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WARSAW, Poland - May 6, 2003 - Netia Holdings S.A. ("Netia") (WSE: NET, NET2), Poland's largest alternative provider of fixed-line telecommunications services, today announced unaudited consolidated financial results for the first quarter 2003.

Financial Highlights:

• Revenues for Q1 2003 were PLN 161.3m (US$39.8m), a year-on-year increase of 9%.
• EBITDA for Q1 2003 was PLN 43.6m (US$10.8m), representing an EBITDA margin of 27% and a year-on-year increase of 45%.
• Net loss was PLN 80.3m (US$19.8m), a year-on-year decrease of 67% achieved due to improved operating results and lower financial expense following the financial restructuring. The main item affecting the net loss was PLN 41.2m (US$10.2m) of non-cash one-time write-off of 2002 Notes issuance costs, following their earlier redemption.
• Following the earlier redemption of Netia's 2002 Notes on March 24, 2003, Netia has only PLN 5.3m or US$1.3m (at present value of future payments) of long-term outstanding restructuring liabilities, payable between 2007 and 2012.
• Cash at March 31, 2003 was PLN 172.4m (US$42.6m), including restricted cash and cash equivalents of PLN 61.5m (US$15.2m). 
  

Operational Highlights:

• Subscriber lines (net of churn and disconnections) increased to 345,447 at March 31, 2003 from 341,160 at December 31, 2002, a year-on-year increase of 1%.
• Business customer lines increased to 108,603, a year-on-year increase of 8%. Subscriber lines for our business segment amounted to 31% of total subscriber lines while revenues from business customers accounted for 57% of telecom revenues in Q1 2003.
• Sales of telecommunications products other that traditional direct voice (such as indirect voice, data transmission, interconnection, wholesale and other telecom services) increased their share in total revenues from telecom services to 23% or PLN 35.9m (US$9.0m) from 10% in Q1 2002.
• Average revenue per line decreased by 4% to PLN 119 (US$29) in Q1 2003, compared to PLN 124 in Q1 2002 as a result of a decrease in tariffs, which to some extent was offset by the favorable product mix shift within telecom revenues mentioned above.
• New, more competitive tariff plans for international long-distance and domestic long-distance calls were introduced on January 2, 2003 and April 1, 2003, respectively.
• Headcount decreased to 1,283 at March 31, 2003 from 1,362 at March 31, 2002 as a result of efficiency measures.
• Netia acquired TDC Internet Polska S.A., a Polish Internet service provider, in April 2003.
  
  

Wojciech Madalski, Netia's President and Chief Executive Officer, commented: "Successful sales and marketing efforts on top of our now healthy financing structure combined to produce a considerable improvement in first quarter results. We have reduced churn rates, successfully reversing the negative trend in the number of subscriber lines. EBITDA increased 45% year-on-year, while net loss decreased by 67%. Netia is on course for solid financial performance and now has a strong base from which to pursue the ambitious objectives of our strategic plan currently being developed.

"We are pleased with the strong customer take-up of products other than traditional direct voice. A growing portion of Netia's revenues is coming from advanced telecommunications solutions to business customers including data transmission, Internet and wholesale services. The acquisition of TDC Internet Polska S.A. will reinforce our strategic focus on offering sophisticated products to increasingly demanding business customers."

Zbigniew Łapiński, Chief Financial Officer of Netia, added: "Revenue from telecom services grew 11% in the quarter compared to the first quarter 2002. Lower tariffs produced a decline in ARPU, but this was offset by 8% growth in business customer lines and increased sales of other than traditional direct voice telecommunications products. EBITDA margin reached a healthy 27% thanks to cost controls, while net loss decreased to PLN 80 million from PLN 245 million in the first quarter 2002 due to lower financial expense following the successful restructuring.

"Distribution of warrants due in second half of May 2003 will complete the process of Netia's financial restructuring. Following the redemption of EUR 49.9 million of notes, Netia is free of interest-bearing long-term debt. I am also pleased to confirm that the Netia Group is well advanced in the process of its internal consolidation. We expect the process of merging most of the operating subsidiaries into the parent company to conclude early next year.

"Lastly, this quarter we have introduced a more detailed financial reporting format. This will provide investors with greater transparency and make Netia's performance easier to analyze."

Restructuring and Other Highlights:

• Principal guiding directives for finalization of Netia's five-year strategic plan were adopted by Netia's Supervisory Board on April 10, 2003. Netia intends to present the outlines of the strategic plan in late May, following its approval by the Supervisory Board.
• The Restructuring Agreement relating to Netia's debt restructuring, entered into by Netia, TeliaSonera AB, certain companies controlled by Warburg Pincus & Co., certain financial creditors and the ad hoc committee of noteholders on March 5, 2002 (the "Restructuring Agreement"), continues to be implemented. Pursuant to the Restructuring Agreement, the following milestones have been achieved:

  - All necessary share, warrant and notes issuances in Netia's restructuring have been approved by its shareholders. On December 2, 2002, Netia published its Polish prospectus relating to the issuance and registration of new shares (series H, J and K shares) and notes pursuant to the Restructuring Agreement.

  - 312,626,040 series H shares at the price of PLN 1.0826241 per share were allocated to those creditors who opted to subscribe for them in accordance with the agreed terms of Netia's restructuring on December 23, 2002. The series H shares represent approximately 91% of Netia's share capital. Following the registration of the capital increase on January 30, 2003, Netia has share capital of PLN 344,045,212 (344,045,212 shares issued and outstanding at PLN 1 par value per share). Series H shares commenced trading on the Warsaw Stock Exchange (separately from Netia's other series of shares and under the ticker "NET2") on February 13, 2003.

  - EUR 49.9m in aggregate principal amount of 10% Senior Secured Notes due 2008 (the "2002 Notes") were issued in exchange for the outstanding notes of Netia Holdings B.V. and Netia Holdings II B.V. and obligations from swap transactions entered into by Netia Holdings III B.V. on December 23, 2002, in accordance with the agreed terms of the restructuring and the composition plans for each of Netia's Dutch subsidiaries. On March 24, 2003, Netia redeemed the 2002 Notes. Because of this redemption, Netia is free of interest-bearing long-term debt.

  - Distribution of warrants. Strike price for warrants to acquire shares representing 15% of Netia's post-restructuring share capital (series J shares), established based on the mechanism agreed within the Restructuring Agreement, was approved by Netia's Supervisory Board at PLN 2.53. The warrants will be distributed to the holders of record of Netia's shares as of December 22, 2002. Polish Securities and Exchange Commission approved on April 22, 2003 amendments to Netia's Polish prospectus restricting the warrants with respect to the U.S. persons. On April 29, 2003 Netia issued notes in order to facilitate distribution of warrants to be completed in the second half of May 2003.

  - Options to acquire series K shares representing 3.09% of Netia's share capital were allocated by Netia's Supervisory Board under a key employee stock option plan on April 10, 2003. In accordance with the Restructuring Agreement, up to 5% of the post-restructuring share capital, excluding shares to be issued upon exercise of the warrants related to series J shares, will be issued under this stock option plan. The exercise price for granted options was set at PLN 2.53.

  The issuance of warrants for series J and issuance of series K shares will complete the restructuring process.
  
• Effective February 20, 2003 Netia's Supervisory Board is composed of the following 7 members: Nicholas N. Cournoyer (Chairman of the Supervisory Board), Jarosław Bauc, Morgan Ekberg, Richard James Moon, Andrzej Radzimiński, Ewa Maria Robertson and Andrzej Michał Wierciński.
• Changes within Netia's Management Board. Effective April 10, 2003 Netia's Management Board is composed of the following four members: Wojciech Madalski (President and CEO), Elizabeth McElroy (Chief Commercial Officer), Zbigniew Łapiński (Chief Financial Officer) and Mariusz Piwowarczyk (Chief Technology Officer).
• Payments pursuant to resignation of Management Board members. Compensation and other costs (including consulting agreements) associated with members of Netia' various management boards during Q1 2003 amounted to PLN 7.6m (US$1.9m). This compensation includes termination benefits paid to members of the Management Board pursuant to their resignation.
• Netia's subsidiary was reimbursed VAT paid in prior years of PLN 4.5 m (US$1.1m) pursuant to a decision of Tax Office dated April 17, 2003.
• License fee payments related to Netia's domestic long-distance license, amounting approximately to PLN 9.2m (US$2.3m), were made on April 18, 2003.
• Outstanding license fee obligations related to Netia's local licenses (in nominal terms) amounted to approximately PLN 402.6m (US$99.4m) at March 31, 2003. Following the changes introduced into the Polish telecommunications law in December 2002, Netia has filed for canceling all outstanding local license fees based on capital expenditures it has already incurred. The Minister of Infrastructure's decision on this issue is expected by end-June 2003.
• U.S. Bankruptcy Court gave full force and effect in the United States to Netia's arrangement and composition plans ratified earlier by Polish and Dutch courts, respectively, in an order dated March 7, 2003. The court also ordered the turnover to Netia of US$15.2m that Netia set aside to fund certain interest payments under its 13.75% Senior Notes due 2010, following the completion of the final step of Netia's restructuring, which requires the issuance of warrants to pre-restructuring shareholders.
• Netia's series H shares (ticker: NET2) were included into the WIG20 Index, following the annual review of the indices performed on March 21, 2003 by the Warsaw Stock Exchange. The WIG20 Index comprises shares of twenty of the largest companies listed on the primary market of the Warsaw Stock Exchange. Companies are selected based on their market capitalization and market turnover.

Consolidated Financial Information

Please note that due to the changes in presentation format introduced as of January 1, 2003 and related reclassification of interconnection charges and revenues as well as part of voice termination charges and revenues (previously shown net), the revenues and operating costs figures for periods ended through December 31, 2002 were adjusted accordingly to reflect these changes and therefore vary from the figures reported previously. In addition, ARPUs presented in this release are given for a relevant three-month period as opposed to figures for a last month in a period reported previously. Please also see our condensed consolidated financial statements for the three-month period ended 31 March, 2003.

Q1 2003 vs. Q1 2002

Revenues increased by 9% to PLN 161.3m (US$39.8m) for Q1 2003 compared to PLN 148.3m for Q1 2002.

Revenues from telecommunications services increased by 11% to PLN 158.8m (US$39.2m) from PLN 142.5m in Q1 2002. The increase was primarily attributable to an increase in the number of business lines and an increase in business mix of lines as well as expansion of other than traditional direct voice products, such as indirect voice, data transmission, interconnection, wholesale and other telecom services. The share of revenues from these products increased to 23% of total revenues from telecommunications services in Q1 2003 as compared to 10% in Q1 2002. In particular, revenues from wholesale services increased between these periods by 261% to PLN 11.2m (US$2.8m) in Q1 2003 from PLN 3.1m in Q1 2002 while revenues from indirect voice services increased by 179% to PLN 13.4m (US$3.3m) in Q1 2003 from PLN 4.8m in Q1 2002.

EBITDA increased by 45% to PLN 43.6m (US$ 10.8m) for Q1 2003 from PLN 30.1m for Q1 2002. EBITDA margin increased to 27.0% from 20.3%. This increase was achieved due to increases in revenues from higher margin products as well as a continuous effort to optimize the level of operating costs.

Interconnection charges were PLN 31.0m (US$7.7m) for Q1 2003 as compared to PLN 31.1m for Q1 2002. Interconnection charges remained at a stable level in spite of an increase in the traffic and related interconnection charges from provision of indirect voice services driven by an increased proportion of traffic carried through Netia's backbone network and lower interconnection rates on fixed-to-mobile and international long-distance calls.

Other operating expenses decreased by 1% to PLN 86.7m (US$21.4m) for Q1 2003, from PLN 87.1m for Q1 2002. Other operating expenses represented 54% of total revenues for Q1 2003, compared to 59% for Q1 2002, and are constituted primarily of salaries and benefits as well as legal and financial services.

Depreciation of fixed assets remained at a stable level amounting to PLN 48.9m (US$12.1m) compared to PLN 48.8m for Q1 2002, as the construction stage of additional parts of the network was completed.

Amortization of intangible assets increased by 11% to PLN 20.2m (US$5.0m) from PLN 18.3m for Q1 2002 due to an increased level of amortization costs associated with our information technology systems.

Net financial expenses decreased to PLN 54.5m (US$13.5m) for Q1 2003 from PLN 207.7m in Q1 2002, due primarily to the successful financial restructuring and debt-for-equity swap which resulted in, among other things, the elimination of obligations under notes issued by Netia in the past. In addition, the net financial expenses for Q1 2003 included the one-time write-off in the amount to PLN 41.2m (US$10.2m) related to unamortized part of the 2002 Notes issuance costs, following their earlier redemption.

Net loss decreased by 67% to PLN 80.3m (US$19.8m), compared to a net loss of PLN 245.4m for Q1 2002. The decrease in net loss between these periods was mainly attributable to an improvement in operating results and decrease in the net financial expenses mentioned above.

Net cash used for the purchase of fixed assets and computer software decreased by 60% to PLN 37.3m (US$9.2m) in Q1 2003 from PLN 92.1m in Q1 2002, in accordance with the revised business plan approved in late 2001, aimed at preserving cash. At the same time, PLN 199.3m (US$49.2m) deposited in Q4 2002 in a restricted account as temporary security for obligations arising under the 2002 Notes was released. As a result, cash provided by investing activities amounted to PLN 162.0m (US$40.0m) in Q1 2003 as compared to cash usage of PLN 92.1m in Q1 2002.

Cash and cash equivalents at March 31, 2003 amounting to PLN 110.9m (US$27.4m) were available to fund Netia's operations. Netia also had a deposit in a restricted account of PLN 61.5m (US$15.2m) as of March 31, 2003, which will be released to Netia upon issuance of the warrants contemplated in the Restructuring Agreement.

Q1 2003 vs. Q4 2002

Revenues increased by 3% to PLN 161.3m (US$39.8m) for Q1 2003 compared to PLN 156.9m for Q4 2002. This increase was attributable mainly to a 21% increase in revenues from telecommunications products other than traditional direct voice to PLN 36.3m (US$9.0m) in Q1 2003 from PLN 30.0m in Q4 2002 partially offset by a 1% decrease in direct voice revenues to PLN 122.5m (US$30.2m) for Q1 2003 from PLN 124.2m in Q4.

EBITDA / Adjusted EBITDA increased by 28% to PLN 43.6 (US$10.8m) for Q1 2003 from PLN 34.2m in Q4 2002. EBITDA margin increased to 27.0% for Q1 2003 from adjusted EBITDA margin of 21.8% for Q4 2002. The increase in EBITDA and growth of margin mentioned above was mainly associated with a decrease in salaries and benefits and lower costs of rented lines and network maintenance.

Net loss amounted to PLN 80.3m (US$19.8m) in Q1 2003, compared to a net profit of PLN 148.6m in Q4 2002. The change was mainly due to net financial income recorded in Q4 2002 that was associated with the reversal of interest expenses of PLN 177.4m following successful financial restructuring and ratification of Netia's Dutch composition plans. In addition, the net financial expenses for Q1 2003 included the one-time write-off in the amount to PLN 41.2m (US$10.2m) related to unamortized part of the 2002 Notes issuance costs, following their earlier redemption.

Operational Review

Connected lines at March 31, 2003 amounted to 501,512. This number is net of: (i) a decrease in equivalent of lines by approximately 4,000 connected lines arising from the reconfiguration of the radio-access system recorded in Q4 2002 (ii) provision for impairment of 27,350 connected lines recorded in Q3 2002, and (iii) the write-off of 70,200 connected lines in Q3 2001.

Subscriber lines in service increased by 1% to 345,447 at March 31, 2003 from 342,288 at March 31, 2002 and by 1% from 341,160 at December 31, 2002. The number of subscriber lines is net of customer voluntary churn and disconnections by Netia of defaulting payers, which amounted to 8,196 and 1,683, respectively, for Q1 2003. The total churn of 9,879 subscriber lines recorded in Q1 2003, mostly due to the deterioration of Polish economic conditions, which continue to affect our customers, and customers moving outside the coverage of Netia's network, was down from 12,985 subscriber lines in Q4 2002 and from 14,444 subscriber lines in Q1 2002.

Business lines as a percentage of total subscriber lines reached 31.4%, up from 29.4% at March 31, 2002 and 31.0% at December 31, 2002, reflecting the intensified focus on the corporate and SME market segments. Business customers accounted for 69% of net additions in the quarter. Revenues from business customers accounted for 57% of telecommunications revenues for Q1 2003.

Business customer lines in service increased by 8% to 108,603 at March 31, 2002 from 100,563 at March 31, 2002 and by 3% from 105,638 at December 31, 2002.

Average monthly revenue per line amounted to PLN 119 (US$29) for Q1 2003, representing a 4% decrease from PLN 124 in Q1 2002 and a 2% decrease from PLN 121 in Q4 2002. Decreasing ARPUs for both residential and business lines reflect continued overall telecom tariff reduction trends.

Average monthly revenue per business line amounted to PLN 215 (US$53) for Q1 2003, representing a 12% decrease from PLN 243 for Q1 2002 and a 3% decrease from PLN 222 for Q4 2002.

Average monthly revenue per residential line amounted to PLN 73 (US$18) for Q1 2003, representing a 3% decrease from PLN 75 for Q1 2002 and a 3% decrease from PLN 75 for Q4 2002.

TDC Internet Polska S.A. ("TDC IP"), a Polish Internet service provider, was the subject of an agreed-upon acquisition by Netia from TDC Internet A/S in April 2003. TDC IP's service offering includes fixed-access Internet, hosting and IP VPN services. With this acquisition Netia expects to complement its current product portfolio and expand the business customer base.

Premium rate services (0-708) were introduced by Netia on April 1, 2003, adding to the portfolio of intelligent network services (free-phone and split-charge) offered since February 2002.

The integrated customer relationship management ("CRM") system was fully implemented in April 2003, being the first solution of any Polish telecommunications operator that fully integrates contact and account management with operations support and billing. This new initiative has been designed to increase Netia customers' satisfaction while further reducing operating costs.

Product portfolio of Netia's indirect services offered through Netia's prefix (1055) was extended to international long-distance calls carried on standard links in January 2003 and currently includes domestic long distance, fixed-to-mobile and international long-distance services.

Headcount at March 31, 2003 was 1,283, compared to 1,362 at March 31, 2002 and 1,289 at December 31, 2002.

The number of active lines in service per employee increased by 10% to an average of 275 in Q1 2003, from 249 in Q1 2002.

Monthly average telecommunications revenue per employee increased by 23% to PLN 42,298 (US$10,441) in Q1 2003 from PLN 34,357 in Q1 2002.

Outstanding license fee obligations related to Netia's local licenses amounted to approximately PLN 402.6m (US$99.4m) (in nominal terms) at March 31, 2003. In December 2002, changes were introduced into the Polish telecommunications law that provided for cancellation of license fee obligations in exchange for investments in the telecommunications infrastructure or their conversion for the shares or debt of companies with outstanding license fees. Netia has filed for cancellation of all outstanding local license fees based on capital expenditures it has already incurred. The Minister of Infrastructure's decision on this issue is expected by the end of June 2003. Netia is awaiting ultimate and formal resolution of the application by the authorities before determining appropriate accounting for license fee obligations. Furthermore, in connection with an on-going internal consolidation of the Netia Group by merging most of operating subsidiaries into the parent company, Netia plans to write-off its telecommunication licenses.

* The US$ amounts shown in this table and in the entire document have been translated using an exchange rate of PLN 4.0512 = US$1.00, the average rate announced by the National Bank of Poland at March 31, 2003. These figures are included for the convenience of the reader only.

** Please note that due to the changes of presentation format introduced as of January 1, 2003 and related reclassification of interconnection charges and revenues as well as part of voice termination charges and revenues (previously shown net), the revenues and operating costs figures for periods ended through December 31, 2002 were adjusted accordingly to reflect these changes and therefore vary from the figures reported previously.

* The number of connected lines reported for Q3 2002 has been recalculated in order to reflect the impairment of 27,350 lines due to the future limited utilization of certain existing parts of Netia's local access network.

** The number of connected lines reported for Q4 2002 has been recalculated in order to reflect the reconfiguration of the radio-access system by approximately 4,000 connected lines.

^ ARPUs presented in this report are given for a relevant three-month period as opposed to figures for a last month in a period reported previously.