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14 August 2012

Netia signs new managed services contract with Ericsson (73/2012)

WARSAW, Poland –August 14, 2012 – Netia SA (“Netia” or “Company”) (WSE: NET), Poland’s largest alternative provider of fixed-line telecommunications services, announced that today Netia and its subsidiaries: Telefonia Dialog Sp. z o.o. and CDP Netia Sp. z o.o. (“Netia Group”) signed a four-year managed services contract with Ericsson replacing the existing managed services contract signed on August 12, 2010 (see Netia’s press release dated August 12, 2010) (“Agreement”). The contract covers the maintenance and management of the Netia Group’s networks, as well as supporting the provision of services to Netia Group’s residential and business customers. The Agreement covers the same scope of cooperation as the previous agreement from August 12, 2010 while extending its geographical reach to include telecommunication networks acquired by the Netia Group as part of the Telefonia Dialog Sp. z o.o. and CDP Netia Sp. z o.o. (former Crowley Data Poland Sp. z o.o.) acquisitions completed in December 2011 (see Netia’s press releases dated December 14 and 16, 2011). In addition, the Agreement modifies certain pricing and operational parameters (KPIs) concerning the provision of services by Ericsson to the Netia Group. The Agreement enters into force on September 1, 2012 and expires on August 31, 2016. The previous managed services contract between the parties, dated August 12, 2010 and expiring on July 31, 2013, is superseded by this new Agreement.

The transaction consists of two joint elements: (i) the contract covering services provision and (ii) transfer of contracts concerning employees, assets and agreements of the Netia Group. The infrastructure and telecommunications lines will remain the property of the Netia Group. Investment projects will also remain the Netia Group’s responsibility. The Netia Group will continue to be the owner of network and equipment installed in the future. The Agreement provides that 190 Netia Group employees will be transferred to Ericsson on the basis of art. 231 of the Labour Code.

The estimated value of the four-year Agreement is PLN 368,000,000 (PLN three hundred and sixty eight million) and includes:
  • flat-rate fees due to Ericsson for network maintenance services amounting to PLN 218,000,000 (PLN two hundred and eighteen million) provided that it may be: (i) reduced by not more than PLN 13,200,000 (PLN thirteen million two hundred thousand) (ii) increased by not more than PLN 6,000,000 (PLN six million) depending on the level of operational parameters (KPIs) achieved by Ericsson and the number and scope of orders placed with Ericsson by the Netia Group
  • remuneration due to Ericsson for service delivery, building and reconfigurations of the network and other works of an amount dependent on the number and scope of orders placed with Ericsson by the Netia Group estimated at up to PLN 150,000,000 (PLN one hundred and fifty million) during the four-year contract period.

The aggregate liability of the parties to the Agreement shall not exceed the equivalent of USD 5.000.000 (USD five million) per event however not more than the equivalent of USD 10,000,000 (USD ten million) yearly. The liability of any party to the Agreement for lost profit is excluded. Any party is entitled to terminate the Agreement before the lapse of its term in case of a substantial breach of the Agreement by the other party.

The cooperation with Ericsson will influence the reduction of maintenance and employment costs, more effective and integrated handling and management of Netia Group’s networks and its service delivery.

The value of the Agreement exceeds 10% of the Issuer’s equity and thus the Agreement meets the criteria for being considered as a significant contract.

Legal basis:
§ 5, section 1.3 and § 9 of the Regulation of the Minister of Finance dated 19 February 2009 regarding current and interim reports published by issuers of securities, and on the conditions for considering as equivalent information required by the laws of a non-member state (Journal of Laws of 2009, No. 33, item 259, as amended).