -----
  Total accelerated tax depreciation........................   259       261      249
Deferred tax liability on untaxed reserves..................   (73)      (76)     (72)
                                                               ---     -----    -----
Untaxed reserves included in retained earnings..............   186       185      177
                                                               ===     =====    =====
F-27
222
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

12. LONG-TERM AND CURRENT DEBT

     Long-term debt consists of the following on December 31:
AS OF DECEMBER 31,
                                                               ----------------------
                                                               1998    1999     2000
                                                               ----    -----    -----
                                                                  (IN E MILLIONS)
From financial institutions:
  Due in 2001; E100 million syndicated term loan; variable
     interest rate based on LIBOR (5.20 percent on December
     31, 2000)..............................................   100       100      100
  Due in 2003; E50 million term loan; variable interest rate
     based on Euribor (5.26 percent on December 31, 2000)...    50        50       50
  Due in semiannual installments in 2002-2004; DEM 300
     million (E153 million) syndicated revolving credit
     facility; variable interest rate based on LIBOR........   153        --       --
  Due in semiannual installments in 2003-2005; DEM 1,000
     million (E511 million) syndicated revolving credit
     facility; variable interest rate based on LIBOR (5.19
     percent on December 31, 2000)..........................   419       380      200
  Due in 2008; E44 million term loan; variable interest rate
     based on LIBOR (5.33 percent on December 31, 2000).....    44        44       44
  Due in 2008; E42 million term loan; variable interest rate
     based on Euribor (5.33 percent on December 31, 2000)...    --        42       42
  Due in semiannual installments in 2003-2009; E200 million
     term loan;
     variable interest rate based on EIB reference rate
     (4.85 percent on
     December 31, 2000).....................................    --       200      200
  Due in varying amounts through 2003; subsidiary's U.S.$5
     million bank loan; variable interest rate based on
     LIBOR (6.68 percent on December 31, 2000)..............     4         5        5
  Due in 2001; subsidiary's U.S.$3.2 million bank loan;
     variable interest rate based on LIBOR (7.86 percent at
     December 31, 2000).....................................    --        --        3
  Other long-term loans from financial institutions drawn
     down by subsidiaries...................................     1         1        2
Euro Medium Term Notes (E2.0 billion long-term loan
  program):
  Due in 2009; E300 million Euro Medium Term Note; coupon
     interest 4.625 percent; issue price of the Note 99.272
     percent................................................    --       300      300
  Due in 2005; E1,000 million Euro Medium Term Note; coupon
     interest 5.625 percent; issue price of the Note 99.432
     percent................................................    --        --    1,000
Employee bond loans with warrants:
  Year 1999 employee bond loan with warrants; due in 2001;
     no interest............................................    --         2        2
  Year 2000 employee bond loan with warrants; due in 2002;
     no interest............................................    --        --        1
Pension loans...............................................    17        --       --
                                                               ---     -----    -----
Total.......................................................   788     1,124    1,949
                                                               ===     =====    =====
Interest rates presented in the above table do not include any effects from
the hedging measures. The DEM 300 million and DEM 1,000 million revolving credit
facilities carry a commitment fee of 0.0625 percent of the undrawn amount.

                                       F-28
223
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

12. LONG-TERM AND CURRENT DEBT (CONTINUED)

     Maturities of long-term debt on December 31, 2000 are as follows:
LOANS         EURO      EMPLOYEE
                                                          FROM        MEDIUM    BOND LOANS
                                                       FINANCIAL       TERM        WITH
                                                      INSTITUTIONS    NOTES      WARRANTS     TOTAL
                                                      ------------    ------    ----------    -----
                                                                     (IN E MILLIONS)
Due in 2001........................................       105            --          2          107
2002...............................................         3            --          1            4
2003...............................................       131            --         --          131
2004...............................................       114            --         --          114
2005...............................................        73         1,000         --        1,073
Due thereafter.....................................       220           300         --          520
                                                          ---         -----        ---        -----
Total..............................................       646         1,300          3        1,949
                                                          ===         =====        ===        =====
Long-term borrowing is primarily arranged by Sonera Corporation, and, with
limited exceptions, individual subsidiaries may not enter into their own
financing arrangements.

     On February 6, 2001, Sonera issued a Floating Rate Note (FRN) of E500
million as part of its Euro Medium Term Note (EMTN) program. With the FRN,
Sonera diversifies its funding and replaces its existing short-term credit
facilities. The term of the FRN is 18 months.

Current debt

     Current debt amount of E135 million on December 31, 1998 primarily related
to the use of U.S.$400 million short-term revolving credit facility, which was
extended in December 1998 and was due in June 1999. On December 31, 1998, E118
million had been drawn down under the short-term facility. Current debt on
December 31, 1998 also included E17 million of short-term borrowings under the
domestic commercial paper programs. The average interest rate of Sonera's
short-term borrowings was 3.4 percent on December 31, 1998. There were no
interest rate hedging instruments related to current debt as of December 31,
1998.

     On December 31, 1999, current debt of E172 million consisted of E71 million
borrowings under the domestic commercial paper program; E100 million under the
Euro Commercial Paper program; and E1 million of other current debt. The average
interest rate of current debt was 4.3 percent on December 31, 1999 (3.4 percent
when the hedging effects are included).

     On December 31, 2000, current debt of E3,848 million consisted of
borrowings under a Term Loan Facility, for E3,250 million, due in November 2001;
E340 million under the Euro Commercial Paper program; and E258 million under a
domestic commercial paper program. The average interest rate of current debt was
5.48 percent on December 31, 2000 (5.43 percent when the hedging effects are
included).

     On December 31, 2000, Sonera's current liabilities of E4,512 million
exceeded the amount of current assets of E3,614 million. On December 31, 2000,
Sonera had E465 million of undrawn revolving credit facilities, a E700 million
of unused long-term bond-based credit facility as well as undrawn commercial
paper credit facilities amounting to E202 million.

     In March 2001, Sonera sold its 18.7 percent interest in TietoEnator for
E424 million. In May 2001, Sonera sold 3,300,000 shares in VoiceStream for E357
million and 1,100,000 shares in Powertel for E75 million. Additionally, on May
31, 2001, Sonera closed the sale of its remaining interest in VoiceStream and
Powertel to Deutsche Telekom, receiving E292 million cash and approximately 72
million Deutsche Telekom shares. Based on the Deutsche Telekom share price on
May 31, 2001 on the Frankfurt Stock Exchange, the total value of

                                       F-29
224
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

12. LONG-TERM AND CURRENT DEBT (CONTINUED)

Deutsche Telekom shares received was approximately E1.8 billion. According to
the agreement between Sonera and Deutsche Telekom, Sonera can sell approximately
34.5 million Deutsche Telekom shares three months after the closing, and can
sell all shares six months after the closing.

     On June 18, 2001, Sonera agreed on a syndicated variable rate loan facility
of E1.33 billion. The maturity of the facility is three years and the drawn-down
amounts bear a variable interest rate based on Euribor. The long-term facility
will be used to partially refinance Sonera's E3.25 billion short-term facility
maturing on October 25, 2001. Sonera expects to repay the rest of the short-term
facility with sales proceeds from Deutsche Telekom shares, and from other sales
of non-core assets.

13. OTHER LONG-TERM LIABILITIES

     Other long-term liabilities consist of the following:
AS OF DECEMBER 31,
                                                                --------------------
                                                                1998    1999    2000
                                                                ----    ----    ----
                                                                  (IN E MILLIONS)
Advances received...........................................      9      11      19
Provision for year 2000 costs...............................      4      --      --
Other long-term liabilities.................................      2       9      13
                                                                ---     ---     ---
Total.......................................................     15      20      32
                                                                ===     ===     ===
Advances received primarily relate to a cross-border finance
lease-leaseback agreement entered into in December 1998, and an advance received
from GTS Finance on behalf of its Russian subsidiary in 2000.

14. SUPPLEMENTAL CASH FLOW INFORMATION

     The following is a summary of non-cash financing and investing activities:
YEAR ENDED
                                                                    DECEMBER 31,
                                                                --------------------
                                                                1998    1999    2000
                                                                ----    ----    ----
                                                                  (IN E MILLIONS)
Acquisitions of subsidiaries:
Non-cash assets acquired....................................      3      12      33
Less liabilities assumed....................................     (1)     (3)    (13)
                                                                ---     ---     ---
Cash paid, net of cash acquired.............................      2       9      20
                                                                ===     ===     ===
Disposals of subsidiaries:
Non-cash assets disposed of.................................     --       1       3
Liabilities disposed of.....................................     --      (2)     (5)
                                                                ---     ---     ---
Net non-cash liabilities sold...............................     --      (1)     (2)
                                                                ---     ---     ---
Gain on sale................................................     --       3      11
                                                                ---     ---     ---
Cash received from sale, net of cash disposed...............     --       2       9
                                                                ===     ===     ===
Cash paid for interest and income taxes is as follows:
YEAR ENDED DECEMBER 31,
                                                                -----------------------
                                                                1998     1999     2000
                                                                -----    -----    -----
                                                                    (IN E MILLIONS)
Interest paid...............................................     19        29       53
Income taxes paid...........................................     53       140      313
F-30
225
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

14. SUPPLEMENTAL CASH FLOW INFORMATION (CONTINUED)

     Sonera's Consolidated Financial Statements include two non-cash
acquisitions made during the year ended December 31, 2000. On April 18, 2000,
Sonera acquired all shares in Across Holding AB of Sweden and paid for the
acquisition by issuing 16,732,055 new shares to the sellers. On June 27, 2000,
Sonera acquired all shares in iD2 Holding AB of Sweden and paid for the
acquisition by issuing 4,802,431 new shares to the sellers. The fair value of
purchase consideration was E897 million and E250 million for Across Holding and
iD2 Holding, respectively. Sonera has recorded both transactions in accordance
with the interpretation No. 1591/1999 by the Finnish Accounting Board. That
interpretation allows the acquirer to record the equity issue and the cost of
acquired shares at an amount equal to the shareholders' equity of the acquired
company at the time of acquisition. Accordingly, as a result of the two
transactions, Sonera's share capital was increased by E10 million and E1 million
was recorded in additional paid-in capital.

15. RELATED PARTY TRANSACTIONS

     Sonera has entered into technical assistance agreements with most of its
associated companies. Under these agreements, Sonera supplies those companies
with technical assistance relating to planning and constructing their networks,
as well as to operating and maintaining the networks.

     Summarized information for the transactions between Sonera and its
associated companies is as follows:
AS OF OR FOR THE
                                                                YEAR ENDED DECEMBER 31,
                                                                ------------------------
                                                                1998     1999      2000
                                                                -----    -----    ------
                                                                    (IN E MILLIONS)
Long-term loans receivable..................................       1       11         7
Current loans receivable....................................      --        9     2,737
Trade accounts receivable...................................      10       13         7
Prepaid expenses and accrued income.........................       1        1       102
Other long-term liabilities.................................      --        4        --
Advances received...........................................      --        1        --
Trade accounts payable......................................      12       17         6
Accrued expenses and prepaid income.........................      --        1         1
Other current liabilities...................................      --        2        --
Fees charged from associated companies......................      24       28        24
Payments made for the services provided by associated
  companies.................................................      58       72        41
Current loans receivable on December 31, 2000 included loans receivable of
E2,719 million from Orla Siebzehnte Vermogensverwaltung GmbH. The company used
the funds received from its shareholders to pay for the license it had been
awarded in the German UMTS auction in August 2000. In addition to loan granted
to Orla, Sonera has invested E913 million in the share capital of Orla
Siebzehnte Vermogensverwaltung GmbH.

     Except for the equity transactions between Sonera and the Ministry of
Transport and Communications as a shareholder, transactions with the Finnish
State and other companies owned by the Finnish State only include services
provided and purchased by Sonera in the ordinary course of its business.
Management believes that these transactions are made on commercial terms similar
to those of Sonera's other customers or suppliers with the same size and
location.

     Sonera did not have any loans receivable from the management during the
periods presented.

                                       F-31
226
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

16. COMMITMENTS AND CONTINGENT LIABILITIES

     Information regarding commitments and contingent liabilities is as follows:
AS OF DECEMBER 31,
                                                                --------------------
                                                                1998    1999    2000
                                                                ----    ----    ----
                                                                  (IN E MILLIONS)
Mortgages to secure own borrowings..........................     17       1      --
Assets pledged
  To secure own commitments.................................      5       5       5
  To secure borrowings of associated companies(a)...........    131     184       8
Guarantees on behalf of associated companies
  For financing.............................................    118     103      85
  For other commitments.....................................      2      --      --
Guarantees on behalf of other companies
  Xfera Moviles S.A.(b).....................................     --      --     428
  Ipse 2000 S.p.A.(c).......................................     --      --     193
Commitment to acquire shares................................     17      20      --
Repurchase commitments......................................      1      --       3
Other commitments...........................................     --      --       3
------------------------------

(a) Carrying values of the pledged shares in associated companies. The maximum
    liability according to the loan amounts secured totaled E244 million, E341
    million and under one million euros as of December 31, 1998, 1999 and 2000,
    respectively.

(b) Counterguarantees to bank guarantees of E428 million have been given by
    Sonera on behalf of Xfera Moviles S.A. The bank guarantees were given to the
    Spanish government to guarantee the fulfillment of commitments of Xfera
    related to its UMTS licence.

(c) Counterguarantees to bank guarantees of E193 million have been given by
    Sonera on behalf of Ipse 2000 S.p.A. The bank guarantees were given to the
    Italian government to guarantee the fulfillment of commitments of Ipse
    related to its UMTS licence.

     In December 1998, Sonera entered into a cross-border finance
lease-leaseback agreement under which Sonera leased some of its mobile
telecommunications network equipment ("Head Lease") to a group of U.S. equity
trusts which simultaneously leased the equipment back to Sonera ("Back Lease").
The ownership of the equipment, total book value of which was E151 million, E128
million and E96 million as of December 31, 1998, 1999 and 2000, respectively, is
retained with Sonera. Both the Head Lease receivables and the Back lease
obligations were settled at the inception of the lease agreements, and Sonera
received a net cash consideration of U.S.$11 million which is presented in the
balance sheet as an advance payment received and recognized in income as other
financial income over the lease term. No other cash payments are currently
expected to be made by Sonera under the lease agreements. The agreement is valid
for 15 years, but Sonera has an option to terminate the agreement after 11 years
after the inception of the agreement. There are no significant restrictions to
the use of the equipment under the agreement. Separate financial institutions
are taking care of the annual repayments received by the equity investors and
debt financiers that are participating in the agreement. The funds securing the
repayments to equity investors have been invested in U.S. Treasury and other
similar bonds, and a bank deposit has been made to secure the repayments of debt
financing. At the inception of the agreement, the total amount of funds invested
was U.S.$224 million.

     Sonera's 47.1 percent associated company Turkcell Holding A.S. has pledged
one fourth of its shares in Turkcell Iletisim Hizmetleri A.S. ("Turkcell") to
secure Turkcell's loan financing. Turkcell Holding owns 51 percent of Turkcell,
and Sonera's indirect ownership in Turkcell through Turkcell Holding is 24.0
percent. Additionally, Sonera has a direct ownership of 13.3 percent in Turkcell
shares which are not pledged.

                                       F-32
227
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

16. COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)

     Sonera leases office and certain other space, land and equipment under
various noncancellable operating leases. Certain contracts include renewal
options for various periods of time. Minimum annual rental payments for
operating leases in effect on December 31, 2000 are as follows:
AS OF
                                                      DECEMBER 31,
                                                          2000
                                                     ---------------
                                                     (IN E MILLIONS)
Due in 2001........................................         52
2002...............................................         36
2003...............................................         27
2004...............................................         14
2005...............................................         13
Thereafter.........................................         53
                                                           ---
Total..............................................        195
                                                           ===
17. LEGAL AND REGULATORY PROCEEDINGS

     Sonera is involved in a number of legal and regulatory proceedings mainly
relating to the interpretation of the Telecommunications Market Act, competition
law and consumer protection. Except for the proceedings described below, Sonera
is not involved in any legal, arbitration or regulatory proceedings the outcome
of which could be expected to have a material effect on Sonera's financial
position. See also Note 22 to the Consolidated Financial Statements for
unaudited subsequent events.

National roaming

     On September 23, 1998, Telia Finland Oy filed a complaint with the Finnish
Competition Authority ("FCA") against Sonera and Oy Radiolinja Ab. Telia Finland
requested the FCA to investigate whether Sonera and Radiolinja -- by pricing
national roaming in a manner that, according to Telia Finland, was unreasonable
and discriminative -- were engaged in an effort to restrict competition in the
GSM mobile network market. On January 12, 2000, the FCA issued a decision
maintaining that the pricing of national roaming applied by Sonera does not
require any measures maintaining that the pricing of national roaming applied by
Sonera does not require any measures by the FCA. In its decision, the FCA states
that Sonera does not, either alone or together with Radiolinja, have a dominant
market position in the access markets of national mobile networks. Telia Finland
has filed an appeal with the Finnish Competition Council against the decision
issued by the FCA. This appeal, however, concerns only Sonera. The case is still
pending at the Competition Council, and management is currently not in a
position to assess when the proceedings will be brought to a conclusion or the
final outcome of the proceedings.

Telia Finland/Swisscom AG service provider agreement

     On April 16, 1999, Telia Finland filed a complaint with the European
Commission (DG IV) claiming that Sonera and Radiolinja had abused their dominant
position in the mobile market in Finland by interfering with Telia Finland's
service provider agreement with Swisscom AG. On November 21, 2000, Sonera
received a supplementary submission to the complaint with the European
Commission to which Sonera submitted its observations on December 22, 2000.
Telia Finland's complaint with the European Commission is still pending, and
management is currently not in a position to assess when the proceedings will be
brought to a conclusion or the final outcome of the proceedings.

                                       F-33
228
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

17. LEGAL AND REGULATORY PROCEEDINGS (CONTINUED)

Mobile network termination charges

     On November 20, 1998, Telia Finland filed a complaint with the
Telecommunications Administration Center ("TAC") about the termination charges
applied in Sonera's mobile networks. Telia Finland claimed that the termination
fees charged by Sonera are not reasonable related to actual costs and that the
fees are thus contrary to the interconnection decision issued by the Ministry of
Transport and Communications. During 1999, 2000 and 2001, Sonera has submitted a
number of statements to the TAC on the issue. See also Note 22 to the
Consolidated Financial Statements for unaudited subsequent events.

Leased lines

     The TAC is currently investigating pricing and discount policies of several
Finnish telecommunications operators with respect to their leased line
operations. Sonera received a request for information from the TAC on January
29, 1999, to which it duly responded providing the requested information. On
January 25, 2000, Telepohja Oy filed a complaint with the FCA requesting the FCA
to investigate whether Sonera is abusing its alleged dominant position in the
local telecommunications market of Sonera's traditional local network areas. The
complaints are still pending and management is currently not in a position to
assess when the proceedings will be brought to a conclusion or what the final
outcome of the proceedings will be.

SMS services

     In November 1999, MTV3-Tele Oy filed a complaint against Sonera with the
FCA claiming that the fees charged by Sonera for commercial SMS services (Short
Message Services) are excessive. Sonera's response to the complaint stated that
the SMS services it offers are reasonably priced and explained the division of
fees and costs between the service provider and the content provider. The
complaint is still pending and management is not currently in a position to
assess when the proceedings will be brought to a conclusion or what the final
outcome of the proceedings will be.

     On May 2, 2000, Televerkko Oy filed a complaint with the FCA against Sonera
claiming that Sonera is abusing its dominant market position in the market for
mobile services especially in connection with the pricing of its SMS services to
content providers. The FCA is investigating the pricing of Sonera's SMS services
as well as the cost to Sonera to provide SMS services to content providers.
Sonera submitted the requested information to the FCA on May 31, 2000.
Management is currently not in a position to predict with any certainty the
timing or likely outcome of the proceedings.

Other complaints

     On January 18, 2000, a complaint was filed with the FCA by Visual Data Oy,
related to the pricing of so-called subscriber identification data and the
access to various directories. On March 14, 2000, Satakunnan Markkinaporssi Oy
filed a complaint with the FCA on the same issue. On June 12, 2000, Visual Data
also filed a complaint on the issue with the TAC. The case is still pending both
at the TAC and the FCA, and management is not currently in a position to assess
when the proceedings will be brought to a conclusion or what the final outcome
of the proceedings will be.

Holding in TietoEnator Corporation

     As of December 31, 2000, Sonera had an 18.7 percent holding in TietoEnator
Corporation, one of the leading IT services providers in the Nordic countries.
The FCA conditioned its approval of the merger of Tieto Corporation and Enator
AB on Sonera's agreement to decrease by half its initial holding in TietoEnator
by June 11, 2001. In addition, Sonera gave up one of its two seats on
TietoEnator's Board of Directors at the

                                       F-34
229
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

17. LEGAL AND REGULATORY PROCEEDINGS (CONTINUED)

company's annual general meeting of 2000. See also Note 22 to the Consolidated
Financial Statements for unaudited subsequent events.

Lattelekom exclusive rights

     In August 2000, Tilts Communications A/S, a 90 percent Danish subsidiary of
Sonera, started arbitration proceedings against the republic of Latvia under the
rules of the International Chamber of Commerce (ICC) in Paris. The reason for
initiating arbitration is the agreement signed in 1993 between the Republic of
Latvia and Tilts. According to this agreement, the Latvian fixed line operator,
Lattelekom SIA, in which Tilts owns 49% and the State of Latvia 51%, has
exclusive rights to provide basic fixed network services in Latvia until the end
of 2013. However, contrary to the agreement, the Republic of Latvia has made a
commitment to the World Trade Organization that Lattelekom's exclusive rights
would be revoked by January 1, 2003. A decision in the case is not expected
before 2002.

Tax matters

     During the past few years and especially during 2000, Sonera has undertook
significant incorporations of its operations and other restructurings of its
organization, to meet the requirements of the changing industry and evolving
businesses. Management believes that all transactions have been made in
compliance with the Finnish tax legislation and foreign tax regulations, when
applicable. Sonera has also requested for advance rulings for certain
significant transactions to have certainty over the applicable tax treatment of
such transactions. However, Sonera has not been tax audited for Finnish income
taxes for any of the fiscal years starting from 1994. Management is currently
unable to assess the timing or the likely outcome of an income tax audit in
Finland.

18. FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT

     The following table presents the carrying values and fair values for
financial instruments, using share prices and interest and exchange rates
current at the balance sheet date. While the contract amounts presented for
derivative instruments illustrate the scope of Sonera's hedging activities, they
do not necessarily represent amounts exchanged by the parties and, when
considered separately, are not a measure of Sonera's risk exposure. See Note 1
to the Consolidated Financial Statements for the accounting policies for
derivative financial instruments.
AS OF DECEMBER 31, 1998                  AS OF DECEMBER 31, 1999
                         --------------------------------------   --------------------------------------
                         CONTRACT   CARRYING   FAIR    AVERAGE    CONTRACT   CARRYING   FAIR    AVERAGE
                          AMOUNT     VALUE     VALUE   MATURITY    AMOUNT     VALUE     VALUE   MATURITY
                         --------   --------   -----   --------   --------   --------   -----   --------
                               (IN E MILLIONS)         (MONTHS)         (IN E MILLIONS)         (MONTHS)
Investments and loans:
Shares and holdings
  VoiceStream Wireless
    Corporation........                --        --                              --        --
  Aerial
    Communications,
    Inc................               153        70                             323       791
  Turkcell Iletisim
    Hizmetleri A.S.....               199       199                             382       382
  AB Lietuvos
    Telekomas..........               222       222                             232       232
  TietoEnator
    Corporation........                96       558                             130       893
  Powertel, Inc........                --        --                             119       250
  AS Eesti Telekom.....                --        --                              46       231
  724 Solutions Inc....                --        --                              21        21
AS OF DECEMBER 31, 2000
                         --------------------------------------
                         CONTRACT   CARRYING   FAIR    AVERAGE
                          AMOUNT     VALUE     VALUE   MATURITY
                         --------   --------   -----   --------
                               (IN E MILLIONS)         (MONTHS)
Investments and loans:
Shares and holdings
  VoiceStream Wireless
    Corporation........              1,646     2,052
  Aerial
    Communications,
    Inc................                 --        --
  Turkcell Iletisim
    Hizmetleri A.S.....                568     2,695
  AB Lietuvos
    Telekomas..........                211       138
  TietoEnator
    Corporation........                139       473
  Powertel, Inc........                119       308
  AS Eesti Telekom.....                 55       186
  724 Solutions Inc....                 21       115
F-35
230
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
18. FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (CONTINUED)
                                AS OF DECEMBER 31, 1998                  AS OF DECEMBER 31, 1999
                         --------------------------------------   --------------------------------------
                         CONTRACT   CARRYING   FAIR    AVERAGE    CONTRACT   CARRYING   FAIR    AVERAGE
                          AMOUNT     VALUE     VALUE   MATURITY    AMOUNT     VALUE     VALUE   MATURITY
                         --------   --------   -----   --------   --------   --------   -----   --------
                               (IN E MILLIONS)         (MONTHS)         (IN E MILLIONS)         (MONTHS)
Conduit Plc..........                --        --                              --        --
  Other shares and
    holdings...........               532       533                             538       551
Loans receivable.......                30        32                              54        61
Cash and short-term
  investments..........                93        93                             115       115
Long-term debt.........               788       793                           1,124     1,127
Current portion of
  long-term debt.......                --        --                              --        --
Current debt...........               135       135                             172       172
Derivative financial
  instruments:
Interest rate swaps
  Euribor..............    244         --        (3)      32        604           7       (15)     69
Purchased interest rate
  options
  Cap options,
    Euribor............     --         --        --       --        120           1         3      38
Forward selling of
  foreign exchange
  U.S.$................     39         --        (2)       2         43          (2)       (2)      2
  SEK..................      1         --        --       --         19          --        --       5
  GBP..................     --         --        --       --         --          --        --      --
  NOK..................     --         --        --       --         --          --        --      --
  HKD..................     14         --        --       --         --          --        --      --
  Other currencies.....      1         --        --       --         --          --        --      --
Forward buying of
  foreign exchange
  U.S.$................     --         --        --       --         61           3         2       2
  DEM..................    576         --        --       --         --          --        --      --
  ECU..................    194         (1)       --       --         --          --        --      --
  SEK..................     --         --        --       --         --          --        --      --
Currency swaps -- sell
  SEK..................      2         --        --        1         --          --        --      --
18. FINANCIAL INSTRUMEN  18. FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (CONTINUED)

                                AS OF DECEMBER 31, 2000
                         --------------------------------------
                         CONTRACT   CARRYING   FAIR    AVERAGE
                          AMOUNT     VALUE     VALUE   MATURITY
                         --------   --------   -----   --------
                               (IN E MILLIONS)         (MONTHS)
Conduit Plc..........                 20        28
  Other shares and
    holdings...........              1,958     1,956
Loans receivable.......              2,859     2,865
Cash and short-term
  investments..........                156       156
Long-term debt.........              1,842     1,848
Current portion of
  long-term debt.......                107       107
Current debt...........              3,848     3,848
Derivative financial
  instruments:
Interest rate swaps
  Euribor..............   2,103         36        36      48
Purchased interest rate
  options
  Cap options,
    Euribor............     200          1         1      24
Forward selling of
  foreign exchange
  U.S.$................      50          3         4       3
  SEK..................      48          1         1       3
  GBP..................      17         --        --       5
  NOK..................      16         --        --       1
  HKD..................      --         --        --      --
  Other currencies.....       9         --        --       6
Forward buying of
  foreign exchange
  U.S.$................     125        (12)      (14)      3
  DEM..................      --         --        --      --
  ECU..................      --         --        --      --
  SEK..................       3         --        --       1
Currency swaps -- sell
  SEK..................      --         --        --      --
Fair values of the publicly quoted shares are based on December 31 closing
prices. For other equity investments, fair value approximates the carrying
value.

     The fair values of loans receivable, debt and derivative instruments are
estimated using the expected future cash payments discounted at market interest
rates current at the balance sheet date. The carrying value of cash and
short-term investments approximates fair value.

     For the carrying values and fair values of derivative instruments, a
positive value represents asset and a negative value represents liability.

Derivative financial instruments

     Interest rate swaps and options (cap) relate to the hedging of interest
rate risk in respect of Sonera's long-term borrowings.

     Interest rate swaps as of December 31, 1998 consisted of 11 contracts with
an average maturity of 32 months (ranging from 19 to 57 months), where Sonera
paid fixed interest rate of 3.91 percent and received variable

                                       F-36
231
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

18. FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (CONTINUED)

interest rate based on Libor (3.62 percent on December 31, 1998). At the time
that the swap contracts were entered into there were no cash requirements. The
difference between the interest rate to be received and paid is settled in cash
on a semiannual basis.

     Interest rate swaps as of December 31, 1999 consisted of 15 contracts with
an average maturity of 69 months (ranging from seven to 113 months). Swaps
hedging the long-term loan portfolio totaled E304 million, where Sonera pays
fixed interest rate of 4.07 percent and receives variable interest rate based on
Euribor (3.22 percent on December 31, 1999). Additionally, Sonera has swapped
its E300 million fixed rate Note (coupon interest 4.625 percent) into variable
interest rate with contracts where Sonera receives fixed interest rate of 4.625
percent and pays variable interest rate based on Euribor (3.69 percent on
December 31, 1999). At the time that the swap contracts were entered into there
were no cash requirements. The difference between the interest rate to be
received and paid is settled in cash on a semiannual basis.

     Interest rate swaps as of December 31, 2000 consisted of 23 contracts with
an average maturity of 48 months (ranging from seven to 98 months). Swaps
hedging the long-term loan portfolio totaled E803 million, where Sonera pays
fixed interest rate 4.69 percent and receives variable interest rate based on
Euribor (4.98 percent on December 31, 2000). Additionally, Sonera has swapped
its E300 million and E1,000 million fixed rate Notes (coupon interest 4.625
percent) into variable interest with contracts under which Sonera receives fixed
interest rate of 5.39 percent on average and pays variable interest rate based
on Euribor (5.35 percent on December 31, 2000). At the time that the swap
contracts were entered into there were no cash requirements. The difference
between the interest rate to be received and paid is settled in cash on a
semiannual basis.

     Interest rate options totaling E120 million as of December 31, 1999
consisted of five contracts with an average maturity of 38 months. The average
cap of the options was 4.63 percent and their reference rates were based on the
three or six month Euribor rate. The cash flows incurred at inception are
amortized over the term of each option.

     Interest rate options totaling E200 million as of December 31, 2000
consisted of seven contracts with an average maturity of 24 months. The average
cap of the options was 4.98 percent and their reference rates were based on the
three or six month Euribor rate. The cash flows incurred at inception are
amortized over the term of each option.

     Forward selling of foreign exchange relates to the hedging of Sonera's
trade accounts receivable and loans receivable in foreign currencies, and the
maturities of these derivative financial instruments ranged from two to five
months as of December 31, 1998, from zero to two months as of December 31, 1999
and from zero to 33 months as of December 31, 2000. At the time that the forward
contracts were entered into there were no cash requirements. Cash settlements of
the forward contracts will occur at maturity.

     Forward buying of foreign exchange primarily relates to the hedging of
Sonera's foreign currency loans, and, to a lesser extent, to the hedging of
accounts payable in foreign currencies. The maturities of these derivative
instruments were less than one month as of December 31, 1998, were two months as
of December 31, 1999, and ranged from zero to ten months as of December 31,
2000. Forward buying of ECU and German mark related to the hedging of long-term
loans drawn down in ECU and German mark during 1998. At the time that the
forward contracts were entered into there were no cash requirements. Cash
settlements of the forward contracts will occur at maturity.

     Sonera does not hold positions in derivative financial instruments for
speculative purposes.

                                       F-37
232
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

18. FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (CONTINUED)

Management of interest rate and foreign exchange risks

     Sonera's business operations give rise to certain exposure to risks related
to interest rates and foreign exchange. These risks are managed to minimize
their impact on Sonera's profitability and financial position. The majority of
cash flows from Sonera's operations are in euros.

     Interest rate risks include the cash flow risk (changes in interest income
and expenses when interest rates change) and the price risk (changes in the
value of financial instruments when interest rates change). Sonera manages its
interest rate risks by diversifying its portfolio of investments and loans in
fixed and variable rate instruments, and by using interest rate swaps, interest
rate options and forward rate agreements.

     Changes in exchange rates between the euro and other currencies in which
Sonera has receivables, payables or other contractual items generate exchange
gains and losses to the Group's result (transaction risk). Under its financial
management policy, Sonera hedges all significant transaction risks with forward
foreign exchange contracts, currency swaps and currency options.

     Changes in exchange rates between the euro and foreign currencies in which
Sonera's foreign subsidiaries and associated companies report their results of
operations and shareholders' equity for inclusion in the Consolidated Financial
Statements generate translation differences to the consolidated shareholders'
equity (translation risk). The hedging decision for each case is determined by
taking into account the impact of hedging on the Group's result and cash flows,
as well as the circumstances in local currency and capital markets, including
the level of interest rates and the liquidity of the market. During the years
ended December 31, 1998, 1999 and 2000, Sonera did not hedge its translation
risks.

Management of credit risk

     Financial instruments involve a risk that the counterparties may be unable
to meet their contractual commitments. The investments in financial instruments,
including short-term investments of excess cash, long-term investments in debt
securities and loans receivable, as well as the use of derivative instruments,
are centrally managed in Sonera's Treasury function, and are limited to such
counterparties and amounts as are approved by the Board of Directors. In the
opinion of management, the counterparties of the Company's financial instruments
are credit worthy and no significant losses are expected from existing
contracts. In the normal course of business, no collateral is required by the
Company.

     The credit risk with respect to Sonera's trade receivables is diversified
both across a broad clientele of private individuals and among a large number of
companies operating in various fields. Exposure to credit loss and subscriber
fraud is monitored actively on a daily basis, including the processing of
current credit information on subscribers from third-party sources. Bad debt
expense in relation to consolidated revenues was 0.4 percent, 0.3 percent and
0.3 percent during the years ended December 31, 1998, 1999 and 2000,
respectively.

19. SEGMENTED INFORMATION

     Starting from the beginning of 2001, Sonera reports the following five
business segments: (1) Domestic Mobile Communications, (2) International Mobile
Communications, (3) Media Communications and New Services, (4) Sonera Telecom,
and (5) Other Operations. The principal changes from the previously reported
segments include (i) the division of former Mobile Communications into domestic
and international segments to increase transparency and to reflect revised
management responsibility, and (ii) the combining of the previously separate
segments Fixed Network Voice and Data, and Equipment Sales and Other Operations,
into Sonera Telecom, to reflect the management responsibility for the Sonera
Telecom entity, and to better reflect the closely interrelated operations of the
two previously separate reported segments. Sonera is also planning to
incorporate its

                                       F-38
233
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

19. SEGMENTED INFORMATION (CONTINUED)

Sonera Telecom segment into a separate legal subgroup as of July 1, 2001.
Segment information for all periods presented has been restated to comply with
the revised reporting structure.

     Domestic Mobile Communications consists primarily of digital GSM and analog
NMT services in Finland. International Mobile Communications includes
significant minority shareholdings in providers of mobile telecommunications
services in Turkey, Germany, Italy, Spain, Norway, Hungary, the Baltic States,
United States, Russia and Lebanon. Media Communications and New Services
includes internet, directory, and other media businesses and new services based
on mobile communications. Sonera Telecom includes standard fixed network
domestic and international voice services, data services and leased lines,
equipment sales, construction and maintenance and certain other operations, as
well as significant minority shareholdings in providers of fixed network
telecommunications services in the Baltic States. Other operations consists
primarily of the Group's centralized services, corporate administration, and
certain minor business operations.

     The presentation of Sonera's business segments is based on management
accounts. Management accounts are monthly internal reports used by the chief
operating decision maker to evaluate segment performance and to make decisions
how to allocate resources to segments. In this process, various adjustments are
made in order to properly allocate the cost of internal services and certain
other administrative overhead expenses. Where a reliable measure exists, the
allocation is based on actual usage of capacity or services. For services that
depend on the number of employees, the allocation basis is the number of
personnel. For other internal services and administrative expenses, rational and
consistent allocation methods are used that are deemed to represent a fair
approximation of the actual use of services. Due to significant
interdependencies and overlaps among the operating units, the profitability
information shown for each operation may not be indicative of the amounts which
would have been reported if the operating units were operationally or legally
independent of one another.

     Intercompany sales consist of (i) services or goods sold to other business
segments for their use, and (ii) sales of services or goods for resale by
another business segment in cases where that another business segment has the
customer responsibility, and bears the risks and rewards of the revenue with an
outside customers.

     The accounting policies underlying the reported segment data are the same
as those described in Note 1 to the Consolidated Financial Statements.

                                       F-39
234
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

19. SEGMENTED INFORMATION (CONTINUED)

     Financial information followed by Sonera's management is presented
separately for Sonera's business segments as of and for the years ended December
31, 1998, 1999 and 2000 as follows:
AS OF OR FOR THE YEAR ENDED DECEMBER 31, 1998
                          --------------------------------------------------------------------------------------------
                          DOMESTIC   INTERNATIONAL      MEDIA
                           MOBILE       MOBILE         COMMUNI-
                          COMMUNI-     COMMUNI-      CATIONS AND    SONERA      OTHER
                          CATIONS       CATIONS      NEW SERVICES   TELECOM   OPERATIONS   ELIMINATIONS   CONSOLIDATED
                          --------   -------------   ------------   -------   ----------   ------------   ------------
                                                                (IN E MILLIONS)
Sales to external
  customers............     756             2            115           728        22             --          1,623
Intercompany sales.....      70            --             12           219        --           (301)            --
                            ---           ---            ---         -----       ---           ----          -----
Total revenues.........     826             2            127           947        22           (301)         1,623
                            ===           ===            ===         =====       ===           ====          =====
Operating profit.......     223            (1)            14            53        --             --            289
Equity income in
  associated
  companies............      --            60             --            (7)        6             --             59
Unallocated amounts:
  Financial income and
    expenses, net......                                                                                         (2)
                                                                                                             -----
Consolidated profit
  before income taxes,
  minority interest and
  extraordinary
  items................                                                                                        346
                                                                                                             =====
Segment assets(a)......     482           533             28         1,216       119             --          2,378
Capital expenditures
  and investments in
  shares...............     166           396              6           615        66             --          1,249
Depreciation,
  amortization and
  write-downs..........     139            --              7           152        --             --            298
F-40
235
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

19. SEGMENTED INFORMATION (CONTINUED)
AS OF OR FOR THE YEAR ENDED DECEMBER 31, 1999
                          --------------------------------------------------------------------------------------------
                          DOMESTIC   INTERNATIONAL      MEDIA
                           MOBILE       MOBILE         COMMUNI-
                          COMMUNI-     COMMUNI-      CATIONS AND    SONERA      OTHER
                          CATIONS       CATIONS      NEW SERVICES   TELECOM   OPERATIONS   ELIMINATIONS   CONSOLIDATED
                          --------   -------------   ------------   -------   ----------   ------------   ------------
                                                                (IN E MILLIONS)
Sales to external
  customers............     917              4           140           753        35             --          1,849
Intercompany sales.....      67             --            35           227        63           (392)            --
                            ---          -----           ---         -----       ---           ----          -----
Total revenues.........     984              4           175           980        98           (392)         1,849
                            ===          =====           ===         =====       ===           ====          =====
Operating profit.......     349             (4)          (60)          102        --             --            387
Equity income in
  associated
  companies............      --            121            (2)          (19)       10             --            110
Unallocated amounts:
  Financial income and
    expenses, net......                                                                                         --
                                                                                                             -----
Consolidated profit
  before income taxes,
  minority interest and
  extraordinary
  items................                                                                                        497
                                                                                                             =====
Segment assets(a)......     499          1,009            51         1,271       189             --          3,019
Capital expenditures
  and investments in
  shares...............     148            337            53           184        26             --            748
Depreciation and
  amortization.........     123             --            13           145        --             --            281
AS OF OR FOR THE YEAR ENDED DECEMBER 31, 2000
                          --------------------------------------------------------------------------------------------
                          DOMESTIC   INTERNATIONAL      MEDIA
                           MOBILE       MOBILE         COMMUNI-
                          COMMUNI-     COMMUNI-      CATIONS AND    SONERA      OTHER
                          CATIONS       CATIONS      NEW SERVICES   TELECOM   OPERATIONS   ELIMINATIONS   CONSOLIDATED
                          --------   -------------   ------------   -------   ----------   ------------   ------------
                                                                (IN E MILLIONS)
Sales to external
  customers............    1,054             5            207          781        10             --          2,057
Intercompany sales.....       80            --             47          239        75           (441)            --
                           -----         -----           ----        -----       ---           ----          -----
Total revenues.........    1,134             5            254        1,020        85           (441)         2,057
                           =====         =====           ====        =====       ===           ====          =====
Operating profit.......      414         1,502           (335)         162         5             --          1,748
Equity income in
  associated
  companies............       --           120             (3)           3         1             --            121
Unallocated amounts:
  Financial income and
    expenses, net......                                                                                         (9)
                                                                                                             -----
Consolidated profit
  before income taxes,
  minority interest and
  extraordinary
  items................                                                                                      1,860
                                                                                                             =====
Segment assets(a)......      488         3,879            189        1,315       247             --          6,118
Capital expenditures
  and investments in
  shares...............      124         1,975            144          202       102             --          2,547
Depreciation and
  amortization.........      129            --             32          138        --             --            299
------------------------------

(a) Segment assets include property, plant and equipment plus intangible assets,
    as well as investments in shares in associated companies and other minority
    shareholdings.
                                       F-41
236
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

19. SEGMENTED INFORMATION (CONTINUED)

     The following table presents a reconciliation of the business segment
assets to Sonera's consolidated total assets:
AS OF DECEMBER 31,
                                                                -----------------------
                                                                1998     1999     2000
                                                                -----    -----    -----
                                                                    (IN E MILLIONS)
Total assets for reportable segments........................    2,378    3,019    6,118
Long-term loans receivable..................................       29       35       42
Inventories.................................................       22       36       40
Receivables.................................................      292      404    3,418
Cash and short-term investments.............................       93      115      156
                                                                -----    -----    -----
Consolidated total assets...................................    2,814    3,609    9,774
                                                                =====    =====    =====
The majority of Sonera's revenues are generated in Finland. The components
of revenues by geographic area are as follows:
YEAR ENDED DECEMBER 31,
                                                                -----------------------
                                                                1998     1999     2000
                                                                -----    -----    -----
                                                                    (IN E MILLIONS)
Sales to customers in Finland...............................    1,549    1,766    1,958
Sales to customers outside Finland..........................       74       83       99
                                                                -----    -----    -----
Total.......................................................    1,623    1,849    2,057
                                                                =====    =====    =====
Information about Sonera's long-lived assets (property, plant and
equipment) by geographic area is as follows:
AS OF DECEMBER 31,
                                                                -----------------------
                                                                1998     1999     2000
                                                                -----    -----    -----
                                                                    (IN E MILLIONS)
Finland.....................................................    1,102    1,138    1,224
Outside Finland.............................................       21       21       41
                                                                -----    -----    -----
Total.......................................................    1,123    1,159    1,265
                                                                =====    =====    =====
20. SUBSIDIARIES, ASSOCIATED COMPANIES AND OTHER SHAREHOLDINGS

Group companies on December 31, 2000 were as follows:
NUMBER OF
                                                                                                   PERSONNEL AS OF
                                                                    SONERA'S        REVENUES        DECEMBER 31,
                                           DOMICILE               SHAREHOLDING      FOR 2000            2000
                                -------------------------------   ------------   ---------------   ---------------
                                                                      (%)        (IN E MILLIONS)
Parent Company:
Sonera Corporation............  Helsinki, Finland                                    1,268.5            3,224
Subsidiaries:
Across Holding AB(a)..........  Stockholm, Sweden                    100.0                --               --
Across Wireless AB(a).........  Stockholm, Sweden                    100.0              12.2              153
Across Wireless Asia
  Ltd.(a).....................  Hong Kong                            100.0                --                8
F-42
237
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

20. SUBSIDIARIES, ASSOCIATED COMPANIES AND OTHER SHAREHOLDINGS (CONTINUED)
NUMBER OF
                                                                                                   PERSONNEL AS OF
                                                                    SONERA'S        REVENUES        DECEMBER 31,
                                           DOMICILE               SHAREHOLDING      FOR 2000            2000
                                -------------------------------   ------------   ---------------   ---------------
                                                                      (%)        (IN E MILLIONS)
Across Wireless Ltd(a)........  London, United Kingdom               100.0                --               --
Advanced Communication
  Research ACR Oy.............  Helsinki, Finland                    100.0                --               --
Bfree Oy(b)...................  Helsinki, Finland                    100.0                --               --
Comro Oy(b)...................  Helsinki, Finland                    100.0                --               --
Consaura Oy(b)................  Helsinki, Finland                    100.0               0.3               10
Dash Oy.......................  Helsinki, Finland                    100.0                --               --
Data-Info Oy..................  Helsinki, Finland                    100.0               4.1               10
EMCEC Oy......................  Helsinki, Finland                    100.0               1.8               30
Esdata A/S....................  Tallinn, Estonia                      70.0               0.8                9
Fleetadviser Oy(b)............  Helsinki, Finland                    100.0                --               --
Frontec Support and Operations
  AB(a).......................  Stockholm, Sweden                    100.0                --               --
Geddeholm CallCenter AB.......  Stockholm, Sweden                     91.0               3.0               83
Gesam Oy......................  Helsinki, Finland                    100.0                --               --
Helsingin Teollisuuskatu 13
  Oy..........................  Helsinki, Finland                    100.0               3.1               --
iD2 Holding AB(a).............  Stockholm, Sweden                    100.0                --               --
iD2 Technologies AB(a)........  Stockholm, Sweden                    100.0               2.9               88
iD2 Technologies Ltd(a).......  London, United Kingdom               100.0               0.9               --
Oy Infonet Finland Ltd........  Helsinki, Finland                     90.0              13.5               20
Intellitel Communications
  Oy..........................  Helsinki, Finland                     97.3               2.4               58
International Business
  Venturing IBV Oy............  Helsinki, Finland                    100.0                --               --
Intra Call Center S.A.(a).....  Amiens, France                        51.1               4.7              283
Ixone Oy(b)...................  Helsinki, Finland                    100.0                --               --
Konsona Oy(b).................  Helsinki, Finland                    100.0                --               --
Lippupalvelu Oy...............  Helsinki, Finland                     55.6               2.2               45
Mobinetti Oy..................  Helsinki, Finland                    100.0                --               --
Mspace Oy(c)..................  Helsinki, Finland                    100.0                --               --
Ovomix AB(d)..................  Stockholm, Sweden                     51.0                --               --
Payway Oy.....................  Helsinki, Finland                     67.0                --                7
Kiinteisto Oy Pietarsaaren
  Isokatu 8...................  Pietarsaari, Finland                  60.2                --               --
Phone Park AB.................  Stockholm, Sweden                     67.0               0.1               --
Primatel Ltd..................  Kuopio, Finland                      100.0             166.1            1,837
Paamies-kauppiaat Oy..........  Helsinki, Finland                     59.4               1.5                4
Reveko Telekom AS.............  Tallinn, Estonia                      55.0               1.7               20
Kiinteisto Oy Saajomaja.......  Helsinki, Finland                    100.0                --               --
Saimaan Tietotekno Oy(a)......  Imatra, Finland                      100.0               1.7               24
Simfocom Oy...................  Helsinki, Finland                    100.0                --               --
SmartTrust GmbH(e)............  Erfurt, Germany                      100.0                --               27
SmartTrust Pte Ltd(b).........  Singapore                            100.0                --               --
SmartTrust Systems Oy(b)......  Helsinki, Finland                    100.0                --               --
F-43
238
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

20. SUBSIDIARIES, ASSOCIATED COMPANIES AND OTHER SHAREHOLDINGS (CONTINUED)
NUMBER OF
                                                                                                   PERSONNEL AS OF
                                                                    SONERA'S        REVENUES        DECEMBER 31,
                                           DOMICILE               SHAREHOLDING      FOR 2000            2000
                                -------------------------------   ------------   ---------------   ---------------
                                                                      (%)        (IN E MILLIONS)
Sonera 3G Holding B.V.(b).....  Capelle a/d Ijssel, Netherlands      100.0                --               --
Sonera Belgium n.v./s.a.......  Brussels, Belgium                    100.0               0.7               11
Sonera Carrier Networks Ltd...  Helsinki, Finland                    100.0             408.0              774
Sonera Corporation U.S........  Wilmington, DE, USA                  100.0                --               28
Sonera Deutschland GmbH.......  Dusseldorf, Germany                  100.0               2.9               43
Sonera Entrum Ltd.............  Helsinki, Finland                    100.0             404.4              892
Sonera France SAS.............  Paris, France                        100.0               0.2               --
Sonera Gateway Ltd(f).........  Helsinki, Finland                    100.0              58.3               21
Sonera Holding B.V............  Amsterdam, Netherlands               100.0                --                1
Sonera Hong Kong Ltd(g).......  Hong Kong                            100.0                --               11
Sonera Hungary Holding
  B.V.(b).....................  Capelle a/d Ijssel, Netherlands      100.0                --               --
Sonera Hungary Kft............  Budapest, Hungary                    100.0                --               --
Sonera Info Communications
  Oy(b).......................  Helsinki, Finland                    100.0               5.0              606
Sonera Innotele Oy............  Helsinki, Finland                    100.0              55.6               63
Sonera International
  n.v./s.a....................  Brussels, Belgium                    100.0                --               19
Sonera Italian Holding
  B.V.(b).....................  Capelle a/d Ijssel, Netherlands      100.0                --               --
Sonera Japan K.K.(b)..........  Tokyo, Japan                         100.0                --               --
Sonera Juxto Ltd(b)...........  Helsinki, Finland                    100.0              31.7              601
Sonera Living Oy(b)...........  Helsinki, Finland                     51.0                --               21
Sonera Media Holding
  B.V.(b).....................  Capelle a/d Ijssel, Netherlands      100.0               0.2               10
Sonera Plaza Nederland
  B.V.(h).....................  Capelle a/d Ijssel, Netherlands      100.0               8.0              178
Sonera Plaza Ltd(b)...........  Helsinki, Finland                    100.0              18.1              223
Sonera Plaza Finanssipalvelut
  Ltd(b)......................  Helsinki, Finland                     80.0                --               --
Sonera Plaza Incentives
  Ltd(b)......................  Helsinki, Finland                    100.0                --               --
Sonera Plaza Rahastopalvelut
  Ltd(b)......................  Helsinki, Finland                    100.0                --                4
ZAO Sonera Rus................  St. Petersburh, Russia               100.0              10.8               54
Sonera SmartTrust Holding
  B.V.(b).....................  Rotterdam, Netherlands               100.0                --               --
Sonera SmartTrust Ltd.........  London, United Kingdom               100.0                --               75
Sonera SmartTrust Ltd.........  Helsinki, Finland                    100.0               1.7              193
Sonera SmartTrust U.S.,
  Inc.(b).....................  Wilmington, DE, USA                  100.0                --               --
Sonera Solutions Ltd..........  Helsinki, Finland                    100.0             402.4              827
Sonera Sverige AB.............  Stockholm, Sweden                    100.0              45.5              149
Sonera Systems Ltd............  Helsinki, Finland                    100.0               4.1               10
Sonera Systems SIA............  Riga, Latvia                         100.0               0.3                4
Sonera Telecommunication
  Services Ltd Sirketi........  Istanbul, Turkey                     100.0               4.7               22
Sonera UK Limited.............  Middlesex, United Kingdom            100.0                --               --
Sonera Sweden Holding
  B.V.(b).....................  Capelle a/d Ijssel, Netherlands      100.0                --               --
Sonera Ventures Oy(b).........  Helsinki, Finland                    100.0                --               --
Sonera Zed Germany GmbH(b)....  Dusseldorf, Germany                  100.0                --               10
Sonera Zed Incentives Oy(b)...  Helsinki, Finland                    100.0                --               --
F-44
239
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

20. SUBSIDIARIES, ASSOCIATED COMPANIES AND OTHER SHAREHOLDINGS (CONTINUED)
NUMBER OF
                                                                                                   PERSONNEL AS OF
                                                                    SONERA'S        REVENUES        DECEMBER 31,
                                           DOMICILE               SHAREHOLDING      FOR 2000            2000
                                -------------------------------   ------------   ---------------   ---------------
                                                                      (%)        (IN E MILLIONS)
Sonera Zed Italy srl.(b)......  Milan, Italy                         100.0                --               10
Sonera Zed Nederland
  B.V.(b).....................  Capelle a/d Ijssel, Netherlands      100.0                --               26
Sonera Zed Ltd(b).............  Helsinki, Finland                    100.0               7.0              134
Sonera Zed Philippines,
  Inc.(b).....................  Makati City, Philippines             100.0                --               --
Sonera Zed Singapore Pte
  Ltd.(b).....................  Singapore                            100.0                --               14
Sonera Zed Telekomunikasyon
  Hizmetleri Ve Reklamcilik
  Limited Sirketi(b)..........  Istanbul, Turkey                     100.0                --               --
Sonera Zed UK Limited(b)......  Middlesex, United Kingdom            100.0              43.3               77
Sonera Zed U.S., Inc.(b)......  Waltham, MA, USA                     100.0                --               48
Spectrum Co Ltd(a)............  London, United Kingdom                67.9                --               --
Systems Consultant Partners
  Oy..........................  Helsinki, Finland                    100.0                --               --
Tedasys Inc.(i)...............  Lahti, Finland                       100.0               0.9               28
Tele P AB(j)..................  Jarfalla, Sweden                      67.0                --               --
Oy Telecon Ltd................  Helsinki, Finland                    100.0                --               --
Telering Oy...................  Helsinki, Finland                    100.0              25.1              114
Telesol Oy....................  Helsinki, Finland                    100.0                --               --
Teletori Oy...................  Helsinki, Finland                    100.0                --               --
Telibra Oy....................  Helsinki, Finland                    100.0                --               --
Tilts Communications A/S......  Copenhagen, Denmark                   90.0               4.5                1
Tilts Communications SIA......  Riga, Latvia                          90.0                --               --
Unibase Ltd...................  Helsinki, Finland                    100.0              44.9               29
Witnet Oy(b)..................  Helsinki, Finland                    100.0                --               --
Revenues of sold
  subsidiaries................                                                          15.1               --
Intra-Group sales.............                                                      (1,038.4)              --
                                                                                    --------           ------
Total.........................                                                       2,056.5           11,271
                                                                                    ========           ======
------------------------------

Shareholding also corresponds to Sonera's share of voting rights in each
subsidiary. Revenues are presented in accordance with Sonera's accounting
principles. Revenues for subsidiaries acquired during the year represent revenue
from the month of acquisition. Revenues for businesses incorporated during the
year represent revenue from the start of operations of the subsidiary.
Notes to the list of group companies:                           Changed to associated companies:
(a) The company was acquired in 2000.                           Suomen Erillisverkot Oy in December
(b) The company was established in 2000.                        2000.
(c) The company's name was changed in 2000; former name was     ZAO Sonic Duo in January 2000.
Smartum Oy.
(d) The company was acquired in 2000; name was changed in       Mergers:
    January 2001 to Sonera SmartTrust AB.                       MultiWeb B.V. merged into Sonera Plaza
(e) The company's name was changed in 2000; former name was     Nederland B.V. in January 2000.
SmartRing GmbH.                                                 SmartTrust GmbH merged into SmartRing
(f)  The company's name was changed in 2000; former name was    GmbH in January 2000.
Sonera Credit Ltd.
(g) Company's official name; business name is Sonera
SmartTrust Ltd (Hong Kong).
(h) The company's name was changed in 2000; former name was
Sonera Nederland B.V.
(i)  The company will merge with Sonera Corporation in 2001.
(j)  The company was changed from an associated company into
a subsidiary in 2000.
F-45
240
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

20. SUBSIDIARIES, ASSOCIATED COMPANIES AND OTHER SHAREHOLDINGS (CONTINUED)

     Sonera's associated companies on December 31, 2000 were as follows:
SONERA'S
                                                                           DIRECT          EQUITY
                                                   DOMICILE             SHAREHOLDING    CONSOLIDATION
                                          --------------------------    ------------    -------------
                                                                            (%)           (%)
Mobile network operators:
Turkcell Iletisim Hizmetleri A.S......    Istanbul, Turkey                  13.3            37.3
Fintur Holdings B.V.(a)...............    Rotterdam, Netherlands            35.3            35.3
AS EMT................................    Tallinn, Estonia                    --            24.5
Latvijas Mobilais Telefons SIA........    Riga, Latvia                      24.5            24.5
UAB Omnitel...........................    Vilnius, Lithuania                  --            27.5
Pannon GSM Rt.........................    Budapest, Hungary                 23.0            23.0
ZAO North-West GSM....................    St. Petersburg, Russia            23.5            23.5
Marabu Vermogensverwaltung GmbH(b)....    Frankfurt am Main, Germany          --            42.8
OpCo Mobile Services GmbH i.G.(b).....    Frankfurt am Main, Germany          --            42.8
ZAO Sonic Duo(c)......................    Moscow, Russia                    35.0            35.0
Broadband Mobile ASA(d)...............    Oslo, Norway                      50.0            50.0
Fixed network operators:
AS Eesti Telefon......................    Tallinn, Estonia                    --            24.5
Lattelekom SIA........................    Riga, Latvia                      44.1            44.1
AB Lietuvos Telekomas.................    Vilnius, Lithuania                  --            30.0
Other associated companies:
Certall Finland Oy....................    Helsinki, Finland                 36.8            36.8
Farmit Website Ltd....................    Helsinki, Finland                 33.3            33.3
Gilla S.p.A.(e).......................    Cagliari, Italy                   50.0            50.0
Hansapost Oy(f).......................    Helsinki, Finland                 20.0            20.0
IsoWorks Oy...........................    Helsinki, Finland                 50.0            50.0
Johtotieto Oy.........................    Helsinki, Finland                 33.3            33.3
Kasteam Oy............................    Helsinki, Finland                 35.0            35.0
Movere Oy.............................    Helsinki, Finland                 20.0            20.0
Next Era Productions AB...............    Kista, Sweden                     50.0            50.0
S-Kanava Oy(g)........................    Helsinki, Finland                 50.0            50.0
UAB Sontel............................    Vilnius, Lithuania                50.0            50.0
Springtoys Oy(h)......................    Helsinki, Finland                 20.0            20.0
Suomen Erillisverkot Oy(i)............    Helsinki, Finland                 40.0            40.0
Suomen Keltaiset Sivut Oy.............    Helsinki, Finland                 30.2            30.2
Suomen Numeropalvelu Oy...............    Helsinki, Finland                 40.0            40.0
Zoom HF(h)............................    Reykjavik, Iceland                31.6            31.6
Holding companies:
Amber Mobile Teleholding AB...........    Farsta, Sweden                    50.0            50.0
Amber Teleholding A/S.................    Copenhagen, Denmark               50.0            50.0
Baltic Tele AB........................    Stockholm, Sweden                 50.0            50.0
AS Eesti Telekom......................    Tallinn, Estonia                  24.5            24.5
Orla Siebzehnte Vermogensverwaltung
  GmbH(b).............................    Frankfurt am Main, Germany        42.8            42.8
Helsingin GSM-Palvelu Oy..............    Helsinki, Finland                 35.0            35.0
F-46
241
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

20. SUBSIDIARIES, ASSOCIATED COMPANIES AND OTHER SHAREHOLDINGS (CONTINUED)
SONERA'S
                                                                           DIRECT          EQUITY
                                                   DOMICILE             SHAREHOLDING    CONSOLIDATION
                                          --------------------------    ------------    -------------
                                                                            (%)           (%)
Russian Directories Holding Oy(f).....    Helsinki, Finland                 35.0            35.0
Turkcell Holding A.S..................    Istanbul, Turkey                  47.1            47.1
------------------------------

Shareholding also corresponds to Sonera's share of voting rights in each
associated company. Associated companies are included in the Consolidated
Financial Statements in accordance with the equity method of accounting. "Equity
consolidation" indicates the share of net income and retained earnings that is
included in Sonera's Consolidated Financial Statements. Summarized financial
information for the associated companies is presented in Note 10 to the
Consolidated Financial Statements.
Notes to the list of associated companies:                      Associated companies sold:
  (a) The company was established with Cukurova Group and       HanseNet Telefongesellschaft mbH & Co. KG
      Turkcell in May 2000.                                     Transmast Oy
  (b) The company was established with Telefonica Moviles
      S.A. in September 2000.                                   Transferred to other shareholdings due to decrease
  (c) The company changed from subsidiary to associated         in holding percentage:
      company in January 2000.                                  TietoEnator Corporation
  (d) The company was established with Enitel ASA in August     Trio AB
  2000.                                                         724 Solutions Inc.
  (e) The company was established with Tiscali S.p.A. in        Aerial Communications, Inc. merged with VoiceStream
  February 2000.                                                Wireless Corporation (Sonera's ownership 7.9%).
  (f)  The company is being dissolved.
  (g) The company was established with SOK Corporation in
  June 2000.
  (h) The company's shares were acquired in 2000.
  (i)  The company changed from subsidiary to associated
       company in December 2000.
F-47
242
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

20. SUBSIDIARIES, ASSOCIATED COMPANIES AND OTHER SHAREHOLDINGS (CONTINUED)

     Sonera's other shareholdings on December 31, 2000 were as follows:
SONERA'S         CARRYING
                                                    DOMICILE            SHAREHOLDING         VALUE
                                            ------------------------    ------------    ---------------
                                                                            (%)         (IN E MILLIONS)
VoiceStream Wireless Corporation........    Bellevue, WA, USA                7.9             1,646
Ipse 2000 S.p.A.........................    Rome, Italy                     12.6               270
TietoEnator Corporation.................    Helsinki, Finland               18.7               139
Powertel, Inc...........................    West Point, GA, USA              8.9               119
Xfera Moviles S.A.......................    Madrid, Spain                   14.3                43
724 Solutions Inc.......................    Toronto, Ontario, Canada        16.4                21
Conduit Plc.............................    Dublin, Ireland                 10.0                20
Juniper Financial Corporation...........    Wilmington, DE, USA              7.6                17
PeopleSound.com Limited.................    London, United Kingdom           8.0                11
Cisco Systems Inc.......................    San Francisco, CA, USA            --                10
Phonetics Systems Ltd...................    Petach Tikva, Israel            12.7                 6
Indiqu, Inc.............................    San Diego, CA, USA                --                 5
Digia Oy................................    Helsinki, Finland               15.2                 7
Libancell S.A.L.........................    Beirut, Lebanon                 14.0                 4
Trio AB.................................    Stockholm, Sweden                8.1                 2
Investments in venture capital funds....                                                        37
Interests in satellite operations.......                                                         4
Housing and real estate.................                                                         4
Other shares and holdings...............                                                         5
                                                                                             -----
Total...................................                                                     2,370
                                                                                             =====
F-48
243
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

21. DIFFERENCES BETWEEN FINNISH GAAP AND GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES IN THE UNITED STATES

     The accompanying Consolidated Financial Statements have been prepared in
accordance with Finnish GAAP, which differs in certain significant respects from
U.S. GAAP. The following is a summary of the adjustments to net income and
shareholders' equity that would have been required if U.S. GAAP had been applied
instead of Finnish GAAP in the preparation of the Consolidated Financial
Statements.
YEAR ENDED DECEMBER 31,
                                                                --------------------------
                                                                 1998      1999      2000
                                                                ------    ------    ------
                                                                     (IN E MILLIONS,
                                                                EXCEPT PER SHARE AMOUNTS)
Net income under Finnish GAAP...............................      251       370     1,506
Adjustments to reconcile to U.S. GAAP:
(a)  Difference in depreciation method......................      (27)       25        25
(b)  Pensions...............................................        9        (2)        3
(c)  Write-down on NMT network assets.......................       33       (11)       (3)
(d)  Provisions for year 2000...............................       (7)       (4)       --
(e)  Investments in marketable securities...................       --        --        --
(f)  Capitalization of interest.............................       --        --        (8)
(g)  Associated companies...................................      (22)      (24)      117
(h)  Allowance for doubtful accounts........................       --        --        (1)
(i)  Employee bond loans with warrants......................       --       (16)      (66)
(j)  Business combinations..................................       --        --      (852)
(k)  Income taxes...........................................       --        --       (17)
                                                                -----     -----     -----
Net income under U.S. GAAP..................................      237       338       704
                                                                =====     =====     =====
(l)  Basic earnings per share and ADS.......................     0.33      0.47      0.96
                                                                =====     =====     =====
(l)  Diluted earnings per share and ADS.....................     0.33      0.47      0.95
                                                                =====     =====     =====
AS OF DECEMBER 31,
                                                                -----------------------
                                                                1998     1999     2000
                                                                -----    -----    -----
                                                                    (IN E MILLIONS)
Shareholders' equity under Finnish GAAP.....................    1,424    1,801    3,233
Adjustments to reconcile to U.S. GAAP:
(a)  Difference in depreciation method......................      (29)      (4)      21
(b)  Pensions...............................................       42       40       43
(c)  Write-down on NMT network assets.......................       33       22       19
(d)  Provisions for year 2000...............................        4       --       --
(e)  Investments in marketable securities...................       10      135      960
(f)  Capitalization of interest.............................        8        8       --
(g)  Associated companies...................................      (28)     (52)      65
(h)  Allowance for doubtful accounts........................       (2)      (2)      (3)
(i)  Employee bond loans with warrants......................       --       --       --
(j)  Business combinations..................................       --       --      284
(k)  Income taxes...........................................      (16)     (52)    (190)
                                                                -----    -----    -----
Shareholders' equity under U.S. GAAP........................    1,446    1,896    4,432
                                                                =====    =====    =====
F-49
244
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

21. DIFFERENCES BETWEEN FINNISH GAAP AND GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES IN THE UNITED STATES (CONTINUED)

     Those differences that have a material effect on consolidated net income
and shareholders' equity are as follows:

(A) DIFFERENCE IN DEPRECIATION METHOD

     Under Finnish GAAP as of January 1, 1997, Sonera changed its depreciation
method for telecommunications networks from the declining-balance method to the
straight-line method. Management believes that the straight-line method provides
a better matching of depreciation expense with the revenues derived from the
utilization of such assets. Under the declining-balance method, the Company was
depreciating 25 percent to 40 percent of the asset balances per year. With the
change to the straight-line method the useful lives range from four to 20 years.
The effect of these changes has been applied on a prospective basis beginning on
January 1, 1997.

     Under U.S. GAAP, the Company has followed the straight-line method for all
periods since the Company's incorporation.

     The difference in depreciation method affects Sonera's annual depreciation
amounts under U.S. GAAP during years through 2003. Adjustments to net income
include an increase in depreciation expense of E27 million for the year ended
December 31, 1998, and a decrease in depreciation of E25 million and E25 million
for the years ended December 31, 1999 and 2000, respectively. Future adjustments
to Sonera's net income will include increases in depreciation expense of E13
million, E6 million and E2 million for the years ended December 31, 2001, 2002
and 2003, respectively.

(B) PENSIONS

     Most of Sonera's pension schemes are in accordance with Finnish conditions
and practices as Sonera's primary operations are in Finland.

     The statutory pension benefits for most of the personnel in Finland, as
well as certain voluntary additional pension benefits to a closed group of
employees, are funded through PT Pension Fund. These programs are primarily
defined benefit pension schemes with retirement, disability and certain other
income benefits based on years of service and a final average salary with the
Company. Sonera is responsible for ensuring that its statutory and additional
pension liabilities are sufficiently funded at all times, subject to the Finnish
requirements. The schemes are funded through monthly contributions to the PT
Pension Fund as determined by periodic actuarial calculations, with the
contributions charged to expense as made. The additional pension benefit scheme
has been closed to new employees as of January 1, 1994. Additionally, the
statutory pension benefits accrued with respect to Sonera's employees before the
separation of Sonera's current operations from the Finnish State on January 1,
1994 are covered by the Finnish State pension plans, and do not create any
liability to Sonera. Contributions paid to the PT Pension Fund by Sonera
totalled E42 million, E41 million and E55 million during the years ended
December 31, 1998, 1999 and 2000, respectively.

     The PT Pension Fund was originally established to fund the pension
obligations of PT Finland and continues to be used to fund the pension
obligations of both Sonera and Finland Post Group Ltd ("Finland Post"). Even
though Sonera and Finland Post do not have a common parent company after the
Demerger, there are no legal requirements for dividing the PT Pension Fund in
two, as long as the Finnish State holds at least 50 percent of all shares in
both Sonera and Finland Post. However, Sonera and Finland Post are currently
planning to divide the PT Pension Fund in two. Since the split-up would result
in a separation of plan assets in relation to respective shares of total
liabilities, management estimates that the split-up would not significantly
change Sonera's pension

                                       F-50
245
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

21. DIFFERENCES BETWEEN FINNISH GAAP AND GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES IN THE UNITED STATES (CONTINUED)

obligations and the funding status of those obligations. The PT Pension Fund has
received an advance ruling from the Finnish Central Tax Board, according to
which the split-up will not be considered a taxable transaction for the PT
Pension Fund.

     Certain minor Finnish subsidiaries are not participating employers in the
PT Pension Fund and the statutory pension benefits of these subsidiaries are
funded through pension insurance. These insurance payments were less than E0.2
million for each of the years ended December 31, 1998, 1999 and 2000.

     Sonera's subsidiaries outside Finland have various pension schemes in
accordance with the local requirements and practices. The schemes are are
generally funded through payments to insurance companies. Sonera's policy for
funding its defined benefit plans is to satisfy local statutory funding
requirements. Pension expenses recorded by Sonera's foreign subsidiaries totaled
E1.1 million, E1.7 million and E4.9 million for the years ended December 31,
1998, 1999 and 2000, respectively.

     Under U.S. GAAP, the determination of pension expense for defined benefit
pension plans is made pursuant to Statement of Financial Accounting Standard
("SFAS") No. 87, "Employers' Accounting for Pensions." SFAS 87 is more
prescriptive than Finnish GAAP in that it requires the use of a specific
actuarial method (the projected unit credit method). Also under SFAS 87, under
certain circumstances, a minimum liability is recorded with a corresponding
intangible asset and/or reduction of shareholders' equity for plans that are
underfunded.

     Pension benefits for Sonera employees and former employees are provided
from three sources. Those sources are the Finnish Employees' Pension Act
("TEL"), which consists of non-disability pension obligations ("TEL Pension")
and future disability pensions ("TEL Disability"), and a voluntary plan. The TEL
is a national pension system in which all Finnish private sector employers
participate.

     An essential feature of TEL is that only the TEL Disability pension is
funded in advance. The TEL Pension is financed as a pay-as-you-go pension. The
pay-as-you-go costs of an employer do not depend on the pensions paid to the
former employees of Sonera. Instead, the yearly premium depends on the wages of
the current workforce and is a certain percentage of these wages. In TEL an
employer does not have a direct responsibility for the TEL Pension. Sonera
insures its TEL Pension obligation with a pension fund. Premiums are determined
on a statutory basis. The TEL Pension is comparable to the U.S. concept of a
multiemployer plan and is treated as such by Sonera. The TEL Pension premium
payments made by Sonera during the years ended December 31, 1998, 1999 and 2000
were E32 million, E39 million and E48 million, respectively.

     Sonera participates in the PT Pension Fund, a pension foundation separate
from Sonera, for its TEL Disability and voluntary plan obligations. The PT
Pension Fund was originally established to fund the pension obligations of PT
Finland and, after the demerger of Sonera and Finland Post, it continues to fund
the obligations of both companies. Sonera and Finland Post are currently looking
into plans to split up the PT Pension Fund in two. The principles of the
split-up are regulated by Finnish Pension legislation. The calculation of
Sonera's SFAS 87 obligations, the TEL Disability and voluntary plan, have been
made in accordance with such legislation.

     The funding of the PT Pension Fund is subject to Finnish regulations that
require the contributions to be calculated using specific actuarial methods and
assumptions. These methods and assumptions are different from those specified
under SFAS 87. In particular, under the Finnish regulations, contributions are
determined in a way that the fund maintains 100 percent solvency. For this
purpose, plan assets are measured by book value, not fair value, and the
discount rate that is used to determine the funding level is relatively low.
Accordingly, when the funded status is calculated under SFAS 87, an apparently
overfunded situation is often the result.

                                       F-51
246
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

21. DIFFERENCES BETWEEN FINNISH GAAP AND GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES IN THE UNITED STATES (CONTINUED)

     The accounting for pension plans in accordance with Finnish GAAP is
different from the accounting and disclosure requirements of SFAS 87 and SFAS
No. 132, "Employers' Disclosure About Pensions and Other Postretirement
Benefits." In respect of Sonera's benefit obligations funded through the PT
Pension Fund, the SFAS 132 disclosure is as follows:
AS OF OR FOR THE
                                                                   YEAR ENDED DECEMBER 31,
                                                                 ---------------------------
                                                                 1998       1999       2000
                                                                 -----      -----      -----
                                                                       (IN E MILLIONS)
Change in projected benefit obligation ("PBO")
  PBO at the start of the year..............................       53         75        101
  Service cost..............................................        7          9         12
  Interest cost.............................................        4          5          7
  Actuarial loss............................................       13          6         --
  Amendments loss...........................................       --          8         --
  Benefits paid.............................................       (2)        (2)        (2)
                                                                  ---        ---        ---
  PBO at the end of the year................................       75        101        118
                                                                  ===        ===        ===
Change in plan assets
  Fair value of the assets at the start of the year.........       98        116        167
  Actual return on plan assets..............................       10         51        (14)
  Employer contribution.....................................       10          2          6
  Benefits paid.............................................       (2)        (2)        (2)
                                                                  ---        ---        ---
  Fair value of assets at the end of the year...............      116        167        157
                                                                  ===        ===        ===
Funded status...............................................       41         66         39
Unrecognized transition asset...............................      (15)       (12)        (9)
Unrecognized net actuarial loss (gain)......................       16        (22)         6
Unrecognized prior service cost.............................       --          8          7
                                                                  ---        ---        ---
Net amount recognized.......................................       42         40         43
                                                                  ===        ===        ===
For the purposes of the U.S. GAAP balance sheet, the net amount recognized
is recorded as prepaid benefit cost. There is no accrued benefit liability or
intangible asset recorded in respect of Sonera's benefit obligations.
AS OF OR FOR THE
                                                                   YEAR ENDED DECEMBER 31,
                                                                 ---------------------------
                                                                 1998       1999       2000
                                                                 -----      -----      -----
                                                                             (%)
Weighted average assumptions
  Discount rate at the end of the year......................     5.50       5.80       5.80
  Expected return on plan assets for the year...............     6.25       6.00       7.20
  Rate of expected compensation increase at the end of the
     year...................................................     4.00       4.00       4.00
F-52
247
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

21. DIFFERENCES BETWEEN FINNISH GAAP AND GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES IN THE UNITED STATES (CONTINUED)

     Components of net periodic benefit costs are as follows:
YEAR ENDED DECEMBER 31,
                                                                -----------------------
                                                                1998     1999     2000
                                                                -----    -----    -----
                                                                    (IN E MILLIONS)
Service cost................................................       7        9       12
Interest cost...............................................       4        5        7
Expected return on plan assets..............................      (7)      (8)     (12)
Amortization of transition asset for the period.............      (3)      (3)      (3)
Recognized net actuarial loss...............................      --        1       (1)
                                                                 ---      ---      ---
Total net periodic benefit cost.............................       1        4        3
                                                                 ===      ===      ===
For U.S. GAAP purposes, Sonera would be required to adopt the provisions of
SFAS 87 on January 1, 1989 and the cumulative adjustment of the effect of the
transition to SFAS 87 would be amortized on a prospective basis over the average
remaining service period of active employees. It was not considered practical
for Sonera to compute its pension liabilities as of January 1, 1989.
Accordingly, the transition to SFAS 87 was computed as at December 31, 1996,
resulting in a transition asset of E44 million. An adjustment was made to record
E23 million of the transition asset as an increase of U.S. GAAP shareholders'
equity at that date, based on the ratio of the years elapsed from the effective
date of SFAS 87 and December 31, 1996 to the remaining service period of
employees expected to receive benefits. The amortization of the remaining
transition asset will continue through the year 2003.

     For U.S. GAAP purposes, Sonera has recognized a decrease of E9 million and
E3 million in its benefit costs for the years ended December 31, 1998 and 2000,
respectively, and an increase of E2 million in its benefit costs for the year
ended December 31, 1999. These adjustments were determined by comparing the
contributions recorded under Finnish GAAP with the amounts that would have been
recorded if the provisions of SFAS 87 were applied in the Consolidated Financial
Statements.

     The PT Pension Fund's assets consist of investments in cash, short-term and
long-term debt securities, loans receivable, equity securities, real estate and
housing. As of December 31, 1998, loans receivable included a E17 million loan
granted to Sonera. The loan was backed by a mortgage and was due in one
installment in 2002. Sonera repaid the loan prematurely in May 1999. The PT
Pension Fund did not have any other loans receivable from Sonera, or from
Sonera's associated companies, during the periods presented.

     The assets of the PT Pension Fund also include investments in Sonera shares
with a fair value of E19 million, E88 million and E25 million as of December 31,
1998, 1999 and 2000, respectively (of which E5 million, E26 million and E7
million, respectively, would have been included in Sonera's plan assets
according to SFAS 87), and investments in shares in TietoEnator Corporation,
which was Sonera's 26.8 percent and 20.3 percent associated company as of
December 31,1998 and 1999, respectively, with a fair value of E10 million and
E33 million respectively (of which E3 million and E9 million, respectively,
would have been included in the SFAS 87 plan assets).

(C) WRITE-DOWN ON NMT NETWORK ASSETS

     Under Finnish GAAP, an impairment to long-lived assets is recognized when
it is probable that the carrying value of the asset is not recoverable from the
future cash flows derived from the use of such asset. Under Finnish GAAP, it is
permissible to allocate certain assets which are commonly used by several
operations in determining whether an impairment exists. If during a subsequent
period the write-down proves to be partly or entirely unjustified, the
unjustified portion of the write-down must be reversed and recognized to income
for that period.
                                       F-53
248
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

21. DIFFERENCES BETWEEN FINNISH GAAP AND GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES IN THE UNITED STATES (CONTINUED)

     As a consequence of a significant reduction in the number of subscribers to
Sonera's analog NMT services during the latter part of 1998, a write- down of
E34 million on certain specifically identified and allocated assets related to
Sonera's NMT networks was recorded under Finnish GAAP for the year ended
December 31, 1998.

     Under SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of," an impairment of an asset would be
required if the undiscounted cash flows derived from that asset were less than
the carrying value of such asset. The amount of the write-down (impairment loss)
would be the difference between fair value of the asset and its carrying value
in the financial statements. In addition, under U.S. GAAP, a reversal of an
impairment loss is not permitted. SFAS 121 does not allow allocations of assets
nor cash flows and should be examined at the lowest level for which there are
identifiable cash flows that are largely independent of the cash flows of other
groups of assets.

     Therefore, U.S. GAAP treatment is to reverse this write-down and accelerate
the useful life of the specifically identified assets. For the year ended
December 31, 1998, reversal of the write-down would result in a reduction of
write-down of E34 million, increase in depreciation expense of E1 million and a
decrease in accumulated depreciation of E33 million. For the year ended December
31, 1999, the reversal of the write-down would result in an increase in
depreciation expense of E11 million and a decrease in accumulated depreciation
of E22 million. For the year ended December 31, 2000, the reversal of the
write-down would result in an increase in depreciation expense of E3 million and
a decrease in accumulated depreciation of E19 million.

     The carrying value of the specifically identified NMT network assets was
E26 million, E3 million and zero as of December 31, 1998, 1999 and 2000,
respectively. The remaining useful lives of the specifically identified assets
as of December 31, 1998 ranged from two to seven years before the SFAS 121
analysis, and from two to three years after the analysis. The impact of the
change in useful lives was immaterial.

(D) PROVISION FOR YEAR 2000

     As allowed by Finnish GAAP, Sonera recorded a provision to cover all major
incremental expenses incurred from its year 2000 compliance program, which
included all necessary inspection, adjustment, replacement and testing work
carried out on Sonera's data systems and other telecommunications network
equipment.

     Based on the first estimate, a provision of E8 million was recorded during
the year ended December 31, 1996. Additional provisions of E5 million and E2
million were recorded during the years ended December 31, 1997 and 1998,
respectively, resulting in a total cost provision of E15 million. Actual
expenses charged against the provision were E2 million, E9 million and E4
million during the years ended December 31, 1997, 1998 and 1999, respectively,
and the remaining balance of the provision was zero as of December 31, 1999.

     Under U.S. GAAP, costs related to the year 2000 compliance program would
have been charged to expense when incurred.

(E) INVESTMENTS IN MARKETABLE SECURITIES

     Sonera accounts for its investments in marketable securities at the lower
of cost or market value, except for debt securities to be held to maturity which
are stated at amortized cost.

     SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," requires that all investments in equity securities with readily
determinable fair values and all debt securities be classified into three
categories and accounted for as follows:

     -  Debt securities in which the company has the intent and ability to hold
        to maturity are classified as "held-to-maturity" securities and are
        reported at amortized cost;

                                       F-54
249
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

21. DIFFERENCES BETWEEN FINNISH GAAP AND GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES IN THE UNITED STATES (CONTINUED)

     -  Debt and equity securities which are bought and held principally for the
        purpose of short-term selling are classified as "trading" securities and
        reported at fair value, with unrealized gains and losses included in
        earnings; and

     -  Debt and equity securities not classified as either "held-to-maturity"
        securities or "trading" securities are classified as
        "available-for-sale" securities and reported at fair value, with
        unrealized gains and losses excluded from earnings and reported, net of
        applicable taxes, in a separate component of shareholders' equity.

     Information regarding Sonera's short-term investments is as follows:
TOTAL
                                                    TIME        MARKETABLE         OTHER       SHORT-TERM
                                                  DEPOSITS    DEBT SECURITIES    SECURITIES    INVESTMENTS
                                                  --------    ---------------    ----------    -----------
                                                                      (IN E MILLIONS)
As of December 31, 1998
  Cost..........................................     17               4              15             36
  Unrealized gains..............................     --              --              --             --
                                                    ---             ---             ---            ---
  Fair value....................................     17               4              15             36
                                                    ===             ===             ===            ===
As of December 31, 1999
  Cost..........................................     72               4               1             77
  Unrealized gains..............................     --              --              --             --
                                                    ---             ---             ---            ---
  Fair value....................................     72               4               1             77
                                                    ===             ===             ===            ===
As of December 31, 2000
  Cost..........................................     39              29              --             68
  Unrealized gains..............................     --              --              --             --
                                                    ---             ---             ---            ---
  Fair value....................................     39              29              --             68
                                                    ===             ===             ===            ===
There were no unrealized losses on marketable debt securities as of
December 31, 1998, 1999 and 2000. During the periods presented, there were no
material sales of short-term investments.

     Original maturities of Sonera's short-term investments as of December 31,
2000 are as follows:
AS OF
                                                              DECEMBER 31, 2000
                                                              -----------------
                                                               (IN E MILLIONS)
Less than one year..........................................          67
Over one year...............................................           1
                                                                     ---
Total short-term investments................................          68
                                                                     ===
F-55
250
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

21. DIFFERENCES BETWEEN FINNISH GAAP AND GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES IN THE UNITED STATES (CONTINUED)

     Information regarding Sonera's marketable equity securities, which are
reported as long-term investments, is as follows:
AS OF DECEMBER 31, 1998
                                                   ------------------------------------------------
                                                           UNREALIZED   UNREALIZED   WRITE-   FAIR
                                                   COST      GAINS        LOSSES     DOWNS    VALUE
                                                   -----   ----------   ----------   ------   -----
                                                                   (IN E MILLIONS)
Star Telecom International Holding Limited......      15       --           --        (12)        3
Enator AB.......................................      31        9           --         --        40
Other marketable equity securities..............      --        1           --         --         1
                                                   -----      ---          ---        ---     -----
Total marketable equity securities..............      46       10           --        (12)       44
                                                   =====      ===          ===        ===     =====
AS OF DECEMBER 31, 1999
                                                   ------------------------------------------------
                                                           UNREALIZED   UNREALIZED   WRITE-   FAIR
                                                   COST      GAINS        LOSSES     DOWNS    VALUE
                                                   -----   ----------   ----------   ------   -----
                                                                   (IN E MILLIONS)
Powertel, Inc...................................     119      131           --         --       250
Other marketable equity securities..............      --        4           --         --         4
                                                   -----      ---          ---        ---     -----
Total marketable equity securities..............     119      135           --         --       254
                                                   =====      ===          ===        ===     =====
AS OF DECEMBER 31, 2000
                                                   ------------------------------------------------
                                                           UNREALIZED   UNREALIZED   WRITE-   FAIR
                                                   COST      GAINS        LOSSES     DOWNS    VALUE
                                                   -----   ----------   ----------   ------   -----
                                                                   (IN E MILLIONS)
VoiceStream Wireless Corporation................   1,646      406           --         --     2,052
TietoEnator Corporation.........................     179      294           --         --       473
Powertel, Inc...................................     119      189           --         --       308
724 Solutions Inc...............................      48       67           --         --       115
Conduit Plc.....................................      20        8           --         --        28
Cisco Systems, Inc..............................      10       --           (4)        --         6
Other marketable equity securities..............       5       --           --         --         5
                                                   -----      ---          ---        ---     -----
Total marketable equity securities..............   2,027      964           (4)        --     2,987
                                                   =====      ===          ===        ===     =====
Sonera received 4.5 percent of all shares in Star Telecom International
Holding Limited ("Star Telecom") in connection with the sale of its 28.5 percent
interest in P Plus Communications Limited to Star Telecom in February 1998.
Subsequently during 1998, Sonera recorded a write-down on Star Telecom's shares
based on a significant drop in the market quotation of Star Telecom's share on
the Hong Kong Stock Exchange. Sonera sold its shares in Star Telecom in June
1999, and recorded a gain of E4 million from the sale.

     In June 2000, a former associated company TietoEnator Corporation was
changed to be accounted under cost method because Sonera was no longer deemed to
have significant influence over the operations of TietoEnator. The shares in
TietoEnator were sold in March 2001 and Sonera recorded a gain of E286 million
on the sale under Finnish GAAP. Under U.S. GAAP, the gain was E246 million. See
also Note 21 (g) to the Consolidated Financial Statements.

     On March 30, 2000, the United States Federal Communications Commission
("FCC") gave final approval to the merger of Aerial Communications, Inc.
("Aerial") with VoiceStream Wireless Corporation ("VoiceStream"). The merger was
completed on May 4, 2000. After the merger and Sonera's earlier

                                       F-56
251
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

21. DIFFERENCES BETWEEN FINNISH GAAP AND GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES IN THE UNITED STATES (CONTINUED)

U.S.$500 million investment in VoiceStream on February 28, 2000, Sonera's
shareholding in VoiceStream was approximately 7.9 percent, on a fully diluted
basis. Sonera discontinued accounting for Aerial under the equity method on the
merger date, and Sonera's investment in VoiceStream is accounted for under the
cost method. The cost basis of VoiceStream shares received in the merger is
based on the fair value of the VoiceStream shares on the merger date. As a
result, Sonera recorded a pre-tax gain of E835 million on the merger transaction
for the second quarter of 2000.

     On July 24, 2000, the Board of Directors of VoiceStream announced that it
had entered into a merger agreement with Deutsche Telekom AG. For each
VoiceStream share, Deutsche Telekom offered 3.2 Deutsche Telekom shares and
U.S.$ 30 in cash, subject to certain adjustments. The majority of VoiceStream
shareholders, including Sonera, accepted the offer. See also Note 22 to the
Consolidated Financial Statements for unaudited subsequent events.

     Sonera acquired a 9.1 percent interest in Powertel, Inc. in September 1999.
Powertel is a provider of GSM-based PCS services in selected markets in the
south-eastern part of the United States. In May 2000, Sonera agreed that it
would make an additional investment of U.S.$200 million in Powertel. Of the
total amount, Sonera invested U.S.$125 million directly in Powertel, raising its
holding in Powertel to approximately 11.8 percent, on a fully diluted basis. In
addition, Sonera acquired a 30.1 percent holding in Eliska Wireless Ventures I,
Inc. for U.S.$75 million. Eliska shares are convertible into approximately one
million Powertel shares. These agreements entitle Sonera to raise its holding in
Powertel to approximately 13.5 percent (fully diluted), which corresponds to
approximately 7.4 million shares. The arrangements were seen to completion and
the purchase prices paid in January 2001.

     In August 2000, Sonera decided for its part to accept Deutsche Telekom's
offer to purchase Powertel shares. Deutsche Telekom committed itself for paying
2.6353 Deutsche Telekom shares for each Powertel share. See also Note 22 to the
Consolidated Financial Statements for unaudited subsequent events.

     Sonera acquired its original 22 percent interest in 724 Solutions Inc. in
August 1999 and accounted for its investment under equity method for the year
ended December 31, 1999. After the initial public offering by 724 Solutions Inc.
in February 2000, Sonera's 6.4 million shares represented an approximately 18
percent interest in 724 Solutions. In February 2001, 724 Solutions acquired
Tantau Software Inc. and paid the purchase price by using its own shares. As a
result of this acquisition, Sonera's holding in 724 Solutions decreased to 11.4
percent.

     Sonera acquired 12.5 percent in Conduit Plc in May 2000. In June 2000, the
company had an initial public offering, and was listed on the Neuer Markt of the
Frankfurt Stock Exchange in Germany. Except for a 15 percent over-allotment
option, the offering was in the form of a primary issue of shares by Conduit.
Therefore, after the offering, Sonera's interest in Conduit was diluted to 9.98
percent.

     In February 2000, Sonera received return on one of its venture capital
investments in the form of shares in Cisco Systems, Inc. The fair value of
shares received was E10 million at the date of receipt and E6 million on
December 31, 2000.

     The above information does not include marketable equity securities that
Sonera holds in respect of its associated companies. Such associated companies
are included in the Consolidated Financial Statements in accordance with the
equity method of accounting. See also Note 18 to the Consolidated Financial
Statements for the disclosure of fair value of all equity investments.

(F) CAPITALIZATION OF INTEREST

     Under Finnish GAAP, interest costs may be capitalized on construction of
fixed assets that are constructed for an entity's own use, provided that the
capitalized interest cost relates to debt financing attributable to the

                                       F-57
252
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

21. DIFFERENCES BETWEEN FINNISH GAAP AND GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES IN THE UNITED STATES (CONTINUED)

construction of such assets. Prior to January 1, 2000 the Company did not
capitalize interest on self-constructed assets, but adopted a new accounting
practice during the year ended December 31, 2000. The effect of this change in
accounting principles under Finnish GAAP was an income of E6 million (net of
deferred tax expense of E2 million) for the year ended December 31, 2000.

     Under U.S. GAAP, capitalization of interest on assets constructed for an
entity's own use is required based upon the weighted average capital
expenditures on self-constructed assets.

     Adjustments for the net income on U.S. GAAP basis include capitalized
interest costs for E2 million and E2 million for the years ended December 31,
1998 and 1999, respectively. Accumulated capitalization of interest costs prior
to January 1, 1998 would have been E16 million. Net income under U.S. GAAP also
includes adjustment in the depreciation expense for the capitalized interest,
totaling E2 million and E2 million for the years ended December 31, 1998 and
1999, respectively. Accumulated depreciation expense prior to January 1, 1998
would have been E8 million. Starting as of January 1, 2000, Finnish GAAP
accounting complies with U.S. GAAP, and the U.S. GAAP adjustment in net income
for the year ended 31, 2000 consists of the reversal of the accounting change
recorded in Finnish GAAP net income.

(G) ASSOCIATED COMPANIES

     Under Finnish GAAP, financial statements of associated companies are
restated, when possible, to comply with the accounting principles used in the
Consolidated Financial Statements. For the purposes of Sonera's Consolidated
Financial Statements, associated companies report their financial statements to
Sonera using accounting principles that are materially consistent with either
U.S. GAAP or IAS.

     Under U.S. GAAP, net income and shareholders' equity of associated
companies are restated to comply with U.S. GAAP for the purpose of inclusion in
the Consolidated Financial Statements. U.S. GAAP differences principally relate
to capitalized interest, income taxes and restructuring charges.

Change in equity accounting for Turkcell

     As of the beginning of 2000, Sonera changed the practice of equity
accounting for its holding in Turkcell Iletisim Hizmetleri A.S. ("Turkcell") in
such a manner that Sonera's consolidated financial statements for each quarter
include the last available and final quarterly financial statements of Turkcell.
Previously, under Finnish GAAP, Sonera's consolidated financial statements for
each quarter have included a preliminary estimated share of Turkcell's net
income for the corresponding period.

     The accounting change was made in anticipation of the Turkcell initial
public offering and stock exchange listing, after which Sonera no longer has any
other information available for the preparing of its financial statements than
the information published by Turkcell simultaneously to all of Turkcell
shareholders.

     Under Finnish GAAP, Sonera has not restated the Consolidated Financial
Statements for the accounting change, and has recorded the cumulative effect of
the accounting change through the consolidated income statement for its first
quarter interim financial statements of 2000. For U.S. GAAP, the Company adopted
this change for the year ended December 31, 1999 and has restated the 1998 net
income and shareholders' equity under U.S. GAAP to reflect this change. The
impact on 1998 net income and shareholders' equity was a reduction of E20
million and E24 million, respectively. The impact on 1999 net income and
shareholders' equity was a reduction E21 million and E45 million, respectively.
Starting as of January 1, 2000, Finnish GAAP accounting complies with U.S. GAAP,
and the U.S. GAAP adjustment for the year ended December 31, 2000 consists of
the reversal of the accounting change of E45 million expense recorded in Finnish
GAAP net income.

                                       F-58
253
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

21. DIFFERENCES BETWEEN FINNISH GAAP AND GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES IN THE UNITED STATES (CONTINUED)

Gain on shares in 724 Solutions Inc.

     In February 2000, 724 Solutions Inc. completed an initial public offering
whereby 724 Solutions issued 6.9 million shares for U.S.$26 per share. The net
proceeds received by 724 Solutions from this transaction were approximately
U.S.$167 million. Sonera acquired its original 22 percent interest in 724
Solutions in August 1999, and accounted for its investment under equity method
for the year ended December 31, 1999. After the offering, Sonera accounted for
its 18 percent investment under cost method since Sonera was no longer deemed to
have significant influence over the operations of 724 Solutions. Under Finnish
GAAP, Sonera has not recognized any gain from the decrease in its interest in
724 Solutions, and the carrying value of E21 million under the equity method
prior to the initial public offering has been established as the cost basis of
Sonera's investment in 724 Solutions.

     For its U.S. GAAP financial statements, Sonera has recorded a gain of E27
million from 724 Solutions initial public offering, according to the SEC Staff
Accounting Bulletin No. 51, "Accounting for Sales of Stock by a Subsidiary"
("SAB 51"). The gain is recorded in the income statement and it establishes a
new cost basis of E48 million under U.S. GAAP for Sonera's investment in 724
Solutions.

Gain on shares in TietoEnator Corporation

     In May 2000, TietoEnator Corporation completed a directed issue whereby
TietoEnator issued 1,039,102 shares to shareholders of Oy Visual Systems
Limited, acquiring 80 percent of Visual Systems. In June 2000, TietoEnator
implemented a public offer to the shareholders of Entra Data AB and completed a
directed issue whereby TietoEnator issued 4,186,320 shares, acquiring 44 percent
of Entra Data. After the transactions, Sonera's holding in TietoEnator was 18.7
percent, and Sonera accounted for its investment under cost method since Sonera
was no longer deemed to have significant influence over the operations of
TietoEnator. Under Finnish GAAP, Sonera has not recognized any gain from the
decrease in its interest in TietoEnator, and the carrying value of E139 million
under the equity method prior to the directed issues has been established as the
cost basis of Sonera's investment in TietoEnator. See also Note 22 of the
Consolidated Financial Statements for unaudited subsequent events.

     For its U.S. GAAP financial statements, Sonera has recorded a gain of E40
million from the TietoEnator directed issues, in accordance with SAB 51. The
gain is recorded in the income statement and it establishes a new cost basis of
E179 million under U.S. GAAP for Sonera's investment in TietoEnator.

(H) ALLOWANCE FOR DOUBTFUL ACCOUNTS

     Under Finnish GAAP, the Company uses the direct write-off method for bad
debts. Amounts are generally written off directly to accounts receivable after
90 days after the due date.

     Under U.S. GAAP, an allowance for doubtful accounts is established for
estimated bad debts included in accounts receivable. Sonera continuously
evaluates the collectibility of accounts receivable, and has established a
valuation allowance for U.S. GAAP based on the Company's past experience.

                                       F-59
254
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

21. DIFFERENCES BETWEEN FINNISH GAAP AND GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES IN THE UNITED STATES (CONTINUED)

     Changes in allowance for doubtful accounts are as follows:
YEAR ENDED DECEMBER 31,
                                                                -----------------------
                                                                1998     1999     2000
                                                                -----    -----    -----
                                                                    (IN E MILLIONS)
Balance of allowance at beginning of year...................       2        2        2
Additions...................................................       3        3        4
Deductions..................................................      (3)      (3)      (3)
                                                                 ---      ---      ---
Balance of allowance at end of year.........................       2        2        3
                                                                 ===      ===      ===
(I) EMPLOYEE BOND LOANS WITH WARRANTS

Year 1999 option scheme

     In April 1999, Sonera's Annual General Meeting passed a resolution about an
option scheme concerning Sonera's personnel. The bond loan with warrants was
subscribed by a total of 5,326 persons, or about 60 percent of Sonera's
personnel. The subscriptions were approved by the Board of Directors on May 27,
1999. Of the total bond loan amount of E2.5 million, approximately E1.6 million
was directed at the personnel, and the remainder was directed at Sonera's
wholly-owned subsidiary Telibra Oy, which may later offer its loan with warrant
certificates to persons employed by Sonera or to persons to be recruited. The
bond part of the loan with warrants carried no interest and was repaid on June
1, 2001.

     Warrant certificates A associated with the loan entitle to subscription of
Sonera's shares from June 1, 2001 to June 30, 2005, and warrant certificates B
from June 1, 2003 to June 30, 2005. Altogether the warrants entitle to
subscription of a maximum of 15,000,000 new shares. After the dividend paid on
April 3, 2001, the share subscription price is E15.11 with warrant certificates
A and E27.87 with warrant certificates B. For both warrant certificates A and B,
the subscription price will be reduced by the amount of per share dividends paid
before the subscription of shares.

     The subscription rights can be exercised with warrant certificates A
provided that:

     (i)   Sonera's cumulative earnings per share (under Finnish GAAP) during
           January 1, 1999 through December 31, 2000 is at least E0.84;

     (ii)   Sonera's operating profit in relation to revenues (under Finnish
            GAAP) is at least 15 percent, on the average, during January 1, 1999
            through December 31, 2000; and

     (iii)  the employee does not leave Sonera before June 1, 2001 (for other
            than retirement).

     The subscription rights can be exercised with warrant certificates B
provided that:

     (i)   Sonera's cumulative earnings per share (under Finnish GAAP) during
           January 1, 1999 through December 31, 2002 is at least E2.02;

     (ii)   Sonera's operating profit in relation to revenues (under Finnish
            GAAP) is at least 15 percent, on the average, during January 1, 1999
            through December 31, 2002; and

     (iii)  the employee does not leave Sonera before June 1, 2003 (for other
            than retirement).

     For the Company's top management, exercise of the warrants is also
contingent upon Sonera's share price development that exceeds the reference
index for a peer group of companies.

                                       F-60
255
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

21. DIFFERENCES BETWEEN FINNISH GAAP AND GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES IN THE UNITED STATES (CONTINUED)

     Management is currently not able to determine whether the performance
measures will be met for warrants B. The earnings per share performance
condition, the operating profit performance condition, and the top management
index condition of warrants A have been met.

     On June 1, 2001, warrants A were listed on the Helsinki Exchanges. After
the listing, an employee can also sell warrants A on the Helsinki Exchanges, at
a price determined by public quotes.

Year 2000 option scheme

     On March 22, 2000, the Annual General meeting decided on a bond loan with
warrants of 2000 to be offered to the Group's entire personnel. The bond loan
with warrants was subscribed for by a total of 6,700 persons during the
subscription period from May 15 to June 30, 2000. On July 24, 2000, the Board of
Directors of Sonera Corporation approved the subscriptions totaling about 16.1
million warrants. The share subscription price with these warrants is E72,90
which was approved by the Annual General Meeting on March 21, 2001.

     The warrants do not entitle their holders to subscribe the shares if the
trading price of the Company's share in Helsinki Exchanges does not exceed the
reference index when the subscription period begins. The index determined for
the Company's top management in connection with the 1999 bond loan with warrants
will be applied to the 2000 bond loan with warrants for the entire personnel,
using the same calculation rules. The index comparison for the 2000 bond loan
with warrants began on April 1, 1999, and it will end on the last day of the
fiscal year preceding commencement of exercise of the warrants.

     A maximum of 20,000,000 shares may be subscribed for on the basis of this
bond loan with warrants, and the share subscription period will begin stepwise
on November 2, 2002; May 2, 2003; and May 2, 2004; ending on May 31, 2008 for
all warrants allocated during 2000. The portion of the bond loan with warrants
that was not granted in the initial subscription in May-June 2000 can be later
offered to persons employed by by Sonera or to persons to be recruited by
Sonera.

     Management is currently not able to determine whether the index performance
measures will be met.

Option schemes for Sonera Corporation's subsidiaries

     Sonera Corporation's subsidiaries Sonera SmartTrust Ltd, Sonera Zed Ltd and
Sonera Plaza Ltd have decided on option schemes in compliance with the decision
made by the Board of Directors of Sonera Corporation. The option schemes of each
company may dilute Sonera Corporation's holding in said subsidiary by a maximum
of 15 percentage. Warrants are allocated in two stages. In the first stage in
December 2000, warrants were allocated to the management and key persons of
these subsidiaries. In the second stage, warrants will be allocated to other
employees of the subsidiaries.

     The period for share subscription based on the exercise of warrants will
begin at each company one year after the commencement of public trading in the
subsidiary's shares and will end for Sonera Zed's warrants by December 31, 2010,
at the latest, and for Sonera SmartTrust's and Sonera Plaza's warrants by
January 31, 2011, at the latest. Of the warrants for management and key
employees, 50 percent will entitle their holders to subscribe for subsidiary's
shares at a predetermined price. Those warrants are marked with letters A1, B1
and C1. The subscription price for warrants A1, B1 and C1 were based on an
estimate made by an independent external party of the subsidiaries' fair values
at the time of introducing the option scheme. The remaining 50 percent of top
management's and key employees' warrants, as well as all the warrants intended
to be allocated to the rest of the personnel will entitle their holders to
subscribe for the subsidiary's shares at a price which is used as the sale price
to retail investors in each subsidiary's planned initial public offering and/or
sale of shares. Those warrants are marked with A2, B2 and C2.

                                       F-61
256
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

21. DIFFERENCES BETWEEN FINNISH GAAP AND GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES IN THE UNITED STATES (CONTINUED)

     The maximum warrant amounts of subsidiaries are as follows:
MANAGEMENT
                                                          AND KEY        OTHER
                                                         EMPLOYEES     PERSONNEL       TOTAL
                                                         ----------    ----------    ----------
Sonera SmartTrust Ltd................................    19,876,560    19,876,560    39,753,120
Sonera Zed Ltd.......................................     8,205,975     8,205,975    16,411,950
Sonera Plaza Ltd.....................................     1,919,550     1,919,550     3,839,100
The warrant amounts allocated in the first stage and their dilutive effect
is as follows:
AMOUNT OF
                                                             STOCK OPTIONS ALLOCATED
                                                             -----------------------
                                                             MANAGEMENT
                                                              AND KEY        OTHER
                                                             EMPLOYEES     PERSONNEL    DILUTION
                                                             ----------    ---------    --------
Sonera SmartTrust Ltd....................................    9,179,538         --          3.46%
Sonera Zed Ltd...........................................    5,153,166...      --          4.71%
Sonera Plaza Ltd.........................................    1,071,984         --          4.19%
The allocated option amounts include equal amounts of series A1, B1, C1,
A2, B2 and C2 options.

     See also Note 22 to the Consolidated Financial Statements for unaudited
subsequent events.

Compensation cost of option schemes

     Under Finnish GAAP, Sonera will not record any compensation expense in
respect of the warrants to its income statement. For U.S. GAAP, Sonera has
elected to account for the warrants using the fair value method of accounting
prescribed by SFAS No. 123, "Accounting for Stock-Based Compensation." Imputed
interest cost has not been accounted for the bond part of the 1999 and 2000
loans with warrants under Finnish GAAP and under U.S. GAAP since the amount
would be immaterial.

Compensation cost of year 1999 option scheme

     The Company granted 4.75 million warrant certificates A and 4.75 million
warrant certificates B on May 27, 1999. On the date of valuation, the fair value
of one warrant certificate A and B was E9.64 and E12.96, respectively. The total
fair value of all warrant certificates A and B on the date of valuation was E46
million and E62 million, respectively. For the years ended December 31, 1999 and
2000, compensation expense of E16 million and E66 million, respectively, was
charged to income under U.S. GAAP for warrant certificates A and B.

                                       F-62
257
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

21. DIFFERENCES BETWEEN FINNISH GAAP AND GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES IN THE UNITED STATES (CONTINUED)

     The assumptions used in calculating the fair value of warrant certificates
A and B, at the respective dates of valuation, of the year 1999 option scheme
were as follows:
A        B
                                                                -----    -----
Exercise price (E)..........................................    15.32    28.08
Expected life of warrant (years)............................        5     4.75
Fair market value of underlying share (E)...................    18.85    28.55
Expected volatility of underlying share (percent)...........       45       45
Expected dividends on share (percent).......................      0.5      0.5
Risk-free interest rate for expected term (percent).........     4.00     4.84
Compensation cost of year 2000 option scheme

     The Company granted 16.1 million warrant certificates on July 24, 2000. On
the date of valuation, the fair value of one warrant certificate A, B and C was
E0.45, E0.34 and E0.17, respectively. The total fair value of all warrant
certificates A, B and C on the date of valuation was E2.3 million, E1.7 million
and E1.7 million, respectively. For the year ended December 31, 2000, no
compensation cost could be estimated on the option scheme, because the exercise
price of warrants was not determined before the Annual General Meeting of March
21, 2001. The compensation expense will be recorded for the periods starting
from March 22, 2001 and ending for warrant certificates A, B and C on November
2, 2002, May 2, 2003 and May 2, 2004, respectively.

     The assumptions used in calculating the fair value of warrant certificates
A, B and C, at the date of valuation, of the year 2000 option scheme were as
follows:
A        B        C
                                                                -----    -----    -----
Exercise price (E)..........................................    72.90    72.90    72.90
Expected life of warrant (years)............................      5.6      5.1      4.1
Fair market value of underlying share (E)...................     9.90     9.90     9.90
Expected volatility of underlying share (percent)...........       45       45       45
Expected dividends on share (percent).......................      0.5      0.5      0.5
Risk-free interest rate for expected term (percent).........     4.63     4.63     4.63
Compensation cost of Sonera SmartTrust option scheme

     Sonera SmartTrust allocated approximately 9.2 million warrant certificates
on December 22, 2000. On the date of valuation, the fair value of one warrant
certificate A1, B1 and C1 was E3.39, E3.16 and E2.90, respectively. The total
fair value of all warrant certificates A1, B1 and C1 on the date of valuation
was E10.4 million, E9.7 million and E8.9 million, respectively.

     For the year ended December 31, 2000, no compensation expense on Sonera
SmartTrust warrants was recorded because the exercise of warrants is contingent
upon the initial public offering of the subsidiary. Management is currently not
able to determine whether or when the initial public offering of the subsidiary
will take place. If the initial public offering does not take place by December
31, 2002, the warrants A1, B1 and C1 will be redeemed by the subsidiary. The
redemption price will be based on an estimate made by an independent external
party of the subsidiary's fair value. However, the warrants will not be redeemed
if the independent external party determines that the general market conditions
or the status of the subsidiary did not provide for an initial public offering
by that date.

                                       F-63
258
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

21. DIFFERENCES BETWEEN FINNISH GAAP AND GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES IN THE UNITED STATES (CONTINUED)

     The assumptions used in calculating the fair value of warrant certificates
A1, B1 and C1, at the date of valuation, by Sonera SmartTrust were as follows:
A1       B1       C1
                                                                -----    -----    -----
Exercise price (E)..........................................     6.20     6.20     6.20
Expected life of warrant (years)............................      7.2      6.2      5.2
Fair market value of underlying share (E)...................     6.20     6.20     6.20
Expected volatility of underlying share (percent)...........       45       45       45
Expected dividends on share (percent).......................       --       --       --
Risk-free interest rate for expected term (percent).........     4.85     4.85     4.85
Fair value could not be calculated for warrants A2, B2 and C2, because
their exercise price has not been determined yet. The exercise price will be the
same as the price that is used as the sale price to retail investors in the
subsidiary's planned initial public offering and/or sale of shares.

     See also Note 22 to the Consolidated Financial Statements for unaudited
subsequent events.

Compensation cost of Sonera Zed option scheme

     Sonera Zed allocated approximately 5.2 million warrant certificates on
December 22, 2000. On the date of valuation, the fair value of one warrant
certificate A1, B1 and C1 was E0.50, E0.46 and E0.42, respectively. The total
fair value of all warrant certificates A1, B1 and C1 on the date of valuation
was E0.9 million, E0.8 million and E0.7 million, respectively.

     For the year ended December 31, 2000, no compensation expense on Sonera Zed
warrants was recorded because the exercise of warrants is contingent upon the
initial public offering of the subsidiary. Management is currently not able to
determine whether or when the initial public offering of the subsidiary will
take place. If the initial public offering does not take place by December 31,
2002, the warrants A1, B1 and C1 will be redeemed by the subsidiary. The
redemption price will be based on an estimate made by an independent external
party of the subsidiary's fair value. However, the warrants will not be redeemed
if the independent external party determines that the general market conditions
or the status of the subsidiary did not provide for an initial public offering
by that date.

     The assumptions used in calculating the fair value of warrant certificates
A1, B1 and C1, at the date of valuation, by Sonera Zed were as follows:
A1       B1       C1
                                                                -----    -----    -----
Exercise price (E)..........................................     0.91     0.91     0.91
Expected life of warrant (years)............................      7.1      6.1      5.1
Fair market value of underlying share (E)...................     0.91     0.91     0.91
Expected volatility of underlying share (percent)...........       45       45       45
Expected dividends on share (percent).......................       --       --       --
Risk-free interest rate for expected term (percent).........     4.85     4.85     4.85
Fair value could not be calculated for warrants A2, B2 and C2, because
their exercise price has not been determined yet. The exercise price will be the
same as the price that is used as the sale price to retail investors in the
subsidiary's planned initial public offering and/or sale of shares.

                                       F-64
259
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

21. DIFFERENCES BETWEEN FINNISH GAAP AND GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES IN THE UNITED STATES (CONTINUED)

Compensation cost of Sonera Plaza option scheme

     Sonera Plaza allocated approximately 1.1 million warrant certificates on
December 22, 2000. On the date of valuation, the fair value of one warrant
certificate A1, B1 and C1 was E10.23, E9.53 and E8.75, respectively. The total
fair value of all warrant certificates A1, B1 and C1 on the date of valuation
was E6.7 million, E6.2 million and E5.7 million, respectively.

     For the year ended December 31, 2000, no compensation expense on Sonera
Plaza warrants was recorded because the exercise of warrants is contingent upon
the initial public offering of the subsidiary. If the initial public offering
does not take place by December 31, 2002, the warrants A1, B1 and C1 will be
redeemed by the subsidiary. The redemption price will be based on an estimate
made by an independent external party of the subsidiary's fair value. However,
the warrants will not be redeemed if the independent external party determines
that the general market conditions or the status of the subsidiary did not
provide for an initial public offering by that date.

     The assumptions used in calculating the fair value of warrant certificates
A1, B1 and C1, at the date of valuation, by Sonera Plaza were as follows:
A1       B1       C1
                                                                -----    -----    -----
Exercise price (E)..........................................    18.69    18.69    18.69
Expected life of warrant (years)............................      7.2      6.2      5.2
Fair market value of underlying share (E)...................    18.69    18.69    18.69
Expected volatility of underlying share (percent)...........       45       45       45
Expected dividends on share (percent).......................       --       --       --
Risk-free interest rate for expected term (percent).........     4.85     4.85     4.85
Fair value could not be calculated for warrants A2, B2 and C2, because
their exercise price has not been determined yet. The exercise price will be the
same as the price that is used as the sale price to retail investors in the
subsidiary's planned initial public offering and/or sale of shares.

     See also Note 22 to the Consolidated Financial Statements for unaudited
subsequent events.

(J) BUSINESS COMBINATIONS

     On April 18, 2000, Sonera acquired all shares in Across Holding AB of
Sweden ("Across"). Across Wireless AB, the principal operating subsidiary of
Across, offers wireless Internet-based service platforms which make it possible,
for example, to manage applications and terminals over a mobile network. The
company has a customer base comprising over 50 mobile communications operators.
For the year ended December 31, 1999, the consolidated revenues of Across
amounted to E9 million, and the consolidated operating loss was E7 million.
Sonera paid for the acquisition by issuing 16,732,055 new shares to the sellers.

     On June 27, 2000, Sonera acquired all shares in iD2 Holding AB of Sweden
("iD2"). iD2 Technologies AB, the principal operating subsidiary of iD2,
provides secure authentication solutions based on PKI (Public Key
Infrastructure) and "smart card" technology for the Internet. The company has
several strategic partners, and a customer base comprising over 150 companies.
For the year ended December 31, 1999, the consolidated revenues of iD2 were E4
million, and the consolidated operating loss was E6 million. Sonera paid for the
acquisition by issuing 4,802,431 new shares to the sellers.

     The operations of Across and iD2 have been integrated into Sonera
SmartTrust, a wholly-owned subsidiary of Sonera.

                                       F-65
260
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

21. DIFFERENCES BETWEEN FINNISH GAAP AND GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES IN THE UNITED STATES (CONTINUED)

     Under Finnish GAAP, Sonera has recorded both transactions in accordance
with the interpretation No. 1591/ 1999 by the Finnish Accounting Board. That
interpretation allows the acquiror to record the equity issue and the cost of
acquired shares at an amount equal to the shareholders' equity of the acquiree
at the time of acquisition. Therefore, under Finnish GAAP, Sonera has not
recorded goodwill from the acquisitions. Compared with the pooling method of
accounting, which is also allowed, but not required, under Finnish GAAP when
certain conditions are met, the interpretation No. 1591/1999 by the Finnish
Accounting Board does not allow the restatement of historical consolidated
financial statements to include financial statements of the acquired entity
prior to the acquisition date.

     Under U.S. GAAP, both transactions are accounted for under the purchase
method of accounting. Accordingly, the fair value of purchase consideration was
E897 million and E250 million for Across and iD2, respectively. Based on
analyses of the acquired net assets, E50 million has been allocated to
identified intangible assets of Across and E6 million to identified intangible
assets of iD2. An amount of E0.5 million relating to an in-process research and
development project of iD2 has been written off immediately, with the other
allocated amounts being amortized over their estimated useful lives, ranging
from one to five years.

     The transactions resulted in goodwill of E861 million and E243 million for
Across and iD2, respectively. The amortization period for goodwill is five years
for both acquisitions.

     As of December 31, 2000, management saw clear indications in the market
values of the publicly listed comparables of Sonera SmartTrust that there may be
an impairment in the carrying value of goodwill arisen from the Across and iD2
acquisitions. At the same time, Sonera was also in the process of updating the
strategy and the business plan of Sonera SmartTrust. As a result of the update
it also became evident that the future cash flow expectations of Sonera
SmartTrust are significantly lower than what they were at the time of completing
the acquisitions of Across and iD2 in April and June 2000, respectively.
Reflecting the revised business plan and assumptions to the valuation
methodologies that were originally used for the acquisitions, Sonera performed
an impairment test for all assets of Sonera SmartTrust, including goodwill paid
for Across and iD2 acquisitions, at the combined Sonera SmartTrust entity level,
since that is the lowest level of operations that has cash flows largely
independent of other operations. The impairment test did not support ultimate
recoverability of the total carrying value of assets, including goodwill,
indicating that an impairment loss must be recognized as of December 31, 2000.
Sonera has estimated that the aggregate fair value of goodwill and identified
intangible assets, based on discounted estimated future cash flows of Sonera
SmartTrust, was E300 million as of December 31, 2000. Accordingly, an impairment
loss of E704 million was recorded for the year ended December 31, 2000, to
reduce the carrying value of goodwill and identified intangible assets down to
their estimated fair value. No impairment loss was recorded on property, plant
and equipment on a pro rata basis, since the amount would have been immaterial.
Sonera will amortize the remaining carrying value of goodwill and identified
intangible assets over their remaining useful lives, approximately 4.5 years for
goodwill and ranging from approximately 0.5 to 4.5 years for identified
intangible assets.

     Under Finnish GAAP, there was no impairment loss, as there was no goodwill
recorded from the acquisitions.

                                       F-66
261
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

21. DIFFERENCES BETWEEN FINNISH GAAP AND GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES IN THE UNITED STATES (CONTINUED)

     Pro forma consolidated income statement information for Sonera, Across and
iD2 in accordance with U.S. GAAP for the years ended December 31, 1999 and 2000
is as follows:
1999      2000
                                                                ------    ------
                                                                (IN E MILLIONS,
                                                                EXCEPT PER SHARE
                                                                    AMOUNTS)
Revenues....................................................    1,862     2,077
Profit before income taxes, minority interest and changes in
  accounting principle......................................      225       948
Net income..................................................       98       613
Basic earnings per share and ADS............................     0.13      0.82
Diluted earnings per share and ADS..........................     0.13      0.82
The purchase price of E905 million for Across and E250 million for iD2 were
allocated as follows:
ACROSS     ID2
                                                                -------    ----
                                                                (IN E MILLIONS)
Current assets..............................................       13        6
Property, plant and equipment...............................       --        1
Identified intangible assets................................       50        6
Goodwill....................................................      861      243
Less:
Current liabilities.........................................       (5)      (4)
Deferred tax liability......................................      (14)      (2)
                                                                  ---      ---
Total purchase price........................................      905      250
                                                                  ===      ===
The purchase prices also include fees and costs directly allocable to the
acquisitions, amounting to E8 million for Across and under E1 million for iD2.

(K) INCOME TAXES

     This item represents the deferred tax effects of the adjustments to
reconcile to U.S. GAAP.

                                       F-67
262
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

21. DIFFERENCES BETWEEN FINNISH GAAP AND GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES IN THE UNITED STATES (CONTINUED)

(L) EARNINGS PER SHARE

     Earnings per share for Finnish GAAP purposes is described in Note 8 to the
Consolidated Financial Statements. Under both Finnish GAAP and U.S. GAAP,
earnings per share is based upon the weighted average number of shares
outstanding.
YEAR ENDED DECEMBER 31,
                                                        ---------------------------------------
                                                           1998          1999          2000
                                                        -----------   -----------   -----------
                                                           (IN EUROS, EXCEPT SHARE AMOUNTS)
Finnish GAAP:
Earnings per share, before extraordinary items........         0.35          0.51          2.09
Cumulative effect of accounting changes, net of income
  taxes...............................................           --            --         (0.04)
                                                        -----------   -----------   -----------
Earnings per share....................................         0.35          0.51          2.05
                                                        ===========   ===========   ===========
Diluted earnings per share............................         0.35          0.51          2.03
                                                        ===========   ===========   ===========
U.S. GAAP:
Basic earnings per share and ADS......................         0.33          0.47          0.96
                                                        ===========   ===========   ===========
Diluted earnings per share and ADS....................         0.33          0.47          0.95
                                                        ===========   ===========   ===========
Finnish GAAP and U.S. GAAP:
Weighted average shares...............................  720,246,575   722,000,000   735,916,878
Effect of dilutive securities: employee bond loans
  with warrants.......................................           --     1,505,767     5,825,976
                                                        -----------   -----------   -----------
Diluted weighted average shares.......................  720,246,575   723,505,767   741,742,854
                                                        ===========   ===========   ===========
(M) COMPREHENSIVE INCOME

     According to SFAS No. 130, "Reporting Comprehensive Income," comprehensive
income generally encompasses all changes in shareholders' equity, except those
arising from transactions with owners. The Company's comprehensive income
differs from net income only by amount of the foreign currency translation
differences credited or charged to shareholders' equity for the period.

                                       F-68
263
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

21. DIFFERENCES BETWEEN FINNISH GAAP AND GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES IN THE UNITED STATES (CONTINUED)

     Comprehensive income and accumulated other comprehensive income under
Finnish GAAP for the years ended December 31, 1998, 1999 and 2000 are as
follows:
ACCUMULATED OTHER
                                                                COMPREHENSIVE      COMPREHENSIVE
                                                                   INCOME             INCOME
                                                                -------------    -----------------
                                                                         (IN E MILLIONS)
Balance at January 1, 1998..................................                              2
  Net income in accordance with Finnish GAAP................          251
  Foreign currency translation adjustment...................          (14)              (14)
                                                                    -----               ---
  Comprehensive income for the year.........................          237
                                                                    =====
Balance at December 31, 1998................................                            (12)
                                                                                        ===
  Net income in accordance with Finnish GAAP................          370
  Foreign currency translation adjustment...................           67                67
                                                                    -----               ---
  Comprehensive income for the year.........................          437
                                                                    =====
Balance at December 31, 1999................................                             55
                                                                                        ===
  Net income in accordance with Finnish GAAP................        1,506
  Foreign currency translation adjustment...................           30                30
                                                                    -----               ---
  Comprehensive income for the year.........................        1,536
                                                                    =====
Balance at December 31, 2000................................                             85
                                                                                        ===
(N) SEGMENTED INFORMATION

     In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 131, "Disclosures About Segments of an Enterprise and Related Information."
SFAS 131 established standards for reporting information about operating
segments in annual financial statements and interim financial reports to
shareholders. The Company adopted the provisions of SFAS 131 effective December
31, 1998.

     See Note 19 to the Consolidated Financial Statements for the information
for each reportable business segment.

(O) ACCOUNTING STANDARDS RECENTLY ISSUED

COSTS OF COMPUTER SOFTWARE FOR INTERNAL USE

     During January 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use" ("SOP 98-1"), which is
effective for all fiscal years beginning after December 15, 1998. Under SOP
98-1, computer software costs that are incurred in the preliminary project stage
are expensed as incurred. Once specific capitalization criteria have been met,
external direct cost of materials and service consumed in developing or
obtaining internal-use computer software, certain personnel costs, and interest
costs incurred when developing computer software for internal use are
capitalized. Such capitalized costs are amortized over the estimated useful life
of the software. Training costs and data conversion costs are generally expensed
as incurred. The Company has implemented SOP 98-1 effective as of January 1,
1999. The implementation did not have an impact on the Consolidated Financial
Statements of Sonera.

                                       F-69
264
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

21. DIFFERENCES BETWEEN FINNISH GAAP AND GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES IN THE UNITED STATES (CONTINUED)

COSTS OF START-UP ACTIVITIES

     The AICPA issued Statement of Position 98-5, "Reporting on the Cost of
Start-Up Activities" ("SOP 98-5") in April 1998 which is effective for fiscal
periods beginning after December 15, 1998. SOP 98-5 provides guidance on the
financial reporting of start-up costs and organization costs. It requires costs
of start-up activities and organization costs to be expensed as incurred. The
implementation did not have an impact on the Consolidated Financial Statements
of Sonera.

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

     In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement, as amended by SFAS No. 137
and 138, establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts (collectively referred to as derivatives), and for hedging activities.
It requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. This statement, as amended, is effective for all fiscal quarters
of fiscal years beginning after June 15, 2000.

     Sonera has adopted SFAS 133 from the beginning of its 2001 fiscal year. As
of January 1, 2001, the Company classified for U.S. GAAP purposes all of its
derivative instruments into four categories, for which the accounting will be as
follows:

     -  For "fair value hedges," gains and losses from derivative hedging
        instruments are recorded in earnings each reporting period. In addition,
        gains and losses on the hedged item are recognized in earnings. If gains
        and losses from the derivative hedging instrument and the related hedged
        item do not offset, the difference (the ineffective portion of the
        hedge) is recognized currently in earnings.

     -  For "cash flow hedges," the effective portion of the gain or loss from
        the derivative hedging instrument is accumulated in other comprehensive
        income ("OCI") and recognized in earnings during the period that the
        hedged forecasted transaction impacts earnings. The ineffective portion
        of the gain or loss from the derivative hedging instrument is recognized
        in earnings immediately.

     -  For "foreign currency hedges of a net investment in a foreign
        operation," the effective portion of the gain or loss from the hedging
        instrument is reported in other comprehensive income. The ineffective
        portion of the gain or loss from the derivative hedging instrument is
        recognized in earnings immediately.

     -  For all other hedges, gains and losses from derivative hedging
        instruments are recorded in earnings each reporting period. Other hedges
        do not qualify for the special hedge accounting treatment under SFAS
        133.

                                       F-70
265
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

21. DIFFERENCES BETWEEN FINNISH GAAP AND GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES IN THE UNITED STATES (CONTINUED)

     As the result of adopting SFAS 133, Sonera will record the following
transition adjustments on January 1, 2001:
BEFORE INCOME TAX EFFECTS    NET OF INCOME TAX EFFECTS
                                                    --------------------------   --------------------------
                                                     TRANSITION    TRANSITION     TRANSITION    TRANSITION
                                                     ADJUSTMENT    ADJUSTMENT     ADJUSTMENT    ADJUSTMENT
                                                    TO EARNINGS      TO OCI      TO EARNINGS      TO OCI
                                                    ------------   -----------   ------------   -----------
                                                         (IN E MILLIONS)              (IN E MILLIONS)
Fair value hedges.........................        (8)            --            (6)            --

       Cash flow hedges..........................        --              1            --              1

       Foreign currency hedges of a net
         investment in a foreign operation.......        --             --            --             --

       Other hedges..............................         2             --             1             --
                                                        ---            ---           ---            ---

       Total.....................................        (6)             1            (5)             1
                                                        ===            ===           ===            ===
Fair value hedges

     As of January 1, 2001, Sonera's fair value hedges related to its long-term
Euro Medium Term Note (EMTN) bond loans. Sonera has swapped these fixed interest
rate bond loans into variable interest rate.
AS OF DECEMBER 31, 2000
                                                       --------------------------------------------
                                                       CONTRACT    CARRYING     FAIR
                                                        AMOUNT      VALUE      VALUE     DIFFERENCE
                                                       --------    --------    ------    ----------
                                                                     (IN E MILLIONS)
EMTN bond loan, due in 2009(a).....................       (300)       (310)      (292)       18
Interest rate swap, due in 2009....................        150           3         (6)       (9)
Interest rate swap, due in 2009....................        150           3         (6)       (9)
                                                                                            ---
Subtotal...........................................                                          --
                                                                                            ---
EMTN bond loan, due in 2005(a).....................     (1,000)     (1,045)    (1,063)      (18)
Interest rate swap, due in 2005....................        500          14         19         5
Interest rate swap, due in 2005....................        500          14         19         5
                                                                                            ---
Subtotal...........................................                                          (8)
                                                                                            ---
Total..............................................                                          (8)
                                                                                            ===
------------------------------

(a) In this disclosure, carrying values of EMTN bond loans also include the
    accrued interest.

     Under SFAS 133, both the hedged fixed-rate bond loans and the related
interest rate swaps are measured at fair value, with the gains and losses
recorded in earnings each reporting period. Previously, these loans and swaps
were not measured at fair value. Therefore, Sonera will record a net transition
adjustment loss of E6 million (net of related deferred tax benefit of E2
million) in net income under U.S. GAAP for the year ended December 31, 2001.

                                       F-71
266
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

21. DIFFERENCES BETWEEN FINNISH GAAP AND GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES IN THE UNITED STATES (CONTINUED)

Cash flow hedges

     As of January 1, 2001, Sonera's cash flow hedges related to its long-term
bank loans which had a total carrying amount of E436 million. Sonera has swapped
these variable interest rate loans into fixed interest rate.
AS OF DECEMBER 31, 2000
                                                         -------------------------------------------
                                                         CONTRACT    CARRYING    FAIR
                                                          AMOUNT      VALUE      VALUE    DIFFERENCE
                                                         --------    --------    -----    ----------
                                                                       (IN E MILLIONS)
Interest rate swaps, varying maturities..............      409          --          1          1
Under SFAS 133, the effective portion of the gain or loss from the hedging
instrument is accumulated in other comprehensive income and recognized in
earnings during the period that the hedged forecasted transaction impacts
earnings. The ineffective portion of the gain or loss from the derivative
hedging instrument is recognized in earnings immediately. Sonera will record a
net transition adjustment gain of E1 million (net of related deferred tax
benefit of E0.3 million) in accumulated other comprehensive income under U.S.
GAAP for the year ended December 31, 2001.

Foreign currency hedges of a net investment in a foreign operation

     As of January 1, 2001, Sonera had no foreign currency hedges of its net
investments in foreign operations.

Other hedges

     Sonera's policy is to use derivatives only for hedging purposes, as defined
in its financial management policy approved by Board of Directors, and not to
enter into derivative contracts for speculative or trading purposes. However,
hedges of a net interest rate exposure or hedges of a net foreign currency
exposure do not qualify for the special hedge accounting treatment under SFAS
133.

     Sonera's policy is to have, at all times, approximately 70 percent of its
net interest-bearing debt in variable interest rate and approximately 30 percent
in fixed interest rate. As the amount of Sonera's net interest-bearing debt
varies over time, dynamic hedging measures are needed to maintain the targeted
interest rate profile.

     Sonera's policy is to hedge all significant items in its foreign currency
transaction exposure, consisting of foreign currency receivables, payables, and
firm commitments. Sonera does not include forecasted transactions in its foreign
currency exposure definition. Sonera hedges its foreign currency exposure
separately for each currency and on a net exposure basis. However, foreign
currency loans receivable and interest-bearing debt are usually hedged with
separately designated derivative instruments.

                                       F-72
267
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

21. DIFFERENCES BETWEEN FINNISH GAAP AND GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES IN THE UNITED STATES (CONTINUED)
AS OF DECEMBER 31, 2000
                                                        -------------------------------------------
                                                        CONTRACT    CARRYING    FAIR
                                                         AMOUNT      VALUE      VALUE    DIFFERENCE
                                                        --------    --------    -----    ----------
                                                                      (IN E MILLIONS)
Hedges of net interest rate exposure after fair
  value and cash flow hedges
  Interest rate swaps...............................       394          --         3           3
  Interest rate cap options.........................       200           1         1          --
Hedges of foreign currency exposure
  Forward exchange purchases hedging current debt in
     U.S.$..........................................       118         (12)      (14)         (2)
  Forward exchange sales hedging intercompany and
     other loans receivable, various currencies.....      (140)          5         6           1
Hedges of net foreign currency exposure, various
  currencies
  Forward exchange purchases........................         7          --        --          --
  Forward exchange sales............................        (3)         --        --          --
                                                                                            ----
Total...............................................                                           2
                                                                                            ====
Under SFAS 133, gains and losses from these derivative instruments are
recorded in earnings each reporting period. Previously, Sonera did not measure
interest rate derivatives at fair value. Therefore, Sonera will record a net
transition adjustment gain of E2 million (net of related deferred tax expense of
E1 million) in net income under U.S. GAAP for the year ended December 31, 2001.

     Gains and losses from foreign currency forward exchange contracts were
previously recorded in earnings for the portion of changes in spot exchange
rates. The interest rate component was determined only at the inception of the
contract and was accrued as income or expense over the contract term. Under SFAS
133, forward exchange contracts are measured at fair value also for the interest
rate component, and all changes in fair value are recorded in earnings.
Therefore, Sonera will record a net transition adjustment loss of E1 million
(net of related deferred tax benefit of E0.3 million) in net income under U.S.
GAAP for the year ended December 31, 2001.

     There are certain differences in presenting the carrying values and
calculating fair values of financial instruments between SFAS 133 and Finnish
GAAP. The carrying values and fair values presented in Note 18 to the
Consolidated Financial Statements have been calculated according to Finnish
GAAP. Starting from January 1, 2001, Sonera will change the presentation of
carrying values and fair values to comply with SFAS 133 also under Finnish GAAP.

22. SUBSEQUENT EVENTS (UNAUDITED)

     On February 20, 2001, Standard & Poor's lowered Sonera Corporation's
long-term credit rating to "single-A-minus" from "single-A" and the short-term
rating to "A-2" from "A-1." In addition, Standard & Poor's placed Sonera on the
creditwatch surveillance list.

     On March 1, 2001, Sonera sold all shares that it held in TietoEnator
Corporation, and received E424 million in sales proceeds. Sonera recorded a gain
of E286 million on the sale under Finnish GAAP.

     On April 30, 2001, Sonera's 42.8 percent owned German UMTS associated
company, Orla Siebzehnte Vermogensverwaltung GmbH, signed a GPRS/GSM roaming
agreement with E-plus of Germany. With this agreement, Orla will be able to
offer German customers GPRS services, and later offer these customers UMTS
services.

                                       F-73
268
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

22. SUBSEQUENT EVENTS (UNAUDITED) (CONTINUED)

     On May 3, 2001, Moody's lowered Sonera Corporations's long-term credit
rating to "Baa2" from "A2" and the short-term rating to "Prime-2" from
"Prime-1." In addition, Moody's kept the ratings on review for possible further
downgrade.

     On May 4, 2001, Sonera announced that it will sell to Song Networks AB part
of the business of Sonera Sverige AB. The price of the deal is approximately 200
million Swedish kronas (E21 million), subject to certain adjustments. Sonera
Sverige AB will in the future focus on the provision of Sonera Carrier Networks
Ltd's services to its present and future operator customers in Sweden.

     On May 29, 2001, Sonera announced that its Dutch subsidiary, Sonera
PlazaNederland B.V., will sell its internet access services via cable networks
to PrimaCom Netherlands Holding B.V. The sale didn't include Sonera Plaza
Netherland's other services.

     On May 9, 2001, Sonera sold 17.4 percent of its VoiceStream shares for E357
million. On May 22, 2001, Sonera sold 17.1 percent of its Powertel shares for
E75 million. On May 31, 2001, Sonera completed the sale of VoiceStream and
Powertel shares to Deutsche Telekom ("DT") according to agreements made in 2000.
For its remaining VoiceStream shares on May 31, 2001, Sonera received
approximately 58 million DT shares and E292 million cash. For its remaining
Powertel shares on May 31, 2001, Sonera received approximately 14 million DT
shares. Therefore, the overall proceeds from VoiceStream and Powertel during May
2001 totaled approximately E725 million in cash and 72 million DT shares. Based
on the DT share price on the Frankfurt Stock Exchanges on May 31, 2001, the
market value of the DT shares was approximately E1.8 billion. For the second
quarter of 2001, Sonera will record a gain of approximately E595 million from
the sales of VoiceStream and Powertel shares. In accordance with the terms of
the agreement on the sale of VoiceStream and Powertel shares, Sonera is not
entitled to sell the DT shares it received as consideration for three months
from the closing of the deal on May 31, 2001. From three months to six months
after the closing, Sonera is entitled to sell approximately 34.5 million DT
shares. After six months from the closing, there are no sales restrictions.

     On May 16, 2001, Turkcell decided to increase the company's share capital
by approximately U.S.$200 million by allowing the current shareholders to
participate in the rights issue by subscribing for new shares at their nominal
value according to their share of ownership. On June 8, 2001, the Board of
Directors of Sonera decided to participate in the Turkcell's rights issue.
Sonera's pro rata participation in the rights issue will represent approximately
U.S.$75 million. On May 24, 2001, Yapi ve Kredi Bankasi A.S. (part of the
Cukurova Group), a shareholder of Turkcell and one of the largest Turkish banks,
has committed to provide a cash loan facility up to U.S.$100 million to Turkcell
over the next twelve months. Additionally, on May 28, 2001, Ericsson
Telekomunikasyon A.S., the main GSM equipment supplier of Turkcell, has agreed
that it will defer its collections from Turkcell over the next twelve months.
Based on Turkcell's interim financial statements as of March 31, 2001, Turkcell
was in breach of certain of its covenants attached to its bank loans. If the
lenders were to demand immediate repayment of these bank loans, it would trigger
a cross-default to Turkcell's other indebtedness, which would have a material
adverse effect on Turkcell's financial condition. Turkcell has fully informed
the lenders of the defaults and is working with them to prepare a waiver letter.
Turkcell also expects to begin renegotiating the covenants with the lenders
shortly. Turkcell does not expect the lenders to accelerate repayments under the
bank loan facilities, and is currently not aware of any plans by the lenders to
require such accelerated repayments. Turkcell Holding A.S., in which Sonera
holds a 47.1 percent interest, has pledged one fourth of its shares in Turkcell
to secure Turkcell's bank loan facilities. As of March 31, 2001, Sonera had
guarantees outstanding for the amount of E32 million in relation to Turkcell's
debt. Based on the actions taken by Turkcell, Sonera does not currently expect
that the pledge of shares or any guarantees would result in a material adverse
impact on Sonera's financial position or results of operations.

     On June 5, 2001, Germany's telecommunications regulator, RegTP, announced
that it will permit mobile telephone operators to share their infrastructure for
the development of third generation UMTS networks. This

                                       F-74
269
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

22. SUBSEQUENT EVENTS (UNAUDITED) (CONTINUED)

will permit Sonera's 42.8 percent associated company Orla Siebzehnte
Vermogensverwaltung GmbH to achieve significant savings in network investments
and expenses, as well as accelerate the rollout of UMTS networks in Germany.

     On June 11, 2001, the President and CEO of Sonera, Mr. Kaj-Erik Relander
announced that he will resign as of August 1, 2001. Before a new President and
CEO is appointed and begins in office, Sonera's Board of Directors appointed Mr.
Aimo Eloholma as acting President and CEO as of August 1, 2001, and Mr. Kim
Ignatius as acting Deputy CEO as of August 1, 2001.

     On June 18, 2001, Sonera signed a syndicated variable rate loan facility of
E1.33 billion with an international group of banks. The term of the loan is
three years with final maturity in 2004. The annual interest rate of the loan is
based on Sonera's long-term credit ratings, and is currently Euribor plus 1.25
percent. With the loan, Sonera replaces its short-term credit facilities,
reduces its refinancing risk, and balances the maturity distribution of its
debt.

     On June 21, 2001, Sonera announced changes to the stock option plans of its
wholly-owned subsidiaries Sonera Plaza Ltd and Sonera SmartTrust Ltd. Sonera
considers that the existing plans do not function as originally intended in the
changed market situation. Sonera Plaza's stock option plan will be replaced with
Sonera's Group level plans of year 2000 and, partly, of year 1999. As part of
the adjustment of Sonera's services strategy, Sonera has also decided that it
abandons the plan to have Sonera Plaza publicly listed. Sonera's wholly owned
subsidiary Sonera SmartTrust Ltd will have a new 2001 option plan for the
subsidiary's employees. The personnel of SmartTrust can participate in only one
of the SmartTrust plans, either in the existing 2000 or the new 2001 plan. The
combined dilution effect of the 2000 and 2001 plans together may not exceed 15
percent of Sonera's holding in SmartTrust. The 2001 options can be exercised
when (i) the initial public offering of the subsidiary takes place, or (ii)
Sonera sells a significant stake of SmartTrust in a cash deal. The exercise
period with the 2001 options will end on November 30, 2008. The exercise price
of the 2001 options is E0.933 per share which is based on the estimated current
market capitalization of E250 million for SmartTrust, determined on the basis of
an international reference group. The exercise price for the 2000 options is
currently E6.20 per share. The 2001 options will vest on a quarterly basis so
that 1/20 of the total granted amount will vest after each quarter, and after 5
years of the grant date, all options are vested.

Resolutions by the Annual General Meeting

     In accordance with the proposal made by the Board of Directors (the
"Board"), the Annual General Meeting of Sonera Corporation held on March 21,
2001 resolved that a dividend of E0.09 per share will be paid for the 2000
fiscal year. The dividend was paid on April 3, 2001.

     Tapio Hintikka was elected Chairman of Sonera Corporation's Board of
Directors, and Jussi Lansio was elected Vice Chairman. Jorma Laakkonen, Eva
Liljeblom, Roger Talermo, Esa Tihila and Tom von Weymarn were elected members of
the Board of Directors. On April 5, 2001, Tapani Vaahtokivi was appointed the
employee representative on the Board of Directors of the Company, and Kari
Vilkman to be his deputy. The employee representative has the right to attend,
speak and, with certain limitations, also to vote in Board meetings.

     The Annual General Meeting decided to abolish the Supervisory Board of the
Company.

     The Annual General Meeting authorized the Board of Directors to decide on
the repurchase of the Company's own shares. The authorization is valid for one
year after the resolution of the Annual General Meeting, i.e. until March 21,
2002. The maximum number of shares that can be repurchased by virtue of the
authorization is 2,000,000 altogether, i.e. approximately 0.3 percent of the
share capital. Shares can be repurchased with a view to using them as
consideration when the company acquires assets related to its business,

                                       F-75
270
                      SONERA CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

22. SUBSEQUENT EVENTS (UNAUDITED) (CONTINUED)

as consideration in potential acquisitions acquisitions or other arrangements or
for hedging against social security costs resulting from the personnel's stock
options, or with a view to conveying them in a manner and scope decided on by
the Board of Directors or to invalidating them. The shares will be purchased on
the Helsinki Exchanges at the market price they have in public trade at the time
of the purchase.

     The Annual General Meeting authorized the Board of Directors to decide on
the conveyance of the repurchased shares. The authorization is valid for one
year after the resolution of the Annual General Meeting, i.e. until March 21,
2002.

     In accordance with the proposal made by the Board of Directors, the Annual
General Meeting confirmed that the share subscription price related to the
option scheme of 2000 is E72,90. The Annual General Meeting did not adopt the
proposal of the Board of Directors concerning the introduction of the 2001
option scheme.

Legal and regulatory proceedings

     In January 2001, Sonera purchased a 16.7 percent holding in Loimaan Seudun
Puhelin Oy, a local fixed line telephone company operating in the southwestern
part of Finland. In February 2001, Sonera raised its holding to 24.1 percent.
The overall purchase price was approximately E25 million. The transactions are
subject to the approval of the competition authority. In December 2000, Loimaan
Seudun Puhelin acquired a majority interest in Turun Puhelin Oy, a local fixed
line telephone company operating in the city of Turku in southwestern Finland.

     In connection with Sonera's termination of the director's agreement between
Sonera Corporation and Mr. Harri Vatanen, former CEO of Sonera SmartTrust,
Sonera initiated legal proceedings on March 2, 2001 in Finland to confirm that
the technology agreement concluded between him and Sonera in 1998 is legally
binding and in force and that Sonera has fulfilled its obligations under such
agreement. Sonera has commenced this action in order to protect its interests in
light of the termination of Mr. Vatanen's employment. Mr. Vatanen has brought a
claim in the United States against Sonera and certain of its subsidiaries, for
rescission of the technology agreement, misrepresentation and fraud in relation
to entering into the agreement and certain other related claims, including,
among other things, award of compensatory damages in an unspecified amount.
Sonera continues to pursue the legal proceedings initiated by it in Finland and
disputes both the jurisdiction of a U.S. court in the matter and the claims
brought by Mr. Vatanen.

     In April 2001, Mr. Murray L. Swanson, the former managing director of
Sonera's wholly-owned subsidiary Sonera Corporation U.S., brought a complaint in
the United States against Sonera, alleging breach of contract and fraudulent
inducement in relation to the employment agreement entered into between him and
Sonera Corporation U.S. in 1998. Mr. Swanson claims that Sonera has failed to
fulfill its obligations under the employment agreement and that Sonera has made
false representations in relation thereto. He seeks, among other things,
recovery of his alleged damages, which he states are in excess of U.S.$75
million, and punitive damages in an unspecified amount. Sonera has denied any
basis for liability on its part and intends to vigorously defend against his
complaint.

     On April 24, 2001, the Telecommunications Administration Centre ("TAC")
issued a decision on the complaint filed by Telia Finland Oy in November 1998 in
relation to the interconnection fees applied by Sonera's domestic mobile
communications. The TAC came to the conclusion that the interconnection fees
applied by Sonera's domestic mobile communications were not reasonable in
relation to actual costs. Thus the TAC is the opinion that Sonera has priced its
interconnection fees contrary to the Telecommunications Market Act and obliges
Sonera to revise its fees. On May 25, 2001, Sonera announced that it has filed
an appeal with the Administrative Court of Helsinki against the decision issued
by the TAC. Sonera does not approve of the TAC's involvement in the
interconnection fees applied by Sonera, and believes that the interconnection
pricing should be based on commercially negotiated solutions. Sonera concluded
new commercial interconnection agreements with Telia on June 21, 2001 and with
Radiolinja on June 28, 2001. Sonera will continue commercial negotiations on
interconnection agreements with the other mobile operators in the market.

                                       F-76
271

         UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
                     OF SONERA CORPORATION AND SUBSIDIARIES
                      AS OF AND FOR THE THREE MONTHS ENDED
                            MARCH 31, 2000 AND 2001

                                       F-77
272

                      SONERA CORPORATION AND SUBSIDIARIES

           UNAUDITED CONDENSED CONSOLIDATED INTERIM INCOME STATEMENTS
THREE MONTHS ENDED
                                                                         MARCH 31,
                                                                ----------------------------
                                                                   2000             2001
                                                                -----------      -----------
                                                                     E                E
                                                                (IN MILLIONS, EXCEPT SHARES,
                                                                   PER SHARE AMOUNTS AND
                                                                        PERCENTAGES)
REVENUES....................................................          487              525
Other operating income......................................            9              291
Operating expenses:
  Cost of services and goods................................         (154)            (165)
  Personnel expenses........................................          (96)            (137)
  Other operating expenses..................................          (84)            (130)
                                                                  -------          -------
Total operating expenses....................................         (334)            (432)
Depreciation and amortization(1)............................          (72)             (84)
                                                                  -------          -------
OPERATING PROFIT............................................           90              300
Equity income in associated companies.......................           20              (38)
Financial income and expenses...............................            3              (17)
                                                                  -------          -------
PROFIT BEFORE INCOME TAXES, MINORITY INTEREST AND
  EXTRAORDINARY ITEMS.......................................          113              245
Income taxes................................................          (31)             (81)
Minority interest...........................................            1                1
                                                                  -------          -------
PROFIT BEFORE EXTRAORDINARY ITEMS...........................           83              165
Cumulative effect of accounting change, net of income
  taxes(2)..................................................          (41)              --
                                                                  -------          -------
NET INCOME..................................................           42              165
                                                                  =======          =======
Average number of shares (1,000 shares)(3)..................      722,000          742,984
                                                                  =======          =======
EARNINGS PER SHARE, BEFORE EXTRAORDINARY ITEMS..............         0.12             0.22
Cumulative effect of accounting change, net of income
  taxes.....................................................        (0.06)              --
                                                                  -------          -------
EARNINGS PER SHARE(3).......................................         0.06             0.22
                                                                  =======          =======
EBITDA(4)...................................................          162              384
Significant non-recurring income and expenses...............            4              282
Comparable EBITDA...........................................          158              102
Comparable EBITDA-to-revenues (%)...........................           32               19
------------------------------

(1) In April and June 2000, Sonera recorded the acquisitions of Across and iD2,
    respectively, in accordance with the interpretation No. 1591/1999 by the
    Finnish Accounting Board. If fair value had been used to record the
    transactions, Sonera would have recorded amortization of goodwill of E17
    million for January-March 2001 (no amortization for January-March 2000 and
    E852 million for the full year 2000). Amortization amounts give effect to
    the impairment loss of E704 million recorded under U.S. GAAP for the year
    ended December 31, 2000. See also Note 21(j) to the Consolidated Financial
    Statements for the year ended December 31, 2000, included elsewhere in this
    document.

(2) For the three months ended March 31, 2000, the change in accounting
    principles included the cumulative effect of E41 million expense from the
    change in the equity method accounting for Turkcell.

(3) The average number of shares, diluted with the employee bond loan with
    warrants, was 729,168 thousand and 743,262 thousand for the three months
    ended March 31, 2000 and 2001, respectively. The diluted earnings per share
    was E0.06 and E0.22 for the three months ended March 31, 2000 and 2001,
    respectively.

(4) EBITDA is defined as operating profit before depreciation and amortization.

    The accompanying notes are an integral part of these Unaudited Condensed
                   Consolidated Interim Financial Statements.

                                       F-78
273

                      SONERA CORPORATION AND SUBSIDIARIES

            UNAUDITED CONDENSED CONSOLIDATED INTERIM BALANCE SHEETS
AS OF
                                                              ------------------------------------
                                                              MARCH 31,   DECEMBER 31,   MARCH 31,
                                                                2000          2000         2001
                                                              ---------   ------------   ---------
                                                                  E            E             E
                                                                         (IN MILLIONS)
FIXED ASSETS AND OTHER LONG-TERM INVESTMENTS
Intangible assets..........................................        71          116           106
Property, plant and equipment..............................     1,154        1,265         1,278
Long-term investments and receivables......................     2,346        4,779         5,013
                                                                -----        -----        ------
Total......................................................     3,571        6,160         6,397
CURRENT ASSETS
Inventories................................................        39           40            49
Short-term loans receivable................................        23        2,817         2,781
Other current receivables..................................       420          601           566
Cash and short-term investments............................       305          156           270
                                                                -----        -----        ------
Total......................................................       787        3,614         3,666
                                                                -----        -----        ------
TOTAL ASSETS...............................................     4,358        9,774        10,063
                                                                =====        =====        ======
SHAREHOLDERS' EQUITY.......................................     1,773        3,233         3,330
MINORITY INTEREST..........................................        15           16            15
NON-CURRENT LIABILITIES
Long-term debt.............................................     1,804        1,842         2,560
Other long-term liabilities................................       102          171           121
                                                                -----        -----        ------
Total......................................................     1,906        2,013         2,681
CURRENT LIABILITIES
Current debt...............................................       189        3,848         3,264
Current portion of long-term debt..........................        --          107           107
Other current liabilities..................................       475          557           666
                                                                -----        -----        ------
Total......................................................       664        4,512         4,037
                                                                -----        -----        ------
TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES.................     4,358        9,774        10,063
                                                                =====        =====        ======
The accompanying notes are an integral part of these Unaudited Condensed
                   Consolidated Interim Financial Statements.

                                       F-79
274

                      SONERA CORPORATION AND SUBSIDIARIES
       UNAUDITED CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS
THREE MONTHS
                                                                ENDED MARCH 31,
                                                                ----------------
                                                                 2000      2001
                                                                ------    ------
                                                                  E         E
                                                                 (IN MILLIONS)
OPERATING ACTIVITIES
Net income..................................................       42       165
Gain from sale of TietoEnator shares........................       --      (286)
Depreciation and amortization...............................       72        84
Change in working capital and other items...................      (40)       62
                                                                -----     -----
CASH PROVIDED BY OPERATING ACTIVITIES.......................       74        25
INVESTING ACTIVITIES
Capital expenditures........................................      (64)      (82)
Investments in shares.......................................     (519)     (400)
Proceeds from sale of shares and fixed assets...............        5       424
Change in loans receivable and other items..................      (98)      (75)
                                                                -----     -----
CASH USED IN INVESTING ACTIVITIES...........................     (676)     (133)
FINANCING ACTIVITIES
Change in long-term debt....................................      679       718
Change in current debt......................................       17      (583)
                                                                -----     -----
CASH PROVIDED BY FINANCING ACTIVITIES.......................      696       135
Effect of exchange rate changes on cash and cash
  equivalents...............................................        1        --
                                                                -----     -----
Net increase in cash and cash equivalents...................       95        27
Cash and cash equivalents at beginning of year..............       38        88
                                                                -----     -----
CASH AND CASH EQUIVALENTS AT END OF PERIOD..................      133       115
                                                                =====     =====
The accompanying notes are an integral part of these Unaudited Condensed
                   Consolidated Interim Financial Statements.

                                       F-80
275

                      SONERA CORPORATION AND SUBSIDIARIES
     NOTES TO UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION

     The Unaudited Condensed Consolidated Interim Financial Statements for the
three months ended March 31, 2000 and 2001 have been prepared in accordance with
Finnish GAAP on a basis consistent with Sonera's Consolidated Financial
Statements for the year ended December 31, 2000. For the purposes of these
Unaudited Condensed Consolidated Interim Financial Statements, certain
information and disclosures normally included in annual financial statements
prepared in accordance with Finnish GAAP have been condensed or omitted. In the
opinion of the management, all adjustments considered necessary, consisting of
normal and recurring accruals, to present fairly the consolidated financial
position and results of operations for such interim periods have been made.

     The information in the Unaudited Condensed Consolidated Interim Financial
Statements presented herein is based on Sonera's first quarter 2001 unaudited
interim report which Sonera released on April 25, 2001.

     These Unaudited Condensed Consolidated Interim Financial Statements should
be read in conjunction with Sonera's Consolidated Financial Statements for the
year ended December 31, 2000 included elsewhere in this document.

     Finnish GAAP and accounting principles adopted by Sonera differ in certain
respects from U.S. GAAP. See Note 21 to the Consolidated Financial Statements
for the year ended December 31, 2000 included elsewhere in this document.

     See also Note 22 to the Consolidated Financial Statements for the year
ended December 31, 2000 included elsewhere in this document for certain
unaudited subsequent events after March 31, 2001.

2. EQUITY INCOME IN ASSOCIATED COMPANIES
THREE MONTHS
                                                                ENDED MARCH 31,
                                                                ----------------
                                                                2000       2001
                                                                -----      -----
                                                                (IN E MILLIONS)
Turkcell Iletisim Hizmetleri A.S............................      33        (10)
Fintur Holdings B.V.........................................      --        (28)
Aerial Communications, Inc..................................     (12)        --
Orla Siebzehnte Vermogensverwaltung GmbH and Broadband
  Mobile ASA................................................      --         (2)
Other mobile operators......................................       9         11
Fixed network operators.....................................      12          6
Service providers...........................................      (1)        --
Other associated companies..................................       2         --
Amortization of goodwill....................................     (23)       (15)
                                                                 ---        ---
Total.......................................................      20        (38)
                                                                 ===        ===
F-81
276
                      SONERA CORPORATION AND SUBSIDIARIES
     NOTES TO UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
                                  (CONTINUED)

3. FINANCIAL INCOME AND EXPENSES
THREE MONTHS
                                                                ENDED MARCH 31,
                                                                ----------------
                                                                2000       2001
                                                                -----      -----
                                                                (IN E MILLIONS)
Dividend income.............................................      14         --
Interest income.............................................       4         51
Interest expenses...........................................     (17)       (83)
Capitalized interest expenses...............................      --         15
Other financial income and expenses.........................       1          1
Exchange rate gains and losses..............................       1         (1)
                                                                 ---        ---
Total.......................................................       3        (17)
                                                                 ===        ===
4. COMMITMENTS AND CONTINGENT LIABILITIES

     Information regarding commitments and contingent liabilities is as follows:
AS OF
                                                                -------------------------
                                                                DECEMBER 31,    MARCH 31,
                                                                    2000          2001
                                                                ------------    ---------
                                                                     (IN E MILLIONS)
Assets pledged
  To secure own commitments.................................          5              4
  To secure borrowings of associated companies..............          8             --
Guarantees on behalf of associated companies for
  financing.................................................         85             80
Guarantees on behalf of other companies
  Guarantees on behalf of Xfera Moviles S.A.................        428            428
  Guarantees on behalf of Ipse 2000 S.p.A...................        193            193
Minimum operating lease payments............................        195            201
Other commitments...........................................          6              5
Information regarding derivative financial instruments is as follows:
AS OF
                                                                                       DECEMBER 31,
                                                            AS OF MARCH 31, 2001           2000
                                                         ---------------------------   ------------
                                                         CONTRACT   CARRYING   FAIR        FAIR
                                                          AMOUNT     VALUE     VALUE      VALUE
                                                         --------   --------   -----   ------------
                                                                      (IN E MILLIONS)
Forward foreign exchange contracts....................      149         1         1         (9)
Interest rate swaps...................................    2,283         6        20         36
Purchased interest rate options.......................      300         1         1          1
------------------------------

Derivative instruments are used in hedging foreign exchange and interest rate
risks.

                                       F-82
277
                      SONERA CORPORATION AND SUBSIDIARIES
     NOTES TO UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
                                  (CONTINUED)

5. SEGMENTED INFORMATION

     Financial information followed by Sonera's management is presented
separately for Sonera's business segments for the three months ended March 31,
2000 and 2001 as follows:
THREE MONTHS
                                                              ENDED MARCH 31,
                                                              ----------------
                                                               2000      2001
                                                              ------    ------
                                                              (IN E MILLIONS)
REVENUES
Domestic Mobile Communications..............................    264       290
International Mobile Communications.........................     --         2
Media Communications and New Services.......................     51        63
Sonera Telecom
  Domestic Voice Services...................................     65        59
  International Voice Services..............................     29        34
  Data Services.............................................     44        39
  Leased Lines..............................................     10        15
  Equipment Sales...........................................     25        29
  Construction and Maintenance..............................      4         3
  Sales to other segments and other products................     66        66
                                                               ----      ----
  Subtotal..................................................    243       245
Other Operations............................................     23        31
Intra-Group sales...........................................    (94)     (106)
                                                               ----      ----
The Group...................................................    487       525
                                                               ====      ====
EBITDA
Domestic Mobile Communications..............................    132       144
International Mobile Communications.........................     (6)       (3)
Media Communications and New Services.......................    (31)      (89)
Sonera Telecom..............................................     63        59
Other Operations(a).........................................      4       273
                                                               ----      ----
The Group...................................................    162       384
                                                               ====      ====
OPERATING PROFIT
Domestic Mobile Communications..............................    102       113
International Mobile Communications.........................     (6)       (4)
Media Communications and New Services.......................    (36)     (100)
Sonera Telecom..............................................     26        26
Other Operations(a).........................................      4       265
                                                               ----      ----
The Group...................................................     90       300
                                                               ====      ====
------------------------------

(a) Includes a gain of E286 million from the sale of Sonera's 18.7 percent
    interest in TietoEnator Corporation on March 1, 2001.

                                       F-83
278

                      CONSOLIDATED FINANCIAL STATEMENTS OF
        TURKCELL ILETISIM HIZMETLERI ANONIM SIRKETI AND ITS SUBSIDIARIES
                      AS OF DECEMBER 31, 1999 AND 2000 AND
              FOR THE YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000

                                       F-84
279

                          INDEPENDENT AUDITORS' REPORT

To the Board of Directors of
Turkcell Iletisim Hizmetleri Anonim Sirketi

     We have audited the accompanying consolidated balance sheets of Turkcell
Iletisim Hizmetleri Anonim Sirketi and its subsidiaries (the "Company") as of
December 31, 1999 and 2000, and the related consolidated statements of
operations, changes in shareholders' equity and comprehensive income, and cash
flows for each of the years in the three-year period ended December 31, 2000.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

     We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Turkcell
Iletisim Hizmetleri Anonim Sirketi and its subsidiaries as of December 31, 1999
and 2000, and the results of their operations and their cash flows for each of
the years in the three-year period ended December 31, 2000 in conformity with
accounting principles generally accepted in the United States.

     Without qualifying our opinion, as also discussed in Note 28, we draw your
attention to the fact that significant economic difficulties have emerged in
Turkey during the year 2000 and subsequent to December 31, 2000. These include,
but are not limited to, a steep decline in prices of domestic debt and equity
securities and increasing rates on government and corporate borrowings. In an
attempt to overcome the liquidity crisis in the banking system, on February 21,
2001, the government allowed Turkish Lira to float freely. This caused a 28%
devaluation of the Turkish Lira against the US Dollar during the first day of
flotation. As of the date of this report the Turkish Lira has devalued
significantly against major foreign currencies as compared to the related
currency exchange rates ruling as of December 31, 2000. Such devaluation against
the US Dollar has been 45%. The financial condition of the Company and its
future operations and cash flows could be adversely affected by continued
economic difficulty. Management is unable to predict the extent, severity or
duration of the current economic difficulties nor quantify what impact it may
have on the current financial position or future operations and cash flows of
the Company. The consolidated financial statements referred to above do not
include any adjustments, which may be necessary as a result of these economic
difficulties.

     The consolidated financial statements referred to above have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
2, at December 31, 2000, current liabilities exceeded current assets by
approximately $55.8 million and based on the Company's consolidated financial
statements as of and for the three month period ended March 31, 2001, the
Company is in breach of one of the covenants contained in the 1998 and 1999 bank
facilities that may raise substantial doubt about its ability to continue as a
going concern. Management's plans in regard to these matters are also described
in Note 2. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.

KPMG Cevdet Suner Denetim ve
Yeminli Mali Musavirlik A.S.
April 26, 2001, except Notes 2 and 28 which are as of May 29, 2001
Istanbul, Turkey

                                       F-85
280

        TURKCELL ILETISIM HIZMETLERI ANONIM SIRKETI AND ITS SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS
                         AT DECEMBER 31, 1999 AND 2000

                       (IN THOUSANDS, EXCEPT SHARE DATA)
1999          2000
                                                                ----------    ----------
ASSETS
CURRENT ASSETS
  Cash and cash equivalents (Note 5)........................    $  248,729    $  363,365
  Trade receivables and accrued income, net (Note 6)........       251,456       325,636
  Due from related parties ( Notes 3 and 7).................         4,966       113,860
  Inventories (Note 3)......................................         8,303        16,402
  Prepaid expenses (Note 9).................................         9,584        22,484
  Deferred tax assets (Notes 3 and 18)......................        11,995            --
  Other current assets ( Notes 3 and 8).....................        31,861        44,476
                                                                ----------    ----------
     Total current assets...................................       566,894       886,223
ADVANCES TO RELATED PARTIES (Note 3)........................         3,100         1,020
PREPAID EXPENSES (Note 9)...................................         5,670        11,765
INVESTMENTS (Notes 3 and 10)................................        70,055        60,068
FIXED ASSETS, net (Notes 3 and 11)..........................     1,070,970     1,762,168
CONSTRUCTION IN PROGRESS (Note 12)..........................       375,878       233,299
INTANGIBLES, net (Notes 3 and 13)...........................       707,364       892,995
OTHER LONG TERM ASSETS (Note 3).............................        51,370        37,382
                                                                ----------    ----------
                                                                $2,851,301    $3,884,920
                                                                ==========    ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
  Short term borrowings (Note 14)...........................    $  374,240    $  438,081
  Trade payables (Note 15)..................................       153,494       208,890
  Due to related parties (Notes 3 and 16)...................        10,581         2,811
  Taxes payable (Notes 3 and 18)............................            16            --
  Deferred tax liabilities (Notes 3 and 18).................            --        21,103
  Other current liabilities and accrued expenses (Note
     17)....................................................       194,595       271,194
                                                                ----------    ----------
     Total current liabilities..............................       732,926       942,079
LONG TERM BORROWINGS (Note 19)..............................     1,247,629     1,600,676
LONG TERM LEASE OBLIGATIONS (Notes 3 and 20)................        41,244        34,472
RETIREMENT PAY LIABILITY (Note 3)...........................         1,660         3,545
DEFERRED TAX LIABILITIES (Notes 3 and 18)...................         3,575         3,491
MINORITY INTEREST (Note 3)..................................         4,298            12
OTHER LONG TERM LIABILITIES.................................            --         5,838
SHAREHOLDERS' EQUITY
  Common stock
  Par value one thousand TL; authorized, issued and
     outstanding 87,250,000,000 shares in 1999 and
     240,000,000,000 shares in 2000 (Note 21)...............       210,953       458,239
  Advances for common stock.................................           299           141
  Legal reserves............................................         2,026             5
  Accumulated other comprehensive loss (Note 3).............        (2,873)       (1,049)
  Retained earnings.........................................       609,564       837,471
                                                                ----------    ----------
Total liabilities and shareholders' equity..................       819,969     1,294,807
                                                                ----------    ----------
COMMITMENTS AND CONTINGENCIES (Note 26).....................    $2,851,301    $3,884,920
                                                                ==========    ==========
The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                       F-86
281

        TURKCELL ILETISIM HIZMETLERI ANONIM SIRKETI AND ITS SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS
              FOR THE YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000

                       (IN THOUSANDS, EXCEPT SHARE DATA)
1998              1999              2000
                                             ---------------   ---------------   ---------------
Revenues (Notes 3 and 22).................          $721,614        $1,580,822        $2,224,940
Direct cost of revenues (Note 3)..........          (295,122)         (679,404)       (1,197,175)
                                             ---------------   ---------------   ---------------
  Gross profit............................           426,492           901,418         1,027,765
General and administrative expenses (Note
  23).....................................           (47,588)         (103,706)         (187,878)
Selling and marketing expenses (Note
  24).....................................           (83,025)         (223,740)         (414,250)
                                             ---------------   ---------------   ---------------
  Operating income........................           295,879           573,972           425,637
Income from related parties, net (Note
  25).....................................             4,514             1,334             2,450
Interest income...........................            18,727            31,787            94,654
Interest expense (Note 3).................           (72,879)         (143,068)         (251,174)
Other income, net.........................             2,206             3,137             9,703
Equity in net income (loss) of
  unconsolidated investees (Notes 3 and
  10).....................................             7,427            (8,205)          (31,645)
Gain on sale of affiliates (Note 10)......                --                --            44,244
Minority interest (Note 3)................            (1,614)              176              (316)
Translation loss (Note 3).................           (23,016)          (98,336)          (21,953)
                                             ---------------   ---------------   ---------------
  Income before taxes.....................           231,244           360,797           271,600
Income tax (expense) benefit (Notes 3 and
  18).....................................           (19,254)            8,282           (43,693)
                                             ---------------   ---------------   ---------------
  Net income..............................          $211,990          $369,079          $227,907
                                             ===============   ===============   ===============
Basic and diluted earnings per common
  share (Notes 3 and 21)..................          $0.00099          $0.00159          $0.00098
                                             ===============   ===============   ===============
Weighted average number of common shares
  outstanding (Notes 3 and 21)............   213,971,252,700   231,755,868,131   233,386,099,934
                                             ---------------   ---------------   ---------------
The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                       F-87
282

        TURKCELL ILETISIM HIZMETLERI ANONIM SIRKETI AND ITS SUBSIDIARIES

         CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY AND
                              COMPREHENSIVE INCOME
              FOR THE YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000

                       (IN THOUSANDS, EXCEPT SHARE DATA)
ACCUMULATED
                                       COMMON STOCK                                                                   OTHER
                                --------------------------   ADVANCES FOR    LEGAL     COMPREHENSIVE   RETAINED   COMPREHENSIVE
                                    SHARES         AMOUNT    COMMON STOCK   RESERVES      INCOME       EARNINGS   INCOME (LOSS)
                                ---------------   --------   ------------   --------   -------------   --------   -------------
BALANCES AT JANUARY 1, 1998...   20,290,697,674   $ 87,960          --           16                     30,505        1,601
Issuance of common stock......   52,755,813,954    100,799
Advances for increase in
 common stock.................                                  19,310
Transfer to legal reserves....                                                1,527                     (1,527)
Comprehensive income:
 Net income...................                                                            211,990      211,990
                                                                                          -------
 Other comprehensive loss:
   Translation adjustment.....                                                             (1,540)                   (1,540)
                                                                                          -------
Comprehensive income..........                                                            210,450
                                ---------------   --------     -------       ------       =======      -------       ------
BALANCES AT DECEMBER 31,
 1998.........................   73,046,511,628    188,759      19,310        1,543                    240,968           61
Advances for increase in
 common stock.................                                   3,183
Issuance of common stock......   14,203,488,372     22,194     (22,194)
Transfer to legal reserves....                                                  483                       (483)
Comprehensive income:
 Net income...................                                                            369,079      369,079
                                                                                          -------
 Other comprehensive loss:
 Translation adjustment.......                                                             (2,934)                   (2,934)
                                                                                          -------
Comprehensive income..........                                                            366,145
                                ---------------   --------     -------       ------       =======      -------       ------
BALANCES AT DECEMBER 31,
 1999.........................   87,250,000,000    210,953         299        2,026                    609,564       (2,873)
Issuance of common stock......  152,750,000,000    247,286        (158)
Sale of affiliates............                                               (2,021)        2,873                     2,873
                                                                                          -------
Comprehensive income:
 Net income...................                                                            227,907      227,907
                                                                                          -------
 Other comprehensive loss:
 Translation adjustment.......                                                             (1,049)                   (1,049)
                                                                                          -------
Comprehensive income..........                                                            229,731
                                ---------------   --------     -------       ------       =======      -------       ------
BALANCES AT DECEMBER 31,
 2000.........................  240,000,000,000   $458,239         141            5                    837,471       (1,049)
                                ===============   ========     =======       ======                    =======       ======
TOTAL
                                SHAREHOLDERS'
                                   EQUITY
                                -------------
BALANCES AT JANUARY 1, 1998...        120,082
Issuance of common stock......        100,799
Advances for increase in
 common stock.................         19,310
Transfer to legal reserves....             --
Comprehensive income:
 Net income...................        211,990
 Other comprehensive loss:
   Translation adjustment.....         (1,540)
Comprehensive income..........
                                  -----------
BALANCES AT DECEMBER 31,
 1998.........................        450,641
Advances for increase in
 common stock.................          3,183
Issuance of common stock......             --
Transfer to legal reserves....             --
Comprehensive income:
 Net income...................        369,079
 Other comprehensive loss:
 Translation adjustment.......         (2,934)
Comprehensive income..........
                                  -----------
BALANCES AT DECEMBER 31,
 1999.........................        819,969
Issuance of common stock......        247,128
Sale of affiliates............            852
Comprehensive income:
 Net income...................        227,907
 Other comprehensive loss:
 Translation adjustment.......         (1,049)
Comprehensive income..........
                                  -----------
BALANCES AT DECEMBER 31,
 2000.........................      1,294,807
                                  ===========
The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                       F-88
283

        TURKCELL ILETISIM HIZMETLERI ANONIM SIRKETI AND ITS SUBSIDIARIES

              CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS
                     ENDED DECEMBER 31, 1998, 1999 AND 2000

                                 (IN THOUSANDS)
1998        1999         2000
                                                                --------    ---------    ---------
OPERATING ACTIVITIES:
Net income..................................................    $211,990    $ 369,079    $ 227,907
Adjustments to reconcile net income to net cash provided by
  operating activities:
  Depreciation and amortization.............................      70,951      141,023      299,632
  Provision for retirement pay liability....................         423          905        1,898
  Provision for inventories.................................         (70)          --           --
  Provision for doubtful receivables........................      26,187       39,816       83,143
  Provision for income taxes................................          72          (77)         520
  Equity in net (income) loss of unconsolidated investees...      (7,427)       8,205       31,645
  Gain on sale of affiliates................................          --           --      (44,244)
  Deferred taxes............................................      10,003       (7,277)      30,982
CHANGES IN ASSETS AND LIABILITIES:
  Trade receivables.........................................     (97,427)    (112,253)    (166,550)
  Due from related parties..................................       4,679       (1,213)     (82,201)
  Inventories...............................................      (2,209)      (4,270)      (8,332)
  Prepaid expenses..........................................      (2,205)      (8,868)     (18,995)
  Other current assets......................................      (2,674)      (2,814)     (18,707)
  Advances to related parties...............................      35,794       (2,338)       2,080
  Other long term assets....................................      (1,249)       1,077       (3,422)
  Due to related parties....................................      (1,561)       5,999       (6,815)
  Accrued income............................................     (37,126)     (50,225)       3,828
  Accrued expense, net......................................      55,406       83,626       12,258
  Trade payables............................................      24,871     (100,146)     (66,042)
  Loss contingency..........................................     (11,000)          --           --
  Other current liabilities.................................      10,932       27,724       63,206
  Other long term liabilities...............................          --           --        5,838
                                                                --------    ---------    ---------
    Net cash provided by operating activities...............     288,360      387,973      347,629
                                                                --------    ---------    ---------
INVESTING ACTIVITIES:
  Additions to fixed assets.................................    (152,171)    (756,321)    (824,680)
  Reductions in (additions to) construction in progress.....    (115,875)     (38,831)      40,447
  Additions to intangibles..................................    (547,730)    (178,324)    (192,593)
  Investments in investees..................................     (39,422)     (10,922)      (4,698)
                                                                --------    ---------    ---------
    Net cash used for investing activities..................    (855,198)    (984,398)    (981,524)
FINANCING ACTIVITIES:
  Proceeds from issuance of and advances for common stock...     120,109        3,183      247,128
  Increase in minority interest.............................       2,599        1,594          327
  Proceeds from issuance of long and short term debt........     823,360      955,311    1,018,869
  Payment on long and short term debt.......................    (312,669)    (169,668)    (526,840)
  Net decrease (increase) in debt issuance expenses.........     (28,418)     (40,132)      10,762
  Payment on lease obligations..............................      (3,347)      (6,022)      (7,712)
  Increase in lease obligations.............................      38,671        6,969        5,997
                                                                --------    ---------    ---------
    Net cash provided by financing activities...............     640,305      751,235      748,531
                                                                --------    ---------    ---------
  Net increase in cash......................................      73,467      154,810      114,636
  Cash at the beginning of year.............................      20,452       93,919      248,729
                                                                --------    ---------    ---------
  Cash at the end of period.................................    $ 93,919    $ 248,729    $ 363,365
                                                                ========    =========    =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid...............................................    $ 38,561    $ 101,832    $ 163,610
Taxes paid..................................................          21           93           16
Non-cash investing activities --
  Accrued capital expenditures..............................     111,517      109,655      132,885
  Sale and purchase of investments..........................          --           --       90,000
Non-cash financing activities --
  Issuance of common shares subscribed and paid-up in
    1998....................................................          --       19,011           --
The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                       F-89
284

        TURKCELL ILETISIM HIZMETLERI ANONIM SIRKETI AND ITS SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999 AND 2000 AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1999
                                    AND 2000

    (AMOUNTS IN THOUSANDS OF US DOLLARS UNLESS OTHERWISE STATED EXCEPT SHARE
                                    AMOUNTS)

(1) BUSINESS:

     Turkcell Iletisim Hizmetleri Anonim Sirketi (Turkcell -- Parent company)
was incorporated on October 5, 1993. It is engaged in establishing and operating
a Global System for Mobile Communications (GSM) network in Turkey. Turkcell and
Turk Telekomunikasyon A.S. (Turk Telekom), a state owned organization of Turkey,
were parties to a revenue sharing agreement signed in 1993 which set forth the
terms related to the construction and operating phases of GSM network (the
Revenue Sharing Agreement). In accordance with this agreement, Turk Telekom
contracted with subscribers, performed billing and collection and assumed
collection risks, while Turkcell made related GSM network investments. The
Revenue Sharing Agreement covered a period of 15 years commencing in 1993. Turk
Telekom and Turkcell shared revenues billed for subscription fees, monthly fixed
fees and outgoing calls, at a ratio of 67.1% and 32.9%, respectively. In
addition, Turkcell received 10% of revenues billed for incoming calls. On April
27, 1998, Turkcell signed a license agreement (the License Agreement or License)
with the Ministry of Transport and Communications of Turkey (the Turkish
Ministry). In accordance with the License Agreement, Turkcell was granted a 25
year GSM license for a license fee of $500,000. The License Agreement permits
Turkcell to operate as a stand-alone GSM operator and free it from some of the
operating constraints, which were stated in the Revenue Sharing Agreement. Under
the License, Turkcell collects all of the revenue generated from the operations
of its GSM network and pays the Undersecretariat of Treasury (the Turkish
Treasury) an ongoing license fee equal to 15% of its gross revenue. Turkcell
also continues to build and operate its GSM network and is authorized to, among
other things, set its own tariffs within certain limits, charge peak and
off-peak rates, offer a variety of service and pricing packages, issue invoices
directly to subscribers, collect payments and deal directly with subscribers.

     As of December 31, 2000, Kibris Mobile Telekomunikasyon Limited Sirketi
(Kibris Telekom), Global Bilgi Pazarlama Danisma ve Cagri Servisi Hizmetleri
A.S. (Global), Corbuss Kurumsal Telekom Servis Hizmetleri A.S (Corbuss),
Turktell Bilisim Servisleri A.S (Turktell), Hayat Boyu Egitim A.S (Hayat) and
Kibrisonline Limited Sirketi (Kibrisonline) (the subsidiaries) are consolidated
subsidiaries, owned 99.99%, 99.99% 99.25%, 99.95%, 65% and 50%, respectively, by
Turkcell or the subsidiaries.

     Kibris Telekom was incorporated on March 25, 1999 for the purpose of
constructing and operating a GSM network in Northern Cyprus. Kibris Telekom and
the Ministry of Prosperity and Transportation of the Turkish Republic of
Northern Cyprus were parties to a revenue sharing agreement, which covers a
period of 10.5 years commencing on March 25, 1999. According to the Revenue
Sharing Agreement, revenues billed for subscription fees, monthly fixed fees,
incoming and outgoing calls are shared at a ratio of 50% between the parties. At
December 31, 2000, the share capital of Kibris Telekom was fully paid in cash by
the amount of $20,166.

     Global was incorporated on October 1, 1999 for the purpose of establishing
databases and call centers, and publishing and distributing telephone
directories. At December 31, 2000, the share capital of Global was fully paid in
cash by the amount of $9,124.

     Corbuss and Turktell were incorporated on June 13, 2000 for the purpose of
rendering services related to information technologies such as Wireless
Application Protocol (WAP) and Value Added GSM Services (VAS). At December 31,
2000, Corbuss' and Turktell's paid-in capital are $1,387 and $365, respectively.

     Hayat was incorporated on June 7, 2000 to provide educational digital
broadcasting services for children. As of December 31, 2000, the paid-in capital
of Hayat is $5.

     Kibrisonline was incorporated on July 10, 2000 to provide internet
services. At December 31, 2000, the paid-in capital of Kibrisonline is $0.003.

     As of December 31, 2000, Fintur Holdings B.V. (Fintur), Bilisim ve Egitim
Teknolojileri A.S. (Bilisim), Digikids Interaktif Cocuk Programlari Yapimciligi
ve Yayinciligi A.S. (Digikids) and Siber Egitim ve Iletisim

                                       F-90
285
        TURKCELL ILETISIM HIZMETLERI ANONIM SIRKETI AND ITS SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1999 AND 2000 AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1999
                                    AND 2000

    (AMOUNTS IN THOUSANDS OF US DOLLARS UNLESS OTHERWISE STATED EXCEPT SHARE
                                    AMOUNTS)

(1) BUSINESS (CONTINUED)

Teknolojileri A.S. (Siber Egitim), Mapco Internet ve Iletisim Hizmetleri
Pazarlama A.S. (Mapco) and Platco Internet ve Iletisim Altyapi Hizmetleri A.S.
(Platco) are equity investees.

     As of December 31, 2000, Fintur is an equity investee of the Company. In
November 1999, the articles of association of Fintur have been amended in order
to reflect a change in the company's operations (described in Note 10) and an
increase in the share capital from Dutch Guilders 250 thousand to Euro 500
thousand. On February 11, 2000 Fintur became a wholly owned subsidiary of
Turkcell. After the Fintur restructuring in June (described below and in Note
10), the Company's ownership in Fintur decreased to 25%. At December 31, 2000,
the share capital of Fintur was paid fully in cash by the amount of $360,007.

     On May 31, 2000, the Company contributed its 51% interest in GSM
Kazakhstan, the Kazakstani GSM network operator, and on June 5, 2000, the
Company contributed its entire 87% interest in Azertel, the company that holds a
64.3% interest in Azercell Telekom B.M., the Azeri GSM network operator, and
also contributed its 99.92% ownership interest in Gurtel, the company that owns
a 78% interest in Geocell, the Georgian GSM network operator, its 66% interest
in Moldcell, the Moldavian GSM network operator, and its entire 100% interest in
Digital Platform, its digital television distribution subsidiary, to Fintur by
decreasing its 100% ownership in Fintur to 25% in exchange for its investments
in the other businesses, assets and cash which have been contributed into Fintur
by Cukurova Group and Sonera Group companies (Note 10).

     Bilisim, Digikids and Siber Egitim were incorporated on July 24, July 14,
and September 4, 2000, respectively. Bilisim will engage in providing
educational services through internet, Digikids will provide entertainment
services for children via internet and television and Siber Egitim will provide
educational services through television and internet. At December 31, 2000, the
ownership interest of Turkcell and the subsidiaries in Bilisim, Digikids and
Siber Egitim are 50%, 25% and 40%, respectively. At December 31, 2000, the
paid-in capital of Digikids and Siber Egitim are $456 and $374, respectively,
and share capital of Bilisim was unpaid.

     Mapco and Platco were incorporated on November 14, 2000 to provide internet
services through any means of wireless communication. At December 31, 2000, the
ownership interest of Turkcell and the subsidiaries in Mapco and Platco are 45%.
At December 31, 2000, Mapco's and Platco's paid-in capital are $1,207 and $675,
respectively.

     As of December 31, 1999, Azertel Telekomunikasyon Yatirim ve Dis Ticaret
A.S. (Azertel), Gurtel Telekomunikasyon Yatirim ve Dis Ticaret A.S. (Gurtel),
Kibris Telekom, Digital Platform Iletisim Hizmetleri A.S. (Digital Platform),
Moldcell S.A. (Moldcell) and Global (the subsidiaries) were consolidated
subsidiaries, owned 87.50%, 99.92%, 99.99%, 99.99%, 66% and 99.20%,
respectively, by Turkcell or the subsidiaries.

     Azertel was incorporated on May 9, 1996. Azertel and the Ministry of
Communication of Azerbaijan (the Azerbaijan Ministry) are parties to an
agreement which sets forth the terms related to the construction and operating
phases of a GSM network in Azerbaijan. In accordance with this agreement,
Azercell Telecom MMM (Azercell), a company engaged in establishing and operating
a GSM network in Azerbaijan, was founded in Azerbaijan. Its shares are owned by
Azertel (64.3%) and the Azerbaijan Ministry (35.7%). Related investments are
being made by Azertel and the required operating license and permissions are
being provided by the Azerbaijan Ministry as capital contributions. The
operating license is valid for 20 years commencing in 1997 and can be extended
for periods of 10 years upon written application by Azercell.

     Gurtel was incorporated on November 11, 1996 and owns 78% of the shares of
Geocell Limited (Geocell), a company founded in Georgia and engaged in
establishing and operating a GSM network in Georgia. Other shareholders of
Geocell are Georgian shareholders, namely Cellcom Limited (20%), and Mobilcom 97
Limited (2%). The articles of association of Geocell state the conditions
related to the construction and operating phases

                                       F-91
286
        TURKCELL ILETISIM HIZMETLERI ANONIM SIRKETI AND ITS SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1999 AND 2000 AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1999
                                    AND 2000

    (AMOUNTS IN THOUSANDS OF US DOLLARS UNLESS OTHERWISE STATED EXCEPT SHARE
                                    AMOUNTS)

(1) BUSINESS (CONTINUED)

of the GSM network. In accordance with the articles of association, related
investments are being made by Gurtel and the operating license is being provided
by Georgian shareholders as capital contributions. The term of existence of
Geocell is 10 years, corresponding to the duration of the license period, which
commenced in 1997. The term of existence and the duration of the license period
will be automatically renewed for an additional 10 years unless a "major
decision" (as described in the articles of association) is taken by the
shareholders. Afterwards, the operating license period can be extended for
periods of 10 years upon "major decisions" taken by the shareholders.

     Gurtel also owns 45% of the shares of Digital Hizmetler Pazarlama A.S.
(Digital Pazarlama), a company incorporated on July 19, 1999 for the purpose of
providing and marketing the television program distribution services of Digital
Platform.

     Moldcell was incorporated on October 19, 1999, for the purpose of
constructing and operating a GSM network in Moldavia. As of December 31, 1999,
the other shareholders of Moldcell were Accent Electronic S.A. (Accent-23%) and
Graham & Levintsa (11%), both Moldavian entities. On November 5, 1999, Moldcell
obtained a license to install and operate a GSM network in the Republic of
Moldavia, for a period of 15 years. On December 1, 1999, Turkcell and Accent
signed an agreement to increase the share capital of Moldcell to the equivalent
of $10,000 in Moldavian Lei, and simultaneously, Turkcell's participation would
increase from 66% to 77% by acquisition of 11% shares from Graham & Levintsa. In
accordance with this agreement, Accent would contribute the administrative
building valued at $600, security services valued at $500 and consulting support
valued at $200 as initial part of the share increase, and Turkcell would
establish the GSM network. Moldcell commenced its GSM operations in April 2000.

     Digital Platform was incorporated on March 10, 1999 for the purpose of
broadcasting, and purchasing, selling and leasing of communication equipment and
satellite lines. Digital Platform delivers DTH (Direct to Home) television
programme distribution services, and it began operations in April 2000.

     As of December 31, 1999, TOO -- GSM Kazakhstan AOA (GSM Kazakhstan) was an
equity investee. GSM Kazakhstan was incorporated on June 1, 1998 as a wholly
owned subsidiary of AO Kazakhtelecom, the Kazakhstan monopoly fixed-line
telecommunications company owned and controlled by Kazkommerstbank (a
state-owned bank). GSM Kazakhstan is engaged in establishing and operating a GSM
network in Almaty and parts of the northwest region of Kazakhstan. In an auction
arranged by the Kazakh Government in June 1998, GSM Kazakhstan obtained a
general license for 15 years at a cost of $67,500 to provide mobile telephone
services in accordance with GSM standards. On September 29, 1998, Turkcell
signed an agreement with AO Kazakhtelecom and acquired 51% ownership interest in
GSM Kazakhstan in consideration for $25,000.

(2) FINANCIAL POSITION AND BASIS OF PREPARATION OF FINANCIAL STATEMENTS:

     Turkcell and the subsidiaries (the Company) maintain their books of account
and prepare their statutory financial statements in their local currencies and
in accordance with local commercial practice and tax regulations applicable in
the countries where they are resident. The accompanying consolidated financial
statements are based on these statutory records, with adjustments and
reclassifications for the purpose of fair presentation in accordance with
accounting principles generally accepted in the United States. The financial
statements as of December 31, 1999 and 2000 and for each of the years in the
three-year period ended December 31, 2000 present the consolidated financial
position and consolidated results of operations of the Company.

     At December 31, 2000, current liabilities exceeded current assets by
$55,856. Also, based on the Company's consolidated financial statements as of
and for the three month period ended March 31, 2001, the Company is in

                                       F-92
287
        TURKCELL ILETISIM HIZMETLERI ANONIM SIRKETI AND ITS SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1999 AND 2000 AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1999
                                    AND 2000

    (AMOUNTS IN THOUSANDS OF US DOLLARS UNLESS OTHERWISE STATED EXCEPT SHARE
                                    AMOUNTS)

(2) FINANCIAL POSITION AND BASIS OF PREPARATION OF FINANCIAL STATEMENTS:
(CONTINUED)

breach of one of the covenants contained in the 1998 and 1999 bank facilities
(Note 28). These matters may raise substantial doubt about the Company's ability
to continue as a going concern. The consolidated financial statements referred
to above have been prepared assuming that the Company will continue as a going
concern. Management's plans to continue as a going concern include increasing
its share capital, refinancing existing borrowings, obtaining additional
borrowings, to defer payments of existing or future debts and renegotiating of
the covenants. On May 16, 2001, it was resolved to increase Turkcell's share
capital by TL 236.2 trillion (equivalent to $209,860 at May 16, 2001) (Note 28).
On May 24, 2001, Yapi ve Kredi Bankasi A.S., a shareholder and one of the
largest Turkish banks, has committed to provide a cash loan facility up to
$100,000 to the Company over the next twelve months. On May 28, 2001, Ericsson
Telekomunikasyon A.S., the main supplier of GSM network equipment and related
services, (Notes 15, 27 and 28), has agreed that, at the request of the Company,
it will defer its collections from the Company resulting from the Company's
purchases of GSM network equipment and related services over the next twelve
months. Management expects to begin renegotiation of the covenants with the
lenders in July 2001. Management does not expect the agent to accelerate
repayment of the outstanding amounts under the 1998 and 1999 bank facilities,
and, as of May 28, 2001, management is not aware of any lenders instructing the
agent to accelerate repayment. Accordingly, the consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.

     In its statutory financial statements prepared in accordance with local
commercial and tax regulations, Turkcell has generated negative cash flows and
losses from operating activities as of December 31, 1999 and 2000. Interest
expense and exchange losses associated with financing the business have
contributed to the negative cash flows and operating losses as well as tax
saving accounting treatments applied by Turkcell in its statutory financial
statements. In accordance with Turkish commercial legislation, Turkcell is
required to maintain certain minimum levels of shareholders' equity in its
statutory financial statements. In connection with the recapitalization as
described in Note 21, Turkcell has met those minimum requirements.

(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

     Significant accounting policies followed in the preparation of the
consolidated financial statements referred to above are set out below:

(A) REVENUE AND EXPENSE RECOGNITION

Revenues:

     Communication fees include all types of postpaid revenues from incoming and
outgoing calls, additional services and prepaid revenues. Communication fees are
recognized at the time the services are rendered.

     Monthly fixed fees represent a fixed amount charged to postpaid subscribers
on a monthly basis without regard to the level of usage. Fixed fees are
recognized on a monthly basis when billed.

     Subsequent to the acquisition of the License and through the third quarter
of 2000, subscription fees, simcard and prepaid simcard sales were recognized
upon initial entry of a new subscriber into the GSM system only to the extent of
direct costs. Excess subscription fees, simcard and prepaid simcard sales, if
any, were deferred and amortized over the estimated effective customer life.
Subsequent to March 2000 subscription fees were no longer charged to customers.

     The Securities and Exchange Commission issued Staff Accounting Bulletin No.
101, "Revenue Recognition in Financial Statements" (SAB 101), on December 3,
1999. SAB 101 provides additional guidance on the application of existing
generally accepted accounting principles to revenue recognition in financial
statements.

                                       F-93
288
        TURKCELL ILETISIM HIZMETLERI ANONIM SIRKETI AND ITS SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1999 AND 2000 AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1999
                                    AND 2000

    (AMOUNTS IN THOUSANDS OF US DOLLARS UNLESS OTHERWISE STATED EXCEPT SHARE
                                    AMOUNTS)

(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)

SAB 101 establishes more clearly defined revenue recognition criteria than
previously existing accounting pronouncements, and specifically addresses
revenue recognition requirements for non-refundable fees, such as activation
fees, collected by a company upon entering into an arrangement with a
subscriber, such as an arrangement to provide telecommunication services. SAB
101 is effective for the last quarter of fiscal years beginning after December
15, 1999. The Company adopted SAB 101 effective October 1, 2000. The adoption of
SAB 101 did not have a material impact on the Company's consolidated financial
position or results of operations.

     Subsequent to the adoption of SAB 101 the Company defers revenues
associated with simcard sales and corresponding equal amount of the related
costs and amortizes the revenues and expenses over the estimated subscriber
life.

Expenses:

     Direct costs of revenues mainly include transmission fees, base station
rents, depreciation and amortization charges and technical, repair and
maintenance expenses directly related to services rendered.

     Direct cost of subscription fees, simcard and prepaid simcard sales include
activation fees paid to dealers, certain customer acquisition costs, cost of
simcard sales and simcard subsidies. Selling and marketing and general and
administrative costs are charged to expenses as incurred.

(B) PRINCIPLES OF CONSOLIDATION

     As of December 31, 2000, the consolidated financial statements include the
accounts of Turkcell and six (1999: six) majority owned subsidiaries.
Investments in Fintur, Digikids, Bilisim, Siber Egitim, Mapco and Platco (1999:
GSM Kazakhstan, Azercell, Digital Pazarlama and Geocell) are included under the
equity method of accounting (Note 10).

     The major principles of consolidation are as follows:

     -- All significant intercompany balances and transactions have been
        eliminated in consolidation.

     -- Minority interest in net assets and net income of the consolidated
        subsidiaries are separately classified in the consolidated balance
        sheets and consolidated statements of operations.

(C) PRINCIPLES OF TRANSLATION OF THE FINANCIAL STATEMENTS INTO US DOLLARS

     Turkcell and the subsidiaries record transactions in their local
currencies, which represent their functional currency. Transactions denominated
in foreign currencies are recorded at the exchange rates prevailing at the date
of the transactions. Assets and liabilities denominated in foreign currencies
are converted into Turkish Lira at the exchange rates ruling at balance sheet
date, with the resulting exchange differences recognized in the determination of
net income.

     Financial statements of Turkcell, Kibriis Telekom, Corbuss, Turktell,
Hayat, Kibrisonline and Global (1999: Turkcell, Azertel, Gurtel, Kibris Telekom,
Digital Platform and Global) have been translated into US Dollars the reporting
currency, in accordance with the relevant provisions of Statement of Financial
Accounting Standard (SFAS) No. 52 "Foreign Currency Translation" as applied to
entities in highly inflationary economies. Accordingly, revenues, costs, capital
and nonmonetary assets and liabilities are translated at historical exchange
rates while monetary assets and liabilities are translated at the exchange rates
prevailing at balance sheet dates.

                                       F-94
289
        TURKCELL ILETISIM HIZMETLERI ANONIM SIRKETI AND ITS SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1999 AND 2000 AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1999
                                    AND 2000

    (AMOUNTS IN THOUSANDS OF US DOLLARS UNLESS OTHERWISE STATED EXCEPT SHARE
                                    AMOUNTS)

(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)

All foreign exchange adjustments resulting from translation of the financial
statements into US Dollars are included in the determination of net income, as
"Translation loss".

     Digikids, Bilisim, Siber Egitim, Mapco, Platco and Fintur (1999: GSM
Kazakhstan, Azercell, Geocell, and Digital Pazarlama) are unconsolidated
subsidiaries accounted for under the equity method of accounting. Financial
statements of these companies (1999: Azercell) have been translated into US
Dollars, the reporting currency of the Company, in accordance with the relevant
provisions of SFAS No. 52 as applied in highly inflationary economies. All
foreign exchange adjustments resulting from translation of the financial
statements of Fintur (1999: Azercell) into US Dollars are included in a separate
section of shareholders' equity titled "Accumulated other comprehensive loss".

(D) FIXED ASSETS AND INTANGIBLES

     Fixed assets and intangibles are stated at cost. Leases of plant and
equipment under which the Company assumes substantially all the risks and the
rewards incidental to ownership are classified as finance leases. Other leases
are classified as operating leases.

     Finance leases are recognized in the balance sheet by recording an asset
and liability equal to the present value of minimum lease payments at the
inception of the lease. Capitalized finance leases are depreciated over the
estimated useful life of the asset or the lease term where appropriate. Lease
liabilities are reduced by repayments of principal, while the interest charge
component of the lease payment is charged to income.

     Depreciation and amortization is provided using straight-line method at
rates established based on the estimated economic lives of the related assets.
The annual rates used approximate the estimated economic lives of the related
assets and are as follows:
Buildings......................................            4.0%
Machinery and equipment........................   12.5% - 25.0%
Furniture, fixture and equipment...............   20.0% - 25.0%
Motor vehicles.................................   20.0% - 25.0%
Leasehold improvements.........................           20.0%
Intangibles....................................      4% - 12.5%
Major renewals and betterments are capitalized and depreciated/amortized
over the remaining useful lives of the related assets. Maintenance, repairs and
minor renewals are expensed as incurred.

     When assets are otherwise disposed of, the costs and the related
accumulated depreciation/amortization are removed from the accounts and
resulting gain or loss is reflected in net income.

(E) INVENTORIES

     Inventories are stated at the lower of cost or market. Cost is determined
using the weighted average method. At December 31, 1999 and 2000, inventories
consisted of simcards and scratch cards (finished goods) amounting to $8,303 and
$16,402, respectively.

(F) INCOME TAXES

     Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying

                                       F-95
290
        TURKCELL ILETISIM HIZMETLERI ANONIM SIRKETI AND ITS SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1999 AND 2000 AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1999
                                    AND 2000

    (AMOUNTS IN THOUSANDS OF US DOLLARS UNLESS OTHERWISE STATED EXCEPT SHARE
                                    AMOUNTS)

(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)

amounts of existing assets and liabilities and their respective tax bases and
operating loss and tax credit carryforwards. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
The Company's deferred tax assets and liabilities have been remeasured into US
Dollars in accordance with the provisions of SFAS No. 109 and the transaction
gains and losses that result from such remeasurement have been included within
the translation loss in the consolidated financial statements.

(G) USE OF ESTIMATES

     Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with accounting principles generally accepted in the United States.
Actual amounts could differ from those estimates. Significant estimates and
assumptions include the depreciable lives of fixed assets and intangibles,
amounts reflected as allowances for doubtful receivables and valuation
allowances on deferred tax assets.

(H) TRANSACTIONS WITH RELATED PARTIES

     For reporting purposes, investee companies and their shareholders,
shareholders of Turkcell and the subsidiaries and the companies that the
shareholders have a relationship with are considered to be related parties.

(I) IMPAIRMENT OF LONG-LIVED ASSETS

     The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of, on
January 1, 1996. The Company assesses impairment of its long-lived assets and
intangibles wherever facts or circumstances indicate the carrying amounts may
not be recoverable. The Company compares the carrying value of such assets to
the estimated future undiscounted cash flows attributable to such assets. If the
sum of the expected cash flows (undiscounted and without charges) is less than
the carrying amount of the asset, the Company recognizes an impairment loss on
the assets. There was no such impairment in any of the periods presented in the
consolidated financial statements.

(J) EARNINGS PER SHARE

     The Company adopted SFAS No. 128, Earnings Per Share. In accordance with
this statement, basic earnings per share is computed by dividing net earnings by
the weighted average number of common shares outstanding. Diluted earnings per
share do not differ from basic earnings per share for all periods presented, as
the Company has no common stock equivalents. The weighted average number of
common shares outstanding and earnings per share information have been
retroactively restated to reflect the recapitalization as described in Note 21.

(K) COMPREHENSIVE INCOME

     The Company adopted SFAS No. 130, Reporting Comprehensive Income, which
requires the presentation of comprehensive income and its components in a full
set of financial statements. Comprehensive income generally encompasses all
changes in shareholders' equity (except those arising from transactions with
owners) and includes net income (loss), net unrealized capital gains or losses
on available for sale securities and foreign currency translation adjustments.
The Company's comprehensive income differs from net income applicable to common
shareholders only by the amount of the foreign currency translation adjustment
charged to shareholders'

                                       F-96
291
        TURKCELL ILETISIM HIZMETLERI ANONIM SIRKETI AND ITS SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1999 AND 2000 AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1999
                                    AND 2000

    (AMOUNTS IN THOUSANDS OF US DOLLARS UNLESS OTHERWISE STATED EXCEPT SHARE
                                    AMOUNTS)

(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)

equity for the period. Comprehensive income for the years ended December 31,
1998, 1999 and 2000 were $210,450, $366,145 and $209,321 respectively.

(L) SEGMENT REPORTING

     The Company adopted SFAS No. 131, Disclosures About Segments of an
Enterprise and Related Information. This statement requires that companies
disclose segment data based on how management makes decisions about allocating
resources to segments and measuring their performance. It also requires
entity-wide disclosures about the products and services an entity provides, the
material countries in which it holds assets and reports revenues and its major
customers.

(M) DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

     In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities, as amended. SFAS
No. 133 is effective for all fiscal quarters of fiscal years beginning after
June 15, 2000. This statement establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts (collectively referred to as derivatives), and for hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and measure these
instruments at fair value. As of December 31, 2000, the Company did not have any
freestanding or embedded derivatives. Management believes that the adoption of
SFAS 133 will not have a material impact on the company's consolidated financial
position or results of operations.

(N) ACCOUNTING FOR COMPUTER SOFTWARE

     In January 1998, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" (SOP 98-1). The Company adopted
SOP 98-1 effective January 1, 1999. The adoption of SOP 98-1 did not have a
material impact on the Company's consolidated financial statements.

(O) REPORTING ON THE COSTS OF START-UP ACTIVITIES

     The AICPA issued Statement of Position 98-5, "Reporting on the Costs of
Start-up Activities" ("SOP 98-5") in April 1998. SOP 98-5 provides guidance on
the financial reporting of start-up costs and organization costs. It requires
costs of start-up activities and organization costs to be expensed as incurred.
The Company adopted SOP 98-5 effective January 1, 1999. The adoption of SOP 98-5
did not have a material impact on the Company's consolidated financial
statements.

(P) RETIREMENT PAY LIABILITY

     Under the terms of the existing labor law in Turkey, the Company is
required to make lump-sum payments to employees who have completed one year of
service and whose employments are terminated without due course, or who retire,
are called up for military service or die. Such payments are calculated on the
basis of 30 days' pay maximum approximately $0.87 per year of employment at the
rate of pay applicable at the date of retirement or termination.

                                       F-97
292
        TURKCELL ILETISIM HIZMETLERI ANONIM SIRKETI AND ITS SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1999 AND 2000 AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1999
                                    AND 2000

    (AMOUNTS IN THOUSANDS OF US DOLLARS UNLESS OTHERWISE STATED EXCEPT SHARE
                                    AMOUNTS)

(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)

(Q) DEFERRED FINANCING COST

     Certain financing costs associated with the borrowings of funds are
deferred. Deferred financing costs are recorded in other current assets
($24,701) and other long-term assets ($36,288) in the accompanying consolidated
balance sheet at December 31, 2000 (1999: $21,066 and $50,685). These assets are
amortized over the terms of the related borrowings as an adjustment to interest
expense in the accompanying statements of operations.

(R) RECLASSIFICATIONS

     Certain prior year amounts have been reclassified to conform with the 2000
presentation.

(4) FAIR VALUE OF FINANCIAL INSTRUMENTS:

     The Company's financial instruments consist of cash and cash equivalents,
trade receivables and accrued income, short and long term borrowings and trade
payables.

     The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:

(A) CASH AND CASH EQUIVALENTS, TRADE RECEIVABLES AND ACCRUED INCOME AND TRADE
PAYABLES

     The carrying amounts approximate fair value because of the short maturity
of those instruments.

(B) SHORT AND LONG TERM BORROWINGS

(i)  Bank facilities: The carrying amount approximates fair value because the
     interest rate varies based on the London interbank offer rates.

(ii) Loans under the Issuer Credit Agreement: The fair value is estimated based
     on the quoted market prices.

(iii) Other long term borrowings: For other long term borrowings, a reasonable
      estimate of fair value could not be made because they are unique in nature
      and no information is readily available.

(iv) Other short term bank loans and overdrafts: The carrying amount
     approximates fair value because of the short maturity of those instruments.

     The estimated fair values of the Company's financial instruments at
December 31, 1999 and 2000 are as follows:
1999                        2000
                                            ------------------------    ------------------------
                                             CARRYING                    CARRYING
                                              AMOUNT      FAIR VALUE      AMOUNT      FAIR VALUE
                                            ----------    ----------    ----------    ----------
Cash and cash equivalents...............    $  248,729    $  248,729    $  363,365    $  363,365
Trade receivables and accrued income....       251,456       251,456       325,636       325,636
Short term borrowings
  Practicable to estimate fair value....       324,572       324,572       393,813       393,813
  Not practicable.......................        49,668            --        44,268            --
Trade payables..........................       153,494       153,494       208,890       208,890
Long term borrowings
  Practicable to estimate fair value....    $1,172,852    $1,213,622    $1,470,167    $1,436,917
  Not practicable.......................        74,777            --       130,509            --
F-98
293
        TURKCELL ILETISIM HIZMETLERI ANONIM SIRKETI AND ITS SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1999 AND 2000 AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1999
                                    AND 2000

    (AMOUNTS IN THOUSANDS OF US DOLLARS UNLESS OTHERWISE STATED EXCEPT SHARE
                                    AMOUNTS)

(5) CASH AND CASH EQUIVALENTS:

     Cash and cash equivalents of $248,729 and $363,365 at December 31, 1999 and
2000, respectively, consist of cash on hand, demand deposits at banks and time
deposits at banks with an initial term of less than one month. For purposes of
the statements of cash flows, the Company considers all highly liquid debt
instruments with initial maturities of one month or less to be cash equivalents.

     At December 31, 2000, cash and cash equivalents amounting to $234,939
(1999: $55,384) were deposited in the banks which are owned and controlled by
Cukurova Holding A.S., a shareholder of the Company.

(6) TRADE RECEIVABLES AND ACCRUED INCOME, NET:

     At December 31, 1999 and 2000, the breakdown of trade receivables and
accrued income is as follows:
1999        2000
                                                                --------    --------
Receivables from subscribers................................    $167,796    $339,312
Receivable from Turk Telekom................................      52,889      26,083
Accounts and checks receivable..............................       2,755      19,556
                                                                --------    --------
                                                                 223,440     384,951
Accrued service income......................................      90,942      86,754
Allowance for doubtful receivables..........................     (62,926)   (146,069)
                                                                --------    --------
                                                                $251,456    $325,636
                                                                ========    ========
The Company has a receivable from Turk Telekom at December 31, 1999 and
2000, which represents amounts that are due from Turk Telekom under the
Interconnection Agreement (Note 26). The Interconnection Agreement provides that
Turk Telekom will pay Turkcell for Turk Telekom's fixed-line subscribers' calls
to Turkcell's GSM subscribers.

     The accrued service income represents revenues accrued for subscriber calls
(air-time) which have not been billed. Due to the volume of subscribers, there
are different billing cycles; accordingly, an accrual is made at each period end
to accrue revenues for services rendered but not yet billed.

     Accounts and cheques receivable represent amounts due from dealers and
roaming receivables.

     Movements in the allowance for doubtful receivables were as follows:
1999        2000
                                                                -------    --------
Beginning balance...........................................    $23,110    $ 62,926
Provision for doubtful receivables..........................     61,209      98,979
Write-offs..................................................         --          --
Effect of change in exchange rate...........................    (21,393)    (15,836)
                                                                -------    --------
Ending balance..............................................    $62,926    $146,069
                                                                =======    ========
As a result of earthquakes in the Marmara Region on August 17 and November
12, 1999, all communication companies in Turkey decided to defer the collection
of their receivables from subscribers living in the Marmara Region (Sakarya,
Kocaeli, Bolu and suburbs) until February 29, 2000. The Company charges no
interest on these receivables. Such receivables amounted to $4,268 as of
December 31, 2000 (1999: $5,830). The Company provided an allowance for the full
amount of such receivables and also other doubtful receivables identified based
upon past experience in its consolidated financial statements.

                                       F-99
294
        TURKCELL ILETISIM HIZMETLERI ANONIM SIRKETI AND ITS SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1999 AND 2000 AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1999
                                    AND 2000

    (AMOUNTS IN THOUSANDS OF US DOLLARS UNLESS OTHERWISE STATED EXCEPT SHARE
                                    AMOUNTS)

(7) DUE FROM RELATED PARTIES:

     As of December 31, 1999 and 2000, the balance comprised:
1999       2000
                                                                ------    --------
A-Tel Pazarlama ve Servis Hizmetleri A.S. (A-Tel)...........    $1,280    $ 36,069
Asli Gazetecilik ve Matbaacilik A.S. (Asli Gazetecilik).....        --      20,585
Fintur......................................................        --      18,926
Azertel.....................................................        --       9,745
ER-TEL Erdem Telekominikasyon Elektronik ve Bilgi
  Islem Sanayi ve Ticaret A.S. (Er-Tel).....................        --       6,806
Digital Platform............................................        --       3,005
Sonera Corporation Inc......................................        --       3,225
Gurtel......................................................        --       2,187
Mobicom Bilgi Iletisim Hizmetleri A.S. (Mobicom)............       303       2,175
Cukurova Investment N.V. (Cukurova Investment)..............        --       1,787
Azercell....................................................       938       1,647
Moldcell....................................................        --       1,214
Mapco.......................................................        --       1,116
Geocell.....................................................       517         754
Pamukbank T.A.S (Pamukbank).................................        --         678
Platco......................................................        --         547
GSM Kazakhstan..............................................        --         533
Murat Vargi Komunikasyon Sistemleri Holding A.S (M.V.
  Holding)..................................................        --         460
Superonline Uluslararasi Elektronik Bilgilendirme ve
  Haberlesme Hizmetleri A.S. (Superonline)..................        --         469
GT Mobile Limited (GT Mobile)...............................        --         362
Cukurova Holding A.S (Cukurova Holding).....................        --         335
Digital Hizmetler Pazarlama A.S. (Digital Pazarlama)........       693          --
Other.......................................................     1,235       1,235
                                                                ------    --------
                                                                $4,966    $113,860
                                                                ======    ========
Due from A-Tel mainly resulted from simcard and prepaid card sales and
advances given for hand-set subsidies provided by A-Tel in certain campaigns
started by this company (Note 25).

     Due from Asli Gazetecilik resulted from advances given for making space and
airtime reservations for advertisements on television stations, radio stations,
newspapers and magazines owned by Cukurova Group (Note 25).

     Due from Fintur resulted from advances given for share capital increase
(Note 10).

     Due from Azertel resulted from the payment made to the Azerbaijan Ministry
for the 1997 profit guarantee.

     Due from Er-Tel mainly resulted from advances given for campaigns started
by this company.

     Due from Digital Platform mainly resulted from receivables from call center
revenues and advances given for sponsorships (Note 25).

     Due from Sonera Corporation Inc., Cukurova Investment, Pamukbank, M.V.
Holding and Cukurova Holding resulted from the allocation of certain expenses
made on behalf of these shareholders during the public offering.

                                      F-100
295
        TURKCELL ILETISIM HIZMETLERI ANONIM SIRKETI AND ITS SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1999 AND 2000 AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1999
                                    AND 2000

    (AMOUNTS IN THOUSANDS OF US DOLLARS UNLESS OTHERWISE STATED EXCEPT SHARE
                                    AMOUNTS)

(7) DUE FROM RELATED PARTIES: (CONTINUED)

     Due from Gurtel resulted from the equipment sales made to Geocell.

     Due from Mobicom resulted from rents paid by Turkcell on behalf of this
company.

     Due from Azercell resulted from roaming receivables and consultancy
services given to this company.

     Due from Moldcell resulted from legal consultancy expenses made on behalf
of this company.

     Due from Mapco and Platco resulted from the consultancy expenses made on
behalf of these companies.

     Due from Geocell mainly resulted from sales of GSM equipment (Note 25).

     Due from Superonline resulted from receivables from call center revenues.

     Due from GSM Kazakhstan resulted from training and consultancy expenses
made on behalf of this company.

     Due from GT Mobile resulted from legal consultancy and travel expenses
incurred on behalf of this company.

(8) OTHER CURRENT ASSETS:

     At December 31, 1999 and 2000, the balance comprised:
1999       2000
                                                                -------    -------
Deferred financing costs (Note 3)...........................    $21,066    $24,701
Prepaid taxes...............................................        421      6,722
Advances to suppliers.......................................      3,553      4,413
Value added tax receivable..................................      2,513      1,439
Blocked deposits (Note 21)..................................      1,720        156
Other.......................................................      2,588      7,045
                                                                -------    -------
                                                                $31,861    $44,476
                                                                =======    =======
(9) PREPAID EXPENSES:

     At December 31, 1999 and 2000, balances comprised prepaid rent, insurance
and maintenance expenses.

                                      F-101
296
        TURKCELL ILETISIM HIZMETLERI ANONIM SIRKETI AND ITS SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1999 AND 2000 AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1999
                                    AND 2000

    (AMOUNTS IN THOUSANDS OF US DOLLARS UNLESS OTHERWISE STATED EXCEPT SHARE
                                    AMOUNTS)

(10) INVESTMENTS:

     At December 31, 1999 and 2000, investments in associated companies were as
follows:
1999       2000
                                                                -------    -------
Fintur......................................................    $    --    $58,679
Mapco.......................................................         --        785
Platco......................................................         --        450
Siber.......................................................         --        154
Azercell....................................................     40,157         --
GSM Kazakhstan..............................................     12,874         --
Geocell.....................................................     16,707         --
Digital Pazarlama...........................................        317         --
                                                                -------    -------
                                                                $70,055    $60,068
                                                                =======    =======
At December 31, 1999, Turkcell's ownership interest in GSM Kazakhstan was
51%, Azertel's ownership interest in Azercell was 64.3% and Gurtel's ownership
interests in Digital Pazarlama and Geocell were 45% and 78%, respectively.
Investments in GSM Kazakhstan, Azercell, Digital Pazarlama and Geocell were
accounted for under the equity method of accounting.

     GSM Kazakhstan and Azercell were not consolidated because their articles of
association include certain provisions restricting the Company's control over
operating and financial affairs and giving minority shareholders certain
substantive participating rights.

     In connection with the Fintur transaction (described below), Turkcell
contributed its 99.99% interest in Gurtel and effectively its 78% interest in
Geocell to Fintur in June 2000. Once contributed, the Company's interest in
Geocell was effectively reduced to approximately 20% through the Company's
ownership interest in Fintur. Given this, and on the basis that the Company's
control of its current 78% interest in Geocell was temporary, as of December 31,
1999, the Company has accounted for its investment in Geocell under the equity
method of accounting.

     At the Board of Directors Meeting of Turkcell held on April 28, 1999, it
was agreed to form a holding company in The Netherlands. The new holding
company, would mainly engage in participating in the capital and management of
companies providing communication, internet, multi-media and data transfer
services. On February 11, 2000, the Company paid Euro 120 thousand and
capitalized a 100% owned subsidiary, Fintur. Subsequently, a decision was made
with Cukurova Holding A.S., Cukurova Investments and Yapi Kredi (collectively
"Cukurova Group") and Sonera Group companies to jointly own Fintur where it was
agreed to increase share capital of Fintur to $360,000 and affect the following
business combination:

     Sonera Corporation Inc. contributed $127,100 in cash to Fintur in exchange
for approximately 35% of the equity in Fintur. Cukurova Holding A.S. contributed
$48,000 of its interests in three corporations (100% of Topaz, 80% of Mobicom
and 80% of Verinet Uydu Haberlesme Sanayi ve Ticaret A.S.) to Fintur in exchange
for 12.7% of the equity in Fintur and $2,400 in cash. Cukurova Investments
contributed $70,000 of its interest in one corporation (50% of Superonline) to
Fintur in exchange for 7.6% of the equity in Fintur and $42,700 in cash. Yapi
Kredi contributed $72,000 worth of its interest in two corporations (50% of
Superonline and 10% of Mobicom) to Fintur in exchange for 19.4% of the equity in
Fintur and $2,000 in cash.

     The Company contributed to Fintur (i) its 87% interest in Azertel, the
company that holds a 64.3% interest in Azercell Telekom B.M., the Azeri GSM
network operator, (ii) its 99.92% interest in Gurtel, the company that

                                      F-102
297
        TURKCELL ILETISIM HIZMETLERI ANONIM SIRKETI AND ITS SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1999 AND 2000 AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1999
                                    AND 2000

    (AMOUNTS IN THOUSANDS OF US DOLLARS UNLESS OTHERWISE STATED EXCEPT SHARE
                                    AMOUNTS)

(10) INVESTMENTS: (CONTINUED)

owns a 78% interest in Geocell, the Georgian GSM network operator and (iii) its
100% interest in Digital Platform, its digital television distribution
subsidiary. The Company also contributed its 51% interest in GSM Kazakhstan, the
Kazakstani GSM network operator and its 66% interest in Moldcell, the Moldavian
GSM network operator. In exchange for the contribution to Fintur of its
interests in these businesses, Turkcell acquired a 25% interest in Fintur, with
a fair value of $90,000. The Company is accounting for its interest in Fintur
under the equity method as from the date of the restructuring. As a result of
the Fintur restructuring, the Company recognized the gain on sale of affiliates
of $44,244 (excluding related tax expense of approximately $16,600) in June 2000
based upon 75% of the book value of its interest in the businesses contributed
to Fintur ($31,000 at 75% equalling $23,300) and 75% of the fair value of its
interest in Fintur ($90,000 at 75% equalling $67,500).

     At December 31, 2000, the Company's ownership interest in Fintur, Digikids,
Bilisim, Siber Egitim, Mapco and Platco were 25%, 25%, 50%, 40%, 45%, and 45%,
respectively. Investments in Digikids, Bilisim, Siber Egitim, Mapco, Platco and
Fintur were accounted for under the equity method of accounting.

     At the Board of Directors meeting held on October 11, 2000, it was resolved
that the Company will contribute Euro 38.4 million to the share capital increase
of Fintur. As of December 31, 2000, the Company has paid $18,926 to Fintur as
advances for such share capital increase (Note 7).

     At the Board of Directors meeting held on December 13, 2000, it was
resolved that the Company will acquire 500,000 shares of Mapco and 500,000
shares of Platco owned by Superonline with a par value of TL one million each
for TL 500 billion (equivalent to $744 as of December 31, 2000) each. After the
acquisition, the ownership interest of the Company in Mapco and Platco will
increase to 70%.

     Aggregate summarized financial information of Azercell, Geocell and GSM
Kazakhstan for the year ended December 31, 1998, and of Azercell, Geocell, GSM
Kazakhstan and Digital Pazarlama as of and for the year ended December 31, 1999,
and Azercell, Geocell, GSM Kazakhstan and Digital Pazarlama for the five month
period ended May 31, 2000, and of Fintur, Mapco, Platco, Bilisim, Digikids and
Siber Egitim as of and for the seven-month period ended December 31, 2000 are as
follows:
1999        2000
                                                                --------    --------
Current assets..............................................    $ 26,936    $162,915
Noncurrent assets...........................................     199,524     738,193
                                                                --------    --------
Total assets................................................     226,460     901,108
                                                                ========    ========
Current liabilities.........................................      47,846     482,704
Noncurrent liabilities......................................      70,840     183,479
Shareholders' equity........................................     107,774     234,925
                                                                --------    --------
                                                                $226,460    $901,108
                                                                ========    ========
MAY 31,    DECEMBER 31,
                                                    1998       1998       2000          2000
                                                   -------    -------    -------    ------------
Revenues.......................................    $52,892     63,628     36,601       118,727
Direct cost of revenues........................    (17,482)   (34,749)   (20,127)     (127,495)
Income (loss) before taxes.....................     15,850    (13,415)     2,421      (118,734)
Net income (loss)..............................     13,461    (15,426)       806      (123,242)
F-103
298
        TURKCELL ILETISIM HIZMETLERI ANONIM SIRKETI AND ITS SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1999 AND 2000 AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1999
                                    AND 2000

    (AMOUNTS IN THOUSANDS OF US DOLLARS UNLESS OTHERWISE STATED EXCEPT SHARE
                                    AMOUNTS)

(10) INVESTMENTS: (CONTINUED)

     $806 represents the net income for the five months ended May 31, 2000 of
equity method investees which were contributed to Fintur.

(11) FIXED ASSETS, NET:

     As of December 31, 1999 and 2000, the analysis of fixed assets is as
follows:
USEFUL LIVES       1999          2000
                                                         ------------    ----------    ----------
Operational fixed assets:
  Base terminal stations.............................       8 years      $  528,182    $  801,252
  Mobile switching center/Base station controller....       8 years         436,832       785,571
  Mini links.........................................       8 years         110,760       177,522
  Supplementary system...............................       8 years          23,200        31,066
  Broadcasting equipment.............................       4 years             176            --
  Call center equipment..............................       5 years              52         6,257
  GSM services equipment.............................       8 years              --        46,008
                                                                         ----------    ----------
                                                                          1,099,202     1,847,676
  Accumulated depreciation...........................                      (175,035)     (360,253)
                                                                         ----------    ----------
Operational fixed assets, net........................                       924,167     1,487,423
Non-operational fixed assets:
  Land...............................................                         2,681           531
  Buildings..........................................      25 years          82,310       161,667
  Furniture, fixture and equipment...................     4-5 years          68,062       120,084
  Motor vehicles.....................................     4-5 years           7,655         8,354
  Leasehold improvements.............................       5 years          14,060        47,964
                                                                         ----------    ----------
                                                                            174,768       338,600
  Accumulated depreciation...........................                       (27,965)      (63,855)
                                                                         ----------    ----------
  Non-operational fixed assets, net..................                       146,803       274,745
                                                                         ----------    ----------
                                                                         $1,070,970    $1,762,168
                                                                         ==========    ==========
Total amount of interest capitalized on fixed assets during the years ended
December 31, 1998, 1999 and 2000 amounted to $5,014, $5,377 and $7,267,
respectively. Such capitalized interest is depreciated over the useful lives of
the related fixed assets.

     At December 31, 1999 and 2000, total fixed assets acquired under finance
leases amounted to $43,672 and $62,580, respectively. Depreciation of these
assets amounted to $1,321, $4,020 and $3,044 for the years ended December 31,
1998, 1999 and 2000, respectively, and is included with depreciation expense.

     Operational and non-operational fixed assets in the amounts of TL 68
trillion ($101,164) and TL 36 trillion ($54,518), respectively, have been
pledged by the Tax Office against the potential liability of VAT on Upfront
Licence Fee (Note 26).

                                      F-104
299
        TURKCELL ILETISIM HIZMETLERI ANONIM SIRKETI AND ITS SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1999 AND 2000 AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1999
                                    AND 2000

    (AMOUNTS IN THOUSANDS OF US DOLLARS UNLESS OTHERWISE STATED EXCEPT SHARE
                                    AMOUNTS)

(12) CONSTRUCTION IN PROGRESS:

     At December 31, 1999 and 2000, construction in progress consisted of
expenditures in GSM and non-operational items and is as follows:
1999        2000
                                                                --------    --------
Turkcell -- Phase 7 Plus....................................    $164,326    $     --
Turkcell -- Phase 7.........................................     115,611          --
Turkcell -- Phase 8.........................................          --     202,093
Turkcell -- IN Project......................................      15,536          --
Digital Platform -- broadcasting equipment..................      14,197          --
Turkcell -- SDH Project.....................................      12,178      13,812
Kibris Telekom -- GSM network...............................         839         514
Turkcell -- other projects..................................       6,944      11,080
Non-operational items.......................................      46,247       5,800
                                                                --------    --------
                                                                $375,878    $233,299
                                                                ========    ========
As of December 31, 1999, expenditures for non-operational items mainly
represented the cost of three buildings for Turkcell's departments and regional
offices in Istanbul, Ankara and Izmir acquired under finance leases. Also
included in non-operational construction in progress are costs related to
reconstruction and renovation of these buildings. With the completion of
construction except one regional office in Istanbul, and placement of assets in
service they are transferred from construction in progress to fixed assets and
depreciation commenced during the year 2000.

(13) INTANGIBLES, NET:

     As of December 31, 1999 and 2000, intangibles consisted of the following:
USEFUL LIVES      1999        2000
                                                            ------------    --------    ---------
Turkcell -- License (Notes 1 and 26)....................      25 years      $500,000    $ 500,000
Moldcell -- License.....................................      15 years         4,800           --
Computer software.......................................       8 years       266,342      525,856
Transmission lines......................................      10 years         9,639       12,134
                                                                            --------    ---------
                                                                             780,781    1,037,990
Accumulated amortization................................                     (73,417)    (144,995)
                                                                            --------    ---------
                                                                            $707,364    $ 892,995
                                                                            ========    =========
The increase in computer software is principally due to expansion of the
GSM network. Amortization of computer software amounted to $8,660, $20,124, and
$50,483 for the years ended December 31, 1998, 1999 and 2000, respectively.

                                      F-105
300
        TURKCELL ILETISIM HIZMETLERI ANONIM SIRKETI AND ITS SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1999 AND 2000 AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1999
                                    AND 2000

    (AMOUNTS IN THOUSANDS OF US DOLLARS UNLESS OTHERWISE STATED EXCEPT SHARE
                                    AMOUNTS)

(14) SHORT TERM BORROWINGS:

     At December 31, 1999 and 2000, short-term borrowings comprised the
following:
1999        2000
                                                                --------    --------
Current portion of long term borrowings (Note 19)...........    $374,119    $437,490
Other short-term bank loans and overdrafts..................         121         591
                                                                --------    --------
                                                                $374,240    $438,081
                                                                ========    ========
(15) TRADE PAYABLES:

     As of December 31, 1999 and 2000, the balance represented an amount due to
Ericsson Telekomunikasyon A.S. of $109,655 and $132,885, respectively, resulting
from fixed asset purchases, site preparation and other services, and amounts due
to other suppliers totalling $43,839 and $76,005, respectively, arising in the
ordinary course of business.

     Turkcell is party to a series of supply agreements with Ericsson
Telekomunikasyon A.S. (Ericsson Turkey) (collectively, the Supply Agreements)
under which Ericsson Turkey has agreed to supply Turkcell with an installed and
operating GSM network, spare parts, training and documentation. The Supply
Agreements also give Turkcell a non-exclusive restricted software License for
GSM software. Under the Supply Agreements, Ericsson Radio Systems AB (Ericsson
Sweden) guarantees all of Ericsson Turkey's obligations to Turkcell.

     Turkcell also entered into a GSM service agreement with Ericsson Sweden
under which Ericsson Sweden supplies Turkcell with the following system
services: trouble report handling service, hardware service, consultation
service and emergency service. This agreement expired on December 31, 1998 but
contains successive one-year automatic renewals unless terminated by either
party in writing no later than six months prior to the expiration of the then
current term, but not beyond December 31, 2005. As of December 31, 2000, the
agreement was automatically extended through December 31, 2001.

(16) DUE TO RELATED PARTIES:

     As of December 31, 1999 and 2000, due to related parties comprised:
1999       2000
                                                                -------    ------
Asli Gazetecilik............................................    $ 4,407    $   --
Aksam Pazarlama ve Dis Ticaret A.S..........................        534        52
Hobim Bilgi Islem Hizmetleri A.S. (Note 25).................        312       415
KVK (Note 25)...............................................      2,554     1,076
Bilka Bilgi Kaynak ve Iletisim A.S. (Note 21)...............      1,720        --
Other.......................................................      1,054     1,268
                                                                -------    ------
                                                                $10,581    $2,811
                                                                =======    ======
Due to Asli Gazetecilik resulted from purchase of a non-operational
building from this company.

     Due to Aksam Pazarlama Dis Ticaret A.S. resulted from advertisements
published in its newspaper.

     Due to KVK resulted from simcard subsidies and activation fees.

     Due to Hobim resulted from the invoice printing services rendered by this
company.

                                      F-106
301
        TURKCELL ILETISIM HIZMETLERI ANONIM SIRKETI AND ITS SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1999 AND 2000 AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1999
                                    AND 2000

    (AMOUNTS IN THOUSANDS OF US DOLLARS UNLESS OTHERWISE STATED EXCEPT SHARE
                                    AMOUNTS)

(17) OTHER CURRENT LIABILITIES AND ACCRUED EXPENSES:

At December 31, 1999 and 2000, the balance comprised:
1999        2000
                                                                --------    --------
Taxes and withholdings......................................    $ 35,403    $ 75,769
License fee accrual -- The Turkish Treasury.................      31,108      60,330
Accrued interest on borrowings..............................      24,302      54,505
Deferred income.............................................       5,274      26,267
Interconnection accrual -- Turk Telekom (Note 26)...........       5,769      24,781
Selling and marketing expense accruals......................      10,255      11,454
Lease obligations -- short term portion (Note 20)...........       7,630      10,612
Roaming expense accrual.....................................       2,728       2,052
Accrued interest on lease obligations.......................       1,190       1,241
Treasury Share accrual......................................      51,900          --
Other expense accruals......................................      19,036       4,183
                                                                --------    --------
                                                                $194,595    $271,194
                                                                ========    ========
As explained in Note 26, Treasury Share accrual at December 31, 1999
represents unpaid license fee equal to 15% of value added tax on gross revenues
and accrued interest on this balance. The amount was paid on March 24, 2000.

     In accordance with the License Agreement (Notes 1 and 26), Turkcell pays
the Turkish Treasury an ongoing license fee equal to 15% of its gross revenue.
The balances of $31,108 and $60,330 represent the fee accrual for the months of
December 1999, and November and December 2000, respectively.

     Interconnection accrual at December 31, 1999 represents amounts payable
under the Interconnection Agreement (Note 26). The Interconnection Agreement
requires that Turkcell pay Turk Telekom for Turkcell's GSM subscribers' calls to
Turk Telekom's fixed-line subscribers.

     Interconnection accrual at December 31, 2000 represents additional amounts
accrued which resulted from modification of the calculation method by Turk
Telekom (Note 26).

(18) TAXES ON INCOME:

     The income tax benefit (charge) is attributable to income/loss from
continuing operations and consists of:
YEAR ENDED DECEMBER 31,
                                                                ------------------------------
                                                                  1998       1999       2000
                                                                --------    ------    --------
Current tax charge..........................................    $   (110)   $  (69)   $ (6,290)
Deferred tax benefit (charge)...............................     (19,144)    8,351     (37,403)
                                                                --------    ------    --------
Income tax benefit (charge).................................    $(19,254)   $8,282    $(43,693)
                                                                ========    ======    ========
F-107
302
        TURKCELL ILETISIM HIZMETLERI ANONIM SIRKETI AND ITS SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1999 AND 2000 AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1999
                                    AND 2000

    (AMOUNTS IN THOUSANDS OF US DOLLARS UNLESS OTHERWISE STATED EXCEPT SHARE
                                    AMOUNTS)

(18) TAXES ON INCOME (CONTINUED)

     The amounts computed by applying the statutory income tax rate of 33
percent (1998: 44 percent; 1999: 33 percent) of Turkey where the Company has its
operations differed from pre-tax income from continuing operations as a result
of the following:
YEAR ENDED DECEMBER 31,
                                                           -----------------------------------
                                                             1998         1999         2000
                                                           ---------    ---------    ---------
Computed "expected" tax expense........................    $(101,747)   $(119,063)   $ (89,787)
Non taxable translation gain...........................       77,750      122,512       56,742
Investment tax credit..................................       58,420      169,528      135,327
Change in valuation allowance..........................      (44,909)    (159,260)    (133,009)
Other..................................................       (8,768)      (5,435)     (12,966)
                                                           ---------    ---------    ---------
Income tax benefit (expense)...........................    $ (19,254)   $   8,282    $ (43,693)
                                                           =========    =========    =========
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31, 1999 and
2000 are presented below:
1999        2000
                                                                --------    --------
Deferred tax assets:
  Accrued expenses..........................................    $ 47,657    $  8,000
  Accounts and other receivables (principally due to
     allowance for doubtful accounts) and other.............       1,089      19,233
  Net operating loss carryforwards..........................       9,273      42,370
  Tax credit carryforwards..................................     215,854     349,653
                                                                --------    --------
  Gross deferred tax assets.................................     273,873     419,256
  Less: Valuation allowances................................    (206,483)   (339,422)
                                                                --------    --------
  Net deferred tax assets...................................      67,390      79,384
Deferred tax liabilities:
  Fixed assets and intangibles, principally due to financial
     leases, differences in depreciation and amortization,
     and capitalization of interest and foreign exchange
     loss for tax purposes..................................     (56,984)    (78,751)
  Other.....................................................      (1,986)    (25,677)
                                                                --------    --------
Total deferred tax liabilities..............................     (58,970)   (104,428)
                                                                --------    --------
  Net deferred tax assets (liabilities).....................    $  8,420    $(24,594)
                                                                ========    ========
At December 31, 2000, net operating loss carryforwards are as follows:
YEAR                                                             AMOUNT     EXPIRATION DATE
----                                                            --------    ---------------
1997........................................................    $ 14,783         2002
1999........................................................    $  8,013         2004
2000........................................................    $105,316         2005
Non taxable translation gain results from translation of Turkish Lira
denominated non-monetary assets and liabilities to the US Dollar, the functional
and reporting currency, in accordance with the relevant provisions of SFAS No.
52 as applied to entities in highly inflationary economies (as discussed in note
3). Under SFAS

                                      F-108
303
        TURKCELL ILETISIM HIZMETLERI ANONIM SIRKETI AND ITS SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1999 AND 2000 AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1999
                                    AND 2000

    (AMOUNTS IN THOUSANDS OF US DOLLARS UNLESS OTHERWISE STATED EXCEPT SHARE
                                    AMOUNTS)

(18) TAXES ON INCOME (CONTINUED)

No. 109, such translation gains and losses between the tax and book basis of
related assets and liabilities do not give rise to temporary differences. Such
amounts are primarily attributable to translation gain resulting from the
translation of Turkish Lira denominated fixed assets and intangibles into the US
Dollar.

     In 1993, 1997 and 2000, the Undersecretariat of Treasury approved
investment incentive certificates for a program of capital expenditures by
Turkcell and its subsidiaries in GSM and call center operations. Such incentives
entitle the Company to a 100% exemption from customs duty on imported machinery
and equipment and an investment tax benefit of 100% on qualifying expenditures.
The investment tax benefit takes the form of deductions for corporation tax
purposes, but such deductions are subject to withholding tax at the rate of
19.8% (1999: 16.5%). Investment incentive certificates provide for tax benefits
on cumulative purchases of up to approximately $2,696,133 in qualifying
expenditures, as defined in the certificates. As of December 31, 2000, the
Company had incurred cumulative qualifying expenditures of approximately
$2,648,886 (1999: $1,308,208), resulting in tax credit carryforwards under the
certificates of approximately $349,653 (1999: $215,854), net of foreign exchange
translation losses. Such tax credits can be carried forward indefinitely. The
certificates are denominated in Turkish Lira. However, approximately $2,633,287
of qualifying expenditures through December 31, 2000 (1999: $1,230,046) under
such certificates is indexed against future inflation for a period of three
years.

     The Company establishes valuation allowances in accordance with the
provisions of SFAS No. 109. The Company continually reviews the adequacy of the
valuation allowance based on changing conditions in the market place in which
the Company operates and its projections of future taxable income, among other
factors. Management believes that currently, based on a number of factors,
including a history of statutory tax losses, its limited operating history, the
continuing increase in competition, political and economic uncertainty within
Turkey and in certain neighbouring countries, and other factors, the available
objective evidence creates sufficient uncertainty regarding the realizability of
its net operating loss carryforwards and tax credit carryforwards which are not
expected to be utilised in the year 2001. Accordingly, a valuation allowance of
approximately $339,422 is recorded as of December 31, 2000 (1999: $206,483) for
such amounts. The valuation allowance at December 31, 1999 and December 31, 2000
has been allocated between current and non-current deferred tax assets on a pro
rata basis in accordance with the provisions of SFAS No. 109. Management
believes that it is more likely than not that the net deferred tax asset of
approximately $79,834 as of December 31, 2000 (1999: $67,390) will be realized
through reversal of taxable temporary differences. Changes in valuation
allowances mainly result from changes in management's projections on
recoverability of certain deferred tax assets.

     As a result of the Fintur business combination (Note 10), the Company has
recorded a gain on sale of affiliates in its local statutory books of TL 31.2
trillion (approximately $46,427 using the December 31, 2000 exchange rate),
which is taken into account in the current tax calculation for the year ended
December 31, 2000. For statutory purposes, the Company can elect to treat the
gain on sale of affiliates as a transfer to share capital as opposed to
recognizing the gain, provided the Board of Directors makes an election for such
transfer prior to the filing of the statutory tax returns on or about April 30,
2001. Under such circumstances, TL 23.8 trillion of the gain would be subject to
a 16.5% withholding tax, and the remaining TL 7.4 trillion gain would be subject
to 33% corporation tax. At the Board of Directors Meeting held on October 11,
2000, it was resolved that TL 23.8 trillion of the gain has been transferred to
share capital.

                                      F-109
304
        TURKCELL ILETISIM HIZMETLERI ANONIM SIRKETI AND ITS SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1999 AND 2000 AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1999
                                    AND 2000

    (AMOUNTS IN THOUSANDS OF US DOLLARS UNLESS OTHERWISE STATED EXCEPT SHARE
                                    AMOUNTS)

(19) LONG TERM BORROWINGS:

     At December 31, 1999 and 2000, long-term borrowings comprised:
1999          2000
                                                                ----------    ----------
1998 Bank Facility..........................................    $  455,000    $  270,000
Loan under the 1999 Issuer Credit Agreement.................       400,000       400,000
1999 Bank Facility..........................................       332,500       488,889
Loan under the 1998 Issuer Credit Agreement.................       300,000       300,000
Akbank T.A.S (Akbank).......................................            --       250,000
Garanti Bankasi A.S -- Malta (Garanti)......................            --       150,000
Turkiye Vakiflar Bankasi T.A.O (Vakifbank)..................            --       100,000
London Forfaiting Company...................................        53,700        25,900
Nordbanken -- Stockholm (Nordbanken)........................        43,639        34,198
BB Aval GmbH (BB Aval)......................................        20,350        10,175
AB Svensk Exportcredit (AB Svensk)..........................         6,756         4,504
KFW-BNP.....................................................         5,003            --
Yapi Kredi Bankasi-Bahrain (Yapi Kredi).....................         4,800         4,500
                                                                ----------    ----------
                                                                 1,621,748     2,038,166
Less: Current portion of long term borrowings...............      (374,119)     (437,490)
                                                                ----------    ----------
                                                                $1,247,629    $1,600,676
                                                                ==========    ==========
The Company has short and long term credit lines with local and foreign
banks. At December 31, 2000, unused credit lines do not exist (1999: $311,542).
In the years ended December 31, 1999 and 2000, the average amounts outstanding
were $1,016,033 and $1,744,191, respectively.

1998 BANK FACILITY

     In April 1998, the Company obtained a $575,000 bank facility of which
$270,000 (1999: $455,000) was outstanding at December 31, 2000. The bank
facility was obtained to pay the license fee to the Turkish Ministry, to provide
working capital to the Company, to finance capital expenditures and to refinance
amounts previously borrowed by the Company.

    REPAYMENTS AND INTEREST RATES:  $75,000 of the bank facility will be due in
    a single instalment on September 24, 2001, and the remaining outstanding
    balance will be payable in three quarterly instalments commencing on March
    26, 2001. The interest rate varies between the one, two, three or six month
    London interbank offer rate for US Dollar deposits (Libor) plus 2.125% and
    Libor plus 3.250% per annum in respect of the tranches.

    SECURITY:  The bank facility is secured by a first pledge of 22.86% of the
    outstanding shares of the Company under a pledge agreement conferring rights
    to sell such shares and to voting and dividends if an event of default has
    occurred and is continuing. The pledge will be released in stages according
    to certain performance criteria.

    The bank facility provides for a pledge of the Company's bank accounts,
    receivables and all relevant insurance policies. There will also be a
    restriction over the Company's existing assets to the extent permitted by
    applicable laws. The bank facility also provides for a negative pledge on
    all assets of the Company.

                                      F-110
305
        TURKCELL ILETISIM HIZMETLERI ANONIM SIRKETI AND ITS SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1999 AND 2000 AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1999
                                    AND 2000

    (AMOUNTS IN THOUSANDS OF US DOLLARS UNLESS OTHERWISE STATED EXCEPT SHARE
                                    AMOUNTS)

(19) LONG TERM BORROWINGS: (CONTINUED)

    COVENANTS:  The bank facility includes customary affirmative and negative
    covenants, including restrictions on the ability of the Company to incur
    additional indebtedness; to pay certain dividends; to make certain other
    material restricted payments, investments and loans; to create liens; to
    give guarantees; to enter into material transactions with affiliates; to
    merge, consolidate or transfer substantially all of their respective assets;
    to engage in material asset sales outside the ordinary course of business;
    to impose restrictions on the ability of the Company's subsidiaries to pay
    dividends or make certain payments to the Company; and to make capital
    expenditures.

    Affirmative covenants include reporting requirements, corporate existence,
    scope of business activities, payment of taxes, maintenance of properties
    and insurance, inspection rights, compliance with laws and hedging of
    liabilities.

    Also, the bank facility includes certain financial covenants for Turkcell
    with respect to maintaining certain leverage, interest and debt service
    coverage ratios as well as maintaining a minimum net worth of at least
    $100,000 at the closing of the bank facility and increasing for specified
    periods thereafter to $1,000,000 from and after December 31, 2000.

    In addition, the shareholders of the Company have entered into an agreement
    with the lenders pursuant to which they have agreed that, among other
    things, the shareholders will maintain specified levels of ownership of the
    Company; Sonera Corporation Inc. and Cukurova Group have agreed to specific
    limitations on dispositions by them of equity capital of the Company; Sonera
    Corporation Inc. and Cukurova Group have agreed not to sell or agreed to
    sell or grant options on any equity securities in the Company for specified
    periods after completion of syndication and drawdown of the bank facility
    and completion of related financings; the shareholders and certain other
    parties that have guaranteed indebtedness of the Company shall enter into
    intercreditor agreements with the Facility Agent and the Lenders to, among
    other things, subordinate their claims as guarantor, agree to certain
    arrangements regarding the payment of that guaranteed debt, and, as to a
    shareholder that has pledged shares of the Company to Yapi ve Kredi Bankasi
    A.S., permitting such pledgee to enforce such pledges without any
    requirement to take action against the Company; and the shareholders shall
    make certain equity investments in the Company required by an additional
    investment incentive certificate obtained by the Company.

LOAN UNDER THE 1998 ISSUER CREDIT AGREEMENT

     Turkcell entered into a loan agreement in 1998 (the 1998 Issuer Credit
Agreement) with Cellco Finance N.V. (Cellco -- the Issuer), a limited liability
company incorporated on January 27, 1998 under the laws of the Netherlands
Antilles, in connection with the issuance by Cellco of $300,000 15% Senior
Subordinated Notes due 2005 (the Notes).

     Under the 1998 Issuer Credit Agreement, the Issuer has loaned to Turkcell
$300,000. Pursuant to such loan, the net proceeds of the Notes were transferred
to Turkcell and Turkcell was deemed to have borrowed the difference between
$300,000 and the amount actually advanced to the Issuer as a financing fee.

     Under the 1998 Issuer Credit Agreement, Turkcell issued a note to evidence
the loan from the Issuer (the Loan Note) under which amounts are payable by
Turkcell to the Issuer in order that the Issuer, upon receipt of such amounts,
is able to satisfy its obligations on the Notes.

     Turkcell and Cellco have agreed, for the benefit of all holders of the
Notes, that they would file a registration statement to register the exchange
offer under the Securities Act of 1933 for 15% Senior Subordinated Notes of
Cellco (the Old Notes) secured by an assignment of Cellco's right, title and
interest in and to the Issuer Credit

                                      F-111
306
        TURKCELL ILETISIM HIZMETLERI ANONIM SIRKETI AND ITS SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1999 AND 2000 AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1999
                                    AND 2000

    (AMOUNTS IN THOUSANDS OF US DOLLARS UNLESS OTHERWISE STATED EXCEPT SHARE
                                    AMOUNTS)

(19) LONG TERM BORROWINGS: (CONTINUED)

Agreement with terms substantially identical to the terms of the 15% Senior
Subordinated Exchange Notes (the New Notes) of Cellco. A registration statement
for the exchange offer was declared effective on October 14, 1999.

     The proceeds from the Old Notes were lent by Cellco to Turkcell pursuant to
the Issuer Credit Agreement. Turkcell used the proceeds of the Old Notes,
together with a loan in the amount of $305,000 borrowed under the 1998 Bank
Facility, to (i) refinance $575,000 of indebtedness incurred under a credit
facility used to finance the payment of the license fee paid to the Treasury
under the License Agreement and for certain capital expenditures, (ii) pay a
$12,000 financing fee to Cellco in an amount equal to Cellco's expenses incurred
in connection with the issuance of the Old Notes and (iii) pay other expenses
incurred in connection with the issuance of the Old Notes and the Bank Facility.

     Turkcell did not receive any cash proceeds from the issuance of the New
Notes. The Old Notes surrendered in exchange for the New Notes were retired and
cancelled and can not be reissued.

    PRINCIPAL, MATURITY AND INTEREST:  The Notes are limited in aggregate amount
    to $400,000, $300,000 of which was issued in the offering, and $100,000 of
    which may be offered from time to time in the future subject to certain
    limitations and restrictions. In the event of such a future offering, the
    notes offered thereby would have the same terms as the Notes. The Notes
    mature at par on August 1, 2005, which is also the maturity date of the loan
    under the 1998 Issuer Credit Agreement. The Notes and also the loan under
    the 1998 Issuer Credit Agreement are payable as to principal (and premium,
    if any), interest, additional amounts, if any, and additional interest, if
    any. Interest on the Old Notes and also the loan under the 1998 Issuer
    Credit Agreement accrues at the rate of 15% per annum from their date of
    original issuance and is payable semi-annually on each February 1 and August
    1 commencing on February 1, 1999, to the persons who are registered holders
    at the close of business on the January 15 and July 15 immediately preceding
    the applicable interest payment date. Each New Note shall bear interest from
    the last day on which interest was paid in respect of the Old Note for which
    such New Note was exchanged.

    The 1998 Issuer Credit Agreement specifies that Turkcell will pay any
    amounts to Cellco in order that Cellco, upon receipt of such amounts, is
    able to satisfy its obligations on the Notes.

    REDEMPTION:  The Notes are redeemable, at the option of Cellco, in whole at
    any time or in part from time to time, on and after August 1, 2002, upon not
    less than 30 nor more than 60 days' notice at the following redemption
    prices (expressed as percentages of the principal amount thereof) if
    redeemed during the twelve-month period commencing on August 1, 2002 of the
    year set forth below, plus, in each case, accrued and unpaid interest
    thereon, if any, and additional amounts, if any, and additional interest, if
    any, to the date of redemption.
YEAR                                                           PERCENTAGE
    ----                                                           ----------
2002........................................................     107.50%

    2003........................................................     103.75%

    2004 and thereafter.........................................     100.00%
The Notes may also be redeemed, in whole but not in part, at the Issuer's
    option, upon not less than 30 nor more than 60 days' notice at a redemption
    price equal to 100% of the principal amount, plus accrued interest to the
    redemption date, if any, if, as a result of any amendment to, or change in,
    the laws (or any rules or regulations thereunder) of the Netherlands
    Antilles or the Republic of Turkey or any political subdivision or taxing
    authority thereof or therein or any amendment to or change in any official
    interpretation or application

                                      F-112
307
        TURKCELL ILETISIM HIZMETLERI ANONIM SIRKETI AND ITS SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1999 AND 2000 AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1999
                                    AND 2000

    (AMOUNTS IN THOUSANDS OF US DOLLARS UNLESS OTHERWISE STATED EXCEPT SHARE
                                    AMOUNTS)

(19) LONG TERM BORROWINGS: (CONTINUED)

    of such laws or rules or regulations or any execution of or amendment to any
    treaty affecting taxation to which the Netherlands Antilles or the Republic
    of Turkey is a party, which amendment or change or execution is effective on
    or after the date of the Indenture, either the Issuer with respect to the
    Notes or Turkcell with respect to the 1998 Issuer Credit Agreement has
    become or will become obligated to pay additional amounts, on the next date
    on which any amount would be payable with respect to the Notes or under the
    1998 Issuer Credit Agreement, and such obligation can not be avoided by the
    use of reasonable measures available to the Issuer or Turkcell, as the case
    may be; provided, however, that (1) no such notice of redemption may be
    given earlier than 60 days prior to the earliest date on which the Issuer or
    Turkcell, as the case may be, would be obligated to pay such additional
    amounts were a payment in respect of the Notes or the 1998 Issuer Credit
    Agreement then due, and (2) at the time such notice of redemption is given,
    such obligation to pay additional amounts remains in effect.

    SECURITY:  The Notes are general obligations of Cellco secured by an
    assignment of Cellco's right, title and interest in and to the 1998 Issuer
    Credit Agreement and are subordinated in right of payment to all future
    senior indebtedness. Borrowings under the 1998 Issuer Credit Agreement are
    general unsecured obligations of Turkcell and are subordinated in right of
    payment to all existing and future senior indebtedness. There is no
    collateral for the obligations of Turkcell under the 1998 Issuer Credit
    Agreement.

    COVENANTS:  The Indenture governing the Notes and the 1998 Issuer Credit
    Agreement each contains certain covenants that limit the ability of the
    Issuer and the Company and its unconsolidated subsidiaries to, among other
    things, incur additional indebtedness, pay dividends or make certain other
    restricted payments, consummate certain asset sales, enter into certain
    transactions with related parties, incur liens, impose restrictions on the
    ability of a subsidiary to pay dividends and make certain payments to the
    Company or the Issuer, merge, or consolidate with any other person, or sell,
    assign, transfer, lease, convey or otherwise dispose of all or substantially
    all of the assets of the Issuer or the Company.

1999 BANK FACILITY

     Turkcell entered into a further $550,000 senior amortizing term loan
facility agreement dated November 24, 1999 between, among others, Deutsche Bank
AG London, J.P. Morgan Securities Ltd. and Credit Suisse First Boston, as
co-arrangers, other lenders, and Deutsche Bank AG London, as facilities agent,
EKN agent as security agent. At December 31, 2000, $488,889 (1999: $332,500) of
the 1999 bank facility was outstanding. The following is a summary description
of the principal terms of the 1999 bank facility, most of which are identical or
substantially the same as in the 1998 bank facility.

     The 1999 bank facility provides for, subject to certain terms and
conditions, credit facilities to Turkcell in six tranches:

     -  an amortizing term loan facility, known as the tranche A facility, in
        the amount of $175,000, 100% guaranteed for political risks and
        commercial risks by Exportkreditnamnden, the Swedish Export Credits
        Guarantee Board or EKN,

     -  an amortizing term loan facility, known as the tranche B facility, in
        the maximum amount of up to $175,000, guaranteed by EKN for political
        risks only,

     -  an amortizing term loan facility, known as the tranche C facility, in
        the amount of $78,598, guaranteed by EKN for political risks only,

                                      F-113
308
        TURKCELL ILETISIM HIZMETLERI ANONIM SIRKETI AND ITS SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1999 AND 2000 AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1999
                                    AND 2000

    (AMOUNTS IN THOUSANDS OF US DOLLARS UNLESS OTHERWISE STATED EXCEPT SHARE
                                    AMOUNTS)

(19) LONG TERM BORROWINGS: (CONTINUED)

     -  an amortizing term loan facility, known as the tranche D facility, in
        the amount of $95,000, guaranteed by Finnvera Plc for political risks
        only.

     -  an amortizing term loan facility, known as the tranche E facility, in
        the amount of $5,000,

     -  an amortizing term loan facility, known as the tranche F facility, in
        the amount of $21,402, and guaranteed by Steadfast Insurance Company for
        political risks only.

     The proceeds of any Advance under tranches A, B, C, D, E and F must be used
for payment of up to 85% of the aggregate purchase price for goods and services
sourced from Sweden pursuant to an equipment supply contract with Ericsson.

     The interest rate varies between Libor plus 1.00% and Libor plus 3.50% per
annum in respect of the tranches.

     Turkcell is required to pay to the Lenders under the 1999 bank facility a
commitment fee, payable quarterly in arrears, equal to 0.375% per annum on the
daily aggregate undrawn, uncancelled amount available under the tranche A
facility and 0.75% per annum on the daily aggregate undrawn, uncancelled amount
available under the tranche B facility and tranches C, D, and F facilities and
1% under the tranche E facility.

     Turkcell will from time to time pay certain arrangement and agency fees in
connection with the 1999 bank facility, as separately agreed.

     All term loans are repayable in eight equal semi-annually instalments
commencing March 30, 2001, with the final instalment due on September 30, 2004.

     Turkcell will be required to make certain mandatory prepayments.

    SECURITY:  Indebtedness of Turkcell under the 1999 bank facility is secured
    by first ranking pledge of 22.86% of the shares of Turkcell. The 1999 bank
    facility provides for a pledge of the Company's bank accounts and insurance
    policies. The 1999 bank facility also provides a charge over substantially
    all of the existing assets of Turkcell (including without limitation any
    trademarks, brand names, databases and other intellectual property rights of
    Turkcell), and a security interest in certain contractual rights.

    Lenders under the 1999 bank facility share in the security package on an
    equal basis and rank equally with the lenders under the 1998 bank facility,
    as well as with certain swap counterparties to Turkcell and lenders of
    additional indebtedness to the extent described in relation to the 1998 bank
    facility.

    COVENANTS:  The 1999 bank facility also provides for a negative pledge on
    all assets of Turkcell, and Geocell and Azercell for so long as such
    companies are not directly or indirectly owned by Fintur Holdings B.V. as
    described below and of any material subsidiaries of Turkcell (Fintur
    Holdings B.V. is deemed not to be a subsidiary for purposes of the 1999 bank
    facility), regardless of Turkcell's ultimate ownership percentage in Fintur
    Holdings B.V. In addition to negotiated minor exceptions, Turkcell is,
    however, allowed to encumber its assets to secure certain additional
    indebtedness or swap agreements provided that the lender or swap
    counterparties under such agreements enter into the security sharing
    arrangements described above and such security meets certain requirements.

    In addition, the existing shareholders of Turkcell have severally agreed,
    among other things, to maintain certain specified levels of ownership in
    Turkcell, to limit on the transfer of equity capital in Turkcell by
    specified shareholders and to subordinate any claims (by way of
    reimbursement, subrogation or otherwise) against Turkcell as direct or
    indirect guarantors of certain existing indebtedness of Turkcell.

                                      F-114
309
        TURKCELL ILETISIM HIZMETLERI ANONIM SIRKETI AND ITS SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1999 AND 2000 AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1999
                                    AND 2000

    (AMOUNTS IN THOUSANDS OF US DOLLARS UNLESS OTHERWISE STATED EXCEPT SHARE
                                    AMOUNTS)

(19) LONG TERM BORROWINGS: (CONTINUED)

    All security granted by Turkcell and its shareholders is required to be
    released under certain circumstances after December 31, 2001 following
    repayment in full of the 1998 bank facility, after which the negative pledge
    generally would apply to Turkcell and its subsidiaries, subject only to
    negotiated de minimis exceptions.

    Under the 1999 bank facility, Turkcell is required to meet the same
    financial tests as under the 1998 bank facility.

    The 1999 bank facility also contains certain covenants which, among other
    things, limit the incurrence of additional debt, the giving of guarantees,
    the making of loans, the payment of dividends, the repurchase or redemption
    of shares, the creation of liens, subordination of the debt under the 1999
    bank facility, transactions with affiliates, asset sales, acquisitions,
    mergers and consolidations, changes in business, capital expenditures and
    the imposition of restrictions on the ability of Turkcell's subsidiaries to
    pay dividends or make payments to Turkcell.

    As under the 1998 bank facility Turkcell is permitted to transfer some or
    all of its overseas investments to Fintur Holdings B.V. in return for the
    issue of shares in that company along with a subsequent investment in Fintur
    Holdings B.V. of $25 million.

    In addition, Turkcell will be permitted to make annual investments,
    acquisitions, loans or guarantees; in years 1999 and 2000, of $100 million
    each with a sub-limit for non-Turkish investment of up to $25 million, and
    in subsequent years, of up to the greater of $100 million per annum with a
    sub-limit for non-Turkish investments of $50 million or 50% of excess cash
    flow (less dividends paid) with a sub-limit for non-Turkish investments of
    10% of excess cash flow. Investments or acquisitions above these limits will
    be permitted only from additional equity or subordinated debt.

    Turkcell also affirmatively covenants to perform certain undertakings,
    including but not limited to reimbursing the Lenders for fees associated
    with EKN, and not agreeing to any alteration of any agreement that would
    have the effect of shortening the payment date or increasing the amount due
    under certain indebtedness of Turkcell.

    The lenders under the 1999 bank facility may waive compliance with any of
    the representations, warranties, covenants, events of default and other
    provisions of the 1999 bank facility and may agree with Turkcell to amend
    such representations, warranties, covenants, events of default and other
    provisions without notice.

LOAN UNDER THE 1999 ISSUER CREDIT AGREEMENT

     On December 22, 1999, the Company entered into an Issuer Credit Agreement
(the 1999 Issuer Credit Agreement) with Cellco in connection with the issuance
by Cellco of US$400,000 12 3/4% Senior Notes due 2005 ("the Senior Notes").

     Under the 1999 Issuer Credit Agreement, Cellco has loaned to Turkcell
US$400,000. Pursuant to such loan, the net proceeds of the Senior Notes were
transferred to Turkcell and Turkcell was deemed to have borrowed the differences
of US$12,000 (representing the Senior Notes financing costs) between US$400,000,
and the amount actually advanced to Cellco as a financing fee.

     Under the 1999 Issuer Credit Agreement, Turkcell issued a note to evidence
the loan from Cellco (the Loan Note) under which amounts are payable by Turkcell
to Cellco in order that Cellco, upon receipt of such amounts, is able to satisfy
its obligations on the Senior Notes.

                                      F-115
310
        TURKCELL ILETISIM HIZMETLERI ANONIM SIRKETI AND ITS SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1999 AND 2000 AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1999
                                    AND 2000

    (AMOUNTS IN THOUSANDS OF US DOLLARS UNLESS OTHERWISE STATED EXCEPT SHARE
                                    AMOUNTS)

(19) LONG TERM BORROWINGS: (CONTINUED)

     Turkcell and Cellco had agreed, for the benefit of all holders of the
Senior Notes, that, after the issuance of the Senior Notes, they would file a
registration statement to register an exchange offer under the Securities Act of
1933 for 12 3/4% Senior Notes of Cellco (the Old Senior Notes) secured by an
assignment of Cellco's right, title and interest in and to the Issuer Credit
Agreement with terms substantially identical to the terms of the 12 3/4% Senior
Exchange Notes (the New Senior Notes) of Cellco. A registration statement for
the exchange offer was declared effective on July 11, 2000. The exchange was
completed on August 14, 2000.

    PRINCIPAL, MATURITY AND INTEREST:  The Senior Notes are limited in aggregate
    amount to US$500,000, US$400,000 of which was issued in the offering, and
    US$100,000 of which may be offered from time to time in the future subject
    to certain limitations and restrictions. In the event of such a future
    offering, the notes offered thereby would have the same terms as the Senior
    Notes. The Senior Notes mature at par on August 1, 2005, which is also the
    maturity date of the loan under the 1999 Issuer Credit Agreement dated
    December 22, 1999. The Senior Notes and also the loan under the 1999 Issuer
    Credit Agreement dated December 22, 1999 are payable as to principal (and
    premium, if any), interest, additional amounts, if any, and additional
    interest, if any. Interest on the Senior Notes and also the loan under the
    1999 Issuer Credit Agreement, accrues at the rate of 12 3/4% per annum from
    their date of original issuance and is payable semi-annually on each
    February 1 and August 1 commencing on February 1, 2000, to the persons who
    are registered holders at the close of business on the January 15 and July
    15 immediately preceding the applicable interest payment date.

    REDEMPTION:  The Senior Notes may be redeemed, at any time, or from time to
    time, on or prior to December 1, 2002, if Turkcell opts to use the net cash
    proceeds of one or more equity offerings to make prepayments under the 1999
    Issuer Credit Agreement. Cellco is required to use any such prepayments to
    redeem up to 35% of (1) the aggregate principal amount of Senior Notes
    originally issued in the offering plus (2) any additional Senior Notes
    issued after the issue date at a redemption price equal to 112 3/4% of the
    principal amount thereof plus accrued interest thereon, if any, to the date
    of redemption; provided that at least 65% of (1) the aggregate principal
    amount of Senior Notes originally issued in the offering plus (2) any
    additional Senior Notes issued after the issue date remains outstanding
    immediately after any such redemption. The Senior Notes may also be
    redeemed, in whole but not in part, at Cellco's option, upon not less than
    30 nor more than 60 days' notice at a redemption price equal to 100% of the
    principal amount, plus accrued interest to the redemption date, if any, if,
    as a result of any amendment to, or change in, the laws (or any rules or
    regulations thereunder) of the Netherlands Antilles or the Republic of
    Turkey or any political subdivision or taxing authority thereof or therein
    or any amendment to or change in any official interpretation or application
    of such laws or rules or regulations or any execution of or amendment to any
    treaty affecting taxation to which The Netherlands Antilles or the Republic
    of Turkey is a party, which amendment or change or execution is effective on
    or after the date of the Indenture, either Cellco with respect to the Senior
    Notes or Turkcell with respect to the 1999 Issuer Credit Agreement has
    become or will become obligated to pay additional amounts, on the next date
    on which any amount would be payable with respect to the Senior Notes or
    under the 1999 Issuer Credit Agreement, and such obligation can not be
    avoided by the use of reasonable measures available to Cellco or Turkcell,
    as the case may be; provided, however, that (1) no such notice of redemption
    may be given earlier than 60 days prior to the earliest date on which Cellco
    or Turkcell, as the case may be, would be obligated to pay such additional
    amounts were a payment in respect of the Senior Notes or the 1999 Issuer
    Credit Agreement then due, and (2) at the time such notice of redemption is
    given, such obligation to pay additional amounts remains in effect.

    SECURITY:  The Senior Notes are general obligations of Cellco secured by an
    assignment of Cellco's right, title and interest in and to the 1999 Issuer
    Credit Agreement. The payment of all obligations under the 1999

                                      F-116
311
        TURKCELL ILETISIM HIZMETLERI ANONIM SIRKETI AND ITS SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1999 AND 2000 AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1999
                                    AND 2000

    (AMOUNTS IN THOUSANDS OF US DOLLARS UNLESS OTHERWISE STATED EXCEPT SHARE
                                    AMOUNTS)

(19) LONG TERM BORROWINGS: (CONTINUED)

    Issuer Credit Agreement is senior in right of payment to the prior payment
    of all obligations on subordinated indebtedness of Turkcell.

    COVENANTS:  The Indenture governing the Senior Notes and the 1999 Issuer
    Credit Agreement each contain certain covenants that limit the ability of
    Cellco and Turkcell and its consolidated and unconsolidated subsidiaries to,
    among other things, incur additional indebtedness, pay dividends or make
    certain other restricted payments, consummate certain asset sales, enter
    into certain transactions with related parties, incur liens, impose
    restrictions on the ability of a subsidiary to pay dividends and make
    certain payments to Turkcell and its consolidated subsidiaries or Cellco,
    merge or consolidate with any other person, or sell, assign, transfer,
    lease, convey or otherwise dispose of all or substantially all of the assets
    of Turkcell and its consolidated subsidiaries or Cellco.

AKBANK

     On November 9, 2000 and December 5, 2000, Turkcell has signed two loan
agreements with Akbank amounting to $200 million for expenditures in GSM Phase 8
and $50 million as working capital. The loans amounting to $200 million and $50
million will be repaid in four equal semi-annual instalments, starting from May
9, 2002 and June 5, 2002, respectively, and bear interest at Libor plus 5.25%
per annum.

GARANTI

     On November 22, 2000, Turkcell has signed a loan agreement with Garanti
amounting to $150 million for expenditures in GSM Phase 8. The loan will be
repaid in four equal semi-annual instalments, starting from June 21, 2002, and
bears interest at Libor plus 5.3% per annum.

VAKIFBANK

     Borrowings of $100 million from Vakifbank have been obtained for Turkcell's
expenditures in GSM Phase 8 and, at December 31, 2000, bear an interest at
11.95% per annum. As of December 31, 2000, such borrowings will be repaid in
seven equal quarterly instalments starting from June 24, 2002.

OTHER BANK FINANCING FACILITIES

     On January 19, 2000, Kibris Telekom has signed a loan agreement with Yapi
Kredi amounting to $4.5 million for investment financing purposes. The loan will
be repaid in three annual instalments starting from January 24, 2001, and bears
interest at 7% per annum.

     Borrowings from London Forfaiting Company have been obtained for Turkcell's
expenditures in GSM Phase 3 and Phase 4B and Phase 4C and, at December 31, 2000,
bear interest at between 6.4625% and 10.3075% (1999: 6.1113% and 10.3075%) per
annum. As of December 31, 2000, borrowings related to Phase 3 will be repaid in
one instalment on March 31, 2001; borrowings related to Phase 4B will be repaid
in two equal semi-annual instalments, starting from April 18, 2000; and
borrowings related to Phase 4C will be repaid in three equal semi-annual
instalments, starting from February 20, 2001.

     Borrowings from Nordbanken have been obtained for Turkcell's expenditures
in GSM Phase 1B and Phase 2 and, at December 31, 2000, bear interest at between
5.8763% and 7.3569% (1999: 6.1438% and 6.5363%) per annum. As of December 31,
2000, borrowings related to Phase 1B will be repaid in six equal semi-annual
instalments equally, starting from January 31, 2001; initial borrowings related
to Phase 2 will be repaid in seven

                                      F-117
312
        TURKCELL ILETISIM HIZMETLERI ANONIM SIRKETI AND ITS SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1999 AND 2000 AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1999
                                    AND 2000

    (AMOUNTS IN THOUSANDS OF US DOLLARS UNLESS OTHERWISE STATED EXCEPT SHARE
                                    AMOUNTS)

(19) LONG TERM BORROWINGS: (CONTINUED)

equal semi-annual instalments, starting from May 30, 2001; and additional
borrowings related to Phase 2 will be repaid in eight equal semi-annual
instalments, starting from March 31, 2001.

     Borrowings from BB Aval have been obtained for Turkcell's expenditures in
GSM Phase 4A and, at December 31, 2000, bear interest at between 6.7948% and
9.9160% (1999: 6.7948% and 8.8813%) per annum. As of December 31, 2000, initial
borrowings will be repaid in two equal semi-annual instalments, starting from
January 17, 2001 and additional borrowings will be repaid in two equal
semi-annual instalments, starting from February 16, 2001.

     Borrowings from AB Svensk have been obtained for Turkcell's expenditures in
GSM Phase 0/1A and, at December 31, 2000, bear interest at 7.18% (1999: 6.5488%)
per annum. As of December 31, 2000, borrowings will be repaid in four equal
semi-annual instalments, starting from June 3, 2001.

     The future maturities of long-term borrowings as of December 31, 2000 are
as follows:
YEARS
-----
2001........................................................    $  437,490
2002........................................................       381,772
2003........................................................       390,807
2004........................................................       128,097
2005........................................................       700,000
                                                                ----------
                                                                $2,038,166
                                                                ==========
Generally, long-term borrowings are collateralized by bank letters of
guarantee and sureties of the Company's shareholders.

(20) LONG TERM LEASE OBLIGATIONS:

     Future minimum finance lease payments as of December 31, 2000 are:
YEARS
-----
2001........................................................    $ 18,141
2002........................................................      12,950
2003........................................................      12,949
2004........................................................      12,318
2005........................................................          --
Thereafter..................................................       9,617
                                                                --------
Total minimum lease payments................................      65,975
Less: Amount representing interest..........................     (20,891)
Less: Current instalments of obligations under finance
  leases (Note 17)..........................................     (10,612)
                                                                --------
                                                                $ 34,472
                                                                ========
(21) COMMON STOCK:

     At December 31, 2000, common stock represented 240,000,000,000
(1999:43,000,000) authorized, issued and fully paid shares with a par value of
one thousand (1999: one million) Turkish Lira each. Following a stock split
discussed in the following paragraphs, the number of shares has been restated
retroactively.
                                      F-118
313
        TURKCELL ILETISIM HIZMETLERI ANONIM SIRKETI AND ITS SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1999 AND 2000 AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1999
                                    AND 2000

    (AMOUNTS IN THOUSANDS OF US DOLLARS UNLESS OTHERWISE STATED EXCEPT SHARE
                                    AMOUNTS)

(21) COMMON STOCK (CONTINUED)

     During the year ended December 31, 1999, $3,183 was collected as advances
for share capital increase from the shareholders. As of December 31, 1999,
shares increased to 43,000,000 by issuance of 7,000,000 common shares, and,
accordingly, $22,194 of advances are recorded as common stock.

     On February 9, 2000, the Board of Directors of Turkcell proposed a
1000-for-1 stock split of the Company's 43 million issued and outstanding shares
of common stock. Upon consummation of the stock split, on May 29, 2000, the
Company's issued and outstanding common stock increased to 43 billion shares
with a nominal value of one thousand Turkish Lira each.

     On March 8, 2000, the Board of Directors of Turkcell resolved to increase
the authorized and paid in share capital (as adjusted for the proposed
1000-for-1 stock split) from 43 billion to 240 billion shares, with an adjusted
nominal value per share of one thousand Turkish Lira, through the issuance of
new shares. The shares would be issued to existing shareholders through a "bonus
share" distribution of newly issued shares in proportion to their shareholding
in the Company prior to the public offering for no consideration, and through a
rights issue. Shares issued under the rights issue would be issued for cash
based on the adjusted nominal value per share. The increase in authorized and
paid-in share capital was approved by the shareholders at the annual general
meeting on May 3, 2000. On May 29, 2000, the Company issued approximately 44.3
billion newly issued shares through distribution to existing shareholders.
Accordingly, all share amounts and per share figures reflected in the Company's
historical financial statements have been retroactively restated.

     The total effect of restatements in number of shares are as follows:
DECEMBER 31,
                                              --------------------------------------------------
                                                   1998              1999              2000
                                              --------------    --------------    --------------
Historical number of shares...............        36,000,000        43,000,000        43,000,000
After 1000-for-1 stock split..............    36,000,000,000    43,000,000,000    43,000,000,000
After bonus share distribution............    80,250,000,000    87,250,000,000    87,250,000,000
Additionally, on May 29, 2000, the Company issued 152.75 billion new shares
through the rights issue in exchange for TL 152.75 trillion (approximately
$247,000) in cash, and the number of shares increased to 240,000,000,000.

     On July 10, 2000, the Company registered with the US Securities and
Exchange Commission under the Securities Act of 1933, the offering of
25,102,963,000 shares in the form of ordinary shares and American Depository
Shares (ADS), each ADS representing 250 ordinary shares. The ordinary shares are
listed on Istanbul Stock Exchange and the ADS's are listed on the New York Stock
Exchange. 24,000,000,000 ordinary shares and ADS's were sold to the public by
the Selling Shareholders on July 11, 2000 and 1,102,963,000 ordinary shares and
ADS's were sold on August 10, 2000. The Company did not issue any new shares
directly to the public in connection with this offering. Furthermore, the
Company did not receive any proceeds from sale of shares by the Selling
Shareholders to the public.

                                      F-119
314
        TURKCELL ILETISIM HIZMETLERI ANONIM SIRKETI AND ITS SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1999 AND 2000 AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1999
                                    AND 2000

    (AMOUNTS IN THOUSANDS OF US DOLLARS UNLESS OTHERWISE STATED EXCEPT SHARE
                                    AMOUNTS)

(21) COMMON STOCK (CONTINUED)

     The following table sets forth the computation of basic and diluted
earnings per share:
YEAR ENDED DECEMBER 31,
                                        --------------------------------------------------------
                                              1998                1999                2000
                                        ----------------    ----------------    ----------------
Numerator:
Net income...........................   $        211,990    $        369,079    $        227,907
Denominator:
Weighted average shares restated as
  described above....................     67,835,152,766      85,619,768,197      87,250,000,000
Rights issue shares..................    146,136,099,934     146,136,099,934     146,136,099,934
Basic and diluted weighted average
  shares.............................    213,971,252,700     231,755,868,131     233,386,099,934
Basic and diluted net income per
  share..............................   $        0.00099    $        0.00159    $        0.00098
The weighted number of average shares has been adjusted to retroactively
reflect the bonus share element of the rights issue described above based upon
management's best estimate of the fair value of the shares on the date of
issuance.

     Bilka Bilgi Kaynak ve Iletisim A.S. (Bilka, a shareholder) claimed that it
was deprived of the right to participate in the Company's capital increase in
1998 and that, as a result, its shareholding in Turkcell was diluted in
contravention of its rights. Bilka asserted that it made timely payment of the
subscription price of the shares to be issued as part of such capital increase,
and instituted an action against Turkcell in a Turkish court to enjoin issuance
of Bilka's allotment of shares to other shareholders.

     As of December 31, 1999, the corresponding payments made by Bilka for the
1998 capital increase in the amount of $1,720, which have been held as blocked
deposits in banks, were shown in due to shareholders and other current assets.

     On May 23, 2000, the Board of Directors of Turkcell resolved to settle the
dispute among the Company, Bilka and some of the Company's shareholders and to
sign a settlement agreement with Bilka. On May 23, 2000, the settlement
agreement was registered by the court; Bilka withdrew its claims and lawsuits
were terminated. As a result of this settlement, the shareholders that acquired
the disputed Bilka shares agreed to transfer an aggregate of 2,178,411,331
shares (as adjusted to give retroactive effect to the 1000-for-one stock split
and the bonus share issue effected in May 2000) to Bilka.

     After the agreement, Bilka paid $1,825 for 2,178,411,331 shares, $1,579 of
this amount funded by amounts blocked previously.

     At the Board of Directors meeting held on October 11, 2000, it was resolved
to increase Turkcell's registered share capital to TL 500 trillion from TL 240
trillion.

                                      F-120
315
        TURKCELL ILETISIM HIZMETLERI ANONIM SIRKETI AND ITS SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1999 AND 2000 AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1999
                                    AND 2000

    (AMOUNTS IN THOUSANDS OF US DOLLARS UNLESS OTHERWISE STATED EXCEPT SHARE
                                    AMOUNTS)

(22) REVENUES:

     For the years ended December 31, 1998, 1999 and 2000, revenues consisted of
the following:
1998          1999          2000
                                                         ----------    ----------    ----------
Communication fees...................................    $  581,227    $1,372,465    $1,973,829
Monthly fixed fees...................................       105,725       186,838       214,545
Simcard sales........................................         7,901        18,137        28,131
Call center revenues (Note 25).......................            --            --         6,339
Subscription fees....................................        26,761         3,382            67
Other................................................            --            --         2,029
                                                         ----------    ----------    ----------
                                                         $  721,614    $1,580,822    $2,224,940
                                                         ==========    ==========    ==========
(23) GENERAL AND ADMINISTRATIVE EXPENSES:

     General and administrative expenses consisted of repair and maintenance,
insurance, consulting, payroll, travel, project, rent, training and bad debt
provision expenses.

(24) SELLING AND MARKETING EXPENSES:

     Selling and marketing expenses mainly consisted of advertising and
promotional expenses.

                                      F-121
316
        TURKCELL ILETISIM HIZMETLERI ANONIM SIRKETI AND ITS SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1999 AND 2000 AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1999
                                    AND 2000

    (AMOUNTS IN THOUSANDS OF US DOLLARS UNLESS OTHERWISE STATED EXCEPT SHARE
                                    AMOUNTS)

(25) RELATED PARTY TRANSACTIONS:

     For the years ended December 31, 1998, 1999 and 2000, significant
transactions with the related parties were as follows:
1998        1999        2000
                                                             --------    --------    --------
PURCHASES FROM ERICSSON TELEKOMUNIKASYON A.S.
  GSM equipment..........................................    $291,372    $756,980    $717,933
  Site preparation services..............................      37,827      90,257     181,675
  Custom expenses........................................         884       1,545       2,259
  Computer hardware......................................          --          49          --
  Computer software......................................          --          28          --
PURCHASES FROM ERICSSON RADIO COMMUNICATION LTD.
  GSM equipment..........................................       6,417          --          --
PURCHASES FROM ERICSSON TELEKOMUNIKASYON A.S.
  Construction...........................................          --       4,794          --
CHARGES FROM ERICSSON TELEKOMUNIKASYON A.S.
  Repair, maintenance and technical support..............       7,646      15,631      27,739
SALES TO AZERCELL
  GSM equipment, simcard and others......................      18,672         100         223
CHARGES TO AZERCELL
  Technical advisory services............................       1,413       1,299       1,396
SALES TO A-TEL
  Simcard and prepaid card sales.........................          --       8,383     132,457
CHARGES FROM A-TEL
  Dealer activation fees and simcard subsidies...........          --       3,660      43,859
SALES TO DIGITAL PLATFORM
  Call center revenues...................................          --          --       1,673
CHARGES FROM DIGITAL PLATFORM
  Reimbursement of the costs of its free subscriptions to
     Turkcell subscribers................................          --          --       7,203
CHARGES FROM ASLI GAZETECILIK
  Advertisement services.................................          --      15,351      18,929
CHARGES FROM SONERA CORPORATION INC.
  Technical advisory services............................         853       1,478       1,188
CHARGES FROM KVK
  Dealer activation fees and simcard subsidies...........       9,571      72,806      49,179
CHARGES FROM HOBIM BILGI ISLEM HIZMETLERI A.S.
  Invoicing service......................................          --       3,842       4,503
CHARGES FROM SUPERONLINE
  Contribution to advertising expenses and internet
     services rendered...................................          --          --       1,810
SALES TO SUPERONLINE
  Call center revenues...................................          --          --       3,007
In 2000, 1999 and during most of 1998, Ericsson Telekomunikasyon A.S. and
Ericsson Radio Communications Ltd. were no longer related parties; the above
information is given for comparison purposes (Note 15).

                                      F-122
317
        TURKCELL ILETISIM HIZMETLERI ANONIM SIRKETI AND ITS SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1999 AND 2000 AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1999
                                    AND 2000

    (AMOUNTS IN THOUSANDS OF US DOLLARS UNLESS OTHERWISE STATED EXCEPT SHARE
                                    AMOUNTS)

(25) RELATED PARTY TRANSACTIONS: (CONTINUED)

     The Company makes certain sales to Azercell consisting principally of GSM
equipment and simcards. For the years ended December 31, 1998, 1999 and 2000,
total cost of such sales was $16,019, $65 and $198, respectively.

     Turkcell has agreements or protocols with several of its shareholders,
unconsolidated subsidiaries and affiliates of the shareholders. The Company's
management believes that all such agreements or protocols are on terms that are
at least as advantageous to the Company as would be available in transactions
with third parties.

     The significant agreements are as follows:

FINANCIAL LEASE AGREEMENTS WITH YAPI KREDI FINANSAL KIRALAMA A.S.

     Turkcell has entered into a finance lease with Yapi Kredi Finansal Kiralama
A.S. (Yapi Kredi Leasing), an affiliate of Yapi ve Kredi Bankasi A.S., a
shareholder of the Company, for the new headquarters building it began to occupy
in early 1998. The purchase price of the building, and Turkcell's outstanding
lease obligation at December 31, 2000 were $14,129 and $4,316 (1999: $14,129 and
$6,114), respectively. Turkcell may purchase the building at the end of the
lease period for a nominal purchase price.

     In addition, Turkcell has entered into a lease with Yapi Kredi Leasing for
a building in Ankara for regional offices. The purchase price of the building
was $16,400, and Turkcell's outstanding lease obligation at December 31, 2000
was $13,677 (1999: $15,160). Turkcell may purchase the building at the end of
the lease period for a nominal purchase price.

PAMUKLEASE PAMUK FINANSAL KIRALAMA A.S.

     Turkcell has entered into five leases with Pamuklease Pamuk Finansal
Kiralama A.S. (formerly Interlease Inter Finansal Kiralama A.S.), a Cukurova
Group Company, for Turkcell's departments and regional offices in Istanbul,
Ankara and Izmir. The purchase price of the buildings, and Turkcell's
outstanding lease obligation at December 31, 2000 were $32,672 and $27,051
(1999: $24,752 and $22,471), respectively. Turkcell may purchase the building at
the end of the lease period for a nominal purchase price.

A-TEL

     A-Tel is a 50-50 joint venture of KVK and of a third party media company
(Sabah). A-Tel acts as the only dealer of Turkcell for Muhabbet Kart (a prepaid
card), and receives dealer activation fees and simcard subsidies for the sale of
Muhabbet Kart. Turkcell entered into campaigns with A-Tel, whereby Sabah
publishes coupons for readers in its newspaper, and those readers who collect a
certain number of coupons are entitled to free phones with Muhabbet Kart. A-Tel
activates these prepaid cards and receives simcard subsidies from Turkcell.

DIGITAL PLATFORM

     Turkcell has made a protocol with Digital Platform for sponsorship of its
pay-per-view channels. Digital Platform's pay-per-view system has been launched
in September 2000. Turkcell is sponsor of some films broadcasted in the
pay-per-view channels.

     Turkcell has entered into an advertising campaign with Digital Platform for
free distribution of DTH system equipment and free subscription for one year by
Digital Platform to selected 100,000 Turkcell subscribers, who generate average
call revenues at or above approximately USD 80/month to Turkcell. Digital
Platform delivers to such selected subscribers DTH system equipment and annual
services in aggregate worth of $116.50 (full) per

                                      F-123
318
        TURKCELL ILETISIM HIZMETLERI ANONIM SIRKETI AND ITS SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1999 AND 2000 AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1999
                                    AND 2000

    (AMOUNTS IN THOUSANDS OF US DOLLARS UNLESS OTHERWISE STATED EXCEPT SHARE
                                    AMOUNTS)

(25) RELATED PARTY TRANSACTIONS: (CONTINUED)

subscriber for free, and Turkcell bears such costs for advertising purposes.
Currently, this campaign is for Istanbul area only, and is expected to reach to
100,000 subscribers.

ASLI GAZETECILIK

     Asli Gazetecilik is a company of the Cukurova Group which owns newspapers
called Aksam and Gunes and various magazines. Cukurova Group has also its TV
(Show TV) and radio (Show FM, Alem FM, etc) stations. Asli Gazetecilik places
the advertisements of Turkcell in these newspapers and magazines and on the TV
and radio stations.

TECHNICAL ASSISTANCE AGREEMENT WITH SONERA CORPORATION INC.

     Turkcell has entered into a technical assistance agreement with Sonera
Corporation Inc., a former shareholder of the Company and an affiliate of Sonera
Holding BV, a current shareholder of the Company. Sonera Corporation Inc. has
supplied Turkcell with technical assistance on questions relating to the system:
(i) the network project and (ii) the operation and maintenance assistance
project. Under the network project, Sonera Corporation Inc. supplies Turkcell
with technical assistance relating to planning and construction services, site
management and organization and supervision of the construction and installation
work of the equipment supplier. Under the operation and maintenance assistance
project, Sonera Corporation Inc. provides technical assistance on the planning,
building up, facilitating, training and tutoring of business and technical
departments.

AGREEMENTS WITH KVK MOBIL TELEFON SISTEMLERI TICARET A.S.

     One of the principal importers of handsets and vendors of SIM cards to
Turkcell's subscribers is KVK Mobil Telefon Sistemleri Ticaret A.S. (KVK), a
Turkish company controlled by three individuals who are affiliated with the
Company's shareholders. The Company has entered into several agreements with KVK
in the form of advertisement support protocols each lasting for periods of one
to two months pursuant to which KVK must place Turkcell advertisements in
newspapers.

AGREEMENTS WITH HOBIM BILGI ISLEM HIZMETLERI A.S.

     In relation to the License Agreement, Turkcell has entered into an invoice
printing agreement with Hobim Bilgi Islem Hizmetleri A.S. (Hobim), an affiliate
of Cukurova Holding A.S., a shareholder of the Company, pursuant to which Hobim
will provide Turkcell with monthly invoice printing services for Turkcell's
subscribers. The service includes the printing of all invoices, the provision of
envelopes and the mailing of the invoices to the subscribers. In addition, Hobim
must enclose, in the billing invoice mailing envelopes, any supplemental
information, advertisements, promotions or brochures requested by Turkcell. The
initial term of the agreement is one year from the date of execution by the
parties and the agreement will be extended if either party fails to give
three-months prior notice to the other party of termination.

TECHNICAL ASSISTANCE AND MANAGEMENT SUPPORT AGREEMENT WITH AZERCELL

     Turkcell has entered into a technical assistance and management support
agreement with Azercell. In accordance with the agreement, Turkcell supplies
Azercell (i) technical assistance in planning, implementation, operation and
management of the GSM system and upgrading the system software, and (ii)
management support in billing and information technology, marketing, finance,
collection and reporting.

                                      F-124
319
        TURKCELL ILETISIM HIZMETLERI ANONIM SIRKETI AND ITS SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1999 AND 2000 AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1999
                                    AND 2000

    (AMOUNTS IN THOUSANDS OF US DOLLARS UNLESS OTHERWISE STATED EXCEPT SHARE
                                    AMOUNTS)

(25) RELATED PARTY TRANSACTIONS: (CONTINUED)

AGREEMENT WITH SUPERONLINE

     Turkcell and Superonline have entered into an agreement to provide mutual
services to each other. According to the agreement, Superonline provides dealer
automation services, web hosting services, internet access services, high speed
circuit switched data services, wireless application protocol services and
unified messaging services. Against the services provided by Superonline,
Turkcell provides space to Superonline on base station sites to install servers
and equipments to increase the performance of the system infrastructure of
Superonline.

(26) COMMITMENTS AND CONTINGENCIES:

GUARANTEES

     As of December 31, 2000, the Company is contingently liable in respect of
bank letters of guarantee obtained from Interbank A.S. and Yapi ve Kredi Bankasi
A.S. and given to Emlak Bankasi A.S. amounting to $5,833 (1999: $20,089), Turk
Telekom amounting to nil (1999: $275), the Turkish Ministry amounting to $5,000
(1999: $5,000) and customs authorities, private companies and other public
organizations amounting to $38,606 (1999: $48,471). Also, the Company is
contingently liable in an amount of $73,759 in respect of guarantees given to
Banque Nationale de Paris, Webster Bank and BNP Dresdner Bank for the loans
obtained by Digital Platform in order to finance the purchase of set-top boxes
and in an amount of $15,000 in respect of the guarantee given to Yapi Kredi for
the bank letter of guarantee obtained by Superonline.

LICENSE AGREEMENT

     On April 27, 1998, Turkcell signed a license agreement (the License
Agreement or License) with the Turkish Ministry. In accordance with the License
Agreement, Turkcell was granted a 25 year GSM license for a license fee of
$500,000. The License Agreement permits Turkcell to operate as a standalone GSM
operator and free it from some of the operating constraints which were stated in
the Revenue Sharing Agreement. Under the License, Turkcell collects all of the
revenue generated from the operations of its GSM network and pays the Turkish
Treasury an ongoing license fee equal to 15% of Turkcell's gross revenue.
Turkcell also continues to build and operate its GSM network and is authorized
to, among other things, set its own tariffs within certain limits, charge peak
and off-peak rates, offer a variety of service and pricing packages, issue
invoices directly to subscribers, collect payments and deal directly with
subscribers.

     The License contains a number of requirements, including requirements
regarding the build-out, operation, quality and coverage of Turkcell's GSM
network, prohibitions on anti-competitive behaviour and compliance with national
and international GSM standards. Turkcell may incur significant penalties for
delays in meeting these coverage requirements. Failure to meet any requirement
in the License, or the occurrence of extraordinary unforeseen circumstances, can
also result in revocation of the License, including the surrender of the GSM
network without compensation, or limitation of Turkcell's rights thereunder, or
could otherwise adversely affect Turkcell's regulatory status. Certain
conditions of the License Agreement are as follows:

    COVERAGE:  The License Agreement requires that Turkcell meets certain
    coverage and technical criteria. Accordingly, Turkcell must attain
    geographical coverage of 50% and 90% of the population of Turkey with
    certain exceptions within three years and five years, respectively, of the
    License's effective date.

    SERVICE OFFERINGS:  The License Agreement requires that Turkcell provide
    certain services which, in addition to general GSM services, include free
    emergency calls and technical assistance for subscribers, free call
    forwarding to police and other public emergency services, receiver-optional
    short messages, video text

                                      F-125
320
        TURKCELL ILETISIM HIZMETLERI ANONIM SIRKETI AND ITS SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1999 AND 2000 AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1999
                                    AND 2000

    (AMOUNTS IN THOUSANDS OF US DOLLARS UNLESS OTHERWISE STATED EXCEPT SHARE
                                    AMOUNTS)

(26) COMMITMENTS AND CONTINGENCIES: (CONTINUED)

    access, fax capability, calling and connected number identification and
    restrictions, call forwarding, call waiting, call hold, multi-party and
    third-party conference calls, billing information and barring of a range of
    outgoing and incoming calls.

    SERVICE QUALITY:  In general, Turkcell must meet all the technical standards
    of the GSM MoU as determined and updated by the European Telecommunications
    Standards Institute and Secretariat of the GSM MoU. Service quality
    requirements include that call blockage cannot exceed 5% and unsuccessful
    calls cannot exceed 2%. The Turkish Ministry has the right to monitor
    Turkcell's service standards, compile information and take action to
    guarantee subscriber rights.

    TARIFFS:  The License Agreement regulates Turkcell's ability to determine
    its tariffs for GSM services. Accordingly, after consultation with Turkcell
    and consideration of tariffs applied abroad for similar services, the
    Turkish Ministry sets the initial tariffs in Turkish Lira and US Dollar.
    Thereafter, the License provides that the Turkish Ministry will adjust the
    maximum tariffs at least every six months or, if necessary, more frequently.
    Turkcell is free to set its own tariffs up to the maximum tariffs.

    RIGHTS OF THE TURKISH MINISTRY, SUSPENSION AND TERMINATION:  The License is
    not transferable without the approval of the Turkish Ministry. In addition,
    the License Agreement gives the Turkish Ministry certain monitoring rights
    and access to Turkcell's technical and financial information and allows for
    inspection rights, and gives certain rights to suspend operations under
    certain circumstances. Also, Turkcell is obliged to submit financial
    statements, contracts and investment plans to the Turkish Ministry.

    The Turkish Ministry may suspend Turkcell's operations for a limited or an
    unlimited period if necessary for the purpose of public security and
    national defence. During the period of suspension, the Turkish Ministry may
    operate Turkcell's GSM network. Turkcell is entitled to any revenues
    collected during such period and the Licensee's term will be extended by the
    period of any suspension.

    The Turkish Ministry may terminate the License upon a bankruptcy ruling
    against Turkcell by a competent court or a bankruptcy compromise decision
    that is not reversed or dismissed within 90 days after notice from the
    Turkish Ministry; or upon Turkcell's failure to perform its obligations
    under the License Agreement where such failure is not cured within 90 days
    after notice from the Turkish Ministry; or if Turkcell operates outside the
    allocated frequency ranges and fails to terminate such operations within 90
    days after notice from the Turkish Ministry; or if Turkcell fails to pay
    amounts payable under the License within 90 days. In the event of
    termination by the Turkish Ministry, Turkcell must deliver the entire GSM
    network to the Turkish Ministry. Finally, if the Turkish Ministry terminates
    the License for Turkcell's failure to perform its obligations under the
    License, Turkcell must surrender the performance guarantee.

    In the event of a termination of the License, Turkcell's rights to use
    allocated frequencies and to operate the GSM network cease. Upon the
    scheduled expiration of the License Agreement without renewal, Turkcell must
    transfer to the Turkish Ministry (or any organization designated by the
    Turkish Ministry), without consideration, the network management center, the
    gateway exchanges and central subscription system, including related
    technical equipment, immovables and installations essential for the
    operation of the network.

    Any revocation or limitation of, or failure to renew, the License, or
    failure to renew the License upon commercially reasonable terms would have a
    material adverse effect on the consolidated financial position, results of
    operations, or liquidity of the Company.

                                      F-126
321
        TURKCELL ILETISIM HIZMETLERI ANONIM SIRKETI AND ITS SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1999 AND 2000 AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1999
                                    AND 2000

    (AMOUNTS IN THOUSANDS OF US DOLLARS UNLESS OTHERWISE STATED EXCEPT SHARE
                                    AMOUNTS)

(26) COMMITMENTS AND CONTINGENCIES: (CONTINUED)

INTERCONNECTION AGREEMENT WITH TURK TELEKOM

     On April 24, 1998, Turkcell and Turk Telekom entered into an
interconnection agreement (the Interconnection Agreement) providing for the
interconnection of Turkcell's GSM network with Turk Telekom's fixed line
network. The Interconnection Agreement will terminate automatically upon the
expiry of the License period or on termination of the License Agreement by the
Turkish Ministry or for any other reason.

     There can be no assurance that Turkcell or Turk Telekom can or will be able
to perform their respective obligations under the Interconnection Agreement. In
the event that Turk Telekom were to fail to perform its obligations under the
Interconnection Agreement, depending on the nature of the failure, the result
could be interference with Turkcell's ability to provide high quality service to
its subscribers. Rates under the Interconnection Agreement are fixed for two
years and thereafter subject to renegotiation. The failure of Turk Telekom to
perform its obligations under the Interconnection Agreement; or the failure by
Turk Telekom to make payments to the Company under the Interconnection Agreement
because of insolvency or otherwise; or any significant rate changes could have a
material adverse effect on the consolidated financial position, results of
operations, or liquidity of the Company.

     Call Tariffs:  Turkcell pays Turk Telekom a net amount of 1.4 cents per
minute for local traffic and a net amount of 2.5 cents per minute for
metropolitan and long distance traffic switched from Turkcell to Turk Telekom.

INTERCONNECTION AGREEMENT WITH TELSIM

     Turkcell and Telsim Mobil Telekomunikasyon Hizmetleri A.S. (Telsim) entered
into an interconnection agreement dated October 4, 1999. Under the Telsim
interconnection agreement, each party agreed, among other things, to permit the
interconnection of its network with the other's network to enable calls to be
transmitted to, and received from, the GSM system operated by each party in
accordance with technical specifications set out in the interconnection
agreement.

     The Telsim interconnection agreement establishes understandings between the
parties relating to a number of key operational areas, including call traffic
management, and also contemplates that Turkcell and Telsim will agree to the
contents of various manuals that will set forth in detail additional
specifications concerning matters which are not specifically covered in the
Telsim interconnection agreement. These matters include quality and performance
standards, interconnection interfaces and other technical, operational, and
procedural aspects of interconnection.

     Under the Telsim interconnection agreement, Turkcell and Telsim agree to
permit each other to utilize Turk Telekom's premises as well as any transmission
equipment located in public areas such as coach terminals, airports, sea ports,
shopping and other trade centers and other indoor infrastructure that is
allocated to either Turkcell or Telsim.

     Payments:  The Telsim interconnection agreement provides for the payment of
fees by Turkcell to Telsim for the interconnection services provided by Telsim.
A number of the provisions of the Telsim interconnection agreement address
matters concerning billing and payment of bills for services rendered under the
Telsim interconnection agreement. Each party is required to record certain call
information and to provide that information to the other party. Each party is
responsible for invoicing the other party on a monthly basis.

     Call Tariffs:  Turkcell pays Telsim a net amount of 1.4 cents per minute
for local traffic and a net amount of 2.5 cents per minute for metropolitan and
long distance traffic switched from Turkcell to Telsim.

                                      F-127
322
        TURKCELL ILETISIM HIZMETLERI ANONIM SIRKETI AND ITS SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1999 AND 2000 AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1999
                                    AND 2000

    (AMOUNTS IN THOUSANDS OF US DOLLARS UNLESS OTHERWISE STATED EXCEPT SHARE
                                    AMOUNTS)

(26) COMMITMENTS AND CONTINGENCIES: (CONTINUED)

     The Telsim interconnection agreement will remain in force for the period of
the License period unless one of the parties serves a three-month termination
notice to the other party.

LEGAL PROCEEDINGS

     The Company is involved in various claims and legal actions arising in the
ordinary course of business described below.

Dispute on Treasury Share

     Article 5 of the License Agreement defines the gross revenues as the total
of subscription fees, monthly fixed fees and communication fees including all
taxes, duties, fees and funds thereon, and Article 8 defines the monthly payment
to the Turkish Treasury to be computed as 15% of the monthly gross revenues
(Treasury Share). Turkcell management and its legal counsel interpreted the
taxes, duties, fees and funds, being those except value added tax (VAT),
education fund and frequency usage and transmission fee, which are all billed to
and collected from subscribers via monthly invoices and then paid to related
government authorities. Since Turkcell acted as an intermediary of related
government authorities to collect these duties, funds, fees and taxes and since
there is no comparable example in other license agreements signed in Turkey,
Turkcell management and its legal counsel did not interpret the description of
gross revenue as including such funds, fees and taxes and accordingly did not
pay 15% of such collections from subscribers to the Turkish Treasury starting
from the date of the License Agreement.

     On November 8, 1999, the Turkish Ministry notified Turkcell and Telsim, the
other GSM network operator in Turkey, that the Supreme Court (the Danistay) had
decided by the majority of the votes of its members that the interpretation of
the Turkish Ministry was correct, and that from November 1999 onwards the
license fee should have been calculated according to the Turkish Treasury's
method.

     On November 18, 1999, the Turkish Treasury notified Turkcell, by referral
to the decision of the Danistay and the letter of the Turkish Ministry, that the
license fees should retroactively be recalculated from the date of the License
Agreement, April 27, 1998, and paid to the Turkish Treasury applying the legal
interest rate on the unpaid balance over the period these should have been paid.

     The cumulative amount of VAT, education fund, and frequency usage and
transmission fees from April 27, 1998 until December 31, 1999 was $264,126 and
15% of this amount, being $7,482 for the year ended December 31, 1998 and
$32,137 for the year ended December 31, 1999, represented the unpaid Treasury
Share. The legal interest rate as applied on the unpaid balance resulted in
$12,536 interest for the year ended December 31, 1998 and $15,424 for the year
ended December 31, 1999. On November 30, 1999, Turkcell initiated an
administrative suit at the Danistay against the Turkish Ministry and the Turkish
Treasury. On December 29, 1999, Turkcell obtained an injunction to prevent the
Turkish Treasury from collecting the license fee with respect to the disputed
amounts. The Turkish Ministry and the Turkish Treasury have appealed the
granting of the injunction. On February 16, 2000, the Danistay lifted the
injunction with respect to the license fee payable on collections of VAT but
upheld the injunction in respect of the education fund and frequency usage and
transmission fees. Subsequent to the Danistay's decision on February 16, 2000,
the Turkish Ministry and the Turkish Treasury filed a challenge to the
Danistay's decision to uphold the injunction with respect to the education fund
and frequency usage and transmission fees, which was rejected on April 21, 2000.
On March 24, 2000, Turkcell paid $57,163, out of which $51,900 relates to year
1999 and before, as Treasury Share on VAT and its accrued late payment interest.
Accordingly, as of December 31, 1999, the Company accrued for $30,844 Treasury
Share on VAT and $21,056 interest on this account and charged to statement of
operations for the year

                                      F-128
323
        TURKCELL ILETISIM HIZMETLERI ANONIM SIRKETI AND ITS SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1999 AND 2000 AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1999
                                    AND 2000

    (AMOUNTS IN THOUSANDS OF US DOLLARS UNLESS OTHERWISE STATED EXCEPT SHARE
                                    AMOUNTS)

(26) COMMITMENTS AND CONTINGENCIES: (CONTINUED)

then ended. Turkcell has continued to pursue its claim to recover the $57,163
payment and filed a challenge against the Danistay's decision to lift the
injunction concerning VAT on March 27, 2000 which was rejected on April 21,
2000.

     The Treasury Share on education fund, frequency usage and transmission fees
as of December 31, 1999 and 2000 are $9,769 and $24,157, respectively. Had the
Danistay ruled in favour of the Turkish Treasury then the cumulative legal
interest, as applied from April 27, 1998, as of December 31, 1999 and 2000 would
result in $7,847 and $16,801, respectively. Consequently, unpaid Treasury Share
amounts with respect to the education fund, frequency usage and transmission
fees, including interest amounted to $17,616 and $40,958 as of December 31, 1999
and 2000, respectively. Turkcell has not recorded any accrual for these amounts,
since the management and its legal counsel are of the opinion that the Turkish
Ministry and the Turkish Treasury will not pursue their claims for these amounts
any further and if they did the Company and its legal counsel believe it will
prevail with respect to payment of the Treasury Share on education fund,
frequency usage and transmission fees.

Dispute on VAT on License Fee:

     On May 4, 2000, Turkcell received a notice from the Istanbul Bogazici Tax
Office of the Turkish Ministry of Finance, or the Tax Office, asserting
deficiencies in VAT declarations for the month of April 1998. The Tax Office
claimed that Turkcell should have paid VAT on the $500 million upfront license
fee paid to the Turkish Treasury. The notice stated that, based on calculations
made by the Tax Office on February 29, 2000, Turkcell should have paid TL 18.6
trillion VAT (equivalent to $27,735 as of December 31, 2000) on the upfront
license fee in April 1998. The Tax Office has also imposed late interest charges
equal to TL 48.1 trillion (equivalent to $71,557 as of December 31, 2000) and a
penalty fee of TL 37.3 trillion (equivalent to $55,470 as of December 31, 2000).
The Tax Office's position is premised on its view that the License was not
transferred or sold to the Company but leased for a period of 25 years.
Accordingly, the Tax Office claimed that under Turkish law, VAT should be paid
on the upfront license fee and that the Company should pay the VAT because the
lessor, the Turkish Ministry, is not a registered tax-payer.

     The Tax Office also instituted a sequestration process to secure its claim
in the total amount of TL 104 trillion (equivalent to $154,762 as of December
31, 2000). Accordingly, Turkcell has replied to the Tax Office on May 17, 2000
and declared the fixed assets in the total amount of TL 104 trillion to be
pledged. These fixed assets have been pledged by the Tax Office as security of
this potential liability. On March 21, 2001, pledge on the fixed assets has been
removed.

     If the Tax Office prevails in this case, Turkcell will have a payable to
the Tax Office for the amount of VAT which will be offset by a VAT recoverable
in the same amount and will not result in cash outflow from Turkcell for the VAT
payment. However, as of December 31, 2000, the interest charge on the unpaid VAT
of $87,920 and the penalty fee of $55,470 would have to be paid. Management
believes that the Company has meritorious defenses against the Tax Office's
claims.

     Turkcell has filed a petition in the Tax Court to challenge all
deficiencies as ruled by the Tax Office of the Turkish Ministry of Finance. The
Tax Court has rejected the claim and Turkcell has appealed the case.

     Although the case is still pending at the Danistay, the Tax Office
requested on March 16, 2001 that Turkcell pay VAT on the upfront license fee as
well as the late payment interest on the unpaid VAT and the penalty fee. While
continuing the court challenge the Company established a payment schedule for
such amounts. In accordance with the payment schedule, Turkcell is required to
pay VAT on the upfront license fee amounting to TL 18.6 trillion (equivalent to
$27,735 and $18,501 as of December 31, 2000 and March 16, 2001, respectively),

                                      F-129
324
        TURKCELL ILETISIM HIZMETLERI ANONIM SIRKETI AND ITS SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1999 AND 2000 AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1999
                                    AND 2000

    (AMOUNTS IN THOUSANDS OF US DOLLARS UNLESS OTHERWISE STATED EXCEPT SHARE
                                    AMOUNTS)

(26) COMMITMENTS AND CONTINGENCIES: (CONTINUED)

the outstanding interest charge amounting to TL 60.7 trillion (equivalent to
$90,417 and $60,315 as of December 31, 2000 and March 16, 2001, respectively)
and a penalty fee amounting to TL 9.3 trillion (equivalent to $13,867 and $9,251
as of December 31, 2000 and March 16, 2001, respectively). On March 16, 2001,
Turkcell paid $21,280 of which $18,501 was for VAT on the upfront license fee
and $2,779 was for outstanding interest charges. The remaining TL 67.3 trillion
(equivalent to $66,787 as of March 16, 2001) was to be payable in fifteen
monthly instalments starting March 30, 2001. The first instalment was for TL 5.4
trillion (equivalent to $5,313 as of March 16, 2001) and the remaining
instalments were to be in equal amounts of TL 4.4 trillion (equivalent to $4,391
as of March 16, 2001).

     On March 21, 2001, the Company also provided a bank letter of guarantee
from Yapi ve Kredi Bankasi to the Tax Office amounting to TL 68.0 trillion
(equivalent to $70,005 as of March 21, 2001).

     On April 12, 2001, the Istanbul Fifth Tax Court reduced the outstanding
interest charge from TL 60.7 trillion to TL 11.1 trillion (equivalent to $16,558
and $11,045 as of December 31, 2000 and March 16, 2001, respectively).

     In addition to the foregoing, the Company did not pay any VAT on the
ongoing license fees paid to the Turkish Treasury since this was also not stated
in the License Agreement at the time the License was acquired. There can be no
assurance that the Tax Office will not claim that Turkcell should have paid VAT
on the Treasury Share. Cumulative Treasury Share paid since April 28, 1998,
(including the additionally paid Treasury Share on VAT, as described above) is
TL 352.7 trillion (equivalent to $525,106 as of December 31, 2000) as of
December 31, 2000. The VAT rate was 15% for all years until December 1999 and
increased to 17% thereafter. In the event that the Tax Office were to require
payments for VAT, interest and penalty charges would also be computed on such
balance. The Company and its legal counsel believe that if such claim is
asserted, the Company will prevail. Therefore, Turkcell has not recorded any
accrual for the unpaid interest and penalties on VAT on the Treasury Share.

Dispute on Monthly Fixed Fees:

     As of March 31, 2001, Turkcell was involved in 7,484 (December 31, 2000:
7,249) legal proceedings with individual subscribers demanding that Turkcell
stops charging monthly fixed fees and reimburse such fees already paid by them.
As of March 31, 2001, 1,651 (December 31, 2000: 1,510) of such cases by
subscribers were either rejected by the local courts or transferred to the
Consumer Court for final decision, 3,604 (December 31, 2000: 3,063) of them were
decided on in favour of Turkcell, 9 (December 31, 2000: 8) of them were decided
against Turkcell and 2,220 (December 31, 2000: 2,668) appeals were pending. The
monthly fixed payment is expressly contemplated under the License Agreement. In
addition, the Company's subscription agreements with its postpaid customers as
approved by the Ministry of Transportation allow the Company to charge monthly
fixed fees and the postpaid customers agree to pay the fees in the subscription
agreements they sign with the Company.

     Further, the License Agreement requires the Company to include the monthly
fixed payment in computing the amount of fees payable to the Treasury under the
License. The Telecommunications Law also allows for the charging of fixed fees.
Accordingly, the Company believes that it is correctly charging and collecting
this monthly fixed fee.

Dispute on Turk Telekom Interconnection Fee:

     Turk Telekom notified Turkcell on February 14, 2000 that it was modifying
the method by which it calculates the interconnection fee that it pays to
Turkcell. Turk Telekom believes that it should be permitted to

                                      F-130
325
        TURKCELL ILETISIM HIZMETLERI ANONIM SIRKETI AND ITS SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1999 AND 2000 AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1999
                                    AND 2000

    (AMOUNTS IN THOUSANDS OF US DOLLARS UNLESS OTHERWISE STATED EXCEPT SHARE
                                    AMOUNTS)

(26) COMMITMENTS AND CONTINGENCIES: (CONTINUED)

deduct from the revenues used to determine the interconnection fee, the 15%
"fund" payment that it pays to the Treasury and a 2.5% payment that it pays to
the Turkish Radio and Television Institution, which is a payment that Turk
Telekom was required to make during 2000 only. Based on this position, Turk
Telekom withheld $11,367 from the amount it paid to Turkcell for interconnection
for the first two months of 2000. Turkcell believes that Turk Telekom's position
is contrary to the terms of the Interconnection Agreement. Subsequently, on
April 25, 2000, the Company obtained an injunction from the commercial court
preventing Turk Telekom from calculating the interconnection fee in this manner
from March 1, 2000 onwards, and on May 4, 2000, Turkcell commenced a lawsuit
against Turk Telekom to recover the $11,367 it retained with respect to the
first two months of 2000.

     On October 5, 2000, the Court ruled against Turkcell in its lawsuit to
recover the $11,367 already retained by Turk Telekom for the first two months of
2000 and lifted the injunction the Company obtained on April 25, 2000. Turk
Telekom subsequently notified the Company on October 16, 2000 that it was
requesting payment for TL 37.5 trillion (equivalent to $55,819 as of December
31, 2000) representing the amount Turk Telekom would have deducted from its
revenues for the period between March 2000 and September 2000. Turkcell paid
Turk Telekom a first instalment of TL 16.0 trillion (equivalent to $23,965 as of
December 31, 2000) with a reservation. On November 3, 2000, Turkcell obtained an
injunction to prevent Turk Telekom from continuing to calculate their
interconnection fee in this manner and on November 10, 2000, the Company filed a
second lawsuit to recover the TL 16.0 trillion (equivalent to $23,965 as of
December 31, 2000) paid to Turk Telekom as its first instalment. The Company
also filed an appeal against the Court's decision of October 5, 2000. Out of the
total additional interconnection fee of $91,151 including interest of $3,828,
$35,332 was paid to Turk Telekom and liability was recorded for the unpaid
portion of $55,819 in the consolidated financial statements as of and for the
year ended December 31, 2000.

Dispute on Turk Telekom Interconnection Agreement:

     The Turkish Electrical Engineers' Society commenced a lawsuit against Turk
Telekom in the Ninth Administrative Court. In the lawsuit, the Turkish
Electrical Engineers' Society claimed that the Interconnection Agreement
violates public policy and the provisions of the Turkish Constitution relating
to the protection of consumers and prevention of monopoly and cartels. On
October 11, 2000, the Court annulled Annex 1-A.1 of the Interconnection
Agreement, which deals with call tariffs. Although, Turkcell was not a party to
the lawsuit, the Company's interest has been affected by the decision.

     On November 20, 2000, Turkcell was informed of the Court's decision and
received notification from Turk Telekom that all interconnection fees since the
acquisition of the License paid by Turkcell to Turk Telekom and by Turk Telekom
to Turkcell must be the same to comply with the Court's decision, should be
retroactively calculated from the date of the License and include the statutory
interest rate on the unpaid balance. Turkcell initiated an action before the
commercial court to cancel Turk Telekom's request until it agrees with Turk
Telekom to replace the cancelled provisions of the Interconnection Agreement.
The case is still pending and Turkcell obtained an injunction which is currently
in effect preventing Turk Telekom from collecting this amount. The Company and
its legal counsel believe that the Company will prevail in this matter.

Dispute on Additional Treasury Share on Value Added Services and Other Charges:

     On November 2, 2000, Turkcell received a notice from the Turkish Ministry
stating that certain value added services, transaction fees, roaming revenues
and interest charges for late collections should be included in the
determination of ongoing license fees paid to the Turkish Treasury. The Turkish
Treasury informed the Company that the license fees for all such services would
be retroactively recalculated from the date of the License

                                      F-131
326
        TURKCELL ILETISIM HIZMETLERI ANONIM SIRKETI AND ITS SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1999 AND 2000 AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1999
                                    AND 2000

    (AMOUNTS IN THOUSANDS OF US DOLLARS UNLESS OTHERWISE STATED EXCEPT SHARE
                                    AMOUNTS)

(26) COMMITMENTS AND CONTINGENCIES: (CONTINUED)

Agreement and paid to the Turkish Treasury applying the statutory interest rate.
On December 22, 2000, Turkcell initiated a suit against the Turkish Ministry and
the Turkish Treasury before the Administrative Court to enjoin the Turkish
Ministry and the Turkish Treasury from charging the Company these fees. The
Company and its legal counsel believe that the Company has a meritorious claim.
Therefore, the Company has not recorded any accrual for payment of additional
ongoing license fees for such services, revenues and interest. If the case is
resolved in favour of the Turkish Treasury, the Company will be liable to the
Turkish Treasury for an amount of $89,786 including interest of $31,631.

Class action lawsuit against Turkcell:

     On November 22, 2000, a purported class action lawsuit was initiated in the
United States District Court for the Southern District of New York against
Turkcell and other defendants. The complaint alleges that the prospectus issued
in connection with Turkcell's initial public offering in July 2000 contains
false and misleading statements regarding Turkcell's "churn rate" and omits
material financial information.

     The plaintiff brought the lawsuit as a class action on behalf of
individuals and entities that purchased Turkcell's American Depository Shares,
or ADSs, at or traceable to the initial public offering. The plaintiff seeks to
recover damages pursuant to sections 11 and 15 of the Securities Act of 1933 for
the difference between the price each purchaser paid for ADSs and either the
price of the ADSs at the time the complaint was filed or the price at which such
ADSs were sold if sold prior to November 22, 2000.

     Since November 2000, approximately ten substantially identical purported
class action lawsuits have been filed on behalf of the same class. On March 5,
2001, the Court consolidated the lawsuits, appointed lead plaintiff and
appointed lead counsel. On March 29, 2001, plaintiffs in securities lawsuits
against Turkcell filed a consolidated and amended class action complaint, which
alleges that the prospectus issued in connection with Turkcell's initial public
offering in July 2000 contained false and misleading statements regarding
Turkcell's churn rate and omitted material financial information. Turkcell has
not yet filed a response to the complaints, but it intends to contest the
lawsuits vigorously. At this point in the litigation it is premature to estimate
Turkcell's potential liability, if any, from the class action lawsuits.

Dispute on discounts on transmission lines leases:

     Currently Turkcell leases all of its transmission lines from Turk Telekom.
It is required to do so to the extent that Turk Telekom can satisfy Turkcell's
requirements. Turk Telekom's monopoly on providing transmission lines is
scheduled to expire at the end of 2003. Effective from July 1, 2000, Turk
Telekom terminated the 60% discount that it had provided to Turkcell for several
years, and Turk Telekom instead began to provide it with a discount of 25%
subject to certain conditions. On July 4, 2000, Turkcell filed a lawsuit against
Turk Telekom requesting the court to rule on the legality of Turk Telekom
reducing the discount to 25% and obtained an injunction preventing Turk Telekom
from terminating the 60% discount. On November 21, 2000, the Court ruled in
favour of Turk Telekom and lifted the injunction. Turkcell filed an appeal
against the decision. In addition, Turkcell applied to the Competition Board of
Turkey to enjoin Turk Telekom from terminating the discount and to fine Turk
Telekom for its action. If the case is resolved in favour of Turk Telekom,
Turkcell will be liable to Turk Telekom in an amount of $48,126 including
interest of $4,498. The Company has not recorded an accrual for such amounts
because management and its legal counsel have not reasonably estimated the
possible outcome of this uncertainty. Although the case is still pending, Turk
Telekom requested that Turkcell pay the difference between 25% discount and 60%
discount. While continuing the court challenge, in order to retain its right to
use Turk Telekom's transmission lines the Company paid approximately TL 37.2
trillion (equivalent to $55,376 and

                                      F-132
327
        TURKCELL ILETISIM HIZMETLERI ANONIM SIRKETI AND ITS SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1999 AND 2000 AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1999
                                    AND 2000

    (AMOUNTS IN THOUSANDS OF US DOLLARS UNLESS OTHERWISE STATED EXCEPT SHARE
                                    AMOUNTS)

(26) COMMITMENTS AND CONTINGENCIES: (CONTINUED)

$35,209 as of December 31, 2000 and March 30, 2001) including VAT of
approximately TL 7.3 trillion (equivalent to $10,867 and $6,909 as of December
31, 2000 and March 30, 2001, respectively) and interest of approximately TL 0.8
trillion (equivalent to $1,191 and $757 as of December 31, 2000 and March 30,
2001, respectively) as of March 30, 2001.

Dispute on tariff increase of transmission lines leases:

     In addition, on March 2, 2001, Turk Telecom unilaterally increased the fees
it charges the Company for access to its transmission lines by 100% effective
from April 1, 2001, and refused to lease the Company any further transmission
lines. The Company intends to obtain an injunction to compel Turk Telekom to
lease additional transmission lines to the Company and intends to initiate a
lawsuit against Turk Telekom to rule on the legality of Turk Telekom's increase
in the transmission line fees and their refusal to lease additional transmission
lines.

OPERATING LEASES

     The Company has entered into various operating lease agreements. At
December 31, 2000, there were no commitments and contingent liabilities in
material amounts arising from those agreements.

     For the years ended December 31, 1998, 1999 and 2000, total rental expenses
for operating leases were $7,097, $24,800 and $29,881, respectively.

(27) CONCENTRATIONS:

     In 1997 through 2000, the Company's operations were substantially all
inside Turkey. However, as explained in Note 1, the Company has investments in
Kibris Telekom (Northern Cyprus), GSM Kazakhstan (Kazakhstan), Azercell
(Azerbaijan), Geocell (Georgia) and Fintur (The Netherlands). (1999: GSM
Kazakhstan (Kazakhstan), Azercell (Azerbaijan) and Geocell (Georgia)). At
December 31, 2000, net assets at Kibris Telekom and Fintur were $11,908 and
$234,722, respectively. (1999: Kibris Telekom $6,458, GSM Kazakhstan $25,244,
Azercell $62,604 and Geocell $19,223)

     Until April 27, 1998, almost all of the Company's revenues were generated
from GSM services provided in accordance with the Revenue Sharing Agreement with
Turk Telekom. In accordance with the Revenue Sharing Agreement, Turkcell and
Turk Telekom shared revenues billed for subscription fees, monthly fixed fees
and ongoing calls at a ratio of 32.9% and 67.1%, respectively. In addition,
Turkcell received 10% of revenues billed for incoming calls. Since, Turk Telekom
invoiced the subscription fees to and collected them from subscribers directly,
the Company invoiced its share in the revenues to Turk Telekom, and
consequently, Turk Telekom was the Company's sole customer. Total revenues
earned from Turk Telekom in accordance with the Revenue Sharing Agreement were
$69,677 in 1998. Revenues earned from and charges incurred by Turk Telekom in
accordance with the Interconnection Agreement were $511,423 and $91,627 for the
year ended December 31, 2000 (for the period from April 27, 1998 to December 31,
1998: $163,392 and $40,364; 1999: $376,499 and $77,361). The net receivable from
Turk Telekom was $52,889 and $26,083 at December 31, 1999 and 2000,
respectively.

     The Company makes a substantial portion of its purchases of goods and
services related to GSM investments from Ericsson Telekomunikasyon A.S. (a
subsidiary of Ericsson Radio Communication Ltd, one of the former shareholders
of the Company). Total purchases and charges from Ericsson Telekomunikasyon A.S.
were $337,729 in 1998, $869,284 in 1999, and $929,607 in 2000, respectively, and
outstanding balance to this company was $109,655 and $132,885 at December 31,
1999 and 2000, respectively.

                                      F-133
328
        TURKCELL ILETISIM HIZMETLERI ANONIM SIRKETI AND ITS SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1999 AND 2000 AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1999
                                    AND 2000

    (AMOUNTS IN THOUSANDS OF US DOLLARS UNLESS OTHERWISE STATED EXCEPT SHARE
                                    AMOUNTS)

(27) CONCENTRATIONS (CONTINUED)

     In principle, the Company's revenues are generated in Turkish Lira. Certain
sales and purchases and, resulting receivables and payables, are in currencies
different than the operating currency. Further, the Company has loans payable
denominated in currencies different than its operating currency. Transaction
gains and losses on these receivables and payables are included in the
determination of earnings, but eliminated during translation of the financial
statements, if such currency is the US Dollar.

(28) SUBSEQUENT EVENTS:

     At the Board of Directors meeting held on January 19, 2001 it was resolved
that 1,200,000 shares in Bilisim, 75,000 shares in Digikids, 150,000 shares in
Hayat and 350,000 shares in Siber with a par value of 1 million TL each to be
transferred to Turktell in exchange for the nominal paid-in share capital paid
by the Company (TL 75,000 million for Digikids and 87,500 million for Siber).
Turktell will also pay the share capital commitment of the transferred shares.
On January 22, 2001, the transfers have been realized.

     At the Board of Directors meeting of Turktell held on January 19, 2001, it
was resolved that Turktell will acquire total 599,998 shares of Bilisim (299,999
and 299,999 shares owned by Superonline and Digital Platform, respectively),
total 104,998 shares of Digikids (44,999 and 59,999 shares owned by Superonline
and Digital Platform, respectively), total 24,998 shares of Hayat (12,499 and
12,499 shares owned by Superonline and Digital Platform, respectively) and total
99,998 shares of Siber Egitim (49,999 and 49,999 shares owned by Superonline and
Digital Platform, respectively) with a par value of one million TL each in
exchange for the nominal share capital paid by Superonline and Digital Platform
(TL 104,998 million for Digikids, TL 3,125 million for Hayat paid by Superonline
only and TL 25,000 million for Siber Egitim). Turktell will also pay the share
capital commitment of the acquired shares. After these acquisition, the
ownership interest of the Company in Bilisim, Digikids, Hayat and Siber Egitim
will increase to 70%, 60%, 75% and 50%, respectively.

     On January 30, 2001, Turkcell signed a purchase contract with Ericsson
Telekomunikasyon A.S. for an amount of $400,000. With the contract signed,
Turkcell will be able to purchase several latest GSM innovations. The contract
will allow Turkcell to upgrade and develop its GSM system infrastructure.

     Significant economic difficulties have emerged in Turkey during the year
2000 and subsequent to December 31, 2000. These include, but are not limited to
a steep decline in prices of domestic debt and equity securities and increasing
rates on government and corporate borrowings. In an attempt to overcome the
liquidity crisis in the banking system, on February 21, 2001, the government
allowed Turkish Lira to float freely. This caused a 28% devaluation of the
Turkish Lira against the US Dollar during the first day of floatation. As of
April 26, 2001 the Turkish Lira has devalued significantly against major foreign
currencies as compared to the related currency exchange rates ruling as of
December 31, 2000. Such devaluation against the US Dollar has been 45%. The
financial condition of the Company and its future operations and cash flows
could be adversely affected by continued economic difficulty. Management is
unable to predict the extent, severity or duration of the current economic
difficulties nor quantify what impact it may have on the current financial
position or future operations and cash flows of the Company.

     On April 14, 2001, San Reklam ve Halkla iliskiler Hizmetleri A.S., the firm
that created the Company's logo, initiated legal proceedings against the Company
in the Istanbul Court of Intellectual Property Rights claiming ownership of the
"Turkcell" logo and alleging that the Company had misappropriated it.

     At the Board of Directors Meeting held on May 16, 2001, it was resolved to
increase Turkcell's share capital by TL 236.2 trillion (equivalent to $209,860
at May 16, 2001) in cash. In accordance with the resolution, the existing
shareholders are entitled to utilize their pre-emptive rights, the rights to
acquire additional shares

                                      F-134
329
        TURKCELL ILETISIM HIZMETLERI ANONIM SIRKETI AND ITS SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1999 AND 2000 AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1999
                                    AND 2000

    (AMOUNTS IN THOUSANDS OF US DOLLARS UNLESS OTHERWISE STATED EXCEPT SHARE
                                    AMOUNTS)

(28) SUBSEQUENT EVENTS: (CONTINUED)

resulting from the share capital increase proportionate with their existing
shareholdings, at nominal value. The remaining shares after the utilization of
pre-emptive rights, if any, will be offered to the public.

     At the Board of Directors Meeting held on May 16, 2001, it was resolved
that the Company will participate in the planned share capital increase of
Fintur amounting to $63,000 by contributing its 25% share of this share capital
increase of $15,750.

     On May 28, 2001, Ericsson Telekomunikasyon A.S., the main supplier of GSM
network equipment and related services, has agreed that, at the request of the
Company, it will defer its collections from the Company resulting from the
Company's purchases of GSM network equipment and related services over the next
twelve months.

     Based on the Company's consolidated financial statements as of and for the
three-month period ended March 31, 2001, the Company is in breach of one of the
covenants contained in the 1998 and 1999 bank facilities. In anticipation of the
expected breach of such covenants, the Company recently renegotiated the maximum
leverage ratio (debt to annualized EBITDA, as defined in 1998 and 1999 bank
facilities) from 3.0 to 3.5 from December 31, 2000 to March 31, 2001 and from
3.5 to 4.0 from March 31, 2001 to September 30, 2002, and the company recently
renegotiated the minimum interest coverage ratio (EBITDA to total interest, as
defined in the 1998 and 1999 bank facilities) from 3.0 to 2.5 from December 31,
2000 onwards. The renegotiated covenants were agreed with retroactive effect by
the lenders of the Company's bank facilities. The Company was not in breach of
its covenants at December 31, 2000. At the end of the first quarter of 2001, the
Company's leverage ratio was 4.6 and its interest cover ratio was 2.8. Further,
management expects that the leverage ratio will remain above 4.0 and that the
interest coverage ratio will decrease below 2.5 at the end of the second quarter
of 2001. The breach of the leverage ratio covenants is an event of default, and
the agent for the lenders in the 1998 and 1999 bank facilities may, and upon
instruction of lenders holding more than 66 2/3% of the outstanding debt must,
demand immediate repayment of the outstanding amounts under the 1998 and 1999
bank facilities. If the agent were to do this, such a payment default would
trigger a cross-default to substantially all of the Company's borrowings. Absent
waivers obtained from the relevant lenders, a cross-default would result in the
acceleration of $1.8 billion aggregate principal amount of the Company's
indebtedness, which would have a material adverse effect on the Company's
business, financial condition and results of operations. The Company has
informed the agent in writing of the current breach of its leverage ratio
covenant and the anticipated breach of its interest cover ratio covenant and is
working with the agent to prepare a letter requesting renegotiation of the
covenants, which it will distribute to the banks. Management expects to begin
renegotiating the covenants with the lenders within the coming month. In
addition, management does not expect the agent to accelerate repayment of the
outstanding amounts under the 1998 and 1999 bank facilities. As of the date of
this report, management is not aware of any lenders instructing the agent to
accelerate repayment.

                                      F-135
330

                      CONSOLIDATED FINANCIAL STATEMENTS OF
                    ORLA SIEBZEHNTE VERMOGENSVERWALTUNG GMBH
               (A DEVELOPMENT STAGE COMPANY) AND ITS SUBSIDIARIES
                AS OF AND FOR THE PERIOD ENDED DECEMBER 31, 2000

                                      F-136
331

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To ORLA Siebzehnte Vermogensverwaltung GmbH, Frankfurt am Main

     We have audited the accompanying consolidated balance sheet of ORLA
Siebzehnte Vermogensverwaltung GmbH (a German corporation in the development
stage) as of December 31, 2000 and the related consolidated statement of
operations, consolidated shareholders' equity and consolidated cash flows for
the period from inception (August 2, 2000) to December 31, 2000. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

     We conducted our audits in accordance with auditing standards generally
accepted in United States. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of ORLA
Siebzehnte Vermogensverwaltung GmbH as of December 31, 2000 and the results of
their consolidated operations and their consolidated cash flows for the period
from inception (August 2, 2000) to December 31, 2000 in conformity with
accounting principles generally accepted in the United States.

                                ARTHUR ANDERSEN
                        Wirtschaftsprufungsgesellschaft
                        Steuerberatungsgesellschaft mbH
Dr. Wagener                                       Plett
              Wirtschaftsprufer                              Wirtschaftsprufer
Berlin, May 11, 2001

                                      F-137
332

                    ORLA SIEBZEHNTE VERMOGENSVERWALTUNG GMBH
                         (A DEVELOPMENT STAGE COMPANY)

                           CONSOLIDATED BALANCE SHEET
                                 (IN THOUSANDS)
AS OF
                                                              DECEMBER 31, 2000
                                                              -----------------
                                                                     KE
ASSETS
CURRENT ASSETS
Cash and cash equivalents...................................          6,204
Other current assets and prepaid expenses...................            733
                                                                  ---------
  Total current assets......................................          6,937
                                                                  ---------
PROPERTY AND EQUIPMENT, net.................................             99
INTANGIBLE ASSETS, net......................................      8,685,561
                                                                  ---------
  Total assets..............................................      8,692,597
                                                                  =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable............................................          1,501
Related party liabilities...................................      6,568,336
Accrued liabilities to related parties......................          3,098
                                                                  ---------
  Total current liabilities.................................      6,572,935
                                                                  =========
COMMITMENTS AND CONTINGENCIES (Note 7)
SHAREHOLDERS' EQUITY
Subscribed capital..........................................             50
Additional paid-in capital..................................      2,124,455
Deficit accumulated during the development stage............         (4,843)
                                                                  ---------
  Total shareholders' equity................................      2,119,662
                                                                  ---------
  Total liabilities and shareholders' equity................      8,692,597
                                                                  =========
The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                      F-138
333

                    ORLA SIEBZEHNTE VERMOGENSVERWALTUNG GMBH
                         (A DEVELOPMENT STAGE COMPANY)

                      CONSOLIDATED STATEMENT OF OPERATIONS
                                 (IN THOUSANDS)
PERIOD FROM
                                                                   INCEPTION
                                                              (AUGUST 2, 2000) TO
                                                               DECEMBER 31, 2000
                                                              -------------------
                                                                      KE
Operating expenses:
  General and administrative................................         4,844
                                                                    ------
     Total operating expenses...............................         4,844
                                                                    ------
Operating loss..............................................        (4,844)
                                                                    ------
Interest income.............................................             1
                                                                    ------
Net loss and comprehensive loss.............................        (4,843)
                                                                    ======
The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                      F-139
334

                    ORLA SIEBZEHNTE VERMOGENSVERWALTUNG GMBH
                         (A DEVELOPMENT STAGE COMPANY)

                 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
                                 (IN THOUSANDS)
DEFICIT
                                                                           ACCUMULATED
                                                              ADDITIONAL   DURING THE        TOTAL
                                                 SUBSCRIBED    PAID-IN     DEVELOPMENT   SHAREHOLDERS'
                                                  CAPITAL      CAPITAL        STAGE         EQUITY
                                                 ----------   ----------   -----------   -------------
                                                     KE           KE           KE             KE
Formation of Orla, August 2, 2000..............      50       2,117,861          --        2,117,911
Conversion of shareholder loans to equity......      --               5          --                5
Capital contribution...........................      --           6,589          --            6,589
Net loss.......................................      --              --      (4,843)          (4,843)
                                                     --       ---------      ------        ---------
As of December 31, 2000........................      50       2,124,455      (4,843)       2,119,662
                                                     ==       =========      ======        =========
The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                      F-140
335

                    ORLA SIEBZEHNTE VERMOGENSVERWALTUNG GMBH
                         (A DEVELOPMENT STAGE COMPANY)

                      CONSOLIDATED STATEMENT OF CASH FLOWS
                                 (IN THOUSANDS)
PERIOD FROM
                                                                   INCEPTION
                                                              (AUGUST 2, 2000) TO
                                                               DECEMBER 31, 2000
                                                              -------------------
                                                                      KE
CASH FLOW FROM OPERATING ACTIVITIES:
Net loss....................................................          (4,843)
Adjustments to reconcile net loss to net cash used in
  operating activities:
  Depreciation and amortization.............................               1
Change in:
  Prepaid expenses and other current assets.................            (733)
  Other accounts payable....................................           1,502
  Accrued liabilities.......................................           3,098
                                                                  ----------
Net cash used in operating activities.......................            (975)
                                                                  ----------
CASH FLOW FROM INVESTING ACTIVITIES:
Acquisition of UMTS Licenses................................      (8,471,442)
Purchase of property and equipment..........................            (100)
Purchase of other intangible assets.........................              (4)
                                                                  ----------
Net cash used in investing activities.......................      (8,471,546)
                                                                  ----------
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from contribution of capital.......................       2,124,505
Proceeds from related party liabilities.....................       6,354,220
                                                                  ----------
Net cash provided by financing activities...................       8,478,725
                                                                  ----------
Net increase in cash and cash equivalents...................           6,204
Cash and cash equivalents, beginning of period..............              --
                                                                  ----------
Cash and cash equivalents, end of period....................           6,204
                                                                  ==========
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest......................................              --
Cash paid for income taxes..................................              --
NON-CASH TRANSACTIONS
Capitalization of interest..................................         214,116
Conversion of shareholder debt to equity....................               5
The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                      F-141
336

                    ORLA SIEBZEHNTE VERMOGENSVERWALTUNG GMBH
                         (A DEVELOPMENT STAGE COMPANY)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION AND OPERATIONS OF THE COMPANY

     ORLA Siebzehnte Vermogensverwaltung GmbH ("Orla" or the "Company"), a
German limited liability company in the development stage, is a subsidiary of
Telefonica Intercontinental S.A., Madrid, Spain ("TICSA"), and Sonera 3G Holding
B.V., Rotterdam, Netherlands ("Sonera 3G Holding"). TICSA is a wholly owned
subsidiary of Telefonica S.A., Madrid, Spain ("Telefonica"), and Sonera 3G
Holding a wholly owned subsidiary of Sonera Corporation, Helsinki, Finland
("Sonera"). The Company was founded on August 2, 2000 in order to participate in
the auction for the third generation mobile network licenses in Germany.

     On September 7, 2000, Orla acquired all of the outstanding capital of
Marabu Vermogensverwaltung GmbH, Berlin ("Marabu") from its shareholders. The
ownership of Orla and Marabu was exactly the same at the time of the
acquisition. Accordingly, Orla's financial statements have been presented to
include the results of Marabu from inception. On September 7, 2000, Orla also
acquired 100% of the shares of OpCo Mobile Services GmbH, Berlin ("Opco").

     Orla and its subsidiaries are referred to as "Orla Group" and are
headquartered in Munich, Germany.

     Orla Group is currently in the development stage of operations. Orla
Group's primary efforts through December 31, 2000 have consisted of acquiring
UMTS licenses for the German market from the German postal and
telecommunications regulatory authority (Regulierungsbehorde fur Post und
Telekommunikation), raising capital, funding the development of its services,
developing its network infrastructure, making strategic investments,
establishing sales and marketing channels, and recruiting key personnel. Orla
Group is subject to risks and challenges similar to other companies in the
development stage. These risks include, but are not limited to, operating in a
new and rapidly evolving market, competition from larger companies, dependence
on new products, dependence on key personnel, uncertain profitability, and a
limited operating history.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF CONSOLIDATED FINANCIAL STATEMENTS

     The financial statements have been prepared according to accounting
principles generally accepted in the United States ("U.S. GAAP"). The accounts
have been prepared after making necessary adjustments to Orla Group's books and
records that are maintained in accordance with the German Commercial Code.

     The assets, liabilities, and results of operations of entities in which the
Company has a controlling interest have been consolidated. All significant
intercompany accounts and transactions have been eliminated.

     The consolidated financial statements are stated in thousands of euros
(KE).

USE OF ESTIMATES

     The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

FOREIGN CURRENCY TRANSACTIONS

     Transaction gains and losses that arise from exchange rate fluctuations on
transactions denominated in a currency other than Orla Group's functional
currency, the euro, are included in the results of operations as incurred.

                                      F-142
337
                    ORLA SIEBZEHNTE VERMOGENSVERWALTUNG GMBH
                         (A DEVELOPMENT STAGE COMPANY)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

CASH AND CASH EQUIVALENTS

     Cash includes bank balances and current bank deposits. Orla Group considers
all investments with original maturities of three months or less to be cash
equivalents.

FAIR VALUE OF FINANCIAL INSTRUMENTS

     The carrying amounts of the Company's financial instruments, including cash
and cash equivalents, accounts payable, and related party liabilities
approximate their fair values due to their short maturity or the fact that they
bear interest at market rates.

PROPERTY AND EQUIPMENT

     Property and equipment are stated at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets.

LONG-LIVED ASSETS

     Orla Group periodically evaluates the recoverability of the carrying amount
of its long-term assets in accordance with SFAS No. 121, "Accounting For The
Impairment Of Long-Lived Assets And For Long-Lived Assets To Be Disposed Of." An
impairment loss is recognized when the estimated future cash flows (undiscounted
and without interest) expected are less than the carrying amount of the asset.
Measurement of an impairment loss is based on fair value of the asset computed
using discounted cash flows if the asset is expected to be held and used.

     As of December 31, 2000, management believes that no such impairment
exists.

COMPREHENSIVE INCOME (LOSS)

     Comprehensive income is the total of net income (loss) and all other
non-owner changes in shareholders' equity. For the period from inception (August
2, 2000) to December 31, 2000 comprehensive loss was equal to net loss.

RECENT ACCOUNTING PRONOUNCEMENTS

     In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities." In June 1999, the FASB issued
SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities --
Deferral of the Effective Date of FASB Statement No. 133." In June 2000, the
FASB issued SFAS No. 138, "Accounting for Certain Derivative Instruments and
Certain Hedging Activities, an amendment of FASB Statement No. 133." SFAS No.
133, as amended, establishes accounting and reporting standards requiring that
every derivative instrument (including certain derivative instruments embedded
in other contracts) be recorded in the balance sheet as either an asset or
liability measured at its fair value. The Statement requires that changes in the
derivative instrument's fair value be recognized currently in earnings unless
specific hedge accounting criteria are met. Special accounting for qualifying
hedges allows a derivative instrument's gains and losses to offset related
results on the hedged item in the income statement, to the extent effective, and
requires that a company must formally document, designate, and assess the
effectiveness of transactions that receive hedge accounting.

     SFAS No. 133, as amended, is effective for fiscal years beginning after
June 15, 2000. Orla Group plans to adopt SFAS No. 133 as required on January 1,
2001.

                                      F-143
338
                    ORLA SIEBZEHNTE VERMOGENSVERWALTUNG GMBH
                         (A DEVELOPMENT STAGE COMPANY)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

     Since Orla Group has no derivative financial or commodity instruments,
forward contracts, or hedging arrangements in cash and cash equivalents,
management does not expect the impact of adopting SFAS No. 133, as amended, to
have a material impact on Orla Group's financial condition or results of
operations.

3. PROPERTY AND EQUIPMENT

     Property and equipment consists of the following (in thousands):
RANGE OF      DECEMBER 31,
                                                                USEFUL LIVES        2000
                                                                ------------    ------------
                                                                  (YEARS)            KE
Furniture and fixtures......................................        4-6             100
Accumulated depreciation and amortization...................                         (1)
                                                                                    ---
Property and equipment, net.................................                         99
                                                                                    ===
4. INTANGIBLE ASSETS

     Intangible assets consist primarily of two UMTS licenses acquired in an
auction from the German postal and telecommunications regulatory authority for
KE 8,471,442. Since the acquisition of the licenses, interest in the amount of
KE 214,116 has been capitalized, resulting in a total intangible asset of
KE 8,685,561.

     Amortization of the value of the UMTS licenses will commence with the
beginning of the commercial operations related to the licenses, i.e., the
operation of UMTS networks in Germany. The amortization period will be the
estimated economic life for the licenses. As of December 31, 2000, Orla Group's
management estimates the commercial operations will commence in 2002 and cover a
period of 18 years.

     The license holder is bound by the RegTP, among other points, to the
following:

     -  To reach a penetration rate of the UMTS/IMT-2000 system of at least 25%
       until December 31, 2003 and of 50% until December 31, 2005.

     -  Independence from competitors during the life of the license.

5. ACCRUED LIABILITIES TO RELATED PARTIES

     Accrued liabilities to related parties consist primarily of amounts accrued
relating to services received from Telefonica, Sonera, TICSA and Sonera
Deutschland GmbH.

                                      F-144
339
                    ORLA SIEBZEHNTE VERMOGENSVERWALTUNG GMBH
                         (A DEVELOPMENT STAGE COMPANY)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6. RELATED PARTY LIABILITIES

     Related party liabilities mainly relate to loans from direct or indirect
shareholders:
DECEMBER 31,
                                                         2000
                                                     ------------
                                                          KE
Original shareholder loans
  -- TICSA.......................................     3,634,249
  -- Sonera......................................     1,812,889
  -- Sonera 3G Holding...........................       906,444
                                                      ---------
                                                      6,353,582
Arrangement fees for shareholder loans
  -- TICSA.......................................        45,428
  -- Sonera......................................        22,661
  -- Sonera 3G Holding...........................        11,331
                                                      ---------
                                                         79,420
Interest on shareholder loans
  -- TICSA.......................................        77,046
  -- Sonera......................................        38,433
  -- Sonera 3G Holding...........................        19,217
                                                      ---------
                                                        134,696
Other loans (Sonera Deutschland GmbH)............           639
                                                      ---------
                                                      6,568,336
                                                      =========
As at September 30, 2000 Orla Group entered with TICSA, Sonera and Sonera
3G Holding into loan agreements. All loan agreements include the same terms and
conditions:

     -  Loans are due on December 31, 2000,

     -  For all loan agreements Orla Group is charged with an arrangement fee of
        1.25% of the loan; the arrangement fee became due on November 1, 2000,

     -  Interest rate amounts to 6.526% (EURIBOR for borrowings with a maturity
        of 4 months as of August 30, 2000 plus an additional rate of 1.500%).

     The loans were paid by the lender directly to RegTP as payment of the
purchase price for the acquired UMTS licenses. The difference between the
original purchase price of the licenses (KE 8,471,442) and the amount of loans
paid by TICSA, Sonera and Sonera 3G Holding relates to the equity portion which
the shareholders of Marabu (TICSA, Sonera and Sonera 3G Holding) paid also
directly to RegTP at the date of acquisition.

     As planned by the shareholders/lenders the loans should be refinanced until
the end of 2000. Due to delays in the negotiations with new potential investors
the refinancing could not be terminated until December 31, 2000. TICSA, Sonera
and Sonera 3G Holding therefore agreed orally to extend the maturity terms of
the loan agreements and to waive the right for default interest (payable when
loan or interest payments become overdue).

     Management of Orla Group estimates that the maturity has to be extended
until June/July 2001.

                                      F-145
340
                    ORLA SIEBZEHNTE VERMOGENSVERWALTUNG GMBH
                         (A DEVELOPMENT STAGE COMPANY)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

7. COMMITMENTS AND CONTINGENCIES

     In March 2000, Orla Group entered into a lease agreement for a new facility
in Munich, Germany. The lease term is three years. Future minimum payments under
this lease agreement are as follows (in thousands):
KE
                                                          -----
Year ending December 31, 2001.........................    2,071
Year ending December 31, 2002.........................    3,975
Year ending December 31, 2003.........................    3,975
8. INCOME TAXES

     Orla Group accounts for income taxes using an asset and liability approach
under which deferred income taxes are provided based upon enacted tax laws and
rates applicable to the periods in which taxes become payable.

     The income tax benefit differs from the amounts which would result by
applying the applicable German statutory tax rates to the loss before taxes, as
follows:
KE
                                                          ------
Benefit at German statutory rate......................    (2,422)
Change in valuation allowance.........................     1,928
Change in statutory tax rate..........................       494
                                                          ------
Income tax expense....................................        --
                                                          ======
For the year ended December 31, 2000, the statutory income tax rate was
54.36%, consisting of corporate income tax (Korperschaftsteuer) of 40%,
municipal trade tax (Gewerbesteuer) of 12.16%, and a corporate tax surcharge
(Solidaritatszuschlag) of 5.5%. In July 2000, legislation was passed in Germany
under which the tax rate for corporate tax will be reduced from 40% to 25%
effective for all fiscal years starting after December 31, 2000. The reduced tax
rate has been used to compute deferred taxes for the year ended December 31,
2000.

     The components of the deferred tax asset were as follows:
KE
                                                         -------
Net operating loss carryforwards.....................     55,536
Capitalized interest (tax deductible)................    (53,608)
                                                         -------
                                                           1,928
Valuation allowance..................................     (1,928)
                                                         -------
Net deferred tax asset...............................         --
                                                         =======
A valuation allowance has been recorded for the entire deferred tax asset
for all periods through December 31, 2000 as a result of uncertainties regarding
the realization of the asset including the limited operating history of the
Company and the lack of profitability through December 31, 2000.

     Orla Group's net operating loss carryforwards do not expire. German tax law
contains provisions which may limit the net operating loss and tax credit carry
forwards to be used in any given year upon the occurrence of certain events,
including a significant change in ownership interest.

                                      F-146
341
                    ORLA SIEBZEHNTE VERMOGENSVERWALTUNG GMBH
                         (A DEVELOPMENT STAGE COMPANY)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

9. RELATED PARTIES

     Orla Group has entered with its shareholders and subsidiaries of its
shareholders into several agreements regarding the rendering of personnel
services and technical and administrative assistance. As of December 31, 2000
Orla Group has accrued for liabilities related to personnel and other services
from shareholders and its subsidiaries (KE 3,060). The transactions with related
parties are made on an arm's length basis and on commercial terms similar to
those planned to use in transactions with Orla Group's other customers and
suppliers with the same size and location.

10. SUBSEQUENT EVENTS

UNAUDITED EVENTS

     In May 2001, Orla Group entered into a roaming agreement with E-Plus. The
purpose of the roaming agreement is to decrease future costs for the UMTS
network. The terms of the agreement are confidential. The agreement has not been
audited.

     In order to clarify to which extent a shared use of infrastructure is
permitted under the award conditions, the RegTP issued in June 2001 an
"Interpretation of the UMTS Award Conditions in Light of More Recent
Technological Advance." In June 2001, the RegTP agreed to a shared use of
infrastructure in case other award conditions will remain unaffected. The
management of the Company expects that the decision of the RegTP will lead to
significant cost reductions in the near future.

                                      F-147