20-F 1 c94331_20f.htm Prepared by Imprima de Bussy

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549


_________________

FORM 20-F
_________________

Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended December 31, 2005

Commission File Number: 001-12998
TDC A/S
(Exact Name of Registrant as Specified in its Charter)

DENMARK
(Jurisdiction of Incorporation)

Nørregade 21
DK-0900 Copenhagen C, Denmark
(Address of Principal Executive Offices)

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

Title of Each Class
Name of Each Exchange on Which Registered
American Depositary Shares, each None
representing one half of one Ordinary  
Share, 5 DKK par value  

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

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

The number of outstanding shares of each of the issuer’s classes of capital or common stock as of December 31, 2005 was:

216,459,540 Ordinary Shares, 5 DKK par value each

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

YES ý          NO o

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 of 15(d) of the Securities Exchange Act of 1934.

YES o          NO ý


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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 ý          NO o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See the definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ý     Accelerated filer o     Non-accelerated filer o

Indicate by check mark which financial statement item the registrant has elected to follow.

Item 17 ý          Item 18 o

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES o          NO ý


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TABLE OF CONTENTS

   
Page
Introduction 2
Cautionary Statement Regarding Forward-Looking Statements 2
Item 1 Identity of Directors, Senior Management and Advisers 4
Item 2 Offer Statistics and Expected Timetable 4
Item 3 Key Information 4
Item 4 Information on the Company 26
Item 4A Unresolved Staff Comments 41
Item 5 Operating and Financial Review and Prospects 42
Item 6 Directors, Senior Management and Employees 70
Item 7 Major Shareholders and Related Party Transactions 76
Item 8 Financial Information 78
Item 9 The Offer and Listing 79
Item 10 Additional Information 81
Item 10C Material Contracts 88
Item 11 Qualitative and Quantitative Disclosures about Market Risk 89
Item 12 Description of Securities Other than Equity Securities 92
Item 13 Defaults, Dividend Arrearages and Delinquencies 92
Item 14 Material Modifications to the Rights of Security Holders and Use of Proceeds 92
Item 15 Controls and Procedures 92
Item 16A Audit committee financial expert 92
Item 16B Code of Ethics 93
Item 16C Principal Accountant Fees and Services 93
Item 16E Purchase of Equity Securities by the Issuer and Affiliated Purchasers 94
Item 17 Financial Statements 95
Item 18 Financial Statements 95
Item 19 Exhibits 95

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Introduction

     We publish our financial statements in Danish kroner. Unless otherwise indicated, all amounts in this annual report are expressed in Danish kroner. References in this annual report to “US dollars”, “USD”, “US$”, “$” or “¢” are to US currency, references to Danish kroner or DKK are to Danish currency, references to “EUR”, “euro” or “€” are to the currency of the member states of the European Union (with the exception of the United Kingdom, Denmark and Sweden) and references to “CHF” or “Swiss francs” are to Swiss currency. Solely for the convenience of the reader, certain amounts have been translated into US dollars at the rate of DKK 6.2985 to the US dollar, the official exchange rate of the Nationalbank of Denmark on December 31, 2005. Such translation should not be construed as a representation that the Danish kroner amounts represent, or have been or could be converted into, US dollars at that or any other rate.

     Unless otherwise indicated, financial information in this Annual Report as of and for the years ended December 31, 2004 and 2005 has been prepared in accordance with International Financial Reporting Standards as adopted by the EU (IFRS). IFRS differ in certain significant respects from US GAAP. For a reconciliation of certain of our financial data to US GAAP, see note 33 to our consolidated financial statements.

     As used in this annual report, unless the context otherwise requires or specifies, references to “we” , “the group” , “us” and “our” refer to TDC A/S and its subsidiaries.

Cautionary Statement Regarding Forward-Looking Statements

     Certain sections of this Annual Report contain forward-looking statements that are subject to risks and uncertainties.

     Examples of such forward-looking statements include, but are not limited to:

  statements containing projections of revenue, income (or loss), earnings per share, capital expenditures, dividends, capital structure or other net financials.
  statements of our plans, objectives or goals for future operations including those related to our products or services.
  statements of future economic performance.
  statements of the assumptions underlying or relating to such statements.

     Words such as “believes”, “anticipates”, “expects”, “intends”, “aims” and “plans” and similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements. These statements are based on current plans, estimates and projections, and therefore undue reliance should not be placed on them.

     By their very nature, forward-looking statements involve inherent risks and uncertainties, both general and specific, and risks exist that the predictions, forecasts, projections and other forward-looking statements will not be achieved. We caution that a number of important factors could cause actual results to differ materially from the plans, objectives, expectations, estimates and intentions expressed in such forward-looking statements made by us or on our behalf. These factors include, but are not limited to:

  changes in applicable Danish and EU legislation
  increases in the interconnection rates we are charged by other carriers or decreases in the interconnection rates we are able to charge other carriers
  decisions from the Danish National IT and Telecom Agency whereby the regulatory obligations of TDC are extended
  developments in competition within domestic and international communications solutions
  introduction of and demand for new services and products
  developments in the demand, product mix and prices in the mobile market, including marketing and customer-acquisition costs
  developments in the market for multimedia services
  the possibilities of being awarded licenses
  developments in our international activities, which also involve certain political risks
  investments in and divestitures of domestic and foreign companies.

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     We caution that the above list of important factors is not exhaustive. When relying on forward-looking statements to make decisions with respect to TDC, investors and others should carefully consider the foregoing factors and other uncertainties and events. Such forward-looking statements speak only as of the date on which they are made and we do not undertake any obligation to update or revise any of them, whether as a result of new information, future events or otherwise.

     A complete discussion of the risks related to our business is contained in the Risk Factors section of Item 3.

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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 following tables set forth our selected consolidated financial data for the periods indicated. This data is derived from our audited consolidated financial statements prepared in accordance with the International Financial Reporting Standards as adopted by the EU (IFRS). IFRS differ in certain respects from US GAAP. See note 33 to our consolidated financial statements for a description of the significant differences between IFRS and US GAAP as they relate to us.

     These tables should be read together with Item 5, “Operating and Financial Review and Prospects” and our consolidated financial statements, including the notes to those financial statements, included elsewhere in this annual report. The Consolidated Financial Statements for the five years ended December 31, 2005 have been audited by PricewaterhouseCoopers.

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  Year Ended December 31,  
 
 
  2001   2002   2003   2004   2005  
  DKK   DKK   DKK   DKK   DKK  
 
 
 
 
 
 
Statement of Income Data:
(In millions except per share and per ADS amounts)
 
 
 
Amounts in accordance with IFRS:                    
Revenue             42,339   46,588  
Operating expenses before depreciation, etc             (31,138 ) (34,773 )
Depreciation, amortization and impairment losses             (6,661 ) (6,827 )
             
 
 
Total operating expenses             (37,799 ) (41,600 )
Other income and expenses             1,180   257  
Operating income             5,720   5,245  
             
 
 
Income from associates             5,632   334  
             
 
 
Net financials             (716 ) (1,056 )
Income before income taxes             10,636   4,523  
             
 
 
Income taxes             (1,041 ) (1,026 )
Net income from continuing operations             9,595   3,497  
             
 
 
Net income from discontinued operations             315   3,953  
Net income             9,910   7,450  
             
 
 
                     
Net income attributable to Company shareholders             9,912   7,474  
                     
Operating income per share             27.95   26.87  
Operating income per ADS (1)             13.98   13.44  
Earnings per share             48.44   38.29  
Earnings per ADS (1)             24.22   19.15  
                     
Dividends per share (2) 11.00   11.50   12.00   12.50   0.00  
Dividends per ADS (2), (3) 5.50   5.75   6.00   6.25   0.00  
                     
Amounts in accordance with US GAAP(4):                    
Revenue 40,411   40,492   40,144   42,346   46,586  
Operating income (998 ) 3,683   3,790   5,366   4,836  
Net income from continuing operations (1,401 ) 6,850   2,802   9,610   3,276  
Net income (loss) (1,192 ) 7,086   2,974   9,922   7,229  
Earnings per share (basic) (1) (5.53 ) 32.98   13.92   48.49   37.04  
Earnings per share (diluted) (1) (5.53 ) 32.98   13.91   48.39   36.83  
Earnings per share from continuing operations (basic) (1).. (6.51 ) 31.88   13.12   46.96   16.79  
Earnings per ADS (basic) (1) (2.77 ) 16.49   6.96   24.25   18.52  
Earnings per ADS (diluted) (1) (2.77 ) 16.49   6.96   24.20   18.42  
Earnings per ADS from continuing operations (basic) (1) .. (3.26 ) 15.94   6.56   23.48   8.40  
                     
(1)   Operating income and earnings per ADS reflect the ratio of one half of one share per one ADS.
(2)   Subsequently, Interim Dividends of DKK 219.50 per share were declared on April 5, 2006 and Interim Dividends of DKK 4.35 per share were declared on June 21, 2006.
(3)   Dividends per ADS reflect the ratio of one half of one share per one ADS.
(4)   Upon adoption of SFAS 142 on January 1, 2002, we ceased amortization of all goodwill for US GAAP reporting purposes. Amortization expense on goodwill on a US GAAP basis for the year ended December 31, 2001 was DKK 1,534 million.

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  As of December 31,  
 
 
  2001   2002   2003   2004   2005  
  DKK   DKK   DKK   DKK   DKK  
 
 
 
 
 
 
Balance Sheet Data:
(In millions)
 
 








 
Amounts in accordance with IFRS:                    
Total non-current assets             69,865   68,615  
Total current assets             20,399   24,909  
Total assets             90,264   93,524  
Total current liabilities             15,089   18,598  
Total non-current liabilities             36,325   31,131  
Total liabilities             51,414   49,729  
Equity attributable to Company shareholders             38,823   43,520  
Total equity             38,850   43,795  
                     
Amounts in accordance with US GAAP:                    
Total assets
95,266
  93,276   93,187   93,444   96,713  
Capital stock
1,082
  1,082   1,082   1,082   992  
Total shareholders’ equity
31,279
  35,856   35,507   39,663   43,973  
 
                 
Average number of shares (adjusted to reflect changes in capital)
216.5
  216.5   216.5   216.5   208.1  

 

                     
  Year Ended December 31,  
 
 
  2001   2002   2003   2004   2005  
  DKK   DKK   DKK   DKK   DKK  
 
 
 
 
 
 
  (In millions)  
 
 
Statement of Cash Flow Data:                    
Net cash from operating activities             11,084   8,691  
Net cash used for investing activities             2,889   (1,226 )
Net cash from/(used for) financing activities             (12,573 ) (4,229 )
                     
  2001  
2002
 
2003
 
2004
 
2005
 
 
 
 
 
 
 
Additional Information:                    
Number of customers ( ‘000) (1)                    
   Landline 3,913   3,598   3,631   3,483   3,521  
   Mobile 4,575   4,939   6,199   7,126   9,022  
   Internet 1,403   1,285   1,696   1,814   1,769  
   Cable TV 828   885   924   982   1,030  
Capital expenditure (DKK millions) (2) 21,419   7,243   13,461   9,992   6,274  
Number of employees (3) 21,344   21,009   20,034   19,497   20,225  
                     
(1)     Denotes end of period subscribers and includes customers with and without subscriptions on the following basis:
  •   Landline customers with subscriptions;
  •   Mobile customers with subscriptions or who have been active within the last 3 to 15 months; and
  •   Internet customers with subscriptions or who have been active within the last 1 to 3 months. The number of subscribers also includes resale customers.
(2)     Capital expenditure includes expenditure on intangible assets, property, plant and equipment, as well as share acquisitions.
(3)     The figures denote end-of-year full time employee equivalents including permanent employees, trainees and temporary employees.

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Dividends

     Dividends on our shares may be paid out of profits as shown in our annual financial statements, as adopted by our Board of Directors and approved at the Annual General Meeting of shareholders. Under Danish law, dividends may be paid in respect of a financial period as to which audited financial statements have been approved at a General Meeting

     Under Danish law, interim dividend on our shares may also be paid out of profits as shown in an interim balance sheet, as adopted by the Board of Directors and reviewed by our auditor, provided that a General Meeting has authorized the Board of Directors to distribute interim dividend.

     No dividends will be paid on the company’s own holding of TDC treasury shares.

Exchange Rates

     The following chart shows for the period from January 1, 2001 through May 31, 2006, the period end, average, high and low noon buying rates in the City of New York for cable transfers of Danish kroner as certified for customs purposes by the Federal Reserve Bank of New York expressed as Danish kroner per $1.00.

                   
   
DKK per $1.00
 
   
 
   Year   High   Low  
Period average(1)
  Period end  

 
 
 
 
 
2001  
8.8900
 
7.8260
 
8.3323
 
8.3529
 
2002  
8.6470
 
7.0850
 
7.8862
 
7.0850
 
2003  
7.1280
 
5.9150
 
6.5800
 
5.9150
 
2004  
6.3115
 
5.4596
 
5.9891
 
5.4940
 
2005  
6.3891
 
5.5161
 
6.0194
 
6.2985
 
   
 
 
 
 
   Month  
 
 
 
 

 
 
 
 
 
October 2005  
6.2632
 
6.1423
 
6.2034
 
6.2219
 
November 2005  
6.3891
 
6.1857
 
6.3277
 
6.3200
 
December 2005  
6.3698
 
6.1874
 
6.2844
 
6.2985
 
January 2006  
6.2284
 
6.0714
 
6.1530
 
6.1377
 
February 2006  
6.2888
 
6.1677
 
6.2514
 
6.2559
 
March 2006  
6.2748
 
6.1174
 
6.2025
 
6.1467
 
April 2006  
6.1710
 
5.9076
 
6.0798
 
5.9076
 
May 2006  
5.9140
 
5.7841
 
5.8398
 
5.8098
 

(1) In respect of the yearly data, the average of the noon buying rates on the last business day of each month during the relevant period. In respect of the monthly data, the average of the noon buying rates on each business day during the month. The noon buying rate of the Danish kroner on May 31, 2006 was DKK 5.8098 = $1.00.

     The following chart shows for the period from January 1, 2001 through May 31, 2006, the period end, average, high and low noon buying rates in the City of New York for cable transfers of Danish kroner as certified for customs purposes by the European Central Bank expressed as Danish kroner per €1.00. The exchange rate of Danish kroner per euro is regulated by the Exchange Rate Mechanism (ERM II), a system originally established in 1979 for controlling exchange rates within the European Monetary System of the EU. Under this system, Denmark sets its central exchange rate to 7.46038 kroner per euro and allows fluctuations of the exchange rate within a 2.25% band. This means that Danish krone can fluctuate from a high of DKK 7.63 per €1.00 to a low of DKK 7.29 per €1.00. If the market determined floating exchange rate rises above, or falls below the bands, Danmarks Nationalbank, the Danish central bank, must intervene.

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    DKK per €1.00  
   
 
Year
  High   Low  
Period average(1)
  Period end  

 
 
 
 
 
2001
 
7.4671
 
7.4342
 
7.4504
 
7.4365
 
2002
 
7.4405
 
7.4246
 
7.4298
 
7.4288
 
2003
 
7.4450
 
7.4234
 
7.4309
 
7.4450
 
2004
 
7.4524
 
7.4287
 
7.4394
 
7.4388
 
2005
 
7.4640
 
7.4351
 
7.4525
 
7.4605
 
                   
   Month                  

                 
October 2005  
7.4632
 
7.4594
  7.4620  
7.4623
 
November 2005  
7.4640
 
7.4537
  7.4596  
7.4537
 
December 2005  
7.4610
 
7.4487
  7.4541  
7.4605
 
January 2006  
7.4639
 
7.4573
  7.4613  
7.4639
 
February 2006  
7.4674
 
7.4598
  7.4641  
7.4610
 
March 2006  
7.4628
 
7.4586
  7.4612  
7.4624
 
April 2006  
7.4635
 
7.4556
  7.4608  
7.4578
 
May 2006  
7.4590
 
7.4521
  7.4556  
7.4557
 

(1) In respect of the yearly data, the average of the noon buying rates on the last business day of each month during the relevant period. In respect of the monthly data, the average of the noon buying rates on each business day during the month. The noon buying rate of the Danish kroner on May 31, 2006 was DKK 7.4557 = €1.00.

Capitalization and Indebtedness

     Not applicable.

Reasons for the Offer and Use of Proceeds

     Not applicable.

Risk Factors

     The risks described below are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially adversely affect our business, financial condition, results of operations or cash flows.

Risks Related to Our Business

We operate in highly competitive industries, and competitive pressures could have a material adverse effect on our main business lines.

     We face significant competition from established and new competitors. In our international operations, we compete against companies with in some cases better access to financing, more comprehensive product offerings, greater personnel resources, greater brand name recognition and experience or long-established relationships with regulatory authorities and customers. If we cannot match the product offerings, services or prices of our competitors, we may lose market share. If we are forced to lower our prices to match the prices of our competitors, we may experience decreasing profit margins.

In summary, competition in our business could lead to:

  •   continued price erosion for our products and services;
  •   loss of existing or prospective customers and greater difficulty in retaining existing customers;

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  •   obsolescence of existing technologies and the need for more rapid deployment of new technologies; and
  •   increased pressure on our profit margins, preventing us from maintaining or improving our current level of operational profitability and cash flows.

     Landline and Broadband. We expect increased competition to our landline business due to price reductions by our competitors, the development of new technologies, including VoIP, and fixed-to-mobile substitution. These factors may result in a loss of fixed line subscribers and market share, which could adversely affect our revenue and profit margins.

     Providers of VoIP are offering telephony at significantly reduced prices. Therefore, there is considerable risk that our own introduction of VoIP could negatively affect our landline operation’s future earnings potential, as we may not be able to maintain a price level for VoIP similar to levels for PSTN.

     Continuing competition is also expected in landline telephony from IP-based internal networks (such as IP-VPN for business customers), antenna and housing association networks and utility companies using their infrastructure to provide telephony and broadband. Similarly, in the market for leased lines, continuing competition is likely from substitution products, including new IP-based transmission products such as MPLS, Ethernet solutions, landline networks, local digital networks, wireless networks, WLAN, WiMAX and CDMA/450 MHz. Such products are often priced lower than leased lines, and product quality is sufficiently strong to constitute a viable alternative to traditional landline solutions. Although we offer our customers substitution products and services to our traditional telephony products and services, including VoIP and broadband access, there is no assurance that our current telephony customers will switch to our substitution products and services and not those of a competitor. Even if we manage to capture 100% of customer conversions from traditional telephony to substitution products, our landline business may still experience decreasing profit margins as margins for substitution products and services are generally lower than those for traditional telephony products and services.

     Further growth in the landline market requires us to lead or adapt to technological developments, including the market’s demand for higher DSL speeds. We expect the future landline market to be dominated by those providers who can offer high quality telephony, TV and internet in one package, known as triple play, at attractive prices. This type of bundled product puts increasing demands on providers because of the technological, logistical and pricing complexities of combining these three services into a single product offering. If we fail to adapt to or lead technological developments, or to offer an attractive triple play package, our market share and profit margins in the landline sector may be adversely affected.

     In general, our future success in the landline market will depend on our ability to shift toward VoIP and other IP-based products, and adapt to lower prices for our services and generally more competitive market conditions. If we are unsuccessful in dealing with these risks, our revenue and profit margins may be negatively affected.

     Furthermore, price decreases in the Danish mobile market may accelerate the trend of migration from landline to mobile telephony. As we have a smaller share of the mobile market than the landline market in Denmark, such a migration could negatively affect our earnings.

     Competitive pressure in broadband may increase due to continuing competition from new product offerings from other providers. A number of operators have launched VoIP over DSL and utility companies have announced a long-term roll out of FTTH. In total, the utility companies expect to roll out FTTH to 40%, or approximately one million, of Danish households.

     Mobile. We may not be able to develop and market attractive mobile services at competitive prices, which may prevent our mobile business from maintaining or increasing revenue and earnings.

     As market price levels for many mobile services continue to fall, including price reductions as a result of regulations in certain jurisdictions limiting prices for terminating calls in our mobile networks and for roaming charges, further growth in earnings will require improved sales volumes or continued cost control, which we may fail to achieve.

     Although our size gives us economies of scale, our mobile operations continue to be challenged by new business models and the introduction of new products by our competitors. We have implemented a new business model for online

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self-service mobile telephony through our Danish subsidiary Telmore. There is no guarantee that this new business model will stay profitable. In addition, we face the risk that our competitors may introduce new and successful business models before we do or that we may not be able to adopt such new business models to our business. Moreover, our success in such a competitive environment will depend on our ability to keep pace with new mobile technologies, including the change from 2G to 3G mobile telephony, video telephony and data packaging. Growth in mobile data services is expected to be driven by an increase in the quantitative and qualitative capabilities of mobile business applications. Our success with 3G technology depends largely on our ability to develop and introduce attractive 3G products and services at competitive prices, including our ability to benefit from general developments in the content services market. The introduction of VoIP may also threaten mobile telephony in the long term because of its low cost. Failure to lead or adapt to such technical changes in the mobile market or to compete with or adopt new business models may have a materially adverse effect on our mobile business.

     Cable TV. TDC Cable TV is expected to face increasing competition from a number of sources, including utility companies, large antenna co-operatives and housing associations and satellite television providers. Competition is driven by price, convenience and the range of channels offered. I/S DIGI-TV, an entity owned by the Danish state broadcasting services, launched DTT in March 2006, which utilizes digital technology to provide a greater number of channels and picture and sound enhancements such as HDTV and Dolby Digital through a conventional antenna. Although DTT currently offers three channels, it is expected that DTT will expand to up to 16 channels by 2009. DTT is expected to result in a greater range of channels in the generally accessible terrestrial network, which will increase competition. In the long term, increased competition in the Danish cable TV market may also arise from new technology, most notably from future internet-based content providers. Failure by TDC Cable TV to meet these challenges may have a materially adverse effect on our market share in the Danish cable TV market.

Increasing competition in the Danish, Swiss and certain other European telecommunications markets in which we have major operations makes us vulnerable to margin squeeze and further market share loss.

     The Danish telecommunications sector is highly competitive. The main drivers of competition in this market are the strong reduction in interconnection prices, competitors in the Danish market such as TeliaSonera, Tele2 and Sonofon, and the regulatory requirement that we provide our competitors with access to our network. To remain successful in this market, we may be required to reduce the prices for our services. In the Danish mobile market, prices have been declining due to fierce competition, particularly from online products. Broadband customers are being offered increasing bandwidth at unchanged or even falling prices. Although traditionally our prices for landline and mobile telephony as well as leased lines in Denmark have been among the lowest in the EU, as market pressures continue, our Danish operations may experience further reductions in profit margins. In the past few years, we have experienced loss of market share in the Danish landline and mobile markets.

     We believe that ongoing regulatory initiatives in Denmark will make the Danish telecommunications market increasingly competitive, which has been the case with telecommunications regulations in recent years. These regulatory initiatives, such as CPS and number portability, have increased the ease with which our customers can move to other operators. As a result of these regulatory measures, competition in the Danish telecommunications market has increased, and we have lost market share in the Danish telecommunications market and are vulnerable to greater competition and further loss of market share in the future.

     In the pan-Nordic market, our business customers increasingly demand Nordic solutions covering cross-border landline telephony, data communications, IP telephony and mobile communications, where competition, especially from other pan-Nordic providers, is intensifying. We face increasing competition from the Nordic operators Telenor and TeliaSonera, each of which offers a full product suite of mobile, broadband, voice and TV. If we are unable to provide cross-border solutions to our Nordic business customers, we risk losing an important segment of our customer base.

     Our foreign subsidiaries also face increasing competition. This development could adversely affect the revenue and profit margins of our foreign subsidiaries. Almost half of TDC’s 2005 revenue was related to operations outside Denmark, including operations in a number of emerging markets.

     With regard to our Swiss landline business, TDC Switzerland has experienced price decreases in the landline market due to competition from established competitors, including the incumbent Swisscom. Such competition may result

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in loss of customers, reduced revenue and a lower profit margin in Switzerland. Competition in Switzerland is expected to intensify because established cable network operators, such as Cablecom, are offering landline telephony through their existing networks at very low or flat rate prices.

     With respect to the Swiss mobile market, TDC Switzerland faces the risk of increased pricing pressure from competition from new MVNOs entering the market. In addition, future growth in revenue and earnings within the mobile telephony sector will depend on our ability to establish a presence in the business market, which we may not be able to achieve. In the past year, the Swiss mobile market has experienced intense competition, driven by Swisscom’s attempt to retain its market share, which may result in declining margins and diluted earnings. The still increasing mobile penetration in the Swiss mobile market may result in fierce competition for remaining customers, which could in turn lead to a rise in customer-acquisition and retention costs, and further pressure on earnings.

     The future growth of Bité will depend primarily on winning market share in Latvia, which Bité, as a new entrant there, may not be able to achieve. More generally, the future growth of Bité will also depend on country-wide factors beyond our control such as poor economic growth that may have an adverse effect on the competitive environment in Latvia and Lithuania. The future success of Talkline will depend largely on its ability to keep a large portion of the gross margin on traffic resales for itself when negotiating with network suppliers. There is also a significant risk of future pressure on retail prices in the German mobile market, which are high compared to price levels in other countries in the Organization for Economic Co-operation and Development.

The mobile telecommunications market in Denmark is mature and approaching saturation, with the consequence that subscriber growth in the market has slowed in recent years and our mobile business may not grow at historical rates.

     The mobile telecommunications market in Denmark is approaching saturation, with a penetration rate of 101%. The degree to which the Danish mobile telecommunications market will continue to expand, if at all, is uncertain. We believe that, in addition to general market conditions, future market growth will be driven largely by new technologies and new content. Our ability to sustain growth in revenue and our customer base despite the increased competition that has resulted from this market saturation will depend in large part upon our ability to retain our existing subscribers, convince subscribers to switch from competing carriers to our services, and to stimulate and increase usage. We may not achieve these aims if we are not able to enhance our existing mobile products and services and to develop, introduce and market new mobile technologies, products and services. If we fail to increase revenue from or expand our subscriber base in our mobile business in the face of market saturation, our business, financial condition and results of operation could be materially adversely affected.

Our business is subject to rapid changes in technology and if we fail to lead or respond to technological developments, our business may be adversely affected.

     Our landline, mobile, internet and cable TV operations may not be successful if we fail to lead or keep pace with continuing changes in technology and provide new or enhanced services in a timely and cost-effective manner, or to successfully anticipate the product demands of our customers. Recently, the market has witnessed the emergence of new technologies such as VoIP, ADSL2+, FTTH and Ethernet. We expect technological innovation to continue rapidly across all product lines. We will need to anticipate and react to these changes and to develop or apply new and enhanced products and services quickly enough for the changing market. Otherwise, we risk losing market share, customers and in the event substitution technologies introduced by our competitors result in lower sales costs, profit margins. In addition, new technologies may become dominant in the future, rendering our current systems obsolete. For example, SIP based technologies delivering VoIP and other communications services over broadband may make PSTN technology obsolete. ADSL2+, VDSL2 and FTTH based solutions may make the current DSL technology limited to 8 Mbps obsolete. Ethernet technology which reduces the cost level for IP aggregation considerably may make ATM technology obsolete.

     Technological advancements could also result in the need to make substantial investments in new or enhanced technologies, products or services. We may not be able to adopt such technology due to insufficient funding to make the necessary capital expenditures, or if such technology is subject to third-party patents. Conversely, if we do succeed in introducing new technologies in the telecommunications market, such technologies may not prove commercially viable in the long run, and consequently we may risk being unable to earn an adequate return on, or recover the costs of, our investments in developing and marketing products that rely on these technologies.

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Failure to control customer churn may adversely affect our business.

     Customer churn is a measure of customers who stop subscribing to our services. Churn arises mainly as a result of new housing development, relocation of subscribers and price decreases by our competitors. In addition, our customer churn rate may also increase as a result of competitive developments or if we are unable to deliver satisfactory services over our network. Any interruption of our services or other customer service problems could also contribute to an increase in customer churn. Any increase in customer churn may lead to a need to reduce our costs rapidly to preserve our margins and reduced revenue or, alternatively, to increase our marketing costs in an attempt to keep or bring back customers. There can be no assurance that the various measures we have taken to increase customer loyalty will reduce the rate of churn.

     Furthermore, the mobile telecommunications market is characterized by frequent developments in product offerings, as well as by advances in network and handset technology. If we fail to maintain and upgrade our network and provide our customers with an attractive portfolio of products and services, we may not be able to retain our customers. Additionally, if competing mobile operators improve their ability to attract new customers, or offer their products and services at lower prices, it could become more difficult for us to retain our current customers, and our costs of acquiring new customers could increase.

We may face significant capital expenditures going forward driven mostly by investments in new technologies and infrastructure including our network and information technology systems. We cannot assure you that we will have sufficient liquidity to fund our capital programs or our ongoing operations in the future.

     Our business is capital intensive and has always required significant amounts of cash. We have a capital expenditure program which will continue to require significant capital outlays in the foreseeable future, including the continued development of our GSM and UMTS networks, cable TV business, maintenance of our network backbones, our continuing fiber network roll out including FTTN and investments in new IT systems, including customer care and billing systems. The utility companies expect to roll out FTTH to 40%, or approximately one million, of Danish households. The Danish Competition Authority has estimated that this will require investments by the utility companies of DKK 9.5 billion. Although we now have more than 23,000 kilometers of fiber network, primarily in the backbone network, competition from utility companies may put pressure on us to invest more heavily in both FTTN and in FTTH.

     Although we may have an advanced network, we may need to invest in new networks and technologies in the future, such as Next Generation Networks, which could require significant capital expenditures, and network usage may develop faster than we anticipate, requiring greater capital investments in shorter time frames than we anticipate. However, we may not have the resources available to make such investments. In addition, costs associated with the licenses needed to operate our existing networks and technologies including UMTS and those that we develop in the future, and costs and rental expenses related to their deployment could be considerable The amount and timing of our future capital requirements may differ materially from our current estimates due to various factors, many of which are beyond our control and we cannot assure you that we will generate sufficient cash flows in the future to meet our capital expenditure needs, sustain our operations or meet our other capital requirements.

Our international business activities expose our earnings to exchange rate risk and the risks of a fluctuating global economy.

     Approximately 30% of our 2005 revenue was generated outside Denmark and the euro area. This revenue originates primarily from Switzerland, Lithuania, Sweden and Norway, where we conduct our business operations and prepare our financial statements in currencies other than the Danish kroner or the euro. Any loss in the value of these currencies against the Danish kroner will have a negative impact on the value of our investments in the relevant business activities and the amount of income we derive from them.

Our reporting currency is the Danish kroner.

We are exposed to interest-rate risks.

     Our borrowings under the Senior Facilities Agreement, entered into by Nordic Telephone Company Holding ApS ("NTCH" - a holding company of NTC) in connection with Nordic Telephone Company ApS’s, (“NTC” - our major shareholder) acquisition of TDC and later the entry of TDC after the acquisition, are subject to floating interest rates. An

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increase in interest rates could increase our payment obligations and could have a material adverse effect on our operating results and financial position. We are required to hedge a portion of our floating rate debt pursuant to the Senior Facilities Agreement. Hedging may be expensive to maintain and may not protect us adequately against adverse movements in interest rates.

A favorable market for UMTS-based 3G services may not develop, limiting our ability to recoup the cost of our investments in UMTS services and the UMTS licenses and networks, which could adversely affect our results of operations.

     Our UMTS-based 3G service has required us to make substantial investments in UMTS services and UMTS licenses and networks. We have UMTS licenses in Denmark, Latvia, Lithuania and Switzerland. Polkomtel has a UMTS license in Poland and One has a UMTS license in Austria. Our Danish UMTS license fee will cost approximately DKK 950 million in aggregate. We paid 25% of the license fee upfront in 2001 and have subsequently paid four instalments of 7.5% each. The remaining 45% is to be paid in six yearly instalments ending 2011. As required under the terms of our license, we achieved coverage of 30% of the population at the end of 2004, but must achieve a coverage of 80% by the end of 2008, which may require us to make substantial investments in the upcoming years. Our Danish UMTS license expires October 31, 2021. Our Swiss UMTS license fee cost 50 million Swiss francs and will expire at the end of 2016. The license fee was paid upfront. As required under the terms of our license, we achieved coverage of 50% of the population at the end of 2004.

     Although certain markets for UMTS currently exist, if UMTS does not gain further acceptance or deliver anticipated advantages, or if we derive a smaller percentage of our revenue than expected from our UMTS-related 3G services, we may not be able to adequately recoup our investment in our UMTS licenses and networks. This may be the case even if we follow a strategy of making further significant investments in UMTS only when it is clear that UMTS use is becoming mainstream. UMTS technology needs further development in order to provide the expected advantages over existing GSM technology and rival competing mobile broadband technologies. Demand for UMTS-based 3G services may not develop to the extent that we anticipate. Accordingly, no assurance can be given that a larger market for UMTS services will develop or that we will be able to achieve our desired sales volumes for UMTS services. Moreover, competition from WLAN and CDMA/450 MHz may adversely affect the penetration of UMTS and associated data services. Substitution technologies including WiMAX and WiFi which also offer radio voice and data transmission solutions, may pose a threat to the growth of the UMTS market. Push-to-talk (walkie-talkie) and instant messaging may also pose a threat to the UMTS market in the future. We also face the risk that our UMTS customers will use lower margin packet transmission services (“Packet Side” traffic) rather than higher margin voice transmission services (“Circuit Side” traffic), thereby threatening the profitability of our UMTS business.

     Furthermore, we rely on applications developers to develop services that will stimulate market demand for 3G services and our UMTS network. If third-party application service providers fail to develop such services, or experience delays in their development of such services, our ability to generate revenue from our UMTS network may be adversely affected.

     Market demand for our UMTS operations is also dependent on the availability of reasonably priced handsets from suppliers, technologically proven network equipment and software with sufficient functionality and speed. If we cannot obtain such equipment and software or if we experience delays in their delivery or functional deployment, our ability to develop our UMTS network and our customers’ ability to access it will be impaired. Availability of this equipment and software is the required driver of demand for these services.

Market acceptance of our online telephony services, including our self-service products and e-commerce services, is still uncertain.

     Our online services, including our self-service telephony products, and e-commerce services such as TDC Online are relatively new offerings in the telecommunications market. Consequently, there is uncertainty concerning market demand for, or profitability of, such products and services. If customer service costs turn out to be higher than expected, future profit margins could be affected. Moreover, it is uncertain if and how fast the expected efficiency savings resulting from such movement to online services may be realized.

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Equipment and network systems are vulnerable to terrorist attacks, natural disasters, security risks and other events that may disrupt our services and result in increased costs or lost revenue. In addition, terrorism laws and regulations might result in a heavier regulatory burden on our business and increased operating costs.

     The performance, reliability and availability of our networks and our mobile and fixed line telecommunication services are critical to our ability to attract and retain subscribers. Our networks and the services we provide may be subject to damage or disruptions resulting from terrorist acts and numerous other events, including fire, flood or other natural disasters, power outages and equipment or system failures (“major disruption events”). Our network has been affected by floods and storms in the past. If a major disruption event were to affect our infrastructure or a third party’s systems, and were to result in a failure of our networks or systems or of the third party-owned local and long distance networks on which we rely for the provision of interconnection and roaming services to our subscribers, it could affect the quality of our services or cause temporary service interruptions, which could result in customer dissatisfaction, regulatory penalties and reduced revenue. The occurrence of network or system failure could also harm our reputation or impair our ability to attract new customers, which could have a material adverse effect on our business, financial condition and result of operations. There can be no assurance that our business continuity plans, network security policies, the vulnerability analysis we conduct jointly with regulators or our monitoring activities will mitigate the impact of or prevent a disruption event.

     In addition, our business is dependent on certain sophisticated critical systems, including exchanges, switches, other key network points and our billing and customer service systems. The hardware supporting those systems is housed in a relatively small number of locations and if damage were to occur to any of such locations, or if those systems develop other problems, it could have a material adverse effect on our business.

     A substantial part of our network is not insured. In the event any losses due to terrorist acts and numerous other events, including fire, flood or other natural disasters, power outages and equipment or system failures, are not covered by insurance, we may not have the capital to make necessary repairs or replacements.

     A significantly higher regulatory burden on our business prompted by terrorism or similar threats would increase our costs. As part of the anti-terrorism action plan passed by the Danish government in November 2005, the government has proposed requiring telecommunications operators to use or install communication interception equipment and to establish databases for mandatory retention of traffic passing through their networks in order to assist law enforcement agencies in tracking terrorist activity. If such measures are adopted, we may need to make additional investments on technical equipment and we may incur operational costs as a result. Such regulation substantially increases our potential data retention obligations, requiring us to keep traffic data well beyond what we need for legitimate business purposes. These requirements are expected to cause substantial costs, with no possibility of cost recovery from the public authorities.

We expect that our increasing dependency on digitalized information technology systems exposes us to risks of hacking, piracy and systems failure, which potentially could disrupt our business.

     The telecommunications sector has become increasingly digitalized, automated and online, which means that we are exposed to increasing risks of hacking, piracy and general failure of IT systems. Unanticipated IT problems, system failures, computer viruses or hacker attacks could affect the quality of our services and cause service interruptions. Risks of network failure can never be completely eliminated and the occurrence of such failures may reduce revenue and harm our reputation.

In order to improve our profitability, we need to implement a sizeable reduction in our existing workforce, which may be costly and difficult to implement.

     In order to maintain and improve our profitability as we face continuing pricing pressure due to competition, and to take advantage of the cost-saving potential of our new online self-service products, we need to make a sizeable reduction in our workforce over the next few years. Any reduction to our workforce may entail significant severance costs, which may affect our earnings. Many of our employees in Denmark have civil servant pension rights and some of them are entitled to severance benefits. We believe that the total costs related to domestic workforce reductions in 2006 will be DKK 342 million after tax. Furthermore cost related to workforce reductions in Switzerland will be DKK 72 million pre tax. The costs relating to workforce reductions may be higher than we anticipate and may have a material impact on our profitability.

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     In addition, there can be no assurance that we will be able to implement sizeable reductions in our workforce. Danish law does not impose significant restrictions on workforce reductions, and our labor unions do not have a right under Danish law to veto any reductions in our workforce. We have entered into “Borgfredsaftaler,” collective agreements, with each of the telecommunications departments of the Danish Metal Workers Union (Dansk Metal), , the Association of Managers and Employees in Special Positions of Trust in TDC (Lederforeningen i TDC,)(LTD) and the Danish Confederation of Professional Associations (AC-organsiationerne) (“AC”) (collectively, the “Borgfredsaftale unions”). In these Borgfredsaftaler, we have agreed to follow certain procedural guidelines in connection with the implementation of reductions in our workforce, including providing redundant employees with training that would make them suitable for reassignment within TDC in certain circumstances. The Borgfredsaftaler expire at the end of 2007, however they may be terminated by us or the unions subject to three months notice in the event the assumptions behind the agreements lapse or change.

     We also have entered into collective agreements with the Borgfredsaftale unions regarding the terms and conditions of voluntary resignations by employees as an incentive to encourage voluntary resignations. These agreements may be terminated by either party subject to two months notice. Neither the reductions in our workforce nor the scope of such reductions are part of these agreements.

     Even though we have agreements with these unions relating to procedures for workforce reductions and the terms and conditions of voluntary resignations, there can be no assurance that any of our labor unions will not resist further workforce reductions. In addition, we may not be able to negotiate agreements with the Borgfredsaftale unions after 2007 similar to the Borgfredsaftaler.

     During the last three years, we implemented two overall domestic redundancy programs and initiated a third: the first covering the period 2003 to 2004 and the second covering 2005. In 2005, due to our international acquisition activity, our total number of employees and the number of our international employees increased. We expect our number of employees to increase in the event we continue to make acquisitions. In 2005, we did manage to reduce our number of domestic full-time employees from 14,437 to 13,876. A redundancy program has also been initiated in 2006, pursuant to which we expect to reduce staff by up to 570 employees. We have also initiated a redundancy program in Switzerland in 2006, and we expect a reduction in the workforce by 145 employees, corresponding to 5.7 pct. We cannot assure you that we will be able to implement redundancy programs in the future or that our third redundancy program will be effective.

Strikes or other industrial actions could disrupt our operations or make it more costly to operate our facilities.

     We are exposed to the risk of strikes and other industrial actions to the same extent as other companies on the Danish labor market. We estimate that more than 70% of our employees are union members. As noted above, we have entered into Borgfredsaftaler with each of the Borgfredsaftale unions, which provide for certain procedural guidelines to be followed in connection with the implementation of reductions in our workforce until the end of 2007. Pursuant to our Borgfredsaftaler with the telecommunications departments of the Dansk Metal the parties thereto have agreed to enter into dialogue within 24 hours in the face of an imminent conflict in order to prevent industrial action. As noted above, we have also entered into separate agreements with each of the Borgfredsaftale unions regarding the terms and conditions of voluntary resignations by employees as an incentive to encourage voluntary resignations. These agreements may be terminated by either party with two months notice. Any industrial action we experience might disrupt our operations, including our repair times, possibly for a significant period of time, result in increased wages and benefits or otherwise have a material adverse effect on our business, financial condition and results of operations.

We depend on equipment and service suppliers that may fail to deliver or discontinue their products or seek to charge us prices that are not competitive, which may adversely affect our business and profitability.

     Due to our existing legacy network, we are dependent on certain suppliers for the maintenance and upgrade of certain hardware and software platforms, especially such hardware or software platforms that have become industry standard. For example, our cable TV business has made substantial investments in the equipment and software of particular suppliers, making it difficult for us in the short term to change supply and maintenance relationships in the event that our initial supplier refuses to offer us favorable prices or ceases to produce equipment or provide the support that our telecommunications and cable TV networks and systems require. In the past, some of our key suppliers have stopped

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providing us with hardware that we use, such as the AC4 SDH platform, and certain support services, such as feature development for ATM based DSL platforms (without which triple play products are impossible on such platform), DSL line card delivery on certain older DSL platforms and upgrades for PSTN platforms.

     Any discontinuance of certain products or services or failure to upgrade such products and services by our suppliers, any financial instability of our suppliers or failure by such supplier to deliver certain products to us pursuant to our supplier contracts in the future could lead to the risk of:

  •   delays to upgrades and new products and features from suppliers, impacting our product development programs,
  •   products being discontinued, impacting supply of existing products,
  •   deteriorating quality of support services, affecting operational and customer services,
  •   higher volatility with regard to our demands on suppliers, and in stock levels affected by customer returned equipment, and
  •   consequential impact on our business.

     Failure on the part of our suppliers, which may in turn delay or prevent us from providing our own products and services to our customers, may adversely impact our revenue. We may not be able to recover monies paid to such suppliers for their products and services or obtain contractual damages, when applicable, in such an event. In addition, any increase in pricing by our suppliers may cause a margin squeeze. The above factors could have an adverse impact on our business, financial condition and operating results.

     Even though in most cases our equipment and software suppliers can be replaced, switching to alternative suppliers could cause us to experience difficulty or delays in providing support and maintenance, new products and upgrades and operational services, or result in significant cost increases, which could harm our financial condition and operating results.

We are party to a number of different contracts with third parties which contain change of control provisions. If one or more of the change of control clauses are exercised, this may adversely affect our business and profitability.

     We have important co-operation agreements and contracts with suppliers and service providers and hold insurance policies which are subject to change of control provisions. Exercise of change of control provisions by third parties in certain material contracts may adversely affect our competitiveness and profitability.

     Should any of our contractual relationships be terminated, we may be forced to enter into new contracts which may be on less favorable terms. Moreover, the termination of one or more of our co-operation agreements may lead to loss of business from certain supplementary service providers, which we may not be able to maintain through independent relationships.

We depend on a small number of distributors, retailers and sales agencies (“mobile distributors”) to distribute or sell our mobile products and services to end users. Our mobile distributors may stop distributing our mobile products to end users and may have distribution agreements with our competitors.

     We distribute our mobile products and services in cooperation with a small number of mobile distributors. In Denmark 35% of our sales are distributed through a small number of mobile distributors. In Switzerland, over 40% of our sales are distributed through a few mobile distributors. Under our current arrangements with our key mobile distributors, our mobile distributors may stop distributing or selling our products at any time. Should this occur, we may face difficulty in finding new mobile distributors that can provide the same level of sales. In addition, our mobile distributors have distribution agreements with our competitors. These distribution agreements with our competitors may negatively affect the level of our gross activations through our distribution partners, threatening our market share, and thus adversely affecting our financial condition and results of operations. Our mobile distributors may more actively promote the products and services of our competitors to our detriment. Our failure to maintain key distribution relationships, or the failure of our

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distribution partners to procure sufficient customers for us for any reason, could have a material adverse effect on our financial condition and result of operations.

We depend on third party telecommunications providers over which we have no direct control for the provision of interconnection and roaming services outside of Denmark.

     Our ability to provide high quality mobile and fixed line telecommunications services outside of Denmark depends on our ability to interconnect with the telecommunications networks and services of other mobile and fixed line operators, particularly those of our larger competitors. Outside of Denmark, we also rely on third party operators for the provision of international roaming services for our mobile subscribers. For example, in Switzerland we depend on Swisscom’s ULL to reach a significant number of end users. While we have interconnection and roaming agreements in place with other operators, we have no direct control over the quality of their networks and the interconnections and roaming services they provide. Any difficulties or delays in interconnecting with other networks and services, or the failure of any operator to provide reliable interconnection services to us on a consistent basis, could result in a loss of subscribers or a decrease in traffic, which would reduce our revenue and adversely affect our financial condition and results of operations.

     Outside of Denmark, we depend on access to the incumbent’s facilities to install our ULL facilities. If the incumbent fails to allow us access to these facilities, or is slower in allowing access than we anticipate, our ability to roll out additional direct access products and attract direct access customers may be adversely affected.

Our minority shareholdings in the mobile telephony industry, and the fact that we only own 63.4% of HTCC, expose our business to ill-informed or inadequate management decisions made on behalf of companies of which we do not have full control and may require strategic and financial support.

     The performance of the international operators in which we have minority interests and of HTCC may depend on the financial or strategic support of other shareholders. We only own 15% of Austrian mobile operator One and 19.6% of Polish mobile operator Polkomtel (which is in the process of being sold). Even though we own a majority interest in HTCC of 63.4% of the share capital, we may not be able to exercise full control over its operations. Such international operators may rely on us and/or other shareholders for strategic and financial support. Such other shareholders may fail to supply or not be willing to supply the required operational, strategic and financial resources relating to, for example, the build-out of infrastructure, the cost of meeting regulatory requirements or effective marketing, which could adversely affect both the ability of these operations to compete and the return on our investment.

The loss of important intellectual property rights, including our key trademarks and domain names, could adversely affect our competitiveness.

     Some of our intellectual property rights, including our key trademarks and domain names which are well known in the telecommunications markets in which we operate, are important to our business. A significant part of our revenue is derived from products and services marketed under the brand names TDC or sunrise. We rely upon a combination of trademark laws, copyright and data base protection as well as, where appropriate, contractual arrangements to establish and protect our intellectual property rights. We are required from time to time to bring claims against third parties in order to protect our property rights which may not succeed in protecting such rights.

     In addition to the risk that a third party will infringe on our intellectual property rights, we face the risk that a third party may claim that we are infringing on such third party’s intellectual property rights, including but not limited to, patent rights. As a result, we may not be able to use intellectual property that is material to the operation of our business. Alternatively, a third party may allege one of our suppliers is infringing on such third party’s intellectual property rights and may bring suit to prevent such supplier from providing us with products or services important to our business.

     We cannot be sure that any lawsuits or other actions brought by us to protect our intellectual property rights will be successful or that such suppliers will not be found to infringe the intellectual property rights of third parties. Although we are not aware of any material infringements of any intellectual property rights that are significant to our business, any lawsuits, regardless of their outcome, could result in substantial costs and diversion of resources and could have a material adverse effect on our business, financial condition and results of operations. The illegal use by third parties or the loss of our important intellectual property rights, such as our trademarks and domain names, could have a material adverse effect

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upon our business, financial condition and results of operation. If we are prevented from using certain products and services or if we are forced to pay significant damages or higher prices for important products or services due to a third party’s successful intellectual property claim, there may be a material adverse effect on our business.

A loss of key personnel could have a material adverse effect on our business.

     Our success is in part dependent on the skills, experience and efforts of our senior management. The loss of services of one or more members of our senior management team could materially and adversely affect our business, results of operations and financial condition. On June 22, 2006 our current Chief Executive Officer, Henning Dyremose, accepted an offer to become Chairman of TDC, effective March 2007, and Jens Alder, former President and CEO of Swisscom, accepted an offer to become the new President and Chief Executive Officer of TDC. Mr. Alder is expected to assume his new position as of November 1, 2006. See “Recent Developments” in Item 5. In addition, as our business develops and expands, we believe that our future success will depend on our continued ability to attract and retain highly skilled and qualified personnel without increased labor costs. We cannot assure you that we will be able to continue to employ key personnel or that we will be able to attract and retain qualified personnel in the future, especially in light of Denmark’s tight labor market with very low unemployment. Any failure by us to retain or attract such key personnel could materially and adversely affect our business, results of operations and financial condition.

A downturn in the general economic conditions could adversely affect our business, financial condition and operating results.

     Any downturn in the global economy, European economy or the economy of any of the countries in which we operate may adversely affect our business. The financial prospects in our markets are currently uncertain due to, among other things, the rise of oil prices throughout 2004 and 2005. A major terrorist attack in Europe might also cause a downturn in the markets in which we operate. In addition, some Danish businesses are being subjected to a boycott linked to protests related to the publication of cartoons in a Danish newspaper; if this boycott were to continue, it could potentially have a harmful effect on the Danish economy generally. If the Danish business outlook is cautious or negative, our customers may delay or cancel investments in telecommunications systems and services, which may adversely affect our revenue and the development of new products and services. Any decrease in economic activity may generally decrease network traffic and demand for data storage.

Our failure to meet growing customer demand for content services and adapt to technological developments in content delivery may not only negatively impact the growth of our content services business, but may also decrease the market share of our bundled products with a content component.

     Our cable TV business has given us significant experience with and access to the content market and content delivery products. However, our future success in content services will depend on our ability to produce or acquire attractive programming such as popular TV shows, music and games and to adapt and lead technological developments in content delivery applications. There can be no assurance that we will be able to acquire popular content in the future. One of our major content suppliers for cable TV competes with us in certain TVoIP markets and has so far refused to allow us to provide its content on our TVoIP product at prices that are acceptable to us. This may have a materially adverse impact on the growth of our TVoIP business. Moreover, the telecommunications sector is undergoing advances in content services as technological developments increasingly enable customers to receive content whenever they wish (such as digital video recorders or time-shift software for a PC with TV-card), and wherever they wish (such as MPEG4/H.264-videopodcasts for iPods and other portable digital media players or 3G/DVB-H transmissions for handsets). Not only do we face the risk that we will fall behind our competitors in terms of content delivery technology, but also that the platforms, applications or technology we invest in will not become the market standard. Growth in content services is expected to be driven by an increase in the quantitative and qualitative capabilities of content providers. However, the specific extent and characteristics of such quantitative and qualitative progress are difficult to predict at present. Also, we may not be able to match the quantitative or qualitative capabilities of our competitors. In addition, failure to provide content services may also negatively impact sales of our products and services with a bundled content component, such as cable TV, broadband, triple play and 3G, or to which our competitors have added a bundled content component.

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Our business may be adversely affected by the alleged health risks from the use of mobile telephones and by other environmental requirements.

     We are subject to regulations and guidelines relating to radio frequency emissions and other forms of non-ionizing radiation. We are aware of allegations that there may be health risks, including some forms of cancer, associated with such emissions from mobile telephones and from other mobile telecommunications devices.

     The European Commission has been investigating these concerns since 1995. Although the results of these studies have been inconclusive, we cannot provide assurances that further medical research and studies will not establish a link between the radio frequency emissions of mobile handsets and health concerns. The EU and Danish or Swiss authorities could increase regulation of mobile telephones and base stations as a result of such health concerns. In Switzerland in particular, public concern over alleged adverse health effects related to electromagnetic radiation and strict Swiss rules on radiation may result in increased costs related to the GSM and UMTS networks and thereby impeding both the continuation of our 2G and the growth of our 3G mobile telephony business.

     The actual or perceived risk of mobile telecommunications devices, press reports about risks or any litigation relating to such risks could adversely affect us through a reduction in the size or growth rate of our customer base, a decline in our ARPU and AMOU, increased regulatory burdens on us or significant litigation costs, and could have an adverse effect on our financial condition and results of operations.

     In addition, we are subject to a variety of laws and regulations relating to land use and the protection of the environment, including those governing the storage, management and disposal of hazardous materials and the cleanup of contaminated sites. We could incur substantial costs, including cleanup costs, fines, sanctions and third-party claims for property damage and personal injury, as a result of violations of, or liabilities under, such laws and regulations. We believe, however, that we are in substantial compliance with such laws and regulations.

Risks Related to Regulatory Matters and Litigation

The regulatory framework for the Danish telecommunications sector may result in tougher competition, further reductions of tariffs and decreased profit margins for our business. In addition, we have been designated by NITA as having significant market power (“SMP”) in Denmark in a number of submarkets.

     Denmark’s regulatory regime governing its telecommunications sector requires us to deliver a broad range of products to the retail and wholesale markets, and subjects us to price regulation.

     EU Regulatory Framework. In March 2002, the EU passed a number of directives designed to promote competition in the European telecommunications market that were subsequently implemented into Danish law in 2003. In accordance with this legislation, NITA performs market analyses on 18 specifically defined submarkets with respect to landline telephony, mobile telephony, leased lines, unbundled access, broadband and TV and radio transmission. In each submarket, NITA may designate a dominant telecommunications operator as having Significant Market Power (“SMP”) in such submarket. If imperfections in a submarket in which an operator has been designated as having SMP are identified, NITA may impose remedies against such operator in order to promote competition. In the wholesale market, such measures may include the acceptance of a reasonable request for interconnection, non-discrimination, reference offers, transparency, accounting separation, specific cost accounting obligations and price control methods. NITA has so far issued decisions on 14 out of 18 submarkets. Final decisions for all the submarkets, except the submarket for television and radio transmission, are expected during the first half of 2006. Until market analyses of the relevant submarkets have been completed and NITA has decided whether to adopt new regulatory measures or revoke former measures, the current regulation will be maintained in each relevant submarket.

     SMP Designation. We have been designated as having SMP by NITA in almost all of the submarkets in Denmark, except for Market 15 (the wholesale market for mobile access), Markets 5 and 6 (the retail markets for national and international traffic for business customers) and according to the market analysis also in Market 17 (the market for international roaming). As a result of our SMP designation, we are subject to additional regulatory burdens, which are summarized below. In addition, NITA has been considering whether to create an additional submarket for cable TV

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networks. If NITA creates a cable TV submarket, it is likely we would be designated as having SMP in the cable TV market and might be required to provide third parties with access to our cable network. There can be no assurance that NITA will not impose additional regulatory burdens on us as a result of our current SMP status or designate us as having SMP in additional markets.

     Retail Markets. As a result of our SMP status, the larger part of our retail offerings of leased lines must comply with a rule of cost orientation. As a result, we are required to calibrate leased line prices annually to ensure that they match the corresponding cost plus a mark-up set by the regulatory authorities.

     Wholesale Markets. In the wholesale markets in which we have SMP status, the majority of our prices are regulated as a result of our SMP designation. Until 2002, interconnection prices were regulated mainly on the basis of historical cost analyses and best-practice benchmarking against corresponding international prices. Since January 1, 2003, NITA has set the prices we charge for switched interconnection traffic, interconnection capacity, shared access and ULL (also known as raw copper) as well as related co-location. NITA calculates these prices once a year in accordance with the LRAIC model and evaluates and updates the LRAIC model once every three years. Only minor price adjustments were implemented in 2004 and 2005. In early 2006, the LRAIC model was adjusted and the prices for ULL, switched interconnection traffic and interconnection capacity were decreased considerably. The decrease may have a negative impact on our revenue and earnings. The prices for TDC’s other interconnection products are based on historical costs according to a formula set by NITA. It is uncertain how this pricing method will affect TDC’s future prices. Furthermore, the telecommunications law was amended with effect from January 1, 2006, resulting in changes in calculation principles for depreciation, amortization and interest payments. Such changes will likely result in price decreases for bitstream access and leased lines. The amended law also gives NITA increased power to stipulate specific terms and conditions for TDC’s interconnection agreements.

     NITA’s decision on the submarket for broadband access requires us to discontinue our geographical differentiation of bitstream access prices unless we also differentiate our retail prices for broadband. Discontinuation of geographical differentiation of prices for bitstream access will strengthen our competitors in remote areas, where production of bitstream access is very costly for us. Alternatively, we may decide to let the current differentiation of wholesale prices affect our end user prices. The decision also requires us to offer wholesale broadband solutions (bitstream access) without compulsory landline subscriptions, which will improve our competitors’ conditions for offering broadband solutions combined with IP telephony. We have appealed the decision for this market and some of the other decisions to the Telecommunications Complaints Board.

     The authorities have announced that they may intervene in the pricing of traditional landline subscriptions for customers who also have broadband subscriptions in order to address the so-called “excess cost recovery problem.” The formulation of such intervention and its impact on TDC’s earnings are uncertain.

     In the market for termination of mobile calls in mobile networks, NITA has decided that TDC, TeliaSonera, Sonofon, Tele2 and Hi3G have SMP with regard to termination in the respective mobile networks. However, price regulation has been introduced only for TDC, Sonofon and TeliaSonera, whose average price (including call set-up fee) must be reduced by approximately 35% over the next two years. This decision will adversely impact our earnings. If the domestic market for international roaming, market 17, also becomes subject to price regulation, such regulation may have a negative impact on TDC Mobil’s revenue and earnings.

     On October 31, 2005, NITA concluded that TDC abuses its dominant position in Denmark by requesting wholesale customers to pre-pay certain quarterly charges for certain wholesale products, and to require these customers to provide guarantees for their contractual obligations. We believe that we have not abused our dominant position, and have appealed NITA’s decision to the Danish Competition Appeal Tribunal, where the matter is currently pending. Based on the ruling by the NITA, Tele2 has filed a claim for payment of damages, which the court has postponed until the summer of 2006, when the Competition Appeal Tribunal is expected to conclude our appeal to the NITA decision. Based on a legal assessment of the possible outcome of Tele2’s claim, as well as the other lawsuits and cases that are currently pending, management is of the opinion that these will have no significant adverse effect on TDC Group’s financial position.

     Decisions have also been made on four retail submarkets for telephony traffic, the retail market for leased lines, the wholesale markets for terminating segments of leased lines, unbundled access and shared use including co-location, as

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well as for call termination on landline networks. None of the decisions include significant changes in relation to existing regulation with the exception of regulations relating to extended access related to co-location and extended requirements to guarantee the line quality against disturbances.

     Anti-Terror Measures. As part of the anti-terrorism action plan passed by the Danish government in November 2005, the government has proposed a bill requiring telecommunications operators to use or install communication interception equipment and to establish databases for mandatory retention of traffic passing through their networks in order to assist law enforcement agencies in tracking terrorist activity. If such measures are adopted, we may have to make additional investments in technical equipment, and we may incur operational costs as a result.

     EU Universal Service Obligation (USO) directive. Pursuant to the EU USO directive and Danish USO regulation, which are designed to ensure that all end users have access to certain basic telecommunications services regardless of their geographical location at an affordable price, NITA has designated us as the Universal Service Provider (“USP”) in Denmark. In the past NITA fixed the prices that we could charge to our Danish customers who use PSTN services (“USO customers”) for PSTN services, but these price caps were lifted at the end of 2005. We face the risk that NITA will decide to reintroduce a price cap on the products and services we offer to our USO customers. In addition, we face uncertainty concerning the renewal of our USP designation after 2007, which may affect our revenue and earnings.

     EU Roaming Charge Regulation. The EU Commission is currently considering new regulations designed to cut international roaming charges and a proposal has been submitted for consultation. It is unclear what would be the outcome of such regulations if imposed. However, such regulation could have a negative impact on TDC Mobile International’s revenue and earnings.

Certain regulatory contingencies in Switzerland may have a material adverse effect on our Swiss business.

     Prompted by a preliminary decision by the Swiss competition authority regarding abuse of market power by Swisscom, the Swiss incumbent, in 2005, Swisscom reduced its prices for terminating mobile calls, putting heavy pressure on other Swiss mobile operators, including TDC Switzerland, to reduce their tariffs as well. The Swiss competition authority is continuing its review of the level of competition in the mobile call termination market and is currently investigating whether the Swiss mobile operators, including TDC Switzerland, have abused a dominant position. In parallel since January 2006 a number of interconnection filings regarding the Mobile Termination tariffs, against all three major mobile operators, have been submitted to the sector specific regulator ComCom. Consequently, TDC Switzerland faces the significant possibility that the Swiss competition authority or the Swiss regulator ComCom will require Swisscom and/or TDC Switzerland to make further price reductions for terminating mobile calls. Such price reductions, if imposed on TDC Switzerland, may have a material adverse effect on the earning and profit margins of our Swiss operations. In addition, there can be no assurance that the Swiss competition authority will not impose a material fine upon TDC Switzerland if the Swiss competition authority determines that TDC Switzerland has a dominant position in the mobile call termination market and has abused such position.

     Swisscom announced on April 10, 2006 that it had received a draft ruling from the Swiss competition authority recommending that it pay a CHF 489 million fine for misuse of mobile termination rates. Swisscom reported that the competition authority considered that all Swiss mobile carriers had a monopoly on incoming calls within their network, but only Swisscom Mobile misused its dominant position on the market in the period between April 1, 2004 to May 31, 2005 by demanding excessively high termination fees. Swisscom reported that the investigation into the period following the reduction of fees is to be continued and will also cover the other Swiss mobile carriers, including TDC Switzerland. Swisscom has said it will argue against the ruling.

     Our Swiss business benefits from regulations requiring Swisscom to grant other telecommunications operators, including us, interconnection services under cost-based terms and conditions. Swisscom has challenged the interconnection tariffs as set by the Swiss Communication Commission (“ComCom”) in court. In its ruling of April 21, 2006 (sent to the parties on May 19, 2006) the Federal Court (Supreme Court of Switzerland) has largely rejected Swisscom’s complaints and returned the matter to ComCom only in a minor point. As many methodological flaws in the Regulator’s costing model have been approved with this ruling it may prove difficult to deduce future landline interconnection costs from this ruling which covers the years 2000 – 2003.

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     Our business plan and earnings forecasts, particularly in relation to expected broadband and triple play sales, anticipate that the Swiss legislature will enact legislation requiring Swiss telecommunications operators to open their local loop networks to other operators. Such regulations would allow TDC Switzerland to lease network capacity on Swisscom’s ULL and gain access to Swisscom’s customers. A revised telecommunications law providing for such opening of ULL networks was passed by the Swiss Parliament on March 24, 2006. A 100-day referendum period expires on July 13, 2006. If there is no referendum and the ordinances implementing the new law are finalized, the new law enters into force probably on January 1, 2007. Although unlikely, it is possible that organizations opposed to the law could force a public vote, which would further delay enactment by at least a year and could potentially result in enactment being prevented. Once the law is enacted, vested interests may attempt to prevent, impede or delay access to the ULL networks through other measures. If ULL terms and conditions are not set and enforced in a favourable way, we might have to adjust our business plan and earnings forecast.

     Substantial parts of TDC Switzerland’s backbone consist of leased dark fibres situated in the guard wire of high-voltage power lines. In a pending court case the use of the power line for telecommunication purposes is disputed by an owner of a property over which a power line is situated. Dependent on the outcome of the pending and potential similar future cases,TDC Switzerland might be forced to find alternative facilities (e.g. build pipes and lay dark fibre cables) to secure certain parts of its backbone at substantial costs.

The licenses for the key technologies underlying our service offerings have finite terms and the failure to renew one of these licenses upon termination, or our inability to obtain new licenses for new technologies, could adversely affect our business.

     We are licensed by NITA to provide mobile telecommunications services in Denmark and by the Swiss regulator to provide mobile telecommunications services in Switzerland. For example, we have UMTS licenses to provide 3G services in Denmark and Switzerland, three GSM licenses in Denmark (including licenses for DCS 1800, DC56 and GSM, respectively) and one GSM license in Switzerland. Our Danish and Swiss UMTS licenses are valid until October 31, 2021 and December 31, 2016, respectively. Our Danish GSM licenses are valid until June 12, 2007, January 1, 2011 and March 1, 2012, respectively and our Swiss GSM license is valid until May 31, 2008. There can be no assurance that NITA or the Swiss regulator will not withdraw our existing licenses if we can not meet license conditions, including obtaining the regulator’s consent in the event of a change of control. After their respective expiration dates, we will have to reapply for a new Danish UMTS license and new Swiss GSM and UMTS licenses. There can be no assurance that any application for renewal of such licenses will be successful. The three Danish GSM licenses will be extended automatically for periods of 10 years unless NITA, at its discretion, issues a decision not to extend such licenses, which decision must be made one year before the scheduled expiry date. In the event that we are unable to renew a license or obtain a new license for any technology that is important for the provision of our service offerings, we could be forced to discontinue use of that technology and our financial condition and result of operations could be materially adversely affected.

We face various litigation and commercial dispute risks that could have a material adverse effect on our results of operations.

     Pursuant to the change of control provisions in Polkomtel’s bylaws and the shareholder agreement among Polkomtel’s shareholders, as a result of our recent change of control, TDC is required to offer to sell its 19.6% ownership share to the other shareholders of Polkomtel. In February 2006 TDC offered its shares for a price of €214.04 per share. On March 10, 2006, the Polish shareholders in Polkomtel entered into an agreement with TDC whereby, subject to certain conditions including the outcome of the Vodafone litigation described below, they agreed to exercise their right to purchase their pro rata share of 14.8% of the share capital of Polkomtel for an aggregate price of €650.5 million. The remainder of TDC’s shareholding in Polkomtel, 4.8%, has been offered to Vodafone, the only shareholder of Polkomtel who has not entered into the purchase agreement with TDC. Vodafone has claimed that the offer procedure is invalid and that the offer price determined by TDC does not reflect the market value of the Polkomtel shares. Vodafone also maintains that the price at which TDC’s shares in Polkomtel should be offered for sale to Vodafone and the other shareholders should be determined in arbitration. Legal proceedings are pending in the Polish courts and the International Arbitral Center in Vienna. Upon Vodafone’s motion, the District Court in Warsaw, Poland has issued an injunction which prohibits TDC

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from transferring any of its shares in Polkomtel. Vodafone has initiated arbitration against TDC. If these proceedings are determined adversely to TDC, TDC may be required to sell its shares in Polkomtel for less than the €214.04 price per share. Even if determined favorably to TDC, these proceedings will delay the sale of Polkomtel shares and the receipt of proceeds by TDC.

     At the EGM held on February 28, 2006, NTC proposed that TDC seek to delist its shares and ADSs from the Copenhagen Stock Exchange and from the NYSE, respectively, and subsequently seek to deregister all securities from the U.S. Exchange Act. NTC also proposed the introduction of a new clause into the articles of association of TDC permitting the compulsory acquisition of the shares of minority shareholders. These proposals attained an affirmative vote of over 90% of the share capital of TDC represented at the Extraordinary General Meeting (although less than 90% of the share capital of TDC) and such resolutions were declared passed by the Extraordinary General Meeting. Subsequently, the Danish Commerce and Companies Agency ruled that it would not register the new articles of association. TDC has filed a writ with the Eastern High Court against the Danish Commerce and Companies Agency seeking an acknowledgment of the registration of the squeeze-out provision in the articles of association.

     Further, ATP, a Danish pension fund holding 5.5% of the shares in TDC, has filed a writ with the Copenhagen City Court (which has been passed on to the Eastern High Court) against both TDC and NTC seeking an acknowledgment of the invalidity of both the squeeze-out provisions in the articles of association and the authorization to delist from the Copenhagen Stock Exchange and the NYSE granted at the Extraordinary General Meeting. On April 5, TDC and NTC announced that they would challenge the ruling from the Danish Commerce and Companies Agency in the Danish courts. TDC has proceeded with its intention to delist its ADSs from the NYSE, which delisting occurred on April 19, 2006. If ATP succeeds in its litigation, NTC will be unable to proceed with the compulsory acquisition. In addition, ATP may seek an award of damages against us or other relief. In the legal proceedings instigated by ATP against NTC and TDC, ATP has reserved the right to challenge authorizations adopted at the annual general meeting of TDC on April 26, 2006, as illegal, in particular authorizations (i) to issue warrants to management and others and (ii) to repurchase shares. Furthermore, ATP claims that the reference date with regard to the redemption price of ATP’s shares should only be decided as of when the redemption may actually be completed. Finally, ATP claims that the NTC should pay interest on the redemption price. TDC and NTC have responded to the claims by ATP.

Risks Related to Our Indebtedness and Our Structure

You may be required to sell your shares at a price that is uncertain.

     NTC suspended the compulsory acquisition of minority shares following the ruling by the DCCA that it would not register the articles of association granting NTC the right to compulsorily acquire shares held by other shareholders of TDC. NTC and TDC have decided to challenge that ruling. If and when the compulsory acquisition were to go ahead, you could be required to sell your shares in TDC. The price at which the sale might take place is not certain.

TDC is dominated by an 88.2% shareholder, who will be able to influence certain actions requiring shareholder approval, and whose interests may be inconsistent with the interests of TDC and our minority shareholders.

     NTC, holding 88.2% of TDC’s outstanding shares, effectively controls TDC, which permits NTC to influence certain actions requiring shareholder approval, such as the election of TDC’s board of directors, the adoption of amendments to TDC’s articles of association and the approval of a capital increase, merger, consolidation or liquidation, and to effect all decisions that a majority shareholder is permitted to make under Danish law.

     Also, the interests of NTC and its respective shareholders and affiliates could conflict with your interests and with the interests of TDC, particularly if we encounter financial difficulties or are unable to pay our debts when due. NTC and its respective shareholders and affiliates could also have an interest in pursuing acquisitions, divestitures, financings or other transactions that, in their judgment, could enhance their equity investments, although such transactions might involve risks to you as a holder of shares. In addition, NTC and its respective shareholders and affiliates may own, acquire and hold interests in businesses that compete directly or indirectly with us or may own businesses with interests that conflict with ours.

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Our high leverage and debt service obligations could materially and adversely affect our business, financial condition or results of operations.

     We are highly leveraged and have significant debt service obligations. As a holder of TDC shares, our high leverage could have important consequences for you. Our substantial leverage poses the risk that

  our vulnerability to a downturn in our business or economic and industry conditions will increase;
  our ability to obtain additional financing to fund future working capital, capital expenditures, business opportunities and other corporate requirements will be limited;
  we may have a much higher level of debt than certain of our competitors, which may put us at a competitive disadvantage and may make it difficult for us to pursue our business strategy and to grow our business in accordance with our strategy;
  a substantial portion of our cash flow from operations will have to be dedicated to the payment of principal of, and interest on, our indebtedness, which means that this cash flow will not be available to fund our operations, capital expenditures or other corporate purposes; and
  our flexibility in planning for, or reacting to, changes in our business, the competitive environment and the industry in which we operate will be limited.

    Any of these or other consequences or events could have a material adverse effect on our ability to satisfy our debt obligations and to declare and pay dividends on our shares. In addition, we may incur substantial indebtedness in the future.

We require a significant amount of cash to service our debt, and our ability to generate sufficient cash depends on many factors beyond our control.

     Our ability to make payments on and to refinance our debt and to fund working capital and capital expenditures will depend on our future operating performance and ability to generate sufficient cash. This depends, to some extent, on general economic, financial, competitive, market, legislative, regulatory and other factors, many of which are beyond our control, as well as the other factors discussed in these “Risk Factors” and elsewhere in this Annual Report. We cannot assure you that our business will generate sufficient cash flows from operations or that future debt and equity financing will be available to us in an amount sufficient to enable us to pay our debts when due, or to fund our other liquidity needs. If our future cash flows from operations and other capital resources are insufficient to pay our obligations as they mature or to fund our liquidity needs, we may be forced to:

  •   reduce or delay our business activities and capital expenditures;
  •   sell assets;
  •   obtain additional debt or equity capital; or
  •   restructure or refinance all or a portion of our debt, on or before maturity.

     We cannot assure you that we would be able to accomplish any of these alternatives on a timely basis or on satisfactory terms, if at all.

We are subject to significant restrictive debt covenants which limit our operating flexibility.

     The Senior Facilities Agreement and the indenture governing the high yield notes that were issued by NTCH in connection with its acquisition of TDC contain covenants significantly restricting our ability to, among other things:

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  •   incur or guarantee additional indebtedness;
  •   pay dividends or make other distributions, or repurchase or redeem our stock;
  •   make investments or other restricted payments;
  •   create liens;
  •   enter into certain transactions with affiliates;
  •   enter into agreements that restrict our restricted subsidiaries’ ability to pay dividends; and
  •   consolidate, merge or sell all or substantially all of our assets.

     These covenants could limit our ability to finance our future operations and capital needs and our ability to pursue acquisitions, investments and other business activities that may be in our interest. We have a history of expansion through initial minority investments, and may be unable to continue this strategy.

     The Senior Facilities Agreement also requires us to maintain specified financial ratios and satisfy specified financial tests. Our ability to meet these financial ratios and tests may be affected by events beyond our control and, as a result, we cannot assure you that we will be able to meet these ratios and tests. In the event of a default under the Senior Facilities Agreement or certain other defaults under any other agreement, the lenders could terminate their commitments (in the case of the Revolving Credit Facility) and declare all amounts owed to them due and payable. In addition, a default under the indenture would result in cross-default under the Senior Facilities Agreement. Borrowings under other debt instruments that contain cross-acceleration or cross-default provisions could also be accelerated and become due and payable in such circumstances. We may be unable to pay these debts in such circumstances, which could have a material negative effect on the value of TDC’s shares.

We are subject to restrictions on making dividend payments.

     The terms of the Senior Facilities Agreement and applicable law restrict the ability of TDC to make, among others, dividend payments, including the need to have retained earnings to distribute. As of December 31, 2005, TDC’s retained earnings on a stand-alone basis for TDC A/S were DKK 43,967 million (€5,893 million), which amount has been reduced by the amount of an extraordinary dividend of DKK 43,481 million (€5,828 million) paid to TDC shareholders on April 11, 2006. This amount will also be reduced by the amount of any losses incurred or other dividends paid after December 31, 2005.

Actions proposed by TDC’s majority shareholder may eliminate a liquid market for TDC shares.

     At the EGM of TDC held on February 28, 2006, NTC proposed, and a majority of TDC’s shareholder represented at the EGM approve, that TDC seek to delist its shares and ADSs from the Copenhagen Stock Exchange and from the NYSE, respectively, and subsequently seek to deregister all securities registered under the Securities Exchange Act of 1934, as amended (the “U.S. Exchange Act”). ATP challenged these shareholder resolutions, the matter is currently pending in the Eastern High Court. TDC has proceeded with the delisting of its ADSs from the NYSE, which delisting occurred on April 19, 2006. If we succeed with our litigation against ATP and NTC effects the delisting from the Copenhagen Stock Exchange, TDC would cease to be a publicly listed company, which could adversely affect the liquidity, and thus the value, of the shares in TDC. In addition, if our shares are delisted from the Copenhagen Stock Exchange and our securities deregistered from the U.S. Exchange Act, we would no longer be subject to comply with certain disclosure and other obligations required by the relevant authorities.

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Item 4 Information on the Company

Overview

The TDC Group
     Today we are the leading provider of communications solutions in Denmark, the second-largest telecommunications provider in Switzerland, and we have a significant presence in selected Northern and Central European telecommunication markets. Over the past decade, we have transformed our business from a traditional provider of landline and mobile telephony services in the Danish market into a Danish-based European provider of communications solutions.

     At the end of 2005, we had more than 15 million customers in Europe, including more than 9 million mobile customers, 3.5 landline customers, 1.8 internet customers, and 1.0 cable-TV customers. In 2005, we had revenue of DKK 46,6bn, of which 49% stemmed from international activities compared with 47% in 2004.

     At year-end 2005, we had 20,225 full-time employee equivalents compared with 19,497 in 2004. The increase may be explained primarily by acquisitions of companies. At year-end 2005, our domestic operations accounted for 13,876 full-time employee equivalents compared with 14,437 in 2004. The decrease is related mainly to the continued need to reduce our domestic workforce, primarily to adjust to the decline in traditional landline telephony and intensified competition in the domestic market. Increased customer interest in self-service and internet-based solutions has also contributed to this trend. The adjustment was effected partly by natural attrition partly by the completion of redundancy programs implemented during 2003 to 2005. The lower number of full-time employee equivalents in Denmark also results from outsourcing a number of services to external service providers.

     The telecommunications sector
     In recent years, the fierce competition in the telecommunications sector has intensified. Competition in the domestic market is especially tough, with many operators, and public regulation aimed particularly at TDC. New technology that allows telephony over the internet (VoIP), has further intensified competition.

     As a reaction to the continued competition in the telecoms market, TDC has substantially expanded its international activities. After the acquisition of TDC Song and NetDesign at year-end 2004, TDC further strengthened its position in the pan-Nordic market by acquiring Dotcom Solutions in Sweden and introducing broadband solutions for residential customers in the Swedish market. We also acquired sunrise business communications1 to strengthen our position in Switzerland, and increased our ownership share in the Hungarian company HTCC.

     With regard to regulations in Denmark, the Danish National IT and Telecom Agency is still considering measures concerning excess cost recovery, and its decisions on the follow-up reviews of its market analyses. A more detailed description is given in the section on ‘Risk factors related to TDC’s operations’ on page 8.

     The key trends in the telecoms market are continued migration from landline to mobile telephony and migration to package-switched traffic (VoIP, IP-VPN, GPRS, UMTS). In addition, the telecoms market is characterized by a more pronounced use of consumption-independent flat-rate pricing, increased self-services and web-based distribution channels.

     TDC continuously adapts to technological and market developments and in 2005 launched 3G mobile telephony, enabling high-speed data services such as video telephony, internet access, live streaming and games. We also introduced internet-based telephony (VoIP) and internet-based TV (TVoIP), as well as ADSL speeds of up to 8 Mbps on the domestic market.

     In 2006, we have launched Video on Demand (VoD), which allows customers to watch films or programs whenever it suits them.


1 In May 2005, we acquired Ascom’s business communications solutions unit, subsequently changed to sunrise business communications.

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Business lines
     We are organized as five main business lines:

     TDC Solutions provides mainly communications services primarily in Denmark and the Nordic countries. Its activities include landline telephony services, convergence products (combined landline and mobile telephony), data communications and internet services, including broadband solutions, security and hosting services, leased lines, sale of terminals and installation. TDC Solutions’ main activities are performed by the parent company TDC Solutions A/S, and its subsidiaries TDC Song (pan-Nordic), HTCC (Hungary), NetDesign (Denmark) and TDC Dotcom (based in Sweden).

     TDC Mobile International provides mobile telecommunications services in Denmark and a number of other European countries. The domestic activities include the wholly-owned subsidiaries TDC Mobil A/S and Telmore. The international activities include the wholly-owned subsidiaries Talkline, a German MVNO, and Bité, a Baltic mobile operator in Latvia and Lithuania. TDC Mobile International also holds a 19.6% stake in Polkomtel, operating in Poland (which we are in the process of selling), a 15% stake in One, which operates in Austria, and an 88.9% stake in Telmore International Holding (“Telmore International”), responsible for cooperation with easyGroup, which launched the easyMobile concept in 2005. Talkline owns 80% of the easyMobile business in Germany, which was also launched in 2005.

     TDC Switzerland is the second-largest telecommunications provider in the Swiss market. Its activities include mobile, landline and internet communications services.

     TDC Cable TV is a Danish provider of cable TV, internet access and VoIP and can therefore provide triple play solutions. TDC Cable TV’s activities also include those of its wholly-owned subsidiaries Dansk Kabel TV, Connect Partner and Telelet.

     Other activities include primarily TDC Services, which provides services mainly for TDC’s domestic business lines.

Our History and Development

     We were founded by the Danish State in November 1990 to serve as a holding company for the four Danish regional telecommunications enterprises and Telecom A/S ("Telecom"), the international telephone service provider. We are a public limited company and were incorporated on November 14, 1990. We are subject to the provisions of the Danish Act relating to Public Limited Liability Companies. Our principal offices are located at Nørregade 21, 0900 Copenhagen C, Denmark, and our telephone number is: +45 33 43 7777.

     The primary reason we were formed was to strengthen the competitiveness of the Danish telecommunications sector. In 1991, we acquired two of the regional telecommunications enterprises, Tele Sønderjylland A/S (“Tele Sønderjylland”) and Fyns Telefon A/S (“Fyns Telefon”), as well as Telecom. We completed the acquisition of the two remaining regional telecommunications enterprises, Kjøbenhavns Telefon Aktieselskab (“KTAS”) and Jydsk Telefon-Aktieselskab (“Jydsk Telefon”), in March 1992. Minority shareholdings in KTAS and Jydsk Telefon, the two entities that had been partially privatized, were either exchanged for our shares or purchased by the Danish State. The acquisition of the Danish State’s interests in all of these enterprises was effected by an exchange of our shares, together with cash payments.

     Prior to our establishment, the four regional companies provided a wide range of telecommunications services and products including domestic telephone services, mobile services, rental and sales of equipment, data communications and public payphones.

     From 1991 to 1994, we reorganized and strengthened our management functions. Units were formed to handle a number of nationwide activities and services, such as mobile services, data network services, supply and service of

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telecommunications equipment, information technology and financial functions. The new structure improved our responsiveness to changing market conditions.

     In March 1992, our subsidiary Tele Danmark Mobil A/S (“Tele Danmark Mobil”) began providing mobile telephone and other mobile services that were previously provided by the regional companies. In January 1993, another subsidiary, Tele Danmark Erhverv A/S (“Tele Danmark Erhverv”), assumed, through a merger of activities of KTAS and Jydsk Telefon in this area, responsibility for supplying and servicing private branch exchanges, or PBXs, internal networks, cabling and wide area networks for larger businesses. Tele Danmark Erhverv in 1994 took over responsibility for similar activities previously performed by Tele Sønderjylland and Fyns Telefon. In 1993, our subsidiary, Tele Danmark Datacom A/S (“Datacom”) took over the handling of the production and marketing of data network and communication services. Datacom was made a subsidiary of Tele Danmark Erhverv in January 1994 in order to coordinate Datacom’s services with other business oriented services we offered.

     In 1994, our international activities were organized under Tele Danmark International. This division was responsible for the management of the group’s foreign companies and international ventures. It also assessed and prepared the groundwork for future business opportunities outside of Denmark.

     In April 1994, we made a public offering of 63,229,770 class B shares, of which 51,839,540 were in the form of American Depositary Shares, each representing one half of one class B share. After this offering and a related reorganization of our capital structure, the ownership of the Danish State was reduced to 51% of our nominal share capital and voting power. Of the 63,229,770 class B shares offered, 25,919,770 were offered in the United States and 37,310,000 were offered outside the United States, including in a public offering in Denmark. Further, in the same year the overall coordination of both marketing efforts and R&D was strengthened by setting up cross-organizational management groups.

     In 1995, the group’s parent company, Tele Danmark A/S, merged with the following subsidiaries: KTAS, Jydsk Telefon A/S, Fyns Telefon A/S, Tele Sønderjylland A/S, Telecom A/S, Tele Danmark EDB A/S, Tele Danmark Erhverv A/S, Tele Danmark Datacom A/S, Tele Danmark Finans A/S and Teldan Indkøb A/S. The merger had legal and financial effect from January 1, 1995. The merger had entailed a fundamental restructuring of our organization. The changes were planned in the second half of 1995 and came into effect on January 1, 1996. The restructuring was based on the gradual structural development over five years of the Danish telecommunications sector.

     In October 1997, we entered into a strategic partnership with Ameritech, aimed at benefiting customers, employees and shareholders. Ameritech supported the partnership by acquiring 34% of our shares from the Danish State.

     In January 1998, our shareholders decided to reduce our share capital by 17% by repurchasing and canceling the Danish State’s remaining shares in Tele Danmark A/S. This transaction completed our privatization.

     In October 1999 Ameritech and SBC Communications merged making SBC Communications one of the largest communications companies in the world.

     In 2000, we completely restructured our operations to strengthen our competitive position and focus more clearly on high potential growth areas. TDC group now comprises a holding company with business lines operating in specific business areas. These important changes are reflected in the names of our holding company and its business lines. As of year end 2000, our holding company (formerly Tele Danmark Group) became known as TDC. Our principal business lines became TDC Tele Danmark, TDC Mobile International, TDC Internet, TDC Directories, TDC Cable TV and TDC Services.

     In February 2001, we established the business line TDC Switzerland following our investments in Switzerland, where we increased our ownership in sunrise and purchased a majority stake in diAx, a Swiss mobile provider. These investments and the subsequent merger of sunrise and diAx have made us the second-largest communications provider in Switzerland, offering landline, mobile and Internet services in direct competition with Swisscom.

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     In January 2003, we streamlined domestic operations through the merger of TDC Tele Danmark and TDC Internet to form TDC Solutions.

     In June 2004, SBC reduced its shareholding in TDC from 41.6% to 9.5%, while TDC acquired approximately 8.4% of TDC’s total share capital for approximately DKK 3.4bn. In November 2004, SBC sold its remaining 9.5% stake in TDC.

     In recent years we have also divested certain of our non-core businesses, including TDC Directories, our print and electronic web-based directory business that operated in Denmark, Sweden and Finland, which we sold in 2005.

     In October 2005, we announced the stock exchanges that we had received non-binding offer interest indications for acquisition of TDC. In the light of this, TDC’s Board of Directors decided it was in the interest of TDC and its shareholders to review these indications more closely.

     At the request of NTC, the Board of Directors decided to accede to a limited due diligence investigation following the conclusion of a confidentiality and stand-still agreement. An electronic data space was made available to NTC starting October 20, 2005, and the Chairmanship and representatives of TDC’s Management met with representatives of NTC to discuss TDC’s business activities. The investigations resulted in a new non-binding tender offer increasing the proposed offer price on the part of NTC, and on November 24, 2005, the Board of Directors approved that the Chairman and the Vice Chairman, on behalf of the Board of Directors, could initiate negotiations with NTC regarding the terms of a possible transaction.

     On December 2, NTC made a public tender offer for the total amount of common shares in TDC. The company offered to purchase all shares and ADSs in TDC for a price of DKK 382 per share and DKK 192 per ADS, corresponding to a premium of 39.9% compared with the average market price on August 16, 2005. On the same date, TDC published a statement from the Board of Directors recommending that shareholders and holders of ADSs accept NTC’s tender offer.

     Based on NTC’s offer to the shareholders of December 2, 2005 for DKK 382 per share and DKK 191 per ADS, corresponding to a premium of 39.3% compared with the average price on August 16, 2005, NTC announced on January 25, 2006 that the company owned or had valid acceptances to acquire 88.2% of the shares in TDC A/S in connection with NTC’s public tender offer. On February 1, 2006, NTC settled and paid for shares and ADSs, thereby becoming the owner of 88.2% of the common shares.

     NTC is indirectly wholly-owned by certain equity funds that are directly or indirectly advised or managed by the five international equity funds Apax Partners Worldwide LLP, The Blackstone Group International Limited, Kohlberg Kravis Roberts & Co. L.P., Permira Advisers KB and Providence Equity Partners Limited.

     For a complete list of our significant subsidiaries and associated companies, see note 32 to our consolidated financial statements.

Overview of Our Revenue by Service Area

     Revenue by business line and geographic market are specified in the table below. This revenue was generated by our various business lines operating in Denmark, Switzerland and ten other countries in Europe. Since 2001, approximately half of our revenue has come from operations outside of Denmark. A discussion of our revenue by service area is included in “Our Subsidiaries” below, and in Item 5 under “Results of Operations by Business Line”.

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DKK M Year Ended December 31,  
  2004   2005  
 
 
 
TDC Solutions 18,590   21,631  
TDC Mobile International 15,105   16,039  
TDC Switzerland 9,692   9,582  
TDC Cable TV 1,766   2,107  
Other activities, including TDC A/S, TDC        
Services and eliminations (2,814 ) (2,771 )
 
 
 
Total 42,339   46,588  
   of which        
International activities 19,824   22,849  
Domestic activities 22,515   23,739  

Our Subsidiaries

TDC Solutions

     TDC Solutions offers a wide range of communications services in Denmark and the Nordic countries as well as the Hungarian market through HTCC. Its activities include landline telephony services, convergence products (combined landline and mobile telephony), data communications and internet services, including broadband solutions, security and hosting services, leased lines, sale of terminals and installation.

     At year-end 2005, TDC Solutions had 4.5 million customers, with 4.1 million in the domestic market and 392,000 in international subsidiaries and 12,231 full-time employee equivalents. Revenue was DKK 21,631 million in 2005. At year-end 2005, TDC Solutions A/S had 8,912 employees and significant operations through a number of companies. TDC Song (which includes companies in Denmark, Norway, Sweden and Finland), our fully-owned pan-Nordic network operator mainly for business customers, had 797 full-time employee equivalents at year-end 2005. HTCC, our 63.4% owned Hungarian landline and data communications provider, had 685 full-time employee equivalents at year-end 2005. TDC Dotcom, an important provider of telecommunications infrastructure for Swedish business customers, had 760 full-time employee equivalents at year-end 2005. Of our fully-owned subsidiaries, NetDesign, a leading provider of IP/LAN infrastructure for business customers, had 171 full-time employee equivalents and Contactel, our provider of internet and landline telephony in the Czech Republic, which was divested with effect from February 2, 2006, had 264 full-time employee equivalents at year-end 2005.

Landline telephony
     Landline telephony represents the major share of revenue in TDC Solutions and was DKK 10,453 million in 2005, corresponding to 48% of TDC Solutions’ revenue compared with 52% in 2004.

     Landline telephony includes retail landline telephony, including landline traffic and subscriptions, and wholesale landline telephony, consisting primarily of domestic and international wholesale traffic as well as domestic service provider revenue. TDC Song and HTCC generated DKK 1,597 million of total revenue.

     The number of landline customers in TDC Solutions A/S has declined because of the migration toward mobile telephony and IP-based technologies. To counter this development and to meet the market’s increased focus on flat rate products, TDC Solutions A/S launched “TDC Samtale” in 2004, giving unlimited landline minutes in off-peak hours at a flat monthly rate. This product was well received by our customers and as a continuation of its success, TDC Solutions A/S launched “TDC Samtale Døgn” in 2005, extending the hours of unlimited national landline minutes at a flat monthly rate day and night. TDC Solutions A/S has launched internet-based telephony (VoIP) for residential customers in January 2006.

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Data communications and internet services
     In 2005, revenue from data communications and internet services was DKK 5,000 million, corresponding to 23% of TDC Solutions’ total revenue compared with 21% in 2004. The business area includes mainly broadband solutions, private IP-based networks, dial-up solutions and data communications services. TDC Song and HTCC generated DKK 1,171 million of total revenue from data communications and internet services. The customer migration from dial-up internet toward broadband solutions continued in 2005, and broadband penetration per Danish household increased. To counter the increasing competition in the broadband market, TDC Solutions introduced a number of campaigns and price changes in 2005, including higher speeds at unchanged prices. TDC Solutions also doubled the DSL speed for Danish residential customers with the launch of 8 Mbps. In 2005, TDC Solutions also launched the internet-based TDC TV (TVoIP), and launched VoIP for residential customers in January 2006. Through TDC Song, TDC Solutions also launched broadband solutions on the Swedish market at speeds of up to 28 Mbps in the fall of 2005.

Terminal equipment, etc.
     With revenue of DKK 3,172 million in 2005, terminal equipment etc. was the third-largest contributor to TDC Solutions’ revenue, contributing 15% of revenue compared with 14% of revenue in 2004. This business area includes sales and installation of hardware ranging from handsets to large switchboards and service agreements. NetDesign and Dotcom Solutions generated DKK 670 million of the total revenue from terminal equipment etc.

Leased lines
     Revenue from leased lines was DKK 1,538 million in 2005 and was 7% of TDC Solutions’ total revenue compared with 6% in 2004. This business area includes both domestic and international leased-line services. TDC Song and HTCC generated DKK 422 million of the total revenue from leased lines. Despite increased revenue from leased lines driven by acquisitions, this business is declining due to increased competition from IP-based networks resulting in customer migration toward IP-based solutions.

Other services
     TDC Solutions’ remaining share of revenue, including mainly operator services such as directory inquiries and mobile telephony, including Duét, a convergence product combining landline and mobile telephony, was DKK 1,468 million or 7% of total revenue in 2005.

TDC Mobile International

     TDC Mobile International is the leading provider of mobile telecommunications services in Denmark, provides mobile telephony services in the UK, Germany, Lithuania and Latvia, and holds minority interests in mobile operations in Austria and Poland (which is subject to sale). Its activities include mobile voice telephony, sale of handsets, mobile data services and sale of traffic to MVNOs in Denmark, Lithuania, Latvia and Austria.

     Over the past few years, the domestic mobile sector has experienced fierce price competition, and in 2005 the prices stabilized as a result of consolidation of the mobile operators. However, as in 2004, earnings from operations were adversely impacted as many customers chose to switch to cheaper mobile solutions with web-based self-services.

     At year-end 2005, TDC Mobile International had 2,434 full-time employee equivalents and 7.4 million customers, with 2.2 million in domestic operations, 3.4 million in Talkline etc. and 1.7 million in Bité. Revenue was DKK 16,039 million in 2005.

Business areas
     TDC Mobile International has three main business areas: domestic operations, Talkline etc. and Bité.TDC Mobile International also has minority ownership shares in the mobile companies, One (Austria), and Polkomtel (Poland).

Domestic operations
     The domestic operations primarily include TDC Mobil and Telmore. TDC Mobil’s business areas primarily include retail activities, including mobile telephony, sale of handsets and wholesale activities. In 2005, revenue from these areas was as follows: 47% from retail, of which 67% was derived from mobile telephony, 18% from handsets and 14% from subscriptions; 52% from wholesale; and 1% from other activities. Telmore offers mobile telephony services as web-

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based self-services through TDC Mobil’s network and is the present market leader for the online segment. The domestic mobile market is characterized by high penetration. Further growth has been achieved by developing new services and products. In 2005, the trend toward increased use of consumption independent flat rate pricing for SMS messages and voice traffic contributed to a declining overall share of the wholesale and retail markets. TDC Mobil therefore launched the consumption-independent product MaxSMS and the supplementary services “Fri SMS” and “Fri Tale” for MobilEkstra subscribers, which have stimulated consumption. In 2005, the growth in MOU increased as a result of customers migrating from landline to mobile telephony. SMS and MMS traffic also rose significantly due to increased customer consumption. In the fourth quarter of 2005, TDC Mobil launched data services (mobile broadband) via the UMTS network (3G). Following the introduction of UMTS, data transmission prices halved and resulted in data traffic growth of 102.9%. All TDC Mobil customers with 3G mobile phones or mobile broadband cards for portable PCs have automatic access to the mobile broadband. The UMTS launch is expected to result in growth in data traffic and increased revenue from TDC Mobil’s content services in the years ahead. At year-end 2005, TDC Mobil’s UMTS network covered the four largest cities in Denmark and selected business areas. Telmore also launched UMTS services for its customers in the fourth quarter of 2005.

Talkline etc.
     Talkline etc. comprises the MVNO Talkline, its 80% stake in the easyMobile business in Germany and the 88.9% of Telmore International that is owned by TDC Mobile International.

     Talkline. TDC Mobile International owns 100% of Talkline, a German MVNO, which itself owns 80% of easyMobile Germany, an MVNO operating under its own brand through T-Mobile’s network. Talkline provides mobile telephony. Talkline also provided content services and call-by-call pre-select telephony until April 1, 2005 (Talkline’s disposal of content services and call-by-call pre-select telephony is described as the disposal of “Talkline ID”), when these activities were divested. Revenue from these two divested business areas was DKK 326 million from January 1 to March 31 in 2005. Talkline now operates as an MVNO and sells handsets, pre-paid SIM cards and mobile subscriptions in cooperation with mobile operators in Germany. Talkline operates through internet-based customer services and has a strong distribution network with retail outlets in selected areas. At year-end 2005, Talkline had increased the number of customers receiving only electronic bills to more than 1 million, thereby realizing various cost savings. Talkline has had a strong customer base growth resulting in increased market shares in 2005. The expanded customer base is due mainly to Talkline’s success with its primary distribution channels in 2005, including direct telemarketing channels and various specialist dealers.

     Telmore International. Telmore International is the parent company of the easyMobile operations in the UK which works closely with easyMobile in Germany. TDC Mobile International owns 88.9% of Telmore International. In March 2005, Telmore International launched easyMobile UK, the first MVNO under the easy brand. In the fourth quarter of 2005, easyMobile was launched in Germany and The Netherlands; the easyMobile operation in The Netherlands is pending discontinuation. Telmore International has the option of using the easy brand in a further nine European countries. The easyMobile companies provide mobile telephony following the same concept as Telmore in Denmark using internet-based self-service.

Bité — Bité Lithuania and Bité Latvia
     Bité is a mobile operator that is 100% owned by TDC Mobile International operating in the Latvian and Lithuanian markets. Bité’s revenue in Lithuania is generated primarily by mobile telephony. The company also offers a wide range of content and data services for business customers. Throughout 2005, the Lithuanian market experienced pronounced growth, and penetration has been estimated at 151.5% at year-end 2005 compared with 98.8% at year-end 2004. In mid-September 2005, Bité launched commercial activities primarily pre-paid mobile telephony, in Latvia, and already had 55,000 customers by year-end 2005.

Associates

Polkomtel (Poland)
     TDC Mobile International holds a 19.6% stake in Polkomtel, a Polish mobile operator that exceeded nine million customers at year-end 2005 and thereby maintained its one-third share of the Polish mobile market. Polkomtel has also successfully strengthened its leading position in the post-paid market. Our stake in Polkomtel

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is currently subject to sale. See “Recent developments” in Item 5.

One (Austria)
     TDC Mobile International owns 15.0% of One, the third largest mobile operator in Austria. Mobile phone penetration is 105.6% in Austria, and the Austrians are among the highest spenders in terms of mobile telecommunications in Europe. In 2005, One’s customer base increased by 15.0% to 1.8 million customers partly due to the successful launch of its pre-paid concept Yesss!

     Polkomtel and One are recognized in TDC’s consolidated financial statements under the equity method.

TDC Switzerland

     TDC Switzerland’s activities include mobile telephony and sales of landline and internet services. In 2005, TDC Switzerland acquired Ascom’s communications solutions unit (now called sunrise business communications), which has considerably helped strengthen the provision of infrastructure solutions for TDC Switzerland’s business customers.

     At year-end 2005, TDC Switzerland had 2.2 million customers, with 1.3 million mobile customers, 527,000 landline customers and 386,000 internet customers. Revenue was DKK 9,582 million in 2005. At year-end 2005, TDC Switzerland had 2,454 full-time employee equivalents, with 254 directly related to the inclusion of sunrise business communications.

Mobile telephony
     Mobile telephony represents the highest share of revenue in TDC Switzerland and was DKK 5,710 million in 2005 compared with DKK 5,795 million in 2004. Mobile telephony represented 59.6% of total revenue compared with 59.8% in 2004. The mobile telephony business includes subscription fees, revenue from mobile traffic and sale of handsets. The number of mobile subscribers in the Swiss mobile telephony market grew in 2005, and TDC Switzerland retained its position as the second-largest provider of mobile telephony in Switzerland. In 2005, TDC Switzerland also introduced yallo, a product that enables mobile telephony following the Telmore Concept. Initially launched as an online-only product, TDC Switzerland now sells yallo through our direct and indirect distribution channels.

Landline telephony
     Revenue from landline telephony was DKK 3,080 million in 2005, representing a decrease of 1.8% compared with 2004. Landline telephony represented 32.1% of total revenue compared with 32.4% in 2004. Landline telephony includes retail, including pre-fix and pre-select products, as well as wholesale activities. Network integration solutions were included in landline telephony in 2005 as a result of the acquisition of sunrise business communications. The market for landline voice traffic in Switzerland declined in 2005, primarily due to migration from landline to mobile telephony.

Internet services
     In 2005, internet services contributed DKK 792 million of revenue, representing an increase of 4.3% compared with 2004. Internet services represented 8.3% of revenue in TDC Switzerland, compared with 7.8% in 2004. Internet services includes both dial-up traffic and DSL. The broadband market grew significantly in 2005. TDC Switzerland introduced ADSL Flex, which was the first consumption-based DSL product in Switzerland. The Swiss dial-up market continued to decline in 2005.

TDC Cable TV

     TDC Cable TV installs and operates cable TV networks, most with internet access, which provide TV signals for approximately 40% of Danish households. TDC Cable TV continued its high growth in customer numbers, revenue and earnings of recent years. At year-end 2005, the number of cable TV customers was 1 million, an increase of 4.8%, and the number of customers with internet access increased by 34.9% to 251,000. In 2005, revenue was DKK 2,107 million, representing growth of 19.3%.

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Business areas
     TDC Cable TV’s core business area is analog TV, offered in three standard packages (basic, medium and full-range) both to individual customers and antenna and housing associations. In 2006, TDC Cable TV plans to focus more on customer migration from analog to digital TV. 4.0% of our analog TV customers have already used Selector to supplement their packages with digital channels from TDC Cable TV. Selector is the current means of delivery of digital services from TDC Cable TV’s network. To receive digital services, customers must have a digital receiver, called a Selector box, and a Selector subscription.

     The share of internet activities is expected to continue to grow in TDC Cable TV’s future business. In 2005, TDC Cable TV and its subsidiary Dansk Kabel TV launched a new IP telephony product, VoIP, which allows telephony over the cable TV network. With the introduction of IP telephony in 2005, TDC Cable TV can now offer its customers triple play solutions containing TV, internet and telephony. In July 2005, TDC Cable TV acquired the company Telelet, which, as part of the subsidiary Connect Partner, provides triple play solutions to counter the competition in the housing association market.

Other activities

     Other activities cover TDC Services, TDC A/S and elimination of transactions between the TDC Group’s business lines. TDC Services supplies a number of business services for the TDC Group’s domestic business lines, which gain economies of scale and cost-effective solutions in billing, procurement, logistics, facility management, IT, accounting, risk management and security. TDC A/S is the parent company of our business lines and undertakes Group functions including treasury, legal affairs, human resources, marketing and communications.

Regulatory Environment

European Union

     In March 2002, the EU passed a number of directives designed to promote competition in the European telecommunications market that were subsequently implemented into Danish law in 2003. In accordance with this legislation, NITA performs market analyses on 18 specifically defined submarkets with respect to landline telephony, mobile telephony, leased lines, unbundled access, broadband and TV and radio transmission. In each submarket, NITA may designate a dominant telecommunications operator as having Significant Market Power (“SMP”) in such submarket. If imperfections in a submarket in which an operator has been designated as having SMP are identified, NITA may impose remedies against such operator in order to promote competition. In the wholesale market, such measures may include the acceptance of a reasonable request for interconnection, non-discrimination, reference offers, transparency, accounting separation, specific cost accounting obligations and price control methods. NITA has so far issued decisions on 14 out of 18 submarkets. Final decisions for all the submarkets, except the submarket for television and radio transmission, are expected during the first half of 2006. Until market analyses of the relevant submarkets have been completed and NITA has decided whether to adopt new regulatory measures or revoke former measures, the current regulation will be maintained in each relevant submarket.

Denmark

SMP Designation

     We have been designated as having SMP by NITA in almost all of the submarkets in Denmark, except for Market 15 (the wholesale market for mobile access), Markets 5 and 6 (the retail markets for national and international traffic for business customers) and according to the market analysis also in Market 17 (the market for international roaming). As a result of our SMP designation, we are subject to additional regulatory burdens, which are summarized below. In addition, NITA has been considering whether to create an additional submarket for cable TV networks. If NITA creates a cable TV

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submarket, it is likely we would be designated as having SMP in the cable TV market and might be required to provide third parties with access to our cable network. There can be no assurance that NITA will not impose additional regulatory burdens on us as a result of our current SMP status or designate us as having SMP in additional markets.

Retail markets.

     As a result of our SMP status, the larger part of our retail offerings of leased lines must comply with a rule of cost orientation. As a result, we are required to calibrate leased line prices annually to ensure that they match the corresponding cost plus a mark-up set by the regulatory authorities.

Wholesale markets.

     In the wholesale markets in which we have SMP status, the majority of our prices are regulated as a result of our SMP designation. Until 2002, interconnection prices were regulated mainly on the basis of historical cost analyses and best-practice benchmarking against corresponding international prices. Since January 1, 2003, NITA has set the prices we charge for switched interconnection traffic, interconnection capacity, shared access and ULL (also known as raw copper) as well as related co-location. NITA calculates these prices once a year in accordance with the LRAIC model and evaluates and updates the LRAIC model once every three years. Only minor price adjustments were implemented in 2004 and 2005. In early 2006, the LRAIC model was adjusted and the prices for ULL, switched interconnection traffic and interconnection capacity were decreased considerably. The decrease may have a negative impact on our revenue and earnings. The prices for TDC’s other interconnection products are based on historical costs according to a formula set by NITA. It is uncertain how this pricing method will affect TDC’s future prices. Furthermore, the telecommunications law was amended with effect from January 1, 2006, resulting in changes in calculation principles for depreciation, amortization and interest payments. Such changes will likely result in price decreases for bitstream access and leased lines. The amended law also gives NITA increased power to stipulate specific terms and conditions for TDC’s interconnection agreements.

     NITA’s decision on the submarket for broadband access requires us to discontinue our geographical differentiation of bitstream access prices unless we also differentiate our retail prices for broadband. Discontinuation of geographical differentiation of prices for bitstream access will strengthen our competitors in remote areas, where production of bitstream access is very costly for us. Alternatively, we may decide to let the current differentiation of wholesale prices affect our end user prices. The decision also requires us to offer wholesale broadband solutions (bitstream access) without compulsory landline subscriptions, which will improve our competitors’ conditions for offering broadband solutions combined with IP telephony. We have appealed the decision for this market and some of the other decisions to the Telecommunications Complaints Board.

     The authorities have announced that they may intervene in the pricing of traditional landline subscriptions for customers who also have broadband subscriptions in order to address the so-called “excess cost recovery problem.” The formulation of such intervention and its impact on TDC’s earnings are uncertain.

     In the market for termination of mobile calls in mobile networks, NITA has decided that TDC, TeliaSonera, Sonofon, Tele2 and Hi3G have SMP with regard to termination in the respective mobile networks. However, price regulation has been introduced only for TDC, Sonofon and TeliaSonera, whose average price (including call set-up fee) must be reduced by approximately 35% over the next two years. This decision will adversely impact our earnings. If the domestic market for international roaming, market 17, also becomes subject to price regulation, such regulation may have a negative impact on TDC Mobil’s revenue and earnings.

     On October 31, 2005, NITA concluded that TDC abuses its dominant position in Denmark by requesting wholesale customers to pre-pay certain quarterly charges for certain wholesale products, and to require these customers to provide guarantees for their contractual obligations. We believe that we have not abused our dominant position, and have appealed NITA’s decision to the Danish Competition Appeal Tribunal, where the matter is currently pending. Based on the ruling by the NITA, Tele2 has filed a claim for payment of damages, which the court has postponed until the summer of 2006, when the Competition Appeal Tribunal is expected to conclude our appeal to the NITA decision. Based on a legal assessment of the possible outcome of Tele2’s claim, as well as the other lawsuits and cases that are currently pending, management is of the opinion that these will have no significant adverse effect on TDC Group’s financial position.

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     Decisions have also been made on four retail submarkets for telephony traffic, the retail market for leased lines, the wholesale markets for terminating segments of leased lines, unbundled access and shared use including co-location, as well as for call termination on landline networks. None of the decisions include significant changes in relation to existing regulation with the exception of regulations relating to extended access related to co-location and extended requirements to guarantee the line quality against disturbances.

Anti-terror measures.

     As part of the anti-terrorism action plan passed by the Danish government in November 2005, the government has proposed a bill requiring telecommunications operators to use or install communication interception equipment and to establish databases for mandatory retention of traffic passing through their networks in order to assist law enforcement agencies in tracking terrorist activity. If such measures are adopted, we may have to make additional investments in technical equipment, and we may incur operational costs as a result.

EU Universal Service Obligation (USO) directive.

     Pursuant to the EU USO directive and Danish USO regulation, which are designed to ensure that all end users have access to certain basic telecommunications services regardless of their geographical location at an affordable price, NITA has designated us as the Universal Service Provider (“USP”) in Denmark. In the past NITA fixed the prices that we could charge to our Danish customers who use PSTN services (“USO customers”) for PSTN services, but these price caps were lifted at the end of 2005. We face the risk that NITA will decide to reintroduce a price cap on the products and services we offer to our USO customers. In addition, we face uncertainty concerning the renewal of our USP designation after 2007, which may affect our revenue and earnings.

EU Roaming Charge Regulation.

     The EU Commission is currently considering new regulations designed to cut international roaming charges and a proposal has been submitted for consultation. It is unclear what would be the outcome of such regulations if imposed. However, such regulation could have a negative impact on TDC Mobile International’s revenue and earnings.

Switzerland

Regulations

     Prompted by a preliminary decision by the Swiss competition authority regarding abuse of market power by Swisscom, the Swiss incumbent, in 2005, Swisscom reduced its prices for terminating mobile calls, putting heavy pressure on other Swiss mobile operators, including TDC Switzerland, to reduce their tariffs as well. The Swiss competition authority is continuing its review of the level of competition in the mobile call termination market and is currently investigating whether the Swiss mobile operators, including TDC Switzerland, have abused a dominant position. In parallel since January 2006 a number of interconnection filings regarding the Mobile Termination tariffs, against all three major mobile operators, have been submitted to the sector specific regulator ComCom. Consequently, TDC Switzerland faces the significant possibility that the Swiss competition authority or the Swiss regulator ComCom will require Swisscom and/or TDC Switzerland to make further price reductions for terminating mobile calls. Such price reductions, if imposed on TDC Switzerland, may have a material adverse effect on the earning and profit margins of our Swiss operations. In addition, there can be no assurance that the Swiss competition authority will not impose a material fine upon TDC Switzerland if the Swiss competition authority determines that TDC Switzerland has a dominant position in the mobile call termination market and has abused such position.

     Swisscom announced on April 10, 2006 that it had received a draft ruling from the Swiss competition authority recommending that it pay a CHF 489 million fine for misuse of mobile termination rates. Swisscom reported that the competition authority considered that all Swiss mobile carriers had a monopoly on incoming calls within their network, but only Swisscom Mobile misused its dominant position on the market in the period between April 1, 2004 to May 31, 2005 by demanding excessively high termination fees. Swisscom reported that the investigation into the period following the

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reduction of fees is to be continued and will also cover the other Swiss mobile carriers, including TDC Switzerland. Swisscom has said it will argue against the ruling.

     Our Swiss business benefits from regulations requiring Swisscom to grant other telecommunications operators, including us, interconnection services under cost-based terms and conditions. Swisscom has challenged the interconnection tariffs as set by the Swiss Communication Commission (“ComCom”) in court. In its ruling of April 21, 2006 (sent to the parties on May 19, 2006) the Federal Court (Supreme Court of Switzerland) has largely rejected Swisscom’s complaints and returned the matter to ComCom only in a minor point. As many methodological flaws in the Regulator’s costing model have been approved with this ruling it may prove difficult to deduce future landline interconnection costs from this ruling which covers the years 2000 – 2003.

     Our business plan and earnings forecasts, particularly in relation to expected broadband and triple play sales, anticipate that the Swiss legislature will enact legislation requiring Swiss telecommunications operators to open their local loop networks to other operators. Such regulations would allow TDC Switzerland to lease network capacity on Swisscom’s ULL and gain access to Swisscom’s customers. A revised telecommunications law providing for such opening of ULL networks was passed by the Swiss Parliament on March 24, 2006. A 100-day referendum period expires on July 13, 2006. If there is no referendum and the ordinances implementing the new law are finalized, the new law enters into force probably on January 1, 2007. Although unlikely, it is possible that organizations opposed to the law could force a public vote, which would further delay enactment by at least a year and could potentially result in enactment being prevented. Once the law is enacted, vested interests may attempt to prevent, impede or delay access to the ULL networks through other measures. If ULL terms and conditions are not set and enforced in a favourable way, we might have to adjust our business plan and earnings forecast.

     Substantial parts of TDC Switzerland’s backbone consist of leased dark fibres situated in the guard wire of high-voltage power lines. In a pending court case the use of the power line for telecommunication purposes is disputed by an owner of a property over which a power line is situated. Dependent on the outcome of the pending and potential similar future cases,TDC Switzerland might be forced to find alternative facilities (e.g. build pipes and lay dark fibre cables) to secure certain parts of its backbone at substantial costs.

Licenses - Denmark and Switzerland

     We are licensed by NITA to provide mobile telecommunications services in Denmark and by the Swiss regulator to provide mobile telecommunications services in Switzerland. For example, we have UMTS licenses to provide 3G services in Denmark and Switzerland, three GSM licenses in Denmark (including licenses for DCS1800, DC56 and GSM) and one GSM license in Switzerland. Our Danish and Swiss UMTS licenses are valid until October 31, 2021 and December 31, 2016, respectively. Our Danish GSM licenses are valid until June 12, 2007, January 1, 2011 and March 1, 2012, respectively, and our Swiss GSM license is valid until May 31, 2008. There can be no assurance that NITA or the Swiss regulator will not withdraw our existing licenses if we can not meet license conditions, including obtaining the regulator’s consent in the event of a change of control. After their respective expiration dates, we will have to reapply for a new Danish UMTS license and new Swiss GSM and UMTS licenses. There can be no assurance that any application for renewal of such licenses will be successful. The three Danish GSM licenses will be extended automatically for periods of 10 years unless NITA, at its discretion, issues a decision not to extend such licenses which decision must be made one year before the scheduled expiry date.

Research and Development, Patents and Licenses

     Our research and development activities are currently focused on developing next-generation services and network platforms in the landline and mobile business areas. This includes development of broadband applications and services, as well as IP-based and UMTS network platforms and wireless LAN capabilities. Furthermore, we participate in international programs, including standardization efforts, and cooperate with independent research organizations. Although we expect our research and development efforts to contribute to future revenue growth, we believe our results of operations and cash flows are not dependent upon the success of such efforts.

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     We are licensed by NITA to provide mobile telecommunications services in Denmark and by the Swiss regulator to provide mobile telecommunications services in Switzerland. For example, we have UMTS licenses to provide 3G services in Denmark and Switzerland, three GSM licenses in Denmark (including licenses for DCS1800, DC56 and GSM) and one GSM license in Switzerland. Our Danish and Swiss UMTS licenses are valid until October 31, 2021 and December 31, 2016, respectively. Our Danish GSM licenses are valid until June 12, 2007, January 1, 2011 and March 1, 2012, respectively, and our Swiss GSM license is valid until May 31, 2008. There can be no assurance that NITA or the Swiss regulator will not withdraw our existing licenses if we can not meet license conditions, including obtaining the regulator’s consent in the event of a change of control. After their respective expiration dates, we will have to reapply for a new Danish UMTS license and new Swiss GSM and UMTS licenses. There can be no assurance that any application for renewal of such licenses will be successful. The three Danish GSM licenses will be extended automatically for periods of 10 years unless NITA, at its discretion, issues a decision not to extend such licenses which decision must be made one year before the scheduled expiry date.

     In August 2004, TDC signed an exclusive license agreement with easyGroup, which allows us to use the easy brand when offering mobile telephony in up to 11 European countries. At present we have operations in the UK and in Germany using the easy brand. However, the operations are still at a very early stage in their development. See “Business — Talkline etc.”

Apart from our leading brands, we do not believe that we are dependent on any other intellectual property right including any individual brands.

Property, Plant and Equipment

     TDC Services manages the majority our office premises and floor space in Denmark. However, certain of our Danish operations, such as Telmore, manage their own premises. We believe we have sufficient leased space and real property to conduct our business activities effectively.

     Our principal properties consist of numerous telecommunications installations, including exchanges of various sizes, transmission equipment, cable networks, base stations for mobile networks and equipment for radio communication, the majority of which are located in Denmark. We also have numerous computer installations, which are primarily located in Copenhagen and Aarhus.

     The total area of our domestic properties was approximately 972,000 gross square meters as of December 31, 2005, of which approximately 60% was owned by us and approximately 40% was leased. As of December 31, 2005, telecommunication installations (exchanges and base stations) represented 38% of our total property, plant and equipment, and other installations represented 4% of our total property, plant and equipment.

The following table shows our domestic properties by purpose of use and ownership (managed by TDC Services):

                        Share of  
                Owned/leased   total gross  
   Purpose of use
  Owned   Leased   Total   ratio   square meters  

 
 
 
 
 
 
 
  (gross square meters)                  
Administration   155,961   263,899   419,860   37 % 63 % 43 %
Exchanges   337,844   21,487   359,332   94 % 6 % 37 %
Multiple purposes   39,173   79,392   118,564   33 % 67 % 12 %
Shops   575   15,865   16,440   3 % 97 % 2 %
Base stations   4,779   6,169   10,948   44 % 56 % 1 %
Radio sites   31,774   2,107   33,881   94 % 6 % 3 %
Other   10,241   2,736   12,976   79 % 21 % 1 %
   
 
 
 
 
 
 
Total   580,347   391,655   972,001   60 % 40 % 100 %
   
 
 
 
 
 
 

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The following table shows our ten largest domestic properties:

    Gross square   Owned or      
   Principal properties  
meters
  leased  
Use

 
 
 
Sletvej 30, Aarhus   79,008  
Owned
 
Administration
Teglholmen, Copenhagen   70,589  
Leased
 
Administration
Nørregade 21, Copenhagen   48,289  
Leased
 
Multiple purposes
Borups Allé, Copenhagen   42,061  
Owned
 
Multiple purposes
Telegade, Taastrup   36,486  
Owned
 
Administration
Telehøjen, Odense   32,347  
Owned
 
Multiple purposes
Lautruphøj 2-10 Ballerup   31,147  
Leased
 
Administration
Slet Parkvej, Aarhus   17,106  
Leased
 
Administration
Klingenberg, Odense   16,082  
Leased
 
Multiple purposes
Ny Østergade, Roskilde   11,533  
Leased
 
Administratio
n
   
         
Total   384,648          
   
         
Share of total gross square metre   40 %        

     In 2005, the new Zurich headquarters of TDC Switzerland, the sunrise Tower, opened and we relocated a majority of TDC Switzerland’s staff to the headquarters. As a result, certain of our other office spaces are currently empty. Efforts are underway to sublet or assign these empty office spaces.

The main office buildings in Switzerland are:

   Location
  Function   Square meters  

 
 
 
Zürich Oerlikon (sunrise Tower)   HQ   37,000  
Longemalle, Lausanne   Office, call center   1,753  
Freiburgstr., Bern   Office   6,018  
Salzhausstr., Biel   Call center   5,718  

     In addition to the main office buildings, TDC Switzerland has 5,200 square meters of retail shops in Switzerland.

Competition

     Since the full liberalization of the Danish telecommunications market in mid-1996, we have faced intense competition in the market for domestic landline telephony services based primarily on price. Features of the domestic landline market include a large number of operators, many new entrants and public regulation aimed particularly at TDC. In the market for domestic and international long distance telephony services, competition has been enhanced by regulations requiring us to permit other telecommunications companies to interconnect with our network at rates controlled by NITA. These rates have been reduced numerous times over the past five years, resulting in a continuous reduction of end user prices. New technology that enables VoIP has further intensified competition.

     In response to continued competition in the Danish telecommunications market, TDC has substantially expanded its international activities. After the acquisition of TDC Song and NetDesign at year-end 2004, TDC further strengthened its position in the pan-Nordic market by acquiring Dotcom Solutions in Sweden and introducing broadband solutions for residential customers in the Swedish market. In 2005, we also increased our ownership share in the Hungarian company HTCC.

     There are four key players in the Danish landline market. Tele2 covers around 65% of Danish households and is our largest external wholesale customer. Telia has its own infrastructure and acts as a wholesaler and retailer and provides fixed and mobile services under the Telia brand. Telia also offers cable TV and broadband services under the Telia Stofa brand. Cybercity (acquired by Norwegian Telenor in May 2005) develops, manages and sells broadband solutions with a particular focus on the small-to-medium enterprise (“SME”), home office and high-end consumer markets. GlobalConnect,

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a privately owned backbone operator, has a fiber-optic network which covers most parts of Denmark and Northern Germany.

     Customer migration from dial-up internet to broadband solutions in Denmark continued in 2005, and the broadband penetration of Danish households rose to approximately 54% in 2005. To counter the increasing competition in the broadband market, TDC Solutions introduced a number of product and pricing promotions in 2005, including higher speeds for the same prices and reduced connection fees. In 2005, TDC Solutions also doubled the maximum DSL speed for Danish residential customers with the launch of 8 Mbps.

     Traffic volumes have declined steadily during the past years. This trend can be explained by fixed-to-mobile substitution and increased competition. Furthermore, the emergence of competitively priced IP-VPN solutions has made it possible for business customers with several branches to establish their own networks, based on IP-VPN, allowing them to route traffic between branches within their own network instead of through the public telephone network. The result of this is a sharp decline in billed MOU for business customers, which has partly been offset by an increase in internet services and data communication revenue.

     A number of our competitors such as Cybercity and Tele2 have introduced VoIP at very competitive flat rate prices including all traffic with the exception of calls to mobile. We have launched IP telephony in cooperation with TDC Cable TV using the cable TV network and a VoIP product using DSL in order to compete for the customers who migrate towards VoIP. We estimate that the emergence of VoIP has not yet had a significant impact on subscriber and traffic volumes, but we expect that migration to VoIP will cannibalize a substantial part of our PSTN customers with a significant impact on our financial result.

     In the Danish PSTN market, there is not much differentiation between products except through the packaging of different combinations of features. Accordingly, if a competitor in the PSTN market offers a successful PSTN package, we believe we could offer a comparable product in a matter of weeks. For example, one of our competitors in the PSTN market offered a successful flat rate product and we were able to offer a comparable product within weeks.

For more information on TDC’s competitors and our competitive position in the Danish telecommunications market, see “Industry.” For more information on the impact of regulations on our business, see “— Regulatory Environment.”

Corporate Governance

     Our shares are listed on the Copenhagen Stock Exchange and our American Depositary Shares (“ADSs”) were previously listed on the New York Stock Exchange ("NYSE").

      On March 3, 2006, TDC applied for a delisting of its ADSs from the NYSE, which delisting occurred on April 19, 2006, cf. “The Offer and Listing” in Item 9. Following the delisting from the NYSE, we do not disclose any differences between our corporate governance practices and the NYSE governance standards on our web page.

Legal Proceedings

     The TDC Group is a party to certain pending lawsuits and cases pending with public authorities and complaint boards.

     TDC’s stake in Polkomtel is currently being disposed of and certain legal proceedings are pending in relation to this disposal, as described in “Recent developments” in Item 5.

     At the EGM held on February 28, 2006, NTC proposed that TDC seek to delist its shares and ADSs from the Copenhagen Stock Exchange and from the NYSE, respectively, and subsequently seek to deregister all securities from the

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U.S. Exchange Act. NTC also proposed the introduction of a new clause into the articles of association of TDC permitting the compulsory acquisition of the shares of minority shareholders. These proposals attained an affirmative vote of over 90% of the share capital of TDC represented at the Extraordinary General Meeting (although less than 90% of the share capital of TDC) and such resolutions were declared passed by the Extraordinary General Meeting. Subsequently, the Danish Commerce and Companies Agency ruled that it would not register the new articles of association. TDC has filed a writ with the Eastern High Court against the Danish Commerce and Companies Agency seeking an acknowledgment of the registration of the squeeze-out provision in the articles of association.

     Further, ATP, a Danish pension fund holding 5.5% of the shares in TDC, has filed a writ with the Copenhagen City Court (which has been passed on to the Eastern High Court) against both TDC and NTC seeking an acknowledgment of the invalidity of both the squeeze-out provisions in the articles of association and the authorization to delist from the Copenhagen Stock Exchange and the NYSE granted at the Extraordinary General Meeting. On April 5, TDC and NTC announced that they would challenge the ruling from the Danish Commerce and Companies Agency in the Danish courts. TDC has proceeded with its intention to delist its ADSs from the NYSE, which delisting occurred on April 19, 2006. If ATP succeeds in its litigation, TDC will be unable to proceed with the compulsory acquisition. In addition, ATP may seek an award of damages against us or other relief. In the legal proceedings instigated by ATP against NTC and TDC, ATP has reserved the right to challenge authorizations adopted at the annual general meeting of TDC on April 26, 2006, as illegal, in particular authorizations (i) to issue warrants to management and others and (ii) to repurchase shares. Furthermore, ATP claims that the reference date with regard to the redemption price of ATP’s shares should only be decided as of when the redemption may actually be completed. Finally, ATP claims that the NTC should pay interest on the redemption price. TDC and NTC have responded to the claims by ATP.

Item 4A Unresolved Staff Comments

We do not believe that there are unresolved staff comments that are material.

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Item 5 Operating and Financial Review and Prospects

     The following discussion should be read in conjunction with our consolidated financial statements. Unless otherwise indicated, financial information as of and for the years ended December 31, 2004 and 2005 has been prepared in accordance with International Financial Reporting Standards as adopted by the EU (IFRS). IFRS differ in certain significant respects from US GAAP, see note 33 to the Consolidated Financial Statements.

Overview of Group Results

     TDC A/S is a holding company operating in the communications services industry, with subsidiaries and affiliates in Denmark and selected other European countries. Currently, we conduct our operations through five business lines: TDC Solutions, TDC Mobile International, TDC Switzerland, TDC Cable TV and TDC Services. A description of each business line is included in a separate discussion of their results as well as in Item 4 above.

     In 2005 we continued to generate positive results supported by TDC’s continued successful xDSL sales and strong growth in both the domestic and international mobile businesses. In addition, ongoing stringent cost control in the domestic operations, including the effect of the redundancy programs. TDC Cable TV continued to increase its customer base and earnings. Progress was achieved despite fierce competition and a general decline in traditional landline telephony. The performance was also impacted by the acquired and divested companies, especially the acquisitions of TDC Song and HTCC.

The financial results for the group are summarized in the table below.

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TDC Group            
          Percent  
          Change  
         
 
DKK M         2005 vs.
  2004   2005   2004  
 
 
 
 
Revenue 42,339   46,588   10.0  
 
 
     
Operating expenses (31,138 ) (34,773 ) (11.7 )
Depreciation, amortization and impairment losses (6,661 ) (6,827 ) (2.5 )
 
 
     
Total operating expenses (37,799 ) (41,600 ) (10.1 )
Other income and expenses 1,180   257   (78.2 )
 
 
     
Operating income 5,720   5,245   (8.3 )
 
 
     
Income from associates 5,632   334   (94.1 )
             
Fair value adjustments 178   (184 )
NM
 
Financial income 2,547   2,454   (3.7 )
Financial expenses (3,441 ) (3,326 ) 3.3  
 
 
     
Net financials (716 ) (1,056 ) (47.5 )
 
 
     
Income before income taxes 10,636   4,523   (57.5 )
Income taxes (1,041 ) (1,026 ) 1.4  
Net income from continuing operations 9,595   3,497   (63.6 )
Net income from discontinued operations 315   3,953   NM  
 
 
     
Net income 9,910   7,450   (24.8 )
 
 
     

     Results for each of the years shown above include the impacts of certain special items that are not necessarily reflective of the underlying operations, as discussed below.

     The specific special items that have impacted our results in each of the two years shown above are as follows:

2005

     Restructuring costs in 2005 amounted to DKK (968) million before tax and DKK (817) million after tax reflecting primarily the redundancy programs in the domestic operations and costs for financial and legal advisers related to the Nordic Telephone Companies’ equity tender offer to acquire the TDC shares. The restructuring costs are shown as wages, salaries and pension costs and other external charges, respectively, and included under operating expenses. For further explanation, see below under “Restructuring effects”.

     The total net income impact of special items after tax was DKK (817) million in 2005.

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2004

     Restructuring costs before tax amounted to DKK (558) million and related primarily to the redundancy programs in the domestic operations. Restructuring costs after tax amounted to DKK (192) million, of which DKK 199 million related to a change in the tax value of goodwill in Talkline. The restructuring costs are shown as wages, salaries and pension costs and included under operating expenses. For further explanation, see below under “Restructuring effects - Redundancy programs in domestic business”.

     Profit before tax on divestment of major enterprises amounted to DKK 943 million before tax, reflecting primarily the disposal of Dan Net. These gains are shown as other income and included in other income and expenses.

The total net income impact of special items after tax was DKK 741 million in 2004.

Restructuring effects

Transaction costs regarding sale of TDC

     The transaction costs for the sale of TDC reflect primarily to the costs for financial and legal advisers related to NTC’s equity tender offer to acquire the TDC shares. The after-tax cost was DKK 382 million in 2005.

Redundancy programs in domestic business

     In 2003 we initiated a series of reductions of our domestic workforce. Customers are switching from traditional landline telephony to mobile and IP-based broadband solutions, which are less labor intensive than traditional landline telephony: the first reduction covering the period from 2003-2004 and a second covering 2005. During these periods, we achieved workforce reductions partly through our redundancy programs and partly from attrition. In 2004, 494 employees were covered by the redundancy programs and 630 employees in 2005. In 2005, we reduced the number of domestic full-time employees from 14,437 to 13,876. At year-end 2005, we had 20,225 full-time employee equivalents compared with 19,497 in 2004. The after-tax cost related to the redundancy programs was DKK 410 million in 2004 and DKK 320 million in 2005.

     In 2006 we have initiated a new redundancy program in the domestic business and in Switzerland, see Employee section in Item 6 and Recent Development in Item 5.

Results of Group Operations

     Following is a discussion of the consolidated results of TDC Group on an as-reported basis without adjusting for the special items discussed above. In addition, the developments in 2004 and 2005 were impacted by certain major changes in activities and ownership shares.

     In January 2004, we agreed with Telmore’s shareholders to buy the remaining 80% stake in the company. TDC Mobile International now owns 100% of Telmore. In August 2004, we sold Dan Net, which operates with data clearing for mobile and landline operators, electronic data interchange and e-commerce solutions, also in September 2004, we announced our acquisition offer to the owners of shares and convertible bonds in Song Networks Holding AB, and at the beginning of November 2004 we could announce that the offer had been accepted. In December 2004 we acquired NetDesign, a company specializing in IP communications solutions for the Danish business market.

     In March 2005 TDC announced the signing of an agreement to increase our existing ownership share of 41.2% in HTCC the Hungarian landline and data communications provider. At year-end 2005, TDC’s ownership share was 63.4%. Furthermore in May 2005, TDC announced the acquisition of Dotcom Solutions, an important Swedish provider of LAN infrastructure for business customers. Dotcom Solutions strengthens TDC’s position in the rapidly expanding market for IP communications solutions as well as complementing and supporting TDC’s services toward Swedish and pan-Nordic business customers with a need for IP/LAN solutions. Also in May 2005, TDC announced the acquisition of Ascom’s

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communications solutions unit, an important provider of LAN services and infrastructure for business customers. The acquisition will strengthen TDC’s position in the rapidly expanding market for IP communications solutions as well as complementing and supporting TDC Switzerland’s offerings of IP/LAN products for Swiss business customers. TDC Directories, a traditional and electronic and web-based directory businesses in Denmark, Sweden and Finland, was divested in November 2005.

Revenue

     TDC’s revenue was DKK 46,588 million in 2005, increasing by DKK 4,249 million or 10.0% compared with 2004. This growth stemmed mainly from the inclusion of acquired companies, including changes in ownership shares, but also reflected growth in our mobile businesses in Denmark and Germany and our domestic broadband and cable TV businesses. This positive increase was partly offset by lower revenue from traditional landline telephony in the domestic operations caused by the migration toward mobile telephony and private IP-based networks.

Operating Expenses

     Our operating expenses are composed of transmission costs and cost of goods sold; other external expenses; and wages, salaries and pension costs. Operating expenses increased from DKK 31,138 million in 2004 to DKK 34,773 million in 2005, primarily due to the acquisition of enterprises by TDC Solutions.

     Transmission costs and cost of goods sold were DKK 17,164 million in 2005, increasing by DKK 1,534 million or 9.8% compared with 2004. The increase primarily reflected TDC Mobile International as a result of increased voice and SMS traffic as well as acquisitions of companies mainly related to TDC Song. This was partly offset by TDC Switzerland related to lower sales of handsets and lower mobile termination prices.

     Other external expenses, including marketing and customer-acquisition costs as well as rent, leases and service agreements, were DKK 9,536 million in 2005, increasing by DKK 1,445 million or 17.9% compared with 2004. The increase occurred largely at TDC Mobile International due to higher customer-acquisition costs in Talkline and Bité. The increase also occurred at TDC Switzerland following the acquisition of sunrise business communications and the operation of an increased number of mobile sites at year-end 2005. Furthermore, other external charges increased due to costs for financial and legal advisers related to the Nordic Telephone Companies’ equity tender offer to acquire the TDC shares.

     Wages, salaries and pension costs were DKK 8,073 million, increasing by DKK 795 million or 8.8% compared with 2004. The increase primarily reflected an increase in the number of average full-time employee equivalents by 929 or 4.9% due mainly to the acquisition of companies in TDC Solutions and TDC Switzerland. The increase also related to lower pension income from defined benefit plans for employees with civil servant status in domestic operations as well as increased costs related to the redundancy program. The increase was partly offset by lower wages, salaries and pension costs due to fewer employees in the domestic operations. In 2005, 574 employees retired in connection with redundancy programs.

Depreciation, Amortization and Write-downs

     Depreciation, amortization and impairment losses increased by DKK 166 million or 2.3% compared with 2004 to DKK 6,827 million in 2005. This increase primarily related to acquired companies, partly offset by write-downs of software and network equipment in 2004.

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Other Income and expenses

     Other income and expenses declined by DKK 923 million or 78.2% compared with 2004 to a net income of DKK 257 million in 2005. The decline mainly stemmed from divestment of major enterprises in 2004, primarily reflecting the disposal of Dan Net.

Income from associates

     Income from associates after income taxes was DKK 334 million in 2005 compared with DKK 5,632 million in 2004, representing a decrease of DKK 5,298 million, reflecting primarily profit from the disposal of Belgacom in 2004.

Fair Value Adjustments

     Fair Value Adjustments are composed of income (or loss) related to changes in the fair value of derivative financial instruments, marketable securities and other financial assets. In 2005, fair value adjustments totaled DKK (184) million and related mainly to negative fair value adjustments of TDC’s holding of bonds and derivative financial instruments.

     In 2004, fair value adjustments amounted to income of DKK 178m reflecting primarily value adjustment of a cash receivable recognized in other fair value adjustments.

Financial Income and Expenses

     Financial income was DKK 2,454 million in 2005, representing a decrease of DKK 93 million compared with DKK 2,547 million in 2004.

     Financial expenses was DKK (3,326) million in 2005, representing a decrease of DKK 115 million compared with DKK (3,441) million in 2004.

     Financial expenses, net, excluding fair value adjustments, was DKK (872) million in 2005, representing a decrease of DKK 22 million compared with 2004. This development mainly reflected positive foreign currency adjustments, offset by higher net interest expenses, primarily due to interest relating to tax refunds in 2004.

Income Taxes

     Income taxes were DKK 1,026 million in 2005, representing a decrease of DKK 15 million or 1.4%.The effective tax rate was 22.7% in 2005 compared with 9.8% in 2004. The increase in the effective tax rate from 2004 to 2005 is primarily related to the tax-free divestment of Belgacom in 2004. The effective tax rate for 2005 was positively impacted by the non-recurring impact from the lowering of the Danish corporate income tax from 30% to 28% due to a reduction in deferred tax liabilities for TDC.

Net income from discontinued operations

     Discontinued operations are comprised of our former TDC Directories business line and net income from discontinued operations increased from DKK 315 million in 2004 to DKK 3,953 million in 2005, primarily reflecting profit on the disposal of TDC Directories on November 30, 2005.

Results of Operations by Business Line

     We have had five business lines since 2003, consisting of TDC Solutions, TDC Mobile International, TDC Switzerland, TDC Cable TV and TDC Services. With the exception of TDC Services, each of the business lines is

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discussed separately below. Results of TDC Services are discussed together with TDC A/S (parent company) expenses, and intercompany eliminations. We had an additional business line, TDC Directories, which were divested in November, 2005. TDC Directories is shown as net income from discontinued operations.

     Our management evaluates business line performance based on results adjusted for special items. We believe that the special items excluded from business line results do not reflect the underlying fundamentals of the business, and should be analysed separately. Therefore, the figures in the following tables, and the related discussions of results, have been adjusted to exclude the impact of special items previously discussed. Information is provided to allow reconciliation of adjusted results to results on an as-reported basis.

TDC Solutions

     TDC Solutions provides mainly communications services primarily in Denmark and the Nordic countries. Its activities include telephony services, convergence products (combined landline and mobile telephony), data communications and internet services, including broadband solutions, security and hosting services, leased lines, sale of terminals and installation. TDC Solutions’ main activities are performed by the parent and the following companies: TDC Song (pan-Nordic), HTCC (Hungarian), NetDesign (Danish) and TDC Dotcom (based in Sweden)2. The table below sets forth results for TDC Solutions.

TDC Solutions            
          Percent  
          Change  
         
 
DKK M         2005  
  2004   2005   vs.  
          2004  
 
 
 
 
Revenue            
   Landline telephony 9,643   10,453   8.4  
      Retail 7,453   8,059   8.1  
         Subscription fees 3,659   3,803   3.9  
         Voice traffic 3,794   4,256   12.2  
      Wholesale 2,190   2,394   9.3  
         Transit traffic 704   708   0.6  
         Other 1,486   1,686   13.5  
   Leased lines 1,117   1,538   37.7  
   Data communication and Internet services 3,840   5,000   30.2  
   Terminal equipment 2,578   3,172   23.0  
   Other 1,412   1,468   4.0  
 
 
     
   Revenue 18,590   21,631   16.4  
Operating expenses            
   Transmission costs, raw materials and supplies 5,386   6,980   (29.6 )
   Other external charges 3,766   3,824   (1.5 )
   Wages, salaries and pension costs 3,735   4,326   (15.8 )
   Depreciation, amortization and write-downs 3,549   3,754   (5.8 )
 
 
     
Total operating expenses 16,436   18,884   (14.9 )
 
 
     
Other income and expenses 169   147   (13.0 )
Operating income 2,323   2,894   24.6  
 
 
     
Operating margin 12.5 % 13.4 %    

2

TDC Dotcom AB was formerly named TDC Internordia AB. Following TDC Internordia AB’s acquisition of Dotcom Solutions AB in June 2005, TDC Internordia AB’s company name was changed to TDC Dotcom AB.

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     The results shown in the table above exclude certain special items that do not necessarily reflect the underlying fundamentals of the business. If these items had been included in the results above, operating income would have been reduced by 500 million in 2005, and increased by DKK 509 million in 2004. The amount for 2005 consists of (i) the cost from the redundancy program (DKK (339) million) and costs related to Song integration (DKK (92) million). The amount for 2004 consists of (i) gain regarding sale of Dan Net A/S (DKK 943 million) partly offset by (ii) the costs from the redundancy program (DKK (484) million).

Revenue

     In 2005, TDC Solutions’ revenue was DKK 21,631 million, representing an increase of DKK 3,041 million or 16.4% compared with 2004, reflecting primarily the acquisition investments in TDC Song and HTCC.

     Revenue from landline telephony, retail increased by DKK 606 million or 8.1% to DKK 8,059 million in 2005. Revenue from subscriptions increased by DKK 144 million or 3.9% compared with 2004 to DKK 3,803 million in 2005, resulting mainly from TDC Song and HTCC and partly offset by a decrease in the number of domestic landline customers by approximately 127,000 or 5.3% to 2.3 million at year-end 2005. However, the decline includes an increase in TDC Samtale and TDC Samtale Døgn flat rate plans resulting in 148,000 more customers, or an increase, of 85.7%, to a total of 321,000 in 2005.

     Revenue from landline traffic was DKK 4,256 million, representing an increase of DKK 462 million or 12.2% compared with 2004, resulting mainly from the acquisitions of TDC Song and HTCC and partly offset by reduced revenue from traditional landline traffic in the domestic operations due to a decrease in traffic minutes by 0.8 billion or 9.2%. The more pronounced decrease in landline traffic compared with the decrease in the number of landline customers demonstrates a decline in MOU, which reflects that mostly customers with high MOU are migrating to alternative solutions.

     Revenue from landline telephony, wholesale increased by DKK 204 million or 9.3% compared with 2004 to DKK 2,394 million, resulting mainly from acquisition investments in HTCC and TDC Song and partly offset by a fall in total domestic wholesale traffic.

     Revenue from data communications and internet services increased by DKK 1,160 million or 30.2% compared with 2004 to DKK 5,000 million in 2005, resulting mainly from acquisition investments in TDC Song and HTCC and partly offset by the disposal of Dan Net in August 2004. The increase was also driven by growth in DSL sales, partly offset by a fall in revenue from dial-up customers. TDC Solutions’ broadband customer base rose from 549,000 in 2004 to 689,000 at year-end 2005

     Revenue from terminal equipment etc. was DKK 3,172 million, representing an increase of DKK 594 million or 23% compared with 2004, primarily relating to the recognition of NetDesign and Dotcom Solutions and partly offset by increased sales of employee PCs in TDC Solutions A/S in 2004.

     Revenue from leased lines increased by DKK 421 million, representing an increase of 37.7% compared with 2004 to DKK 1,538 million in 2005. The increase is primarily related to the recognition of HTCC and TDC Song and is partly offset by lower revenue from domestic leased lines and servicing of companies with private data lines.

Total operating Expenses

     Total operating expenses increased DKK 2,448 million or 14.9% in 2005 to DKK 18,884 million from DKK 16,436 million in 2004. The increase in 2005 resulted mainly due to the recognition of TDC Song, HTCC, NetDesign and Dotcom Solutions.

     Transmission costs and cost of goods sold were DKK 6,980 million in 2005, representing an increase of DKK 1,594 million or 29.6% compared with 2004. The increase resulted mainly from the recognition of TDC Song, HTCC,

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NetDesign and Dotcom Solutions and was partly offset by lower domestic landline traffic, balancing declining revenue from landline telephony.

     Other external expenses increased by DKK 58 million or 1.5% compared with 2004 to DKK 3,824 million in 2005. The increase resulted primarily from the recognition of TDC Song, HTCC, NetDesign and Dotcom Solutions, and was partly offset by stringent cost control in TDC Solutions A/S.

     Wages, salaries and pension costs increased by DKK 591 million or 15.8% compared with 2004 to DKK 4,326 million. The increase primarily reflected an increase of 1,041 or 9.4% in the number of average full-time employee equivalents resulting mainly from the inclusion of TDC Song, NetDesign and HTCC and was partly offset by the divestment of Dan Net. Wages, salaries and pension costs in TDC Solutions A/S increased as a result of higher wages and salaries and increased consumption of resources for network maintenance, partly offset by a decline in the number of average full-time employee equivalents of 460 to 9,310 due to redundancy programs.

     TDC Solutions’ depreciation, amortization and write-downs increased by DKK 205 million or 5.8% compared with 2004 to DKK 3,754 million in 2005, primarily reflecting acquired and divested companies and partly offset by higher write-downs of software in TDC Solutions A/S in 2004.

TDC Mobile International

     TDC Mobile International is the leading provider of mobile telecommunications services in Denmark, provides mobile telephony services in the UK, Germany, Lithuania and Latvia, and holds minority interests in mobile operations in Austria and Poland (which is subject to sale). Its activities include mobile voice telephony, sale of handsets, mobile data services and sale of traffic to MVNOs in Denmark, Lithuania, Latvia and Austria.

     Over the past few years, the domestic mobile sector has experienced fierce price competition, and in 2005 the prices stabilized as a result of consolidation of the mobile operators. However, as in 2004, earnings from operations were adversely impacted as many customers chose to switch to cheaper mobile solutions with web-based self-services.

TDC Mobile International            
          Percent  
          Change  
         
 
DKK M         2005 vs.
  2004   2005   2004  
 
 
 
 
Revenue            
   Domestic operations 6,503   7,151   10.0  
   Bité 927   1,125   21.4  
   Talkline etc. 7,675   7,763   1.1  
 
 
     
   Revenue 15,105   16,039   6.2  
Operating expenses            
   Transmission costs, raw materials and supplies 7,879   8,094   (2.7 )
   Other external charges 3,623   4,183   (-15.5 )
   Wages, salaries and pension costs 979   989   (1.0 )
   Depreciation and amortization 1,250   1,123   10.2  
 
 
     
Total operating expenses 13,731   14,389   4.5  
 
 
     
Other income and expenses 53   36   (32.1 )
 
 
     
Operating income 1,427   1,686   18.1  
Operating margin 9.5 % 10.5 %    

     The results shown in the table above exclude certain special items that do not necessarily reflect the underlying fundamentals of the business. If these items had been included in the results above, operating income would have increased

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by DKK 12 million in 2005 and by DKK 28 million in 2004. The amount for 2005 consists of adjustments to previous redundancy programs and reversal of unused provisions in Talkline. The amount for 2004 consists primarily of reversal of unused provisions in Talkline.

Revenue

     In 2005, TDC Mobile International’s revenue was DKK 16,039 million, representing an increase of DKK 934 million or 6.2% compared with 2004, resulting from increased traffic volumes in the domestic, German and Baltic markets (Lithuania and Latvia) and partly offset by lower prices due to fierce competition. Revenue from domestic operations increased by DKK 648 million or 10% compared with 2004 to DKK 7,151 million in 2005. This category includes mobile traffic as well as subscriptions and handset sales. Growth was driven by increased revenue from both TDC Mobil and Telmore. Growth in retail revenue from domestic operations was driven mainly by a 14.5% increase in voice traffic and a 43% increase in SMS traffic, resulting from higher average consumption and an increased post-paid customer base. The growth in consumption resulted in increased ARPU. Revenue from wholesale in TDC Mobil increased by 13.1% in 2005, mainly due to increasing traffic from other mobile operators.

     The growth in revenue from domestic operations was adversely impacted by declining average retail prices, reflecting customer migration toward cheaper mobile solutions with self-services via the internet. Revenue from Talkline etc. increased by DKK 88 million or 1.1% compared with 2004 to DKK 7,763 million in 2005, resulting from a 32.6% increase in the number of mobile customers to 3.4 million, partly offset by declining ARPU. Revenue was adversely impacted by the disposal of Talkline ID in April 2005. Adjusted for the disposal of Talkline ID, growth was DKK 1,011 million or 15.7%. Revenue in Bité was DKK 1,125 million, representing an increase of 21.4% or DKK 198 million in 2005, primarily driven by a 44.3% increase in voice traffic due to the strong 85.7% growth in the customer base. The increased customer base primarily reflected the launch of SMS consumption-independent flat rate pricing for the pre-paid segment. However, this increase should be seen in the context of declining retail prices and fewer average MOU per customer.

Total operating Expenses

     Total operating expenses increased 4.5% in 2005 to DKK 14,389 million. The increase in 2005 related primarily to increased customer-acquisition costs in Bité and Talkline ID driven by strong growth in the customer base and start-up costs relating to the new operations. Furthermore increased transmission costs and cost of goods sold due to increased voice and SMS traffic in the domestic business, partly offset by the divestment of Talkline ID in April 2005. Depreciation, amortization and impairment losses decreased primarily driven by fewer write-downs in domestic operations in 2005

     Transmission costs and cost of goods sold increased by 2.7% or DKK 215 million compared with 2004 to DKK 8,094 million in 2005. Transmission costs and cost of goods sold in domestic operations increased by 17.0% or DKK 404 million compared with 2004 to DKK 2,778 million primarily reflecting increased voice and SMS traffic. Talkline etc’s transmission costs and cost of goods sold decreased by 5.8% or DKK 301 million compared with 2004 to DKK 4,853 million and related to the disposal of Talkline ID in April 2005. The decline was partly offset by increased transmission costs and cost of goods sold driven by increased traffic and a larger customer base. Transmission costs and cost of goods sold in Bité were DKK 462 million, representing an increase of 32% or DKK 112 million and driven by increased traffic.

     Other external expenses were DKK 4,183 million in 2005, up DKK 560 million or 15.5% compared with 2004. Other external expenses in domestic operations were DKK 1,621 million in 2005, up 1.2% or DKK 20 million compared with 2004, primarily resulting from increased customer-acquisition costs and partly offset by lower uncollectibles. In Talkline etc., other external expenses increased by DKK 436 million or 25.5% compared with 2004 to DKK 2,144 million in 2005 mainly due to increased customer-acquisition costs driven by strong growth in the customer base and start-up costs relating to the easyMobile operations. Bité’s other external expenses were DKK 418 million in 2005, representing an increase of DKK 104 million or 33.2% compared with 2004 as a result of increased customer-acquisition costs driven by strong growth in the customer base and the start-up of Bité Latvia.

     Wages, salaries and pension costs were DKK 989 million, representing an increase of DKK 10 million or 1% compared with 2004, DKK 541 million of which was generated by domestic operations representing an increase of DKK

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15 million or 2.9% compared with 2004. Wages, salaries and pension costs in Talkline etc. decreased to DKK 361 million compared with DKK 379 million in 2004 mainly due to the disposal of Talkline ID and offset by the start up of easyMobile operations. Wages, salaries and pension costs in Bité were DKK 87 million compared with DKK 74 million in 2004.

     Depreciation, amortization and impairment losses in TDC Mobile International decreased by DKK 127 million or 10.2% compared with 2004 to DKK 1,123 million, primarily driven by fewer write-downs in domestic operations in 2005.

TDC Switzerland

     TDC Switzerland’s activities include mobile telephony and sales of landline and internet services. In 2005, TDC Switzerland acquired Ascom’s communications solutions unit (now called sunrise business communications), which has considerably helped strengthen the provision of infrastructure solutions for TDC Switzerland’s business customers.

TDC Switzerland            
          Percent  
          Change  
         
 
DKK M         2005 vs.
  2004   2005   2004  
 
 
 
 
             
Revenue            
   Mobile telephony 5,795   5,710   (1.5 )
   Landline telephony 3,138   3,080   (1.8 )
   Internet services 759   792   4.3  
 
 
     
Revenue 9,692   9,582   (1.1 )
Operating expenses            
   Transmission costs, raw materials and supplies 3,895   3,507   10.0  
   Other external charges 2,115   2,111   (4.5 )
   Wages, salaries and pension costs 1,225   1,281   (4.6 )
   Depreciation, amortization and write-downs 1,417   1,540   (8.7 )
 
 
     
Total operating expenses 8,652   8,439   2.5  
 
 
     
Other income and expenses (0 ) 1   NM  
 
 
     
Operating income 1,040   1,044   0.4  
Operating margin 10.7 % 10.9 %    

Revenue

     Revenue from mobile telephony was DKK 5,710 million in 2005, representing a decrease of DKK 85 million or 1.5% compared with 2004, resulting from decreases in sales of handsets and lower call termination prices from August 1, 2005, following a general market trend initiated by Swisscom. Revenue was further impacted by a decline in average revenue per customer, partly offset by an increase in TDC Switzerland’s customer base of 77,000 customers or 6.5% to 1.3 million. Revenue from landline telephony decreased by DKK 58 million or 1.8% compared with 2004 to DKK 3,080 million in 2005, mainly resulting from a smaller customer base, which decreased by 46,000 or 8.0% compared with 2004 to 527,000 due to fierce competition in the Swiss market. Lower prices also had an adverse impact on revenue, as TDC Switzerland reduced its prices for calls from the landline to the mobile network by passing on to customers the cost savings from lower termination prices. The decrease in revenue from landline telephony was mainly due to a general decline in the Swiss landline market in 2005. Revenue was favorably impacted by the acquisition of sunrise business communications and, adjusted for this, revenue decreased by 9% or DKK 281 million compared with 2004.

     In 2005, revenue from internet services increased by DKK 33 million or 4.3% compared with 2004 to DKK 792 million. This growth mainly related to 182,000 DSL customers in 2005, representing an increase of 34,000 or 23.0% compared with 2004. The growth was partly offset by a 117,000 or 36.4% decrease in the number of dial-up customers.

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Total operating Expenses

     Our total operating expenses decreased to DKK 8,439 million in 2005 from DKK 8,652 million in 2004. In 2005 lower transmission costs and cost of good sold was partly offset by higher other external charges and wages due to the acquisition of sunrise business communications. Furthermore depreciation, amortization and impairment losses increased reflecting increased investments mainly in continued mobile network expansion etc.

     Transmission costs and cost of goods sold were DKK 3,507 million in 2005, representing a decrease of DKK 388 million or 10% compared with 2004, driven primarily by lower sales of handsets and a fall in landline telephony and transit traffic. The costs were also impacted by lower prices for termination of mobile calls at Swisscom as of June 1, 2005. The decrease was partly offset by the acquisition of sunrise business communications and, adjusted for this, transmission costs and cost of goods sold decreased by 12.7% or DKK 496 million compared with 2004.

     Other external expenses were DKK 2,211 million in 2005, representing an increase of 4.5% from DKK 2,115 million in 2004, resulting primarily from the acquisition of sunrise business communications and further costs related to an increased number of mobile sites at year-end 2005 compared with 2004. Other external expenses also increased due to increased costs for retaining customers when a considerable number of subscriptions expired in 2005 and higher costs after moving to a new office building. Adjusted for the acquisition of sunrise business communications, other external expenses increased by 2.8% or DKK 60 million compared with 2004.

     Wages, salaries and pension costs were DKK 1,281 million, representing an increase of DKK 56 million or 4.6% compared with 2004, reflecting the acquisition of sunrise business communications. The increase was partly offset by a decline in the average number of fulltime employee equivalents in the remaining operations resulting from the continued focus on improved efficiency, for example in call centers. Adjusted for the acquisition, wages, salaries and pension costs decreased by 2.2% or DKK 27 million, and the number of full-time employee equivalents decreased by 112 or 4.7%.

     Depreciation, amortization and impairment losses increased by DKK 123 million or 8.7% compared with 2004 to DKK 1,540 million in 2005, reflecting increased investments in continued mobile network expansion, including UMTS, the IT infrastructure and leasehold improvements in new offices, sunrise Towers.

TDC Cable TV

     TDC Cable TV installs and operates cable TV networks, most with internet access, which provide TV signals for approximately 40% of Danish households.

TDC Cable TV            
             
          2005 vs.
DKK M 2004   2005   2005  
 
 
 
 
             
Revenue 1,766   2,107   19.3  
Operating expenses            
   Transmission costs, raw materials and supplies 838   912   (8.8 )
   Other external charges 302   380   (25.8 )
   Wages, salaries and pension costs 281   348   (23.8 )
   Depreciation, amortization and write-downs 221   245   (10.9 )
 
 
     
Total operating expenses 1,642   1,885   (14.8 )
 
 
     
Other income and expenses 6   3   (50.0 )
Operating income 130   225   73.1  
Operating margin 7.4 % 10.7 %    

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Revenue

     TDC Cable TV’s revenue increased by DKK 341 million or 19.3% compared with 2004 to DKK 2,107 million in 2005. Revenue primarily includes cable TV subscription and connection fees as well as revenue from cable modems. The increase resulted largely from an increase in the cable TV and cable-modem customer bases in 2005, as well as higher average revenue per customer. The rise in the number of cable-modem customers reflects a continuously increasing market for broadband services.

Total operating Expenses

     Total operating expenses increased 14.8% in 2004 to DKK 1,885 million in 2005 from DKK 1,642 million in 2004. The increase resulted from increased activities, as evidenced by revenue increases.

     Transmission costs and cost of goods sold were DKK 912 million in 2005, representing an increase of DKK 74 million or 8.8% compared with 2004, resulting from increased program expenses due to the larger customer base.

     Other external expenses were DKK 380 million in 2005, representing an increase of DKK 78 million or 25.8% compared with 2004, driven mainly by increased business.

     Wages, salaries and pension costs increased by DKK 67 million or 23.8% compared with 2004 to DKK 348 million, due largely to an increase in the average number of full-time employee equivalents by 158 or 19.5% to 971 at year-end 2005. The increase primarily related to customer service and Connect Partner, which was recognized from spring 2004.

     TDC Cable TV’s depreciation, amortization and impairment losses were DKK 245 million in 2005, representing an increase of DKK 24 million or 10.9% compared with 2004, mainly resulting from write-downs of network equipment in 2005.

Other Activities

     Other activities cover TDC Services, TDC A/S and elimination of transactions between the TDC Group’s business lines. TDC Services supplies a number of business services for the TDC Group’s domestic business lines, which gain economies of scale and cost-effective solutions in billing, procurement, logistics, facility management, IT, accounting, risk management and security. TDC A/S is the parent company of our business lines and undertakes Group functions including treasury, legal affairs, human resources, marketing and communications.

     The entities included in other activities recorded certain special items in each of the last two years that do not necessarily reflect the underlying fundamentals of those businesses. The impact of these items on our income from operations was a decrease of DKK 480 million in 2005 and a decrease of DKK 127 million in 2004. The amount for 2005 related to (i) transaction costs regarding sale of TDC DKK (390) million and (ii) the redundancy program of DKK (90) million. The amount related to 2004 related to (i) the domestic redundancy program of DKK (127) million.

Revenue

     Revenue from other activities increased DKK 401 million or 6.9% to DKK (5,449) million in 2005 from DKK (5,850) million in 2004. The increase mainly stems from lower eliminations of intra-group transactions partly offset on total operating expenses.

     Revenue from TDC Services decreased DKK 358 million to DKK 2,678 million in 2005, from DKK 3,036 million in 2004. The decrease in 2005 is primarily stemming from transfer of activities to other business lines, price reductions and a lower level of activity in the other business lines within TDC.

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Total operating Expenses

     Total operating expenses from other activities, including the effects of eliminating internal settlements, were a net income of DKK 5,739 million in 2005, representing a decrease of DKK (569) million or 9.0% from DKK 6,308 million in 2004. The decrease mainly stems from lower eliminations of intra-group transactions partly offset on revenue.

     Operating expenses in TDC Services decreased by DKK 413 million to DKK 2,675 million in 2005 from DKK 3,088 million in 2004. The operating expense decrease in 2005 stemmed primarily from rent and accrual regarding abandoned buildings in 2004 and reduced depreciation and amortization expenses on buildings and it-servers.

Operating Environment and Trends of the Business

Markets and technology

General

     The Danish telecommunications sector is highly competitive. In all markets, TDC’s future success will depend on our ability to continuously attract new customers and especially retain existing customers, thereby maintaining a sufficiently large customer base to achieve profitable operations. TDC’s business customers are increasingly demanding Nordic solutions covering cross-border landline telephony, data communications, IP telephony and mobile communications, where competition especially from other pan-Nordic providers is intensifying. All these companies regard the Nordic countries as their domestic market, which means that TDC’s previously dominant position in Denmark will be of minor importance when considering pan-Nordic solutions. If TDC fails to be competitive in all areas in all countries it will adversely impact revenue and earnings.

Landline telephony

     The biggest challenges and risks facing TDC’s domestic landline operations are the increased competitive pressure on traditional landline telephony (PSTN) and customer migration from this business area. The pressure comes first and foremost from continuously falling prices for mobile telephony and therefore continued migration from traditional landline telephony to mobile telephony. Secondly, the increased competition from providers of VoIP (broadband-based telephony) offering telephony at significantly reduced prices. We therefore expect the future telecoms market to be dominated by those providers who can offer high quality telephony, TV and internet via one access only, known as triple play, at attractive prices. The development of high-technology combination solutions and convergence products makes heavy demands on providers. Future success in the market for communications solutions therefore requires TDC to adapt to and lead technological developments, including the market’s demand for higher xDSL speeds. The increased speeds offered at the same or lower prices are also expected to squeeze earnings. TDC also expects increased competition from the electricity companies that will gain access to a wide customer base when they roll out fiber networks in many parts of Denmark. They are expected to invest considerable sums of money in the years ahead in fiber networks that will make them able to offer high-speed connections and triple-play solutions to their customers. Moreover, the penetration and further development of landline networks, local digital networks, wireless networks, Wireless Local Area Networks (WLAN), WIMAX and CDMA/450MHz constitute alternatives to traditional landline solutions and as such further increase competition. Competition in the Swiss market for landline telephony has intensified. The competition is expected to further intensify because established cable-network operators are offering landline telephony through their existing networks at flat-rate prices. TDC therefore expects the shifting trend in the Danish market toward triple play to also prevail in Switzerland.

Mobile telephony

     Although traditionally TDC Mobil’s prices in Denmark for mobile telephony have been among the lowest in the EU, market pressures continue to intensify. TDC expects such intense competition in the Danish telecommunications market to continue, which may result in future price reductions and loss of market share. TDC’s success depends on our ability to keep pace with continuing changes in technology, including the change from 2G to 3G mobile telephony, and the introduction of VoIP, which will also threaten mobile telephony in the long term. The penetration of WLAN, WIMAX and

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CDMA/450 MHz mentioned earlier may adversely impact the use and penetration of UMTS and associated data services. Growth in mobile data services is expected to be driven by an increase in the quantitative and qualitative capabilities of mobile business applications. TDC’s success with 3G technology depends largely on our ability to develop and introduce attractive 3G products and services at competitive prices, including our ability to benefit from general developments in the content services market. The use and penetration of UMTS technology require the utilization of existing GSM sites as well as the deployment of a number of new base stations to serve these operations. TDC Mobil may experience difficulties in procuring sufficient sites due to their limited availability. Consideration should also be given to the public concern over alleged adverse health effects related to electromagnetic transmissions emitted from mobile base stations. Declining prices for mobile telephony, including price reductions as a result of regulation of prices for terminating calls in the mobile network and roaming charges require continued strict cost control and improved profitability in mobile operations. Competition in the Swiss mobile market has also increased considerably. Attracting new mobile customers may therefore be even more difficult due to the high penetration of mobile telephony. Increased costs necessary to retain existing customers may be expected. As in the Danish market, the success of rolling out 3G technology in the Swiss market is subject to risks. Also as in Denmark, the penetration of WLAN constitutes a potential risk with resulting adverse impact on the use and penetration of UMTS and associated data services. The availability of suitable new sites for UMTS stations is limited in Switzerland. Furthermore, public concern over alleged adverse health effects related to electromagnetic radiation and the strict Swiss rules on radiation are important factors. This could result in increased costs related to the GSM and UMTS networks and thereby lower the chance of a successful switch to 3G mobile telephony. The future success of TDC’s mobile operators Talkline and the easyMobile companies will depend largely on their ability to achieve a sufficiently large gross margin on traffic resales when negotiating with network suppliers. A significant risk also exists of possible future price pressure on the relatively high retail prices, especially in Germany. The future growth of the Baltic mobile operator Bité will depend primarily on Bité’s ability to win market share in Latvia, and on the economic growth in Lithuania and Latvia in particular.

Cable TV

     TDC’s cable-TV operations may expect increased competition from electricity companies, antenna and housing associations as well as satellite-TV providers, which may adversely impact market shares and the prices for TV transmission and internet services. Both competition and the range of programs in the generally accessible terrestrial network are expected to increase when DigiTV realizes its plans to develop a digital terrestrial network. DigiTV is a public project that aims to introduce more digital channels, which will intensify competition for cable TV. Internet-based competitors’ offers of TV programs may also further increase competition.

Other matters

     The telecommunications sector has become increasingly digitalized, automated and online, which means that TDC is exposed to increasing risks of hacking, piracy and general failure of IT systems. Unanticipated IT problems, system failures, computer viruses or hacker attacks could affect the quality of TDC’s services and cause service interruptions. Risks of network failure can never be completely eliminated and the occurrence of such failures may reduce earnings and harm TDC’s reputation. There is uncertainty concerning the future success of online services, e-commerce and other types of selfservice products. If developments in these markets are less advantageous than expected, future earnings might be affected. Moreover, it is uncertain how fast the efficiency synergies resulting from such movement to online services may be realized. A significant share of TDC’s 2005 revenue was generated outside Denmark and the euro area. This revenue originated primarily from Switzerland, Lithuania, Poland, Sweden and Norway, where TDC conducts its business operations and where annual reports are prepared in currencies other than Danish kroner and euro. Any loss in the value of these currencies against the Danish kroner will negatively impact the value of TDC’s investments in the relevant business activities and the amount of income TDC derives from them. This will be reflected in TDC’s financial reporting, which is presented in Danish kroner. TDC’s revenue also depends on general economic conditions, primarily in Denmark, Germany, Switzerland, Lithuania, Poland and the Nordic region. TDC’s customers may delay or cancel investments in telecommunications systems and services if their business outlooks are cautious or negative, which may adversely affect TDC’s revenue and the development of new products and services. A significant deterioration in current economic conditions could have a material adverse effect on TDC’s operating results and financial position. The performance of the international operators in which TDC holds minority interests may depend on the financial or strategic support of other shareholders. Such other shareholders may fail to supply or not be willing to supply the required operational, strategic and

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financial resources relating to e.g. the build-out of infrastructure, the cost of meeting regulatory requirements, or effective marketing, which could adversely affect both the ability of these operations to compete and the return on TDC’s investment.

Regulatory issues

Denmark’s comprehensive regulatory regime governing its telecommunications sector requires TDC to deliver a broad range of services to the wholesale market at regulated prices. With respect to landline telephony and broadband services, TDC is subject to regulation of wholesale pricing, as well as specific requirements for accounting separation and reporting.

European Union

     In March 2002, the EU passed a number of directives designed to promote competition in the European telecommunications market that were subsequently implemented into Danish law in 2003. In accordance with this legislation, NITA performs market analyses on 18 specifically defined submarkets with respect to landline telephony, mobile telephony, leased lines, unbundled access, broadband and TV and radio transmission. In each submarket, NITA may designate a dominant telecommunications operator as having Significant Market Power (“SMP”) in such submarket. If imperfections in a submarket in which an operator has been designated as having SMP are identified, NITA may impose remedies against such operator in order to promote competition. In the wholesale market, such measures may include the acceptance of a reasonable request for interconnection, non-discrimination, reference offers, transparency, accounting separation, specific cost accounting obligations and price control methods. NITA has so far issued decisions on 14 out of 18 submarkets. Final decisions for all the submarkets, except the submarket for television and radio transmission, are expected during the first half of 2006. Until market analyses of the relevant submarkets have been completed and NITA has decided whether to adopt new regulatory measures or revoke former measures, the current regulation will be maintained in each relevant submarket.

Denmark

SMP Designation

     We have been designated as having SMP by NITA in almost all of the submarkets in Denmark, except for Market 15 (the wholesale market for mobile access), Markets 5 and 6 (the retail markets for national and international traffic for business customers) and according to the market analysis also in Market 17 (the market for international roaming). As a result of our SMP designation, we are subject to additional regulatory burdens, which are summarized below. In addition, NITA has been considering whether to create an additional submarket for cable TV networks. If NITA creates a cable TV submarket, it is likely we would be designated as having SMP in the cable TV market and might be required to provide third parties with access to our cable network. There can be no assurance that NITA will not impose additional regulatory burdens on us as a result of our current SMP status or designate us as having SMP in additional markets.

Retail markets.

     As a result of our SMP status, the larger part of our retail offerings of leased lines must comply with a rule of cost orientation. As a result, we are required to calibrate leased line prices annually to ensure that they match the corresponding cost plus a mark-up set by the regulatory authorities.

Wholesale markets.

     In the wholesale markets in which we have SMP status, the majority of our prices are regulated as a result of our SMP designation. Until 2002, interconnection prices were regulated mainly on the basis of historical cost analyses and best-practice benchmarking against corresponding international prices. Since January 1, 2003, NITA has set the prices we charge for switched interconnection traffic, interconnection capacity, shared access and ULL (also known as raw copper) as well as related co-location. NITA calculates these prices once a year in accordance with the LRAIC model and evaluates and updates the LRAIC model once every three years. Only minor price adjustments were implemented in 2004 and 2005.

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     In early 2006, the LRAIC model was adjusted and the prices for ULL, switched interconnection traffic and interconnection capacity were decreased considerably. The decrease may have a negative impact on our revenue and earnings. The prices for TDC’s other interconnection products are based on historical costs according to a formula set by NITA. It is uncertain how this pricing method will affect TDC’s future prices. Furthermore, the telecommunications law was amended with effect from January 1, 2006, resulting in changes in calculation principles for depreciation, amortization and interest payments. Such changes will likely result in price decreases for bitstream access and leased lines. The amended law also gives NITA increased power to stipulate specific terms and conditions for TDC’s interconnection agreements.

     NITA’s decision on the submarket for broadband access requires us to discontinue our geographical differentiation of bitstream access prices unless we also differentiate our retail prices for broadband. Discontinuation of geographical differentiation of prices for bitstream access will strengthen our competitors in remote areas, where production of bitstream access is very costly for us. Alternatively, we may decide to let the current differentiation of wholesale prices affect our end user prices. The decision also requires us to offer wholesale broadband solutions (bitstream access) without compulsory landline subscriptions, which will improve our competitors’ conditions for offering broadband solutions combined with IP telephony. We have appealed the decision for this market and some of the other decisions to the Telecommunications Complaints Board.

     The authorities have announced that they may intervene in the pricing of traditional landline subscriptions for customers who also have broadband subscriptions in order to address the so-called “excess cost recovery problem.” The formulation of such intervention and its impact on TDC’s earnings are uncertain.

     In the market for termination of mobile calls in mobile networks, NITA has decided that TDC, TeliaSonera, Sonofon, Tele2 and Hi3G have SMP with regard to termination in the respective mobile networks. However, price regulation has been introduced only for TDC, Sonofon and TeliaSonera, whose average price (including call set-up fee) must be reduced by approximately 35% over the next two years. This decision will adversely impact our earnings. If the domestic market for international roaming, market 17, also becomes subject to price regulation, such regulation may have a negative impact on TDC Mobil’s revenue and earnings.

     On October 31, 2005, NITA concluded that TDC abuses its dominant position in Denmark by requesting wholesale customers to pre-pay certain quarterly charges for certain wholesale products, and to require these customers to provide guarantees for their contractual obligations. We believe that we have not abused our dominant position, and have appealed NITA’s decision to the Danish Competition Appeal Tribunal, where the matter is currently pending. Based on the ruling by the NITA, Tele2 has filed a claim for payment of damages, which the court has postponed until the summer of 2006, when the Competition Appeal Tribunal is expected to conclude our appeal to the NITA decision. Based on a legal assessment of the possible outcome of Tele2’s claim, as well as the other lawsuits and cases that are currently pending, management is of the opinion that these will have no significant adverse effect on TDC Group’s financial position.

     Decisions have also been made on four retail submarkets for telephony traffic, the retail market for leased lines, the wholesale markets for terminating segments of leased lines, unbundled access and shared use including co-location, as well as for call termination on landline networks. None of the decisions include significant changes in relation to existing regulation with the exception of regulations relating to extended access related to co-location and extended requirements to guarantee the line quality against disturbances.

Anti-terror measures.

     As part of the anti-terrorism action plan passed by the Danish government in November 2005, the government has proposed a bill requiring telecommunications operators to use or install communication interception equipment and to establish databases for mandatory retention of traffic passing through their networks in order to assist law enforcement agencies in tracking terrorist activity. If such measures are adopted, we may have to make additional investments in technical equipment, and we may incur operational costs as a result.

EU Universal Service Obligation (USO) directive.

     Pursuant to the EU USO directive and Danish USO regulation, which are designed to ensure that all end users have access to certain basic telecommunications services regardless of their geographical location at an affordable price,

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NITA has designated us as the Universal Service Provider (“USP”) in Denmark. In the past NITA fixed the prices that we could charge to our Danish customers who use PSTN services (“USO customers”) for PSTN services, but these price caps were lifted at the end of 2005. We face the risk that NITA will decide to reintroduce a price cap on the products and services we offer to our USO customers. In addition, we face uncertainty concerning the renewal of our USP designation after 2007, which may affect our revenue and earnings.

EU Roaming Charge Regulation.

     The EU Commission is currently considering new regulations designed to cut international roaming charges and a proposal has been submitted for consultation. It is unclear what would be the outcome of such regulations if imposed. However, such regulation could have a negative impact on TDC Mobile International’s revenue and earnings.

Switzerland

Regulations

     Prompted by a preliminary decision by the Swiss competition authority regarding abuse of market power by Swisscom, the Swiss incumbent, in 2005, Swisscom reduced its prices for terminating mobile calls, putting heavy pressure on other Swiss mobile operators, including TDC Switzerland, to reduce their tariffs as well. The Swiss competition authority is continuing its review of the level of competition in the mobile call termination market and is currently investigating whether the Swiss mobile operators, including TDC Switzerland, have abused a dominant position. In parallel since January 2006 a number of interconnection filings regarding the Mobile Termination tariffs, against all three major mobile operators, have been submitted to the sector specific regulator ComCom. Consequently, TDC Switzerland faces the significant possibility that the Swiss competition authority or the Swiss regulator ComCom will require Swisscom and/or TDC Switzerland to make further price reductions for terminating mobile calls. Such price reductions, if imposed on TDC Switzerland, may have a material adverse effect on the earning and profit margins of our Swiss operations. In addition, there can be no assurance that the Swiss competition authority will not impose a material fine upon TDC Switzerland if the Swiss competition authority determines that TDC Switzerland has a dominant position in the mobile call termination market and has abused such position.

     Swisscom announced on April 10, 2006 that it had received a draft ruling from the Swiss competition authority recommending that it pay a CHF 489 million fine for misuse of mobile termination rates. Swisscom reported that the competition authority considered that all Swiss mobile carriers had a monopoly on incoming calls within their network, but only Swisscom Mobile misused its dominant position on the market in the period between April 1, 2004 to May 31, 2005 by demanding excessively high termination fees. Swisscom reported that the investigation into the period following the reduction of fees is to be continued and will also cover the other Swiss mobile carriers, including TDC Switzerland. Swisscom has said it will argue against the ruling.

     Our Swiss business benefits from regulations requiring Swisscom to grant other telecommunications operators, including us, interconnection services under cost-based terms and conditions. Swisscom has challenged the interconnection tariffs as set by the Swiss Communication Commission (“ComCom”) in court. In its ruling of April 21, 2006 (sent to the parties on May 19, 2006) the Federal Court (Supreme Court of Switzerland) has largely rejected Swisscom’s complaints and returned the matter to ComCom only in a minor point. As many methodological flaws in the Regulator’s costing model have been approved with this ruling it may prove difficult to deduce future landline interconnection costs from this ruling which covers the years 2000 – 2003.

     Our business plan and earnings forecasts, particularly in relation to expected broadband and triple play sales, anticipate that the Swiss legislature will enact legislation requiring Swiss telecommunications operators to open their local loop networks to other operators. Such regulations would allow TDC Switzerland to lease network capacity on Swisscom’s ULL and gain access to Swisscom’s customers. A revised telecommunications law providing for such opening of ULL networks was passed by the Swiss Parliament on March 24, 2006. A 100-day referendum period expires on July 13, 2006. If there is no referendum and the ordinances implementing the new law are finalized, the new law enters into force probably on January 1, 2007. Although unlikely, it is possible that organizations opposed to the law could force a public vote, which would further delay enactment by at least a year and could potentially result in enactment being prevented. Once the law is enacted, vested interests may attempt to prevent, impede or delay access to the ULL networks through other measures. If

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ULL terms and conditions are not set and enforced in a favourable way, we might have to adjust our business plan and earnings forecast.

     Substantial parts of TDC Switzerland’s backbone consist of leased dark fibres situated in the guard wire of high-voltage power lines. In a pending court case the use of the power line for telecommunication purposes is disputed by an owner of a property over which a power line is situated. Dependent on the outcome of the pending and potential similar future cases,TDC Switzerland might be forced to find alternative facilities (e.g. build pipes and lay dark fibre cables) to secure certain parts of its backbone at substantial costs.

Licenses - Denmark and Switzerland

We are licensed by NITA to provide mobile telecommunications services in Denmark and by the Swiss regulator to provide mobile telecommunications services in Switzerland. For example, we have UMTS licenses to provide 3G services in Denmark and Switzerland, three GSM licenses in Denmark (including licenses for DCS1800, DC56 and GSM) and one GSM license in Switzerland. Our Danish and Swiss UMTS licenses are valid until October 31, 2021 and December 31, 2016, respectively. Our Danish GSM licenses are valid until June 12, 2007, January 1, 2011 and March 1, 2012, respectively, and our Swiss GSM license is valid until May 31, 2008. There can be no assurance that NITA or the Swiss regulator will not withdraw our existing licenses if we can not meet license conditions, including obtaining the regulator’s consent in the event of a change of control. An application for renewal of our Swiss GSM license is due two years before expiry of the license and will be sent out in due time accordingly. After their respective expiration dates, we will also have to reapply for a new Danish UMTS license and new Swiss UMTS licenses. There can be no assurance that any application for renewal of such licenses will be successful. The three Danish GSM licenses will be extended automatically for periods of 10 years unless NITA, at its discretion, issues a decision not to extend such licenses which decision must be made one year before the scheduled expiry date.

Recent developments

TDC reduces its work force in domestic operations according to plan

     On January 20, 2006, TDC decided to implement a redundancy program covering up to 570 employees in the period until year-end 2006. The redundancy program will be initiated through voluntary retirement to limit the extent of involuntary retirement. Total costs related to work-force reductions are estimated at DKK 342m after tax. The amount will be expensed in the first quarter of 2006.

Change of ownership

     On February 1, 2006, NTC settled its tender offer for TDC A/S and thereby became the owner of 88.2% of the shares of TDC A/S entailing that a change of ownership has occurred.

Polkomtel

     On February 2, 2006, due to this change of ownership described above and in accordance with the existing shareholder agreement with Polkomtel as well as the company’s bylaws, TDC has offered to sell its 19.6% ownership share to the other shareholders of Polkomtel at a price of EUR 214.04 per share, reflecting a market value of EUR 4.388bn for 100% of the company’s common shares. The result and the time frame of the selling process depend on the shareholders’ response to TDC’s offer. On March 10, 2006, the Polish shareholders representing approximately 76% of TDC’s shares in Polkomtel and 14.8% of the total share capital of Polkomtel, accepted TDC’ offer. The only remaining shareholder, Vodafone has contested the procedure initiated by TDC and the offer price. TDC and the Polish shareholders believe that the procedure followed is in conformity with the statute. However, Vodafone has in Polish courts obtained an injunction against the transfer of TDC’s shares in Polkomtel. In order to maintain the injunction Vodafone has initiated arbitration

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proceedings. It is a condition for the closing of the sale to the Polish shareholders that such closing is not prevented by the legal actions taken by Vodafone.

Extraordinary General Meeting and Legal Proceedings against the Danish Commerce and Companies Agency

     Following completion of the public tender offer for the shares in TDC and upon the request of NTC, the Board of Directors of TDC convened an Extraordinary General Meeting to be held on February 28, 2006. The Extraordinary General Meeting adopted among other things the proposals from NTC regarding (i) new Board of Directors, (ii) an authorization to the Board of Directors to distribute interim dividend, and (iii) the amendments of the Articles of Association enabling NTC, who owns 88.2% of TDC’s equity, to compulsorily redeem the remaining shareholders. On March 8, 2006, the Danish Commerce and Companies Agency rejected the request to register these amendments, and on April 5, 2006, TDC decided to bring the decision of the Danish Commerce and Companies Agency before the courts. TDC has filed a writ with the Eastern High Court against the Danish Commerce and Companies Agency seeking an acknowledgment of the registration of the squeeze-out provision in the articles of association.

Senior Facilities Agreement

     On March 3, 2006 TDC A/S entered into a senior facilities agreement as borrower and guarantor (the “Senior Facilities Agreement”) originally entered into between, amongst others, NTCH as original borrower and original guarantor and Barclays Capital, Credit Suisse First Boston International, Deutsche Bank AG, London Branch, J.P. Morgan plc and The Royal Bank of Scotland plc as original lenders.

     The Senior Facilities Agreement is a secured multi-currency term facility originally in an amount of up to EUR 9,600,000,000. It is composed of three term loan facilities of originally up to EUR 7,800,000,000 in aggregate, a revolving credit facility of up to EUR 700,000,000 and a term loan facility (the “Cash Bridge Facility”) of up to EUR 1,100,000,000 (together the “Senior Facilities”). The scheduled repayment dates of the Senior Facilities (other than the Cash Bridge Facility which has now been cancelled) range from seven years to nine years as from January 30, 2006.

     Until now, TDC has used the Senior Facilities for refinancing certain existing interest bearing debt and for financing certain dividend payments.

Interim dividends April 2006

     Based on an authorization adopted at the Extraordinary General Meeting on February 28, 2006 TDC’s Board of Directors at its meeting on April 5, 2006, decided to pay out interim dividends of DKK 219.50 per share of a nominal value of DKK 5 each, totaling DKK 43,481m, excluding dividends of treasury shares. The dividend was paid on April 11, 2006.

     To finance this dividend, TDC drew down DKK 35.5bn under the Senior Facility Agreement on April 11, 2006 and reduced cash and disposed of marketable securities.

Updated TDC credit rating by Standard & Poor’s and Moody’s as well as new credit rating by Fitch Ratings

     On April 11, 2006 Standard & Poor’s changed the credit rating of TDC. The credit rating regarding long-term debt for TDC A/S has been adjusted downwards to “BB-” with a stable outlook from “BB” with a negative outlook. The Senior Facilities Agreement, cf. above, were valued at “BB-”. The credit rating regarding TDC’s outstanding unsecured EMTN programme has been adjusted downwards to “B” from “BB”. The credit rating regarding the long term debt is unchanged at “B”.

     On April 12, 2006 Fitch Ratings published their credit rating of TDC. Fitch assigned TDC A/S a rating of “BB-” with stable outlook and a short-term rating of “B”. The Senior Facilities Agreement, cf. above, was assigned “BB+”, and the unsecured long-term rating of the outstanding bonds under TDC’s EMTN programme was assigned a “BB-” rating.

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     On April 13, 2006 Moody’s downgraded TDC’s long-term corporate credit rating to “Ba3” with stable outlook from “Ba1” on review for downgrade. The Senior Facilities Agreement , cf. above, was assigned “Ba2”, while the unsecured long-term rating of the EMTN bonds was lowered to “Ba3” from “Ba1”. TDC’s short term credit rating was withdrawn by Moody’s.

     The credit ratings by Standard & Poor’s, Moody’s and Fitch Ratings are reflecting the new leveraged capital structure of TDC following the completion of the tender offer by NTC to TDC’s shareholders in January 2006.

Delisting from the New York Stock Exchange

     On April 19, 2006, the Securities and Exchange Commission (“SEC”) approved TDC’ application to withdraw TDC’s American Depository Shares (ADSs) and ordinary shares from listing and registration on the New York Stock Exchange. On June 21, TDC instructed the Bank of New York, as Depositary under the Deposit Agreement, to stop offering ADSs as of June 26, 2006. On June 21, 2006 ADSs represented 0.16% of TDC’s share capital. Under the amended Deposit Agreement the Bank of New York will sell all remaining ADSs 30 Days after a 90-Day notice period expires. As a result, TDC expects the ADS programme will be terminated by the end of October 2006. TDC is still registered with the SEC and accordingly has obligations to disclose certain information.

Note issue and disclosure of certain estimates for Q1 2006

     On April 19, 2006, NTCH initiated a private note issue and in that connection published an Offering Memorandum, which among other things included information on TDC and certain estimates for Q1 2006, cf. the Stock Exchange announcements of April 19 and 26, 2006.

     The notes have a maturity period of 10 years and are issued in 3 series that were valued on April 26, 2006 as follows:

 
EUR 800,000,000 8 1/4%
 
 
 
USD 600,000,000 8 7/8%
 
 
 
EUR 750,000,000 in floating rate notes (EURIBOR + 5.50% interest margin)

Ordinary General Meeting 2006

     TDC A/S’s annual ordinary general meeting 2006 was held on April 26, where among other things, a series of amendments to the articles were adopted and Vagn Ove Sørensen was elected as new member of the board of directors. At a subsequent board meeting the Board of Directors elected Kurt Björklund as Chairman and Vagn Ove Sørensen as Vice Chairman.

All decisions are included in the Stock Exchange announcement as of April 26, 2006.

First quarter 2006 Earnings Release

     On May 4, 2006, we issued our first quarter 2006 Earnings Release, reporting net income for the first quarter of 2006 amounting to DKK 515 million, same as net income for the first quarter of 2005.

TDC Switzerland to reduce workforce by 145 employees

     On May 17, 2006, TDC decided to implement a redundancy program covering 145. In collaboration with employee representatives and labour unions, TDC Switzerland has created a social compensation plan. Total costs related to work-force reductions are estimated at DKK 72m before tax. The amount will be expensed in the second quarter of 2006.

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Interim dividends June 2006

     Based on an authorization adopted at the Annual Ordinary General Meeting on April 26, 2006, TDC’s Board of Directors at its meeting on June 21, 2006, decided to pay out interim dividends of DKK 4.35 per share of a nominal value of DKK 5 each, totaling DKK 862m, excluding dividends of treasury shares. The dividend will be paid on June 29, 2006.

Future management

     On June 22, 2006 the President and Chief Executive Officer (CEO) of TDC, Henning Dyremose, accepted an offer to become Chairman of the Board of TDC. Jens Alder, who left as President and CEO of Swisscom at the end of January, is expected to become new President and CEO of TDC. Senior Executive Vice President (SEVP) and Chief Financial Officer (CFO), Hans Munk Nielsen, will continue on the Executive Committee of TDC.

     Jens Alder is expected to take on his new position as of November 1, 2006 when he will no longer have any contractual obligations vis-a-vis Swisscom. The company expects to conclude a final agreement to that effect in the near future. Henning Dyremose is expected to be elected new Chairman in connection with TDC’s Annual General Meeting in March 2007. Henning Dyremose will continue as President and CEO until Jens Alder takes over. After that Henning Dyremose will, as a non-executive director of TDC, be at the company’s disposal as advisor for Jens Alder until the Annual General Meeting.

     President and CEO Henning Dyremose will receive a retirement bonus in accordance with his current contract, cf. “Employment Agreements for Members of the Executive Committee” in Item 5, and as further described in the company’s stock exchange release dated November 30, 2005. Henning Dyremose will in addition receive a special bonus of between DKK 7.5 and 15 million, depending on the company’s financial performance in 2006.

     In accordance with his current contract, SEVP and CFO Hans Munk Nielsen will receive DKK 11.4 million as a consequence of the change of control in the company. Furthermore, SEVP and CFO Hans Munk Nielsen has been granted a Stay-On bonus of up to DKK 13.3 million payable no later than July 1, 2008. The company has in addition granted SEVP and CFO Hans Munk Nielsen a bonus of up to DKK 4.3 million, depending on the company’s financial performance in 2006.

     NTC plans to implement an incentive program for top managers in TDC which will also include President and CEO Henning Dyremose as well as SEVP and CFO Hans Munk Nielsen.

Liquidity and Capital Resources

Cash Flows

     TDC’s historical liquidity needs have arisen primarily from the need to finance capital expenditures for the maintenance and expansion of its operations, both in terms of new technologies and maintaining the quality of its service, and for working capital. TDC’s principal source of funds has been cash flow from operating activities.

TDC Group            
             
          2005 vs.
DKK M 2004   2005   2005  
 
 
 
 
Cash flow            
   Operating activities 11,084   8,691   (8.8 )
   Investing activities 2,889   (1,226 ) (25.8 )
   Financing activities (12,573 ) (4,229 ) (23.8 )
 
 
     
Total Cash flow 1,400   3,236   (14.8 )
 
 
     

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     Cash flow from operating activities was DKK 8,691 million in 2005, representing a decrease of DKK 2,393 million compared with 2004. This decrease related primarily to increased tax payments and an adverse development of working capital in 2005 of DKK (527) million compared with a favorable development in 2004. This was partly offset by improved operating income.

     Cash flow from investing activities was DKK (1,226) million in 2005 compared with DKK 2,889 million in 2004, due primarily to investments in non-current assets, an increased ownership share in HTCC and acquisitions of Dotcom Solutions, sunrise business communications and Telelet, partly offset by the disposal of TDC Directories. Investing activities in 2004 related mainly to dividends received in connection with the divestment of Belgacom, partly offset by the acquisitions of TDC Song, NetDesign and the remaining 80% stake in Telmore.

     Cash flow from financing activities was DKK (4,229) million in 2005 compared with DKK (12,573) million in 2004. The development related mainly to repayment of long-term debt and the repurchase of shares from SBC in 2004, which were held as treasury shares and cancelled in June 2005. TDC’s cash and cash equivalents increased from DKK 6,827 million as of January 1, 2005 to DKK 10,063 million as of December 31, 2005.

Capital Expenditures

     In 2005, capital expenditures, including share acquisitions, decreased by DKK 3,715 million to DKK 6,277 million compared with DKK 9,992 million in 2004. This decrease related mainly to the acquisition of TDC Song and NetDesign in 2004, which totalled DKK 4,564 million, and was partly offset by the impact of the acquisitions of HTCC, Dotcom Solutions and sunrise business communications in 2005 totalling DKK 625 million.

     Capital expenditures, excluding share acquisitions, rose DKK 476 million or 9.2% to DKK 5,624 million in 2005 compared with 2004. The increase stemmed mainly from increased capital expenditure by TDC Mobile International, which increased DKK 233 million due primarily to the expansion of the UMTS network and capital expenditures in relation to Bité. Capital expenditures in TDC Solutions rose DKK 177 million due mainly to capital expenditures in the acquired companies. The capex-to-revenue ratio was 12.1% in 2005 compared with 12.2% in 2004. The following table depicts, by business line, our capital expenditures for the periods indicated:

TDC Group            
             
          2005 vs.
DKK M 2004   2005   2005  
 
 
 
 
Capital expenditures            
   TDC Solutions (2,447 ) (2,624 ) (7.2 )
   TDC Mobile International (1,023 ) (1,256 ) (22.8 )
      Domestic operations (747 ) (831 ) (11.2 )
      Talkline etc. (112 ) (73 ) 34.8  
      Bité (164 ) (352 ) (114.6 )
   TDC Switzerland (1,196 ) (1,352 ) (13.0 )
   TDC Cable TV (223 ) (231 ) (3.6 )
   Other activities1 (259 ) (161 ) 37.8  
   TDC excluding share acquisitions (5,148 ) (5,624 ) (9.2 )
   Share acquisitions in other companies (4,844 ) (653 ) 86.5  
   TDC including share acquisitions (9,992 ) (6,277 ) 37.2  
                  

1 Includes TDC A/S, TDC Services and eliminations.

 

     TDC Solutions’ capital expenditures increased by DKK 177 million to DKK 2,624 million in 2005 resulting mainly from capital expenditures by the acquired companies TDC Song and HTCC. Capital expenditures in domestic

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operations decreased due to, among other factors, lower unit costs for DSL equipment. Adjusted for acquired enterprises, capital expenditures decreased by DKK 175 million, or 7.5%, compared with 2004.

     TDC Mobile International’s capital expenditures increased by DKK 233 million or 22.8% compared with 2004 to DKK 1,256 million in 2005. Capital expenditures relating to domestic operations were DKK 831 million, representing an increase of DKK 84 million or 11.2% compared with 2004. The increase mainly resulted from the expansion of the UMTS network. The remaining growth mainly resulted from the expansion of the GSM network of Bité Lithuania, the license fee in Latvia and the roll out of GSM and UMTS networks of Bité Latvia.

     TDC Switzerland’s capital expenditures were DKK 1,352 million in 2005, representing an increase of DKK 156 million or 13.0% compared with 2004, due primarily to the upgrading of the GSM network with EDGE network technology and higher capitalization of asset retirement obligations (non-cash items).

     TDC Cable TV’s capital expenditures increased by DKK 8 million compared with 2004 to DKK 231 million and mainly reflected higher investments in network expansion, TVoIP and VoD in 2005, partly offset by lower expenses for return path upgrades after a large part of the roll out of the cable network was completed.

Capital Resources

Net interest-bearing debt and financial resources, DKKm 2004   2005  
 
 
 
         
Cash, marketable securities and interest-bearing receivables 10,333   13,857  
Short-term debt (1,337 ) (5,442 )
 
 
 
Net liquid assets 8,996   8,415  
Long-term debt (29,142 ) (24,890 )
 
 
 
Net interest-bearing debt (20,146 ) (16,475 )
 
 
 
         
Cash, marketable securities and interest-bearing receivables 10,333   13,857  
 
 
 
Undrawn committed short- and long-term credit lines 10,185   7,366  
 
 
 
Total cash, marketable securities, interest-bearing receivables and        
undrawn credit lines (‘Capital resources’) 20,518   21,223  
 
 
 

     Overall, our financial position reflects the cash flows generated by our operating activities and investments in companies and assets, net of dividends paid out.

     At December 31, 2005, cash, marketable securities and interest-bearing receivables aggregated DKK 13,857 million compared with DKK 10,333 million at December 31, 2004, while short-term debt totalled DKK 5,442 million compared with DKK 1,327 million at December 31, 2004. This resulted in a DKK 581 million decrease in net liquid assets from DKK 8,996 million at December 31, 2004 to DKK 8,415 million at December 31, 2005. Long-term debt amounted to DKK 24,890 million compared with DKK 29,142 million at December 31, 2004.

     Net interest-bearing debt totalled DKK 16,475m at December 31, 2005, a decrease of DKK 3,671m over the year due mainly to positive cash flows from operations and disposal of TDC Directories, partly offset by capital expenditures, an increased ownership share in HTCC and the acquisition of Dotcom Solutions and sunrise business communications.

     At December 31, 2005, our capital resources totalled DKK 21,223 million compared with DKK 20,518 million at December 31, 2004, reflecting a DKK 3,524 million increase in cash, marketable securities etc. partly offset by a DKK 2,819 million decrease in committed credit lines.

     As described under “Senior Facilities Agreement” and “Interim dividends” in the “Recent developments” section, TDC A/S’s capital structure and resources has changed following the acquisition of TDC by NTC. On March 3, 2006, TDC entered into a senior facility agreement as borrower and guarantor. The senior facilities include a revolving credit facility of

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up to EUR 700,000,000 which replaced existing undrawn short and long term credit lines. In connection with the payment of an interim dividend on April 11, 2006, TDC disposed of its marketable securities etc.

     It is TDC’s belief that the company’s operating cash flows, together with borrowings under the senior facility agreement, will be sufficient to fund our working capital requirement, anticipated capital expenditures and debt service requirement as they become due for the foreseeable future.

Credit Ratings

     TDC is rated by Standard & Poor’s and Moody’s Investor Services (“Moody’s”). As of April 12, 2006 TDC is also rated by Fitch Ratings (“Fitch”). Until November 2005, TDC had a long-term credit rating of BBB+/Baa1 and a short-term credit rating of A2/P-2 from Standard & Poor’s and Moody’s, respectively.

     On November 30, 2005, Moody’s downgraded TDC’s long-term and short-term credit ratings to Ba1 and NP. On January 25, 2006, Standard & Poor’s also decided to downgrade TDC’s long-term and short-term ratings to BB on “negative watch” and B, respectively. The downgradings reflect NTC’s announcing on November 30, 2005 that it was making an equity tender offer to the shareholders of TDC A/S, and announcing on January 25, 2006 that the offer would be completed. On February 1, 2006, NTC settled and paid for the shares and ADSs, thereby becoming the owner of 88.2% of the common shares.

     On April 11, 2006 Standard & Poor’s changed the credit rating of TDC. The credit rating regarding long-term debt for TDC A/S has been adjusted downwards to “BB-” with a stable outlook from “BB” with a negative outlook. The Senior Facilities Agreement, were valued at “BB-”. The credit rating regarding TDC’s outstanding unsecured EMTN programme has been adjusted downwards to “B” from “BB”. The credit rating regarding the short term debt is unchanged at “B”.

     On April 12, 2006 Fitch published their credit rating of TDC. Fitch assigned TDC A/S a rating of “BB-” with stable outlook and a short-term rating of “B”. The Senior Facilities Agreement, was assigned “BB+”, and the unsecured long-term rating of the outstanding bonds under TDC’s EMTN programme was assigned a “BB-” rating.

     On April 13, 2006 Moody’s downgraded TDC’s long-term corporate credit rating to “Ba3” with stable outlook from “Ba1” on review for downgrade. The Senior Facilities Agreement , was assigned “Ba2”, while the unsecured long-term rating of the EMTN bonds was lowered to “Ba3” from “Ba1”. TDC’s short term credit rating was withdrawn by Moody’s.

     The changed credit ratings in April 2006 by Standard & Poor’s, Moody’s and Fitch reflect the new leveraged capital structure of TDC following the completion of the tender offer by NTC to TDC’s shareholders.

Contingent assets

     The TDC Group is awaiting the outcome of certain cases brought against other telecommunications companies. A potential favorable outcome for TDC of one or more of these cases could result in substantial income.

Contingent liabilities

     The TDC Group is party to certain pending lawsuits and cases pending with public authorities and complaints boards. Based on a legal assessment of the possible outcome of each of these lawsuits and cases, Management is of the opinion that these will have no significant adverse effect on the TDC Group’s financial position.

     In connection with capital sale and leaseback agreements, the Group has provided guarantees covering intermediary leasing companies’ payment of the total lease commitments. The Group has made legally releasing non-

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recurring payments to the intermediary leasing companies of an amount corresponding to the total lease commitments. At December 31, 2005, the guarantees amounted to DKK 3,291million, compared with DKK 3,030 million at December 31, 2004. The guarantees provided by the TDC Group are economically defeased by means of payment instruments issued by creditworthy obligors unrelated to the TDC Group that secure or otherwise provide for payment of the regular lease payments and purchase-option prices due from the intermediary leasing companies. These instruments are lodged as security for payment of the regular lease payments by the intermediary leasing companies.

     In accordance with Section 32 of the Danish Civil Servants Act, the Group has a termination benefit obligation to former Danish civil servants and to employees with civil-servant status hired before April 1, 1970 who are members of the related Danish pension funds.

     The Group has provided the usual guarantees in favor of suppliers and partners. These guarantees amounted to DKK 90 million at December 31, 2005, compared with DKK 135 million at December 31, 2004.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

Contractual Obligations and Commitments

  Payments Due by Period
 
Contractual obligations, DKK million     Less              
      than 1  
1-2
 
2-5
  After 5  
  Total   year  
years
 
years
  years  
 
 
 
 
 
 
Current maturities of long-term debt 5,425   5,425   -   -   -  
Long-term debt 24,890   -   258   12,856   11,776  
Operating leases 4,606   812   666   1,382   1,746  
Purchase obligations regarding fixed assets 81   40   14   27   0  
Commitments related to outsourcing contracts 746   249   115   265   117  
Other purchase commitments 360   217   32   46   65  
Currency swaps, FX swaps and forward contracts (488 ) (478 ) (21 ) 14   (3 )
Interest rate swaps 31   (17 ) 0   48   0  
 
 
 
 
 
 
Total contractual cash obligations 35,651   6,248   1,064   14,638   13,701  
 
 
 
 
 
 

     The three Danish pension funds related to TDC are operating defined benefit plans. In accordance with existing legislation, bylaws and the pension regulations, TDC is required to make contributions to meet the premium reserve requirements. See note 28 to our consolidated financial statements.

     The following table discloses aggregate information about our commercial commitments. Commercial commitments are items that we could be obliged to pay in the future. They are not included in the consolidated balance sheet.

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  Amount of Commitment Expiration per Period  
 
 
Other commercial commitments, DKK million    
Less
             
     
than 1
 
1-2
 
2-5
  Over 5  
  Total  
year
 
years
 
years
  years  
 
     
 
 
 
Undrawn lines of credit
7,366
 
2,523
  0   0   4,843  
                     
Guarantees, DKK million                
Total
 
                 
amount
 
                 
 
Guarantee obligation in connection with capital sale and leaseback arrangements (see note 30 to our      
consolidated financial statements for further information)               3,291  
Guarantees in favor of suppliers and partners                 90  
                 
 
Total guarantees                 3,381  
                 
 

Discussion of Accounting Policies

IFRS Compared With US GAAP

     For information on the significant differences between IFRS and US GAAP see note 33 to our consolidated financial statements.

Critical Accounting Estimates and Judgments

For information on critical accounting estimates and judgments see note 2 to our consolidated financial statements.

Changed Accounting Policies

     As of January 1, 2005, we have changed our accounting policies to comply with the International Financial Reporting Standards as adopted by the EU (IFRS). For further information on the changed accounting policies see note 1 to our consolidated financial statements.

Transition to IFRS

     IFRS 1, “First-time adoption of International Financial Reporting Standards” requires us to determine our accounting policies according to IFRS and apply these retrospectively to determine our consolidated opening balance sheet under IFRS at the date of transition (January 1, 2004). However, IFRS 1 allows a number of optional exemptions as well as requires the application of a number of mandatory exceptions to this general principle. The exemptions and exceptions relevant for us are set out below, including a short description and our decisions where applicable:

Business combinations (IFRS 3)

     We have applied the business combination exemption in IFRS 1. Goodwill amortization was discontinued with effect as from January 1, 2002. As a consequence, in the consolidated opening balance sheet, the new cost of goodwill is equal to the carrying amount under Danish GAAP at January 1, 2002.

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Employee benefits (IAS 19)

     We elected the exemption not to retrospectively recalculate the pension liabilities under IAS 19, “Employee Benefits” and to recognize all cumulative actuarial gains and losses in relation to employee benefit schemes in retained earnings at January 1, 2004.

Cumulative translation differences (IAS 21)

     IFRS 1 allows a first-time adopter not to comply with requirements to recalculate cumulative translation differences that existed at the data of transition to IFRS in accordance with IAS 21, “The Effects of Changes in Foreign Exchanges Rates”. We elected to set the cumulative translation differences for all foreign operations at zero on the date of transition to IFRS. As a result, the gain or loss on a subsequent disposal of any foreign operation excludes translation differences that arose prior to January 1, 2004 and includes translation differences that arose subsequent to this date.

Share-based payments (IFRS 2)

     We elected to apply IFRS 2, “Share-based payment” to all relevant share-based payment transactions granted before January 1, 2004. The fair value of options at grant date is changed to income over the vesting period of the options.

Exemptions not applied

     The exemptions on “Compound financial instruments”, “Assets and liabilities for subsidiaries, associates and joint ventures”, “Designation of previously recognized financial instruments”, Insurance contracts”, “Leases”, Fair value measurement of financial assets and financial liabilities” and “Changes in existing decommissioning, restoration and similar liabilities included in the cost of property, plant and equipment”. Further, we have decided not to apply the exemptions on “Fair value or revaluation as deemed cost”.

Exceptions

     In accordance with the IFRS 1 mandatory exception, we apply IFRS 5, “Non-current Assets Held for Sale and Discontinued Operations” as from January 1, 2005.

New Accounting Pronouncements

International Financial Reporting Standards as adopted by the EU (IFRS)

     For information on new standards, amendments and interpretations see note 3 to our consolidated financial statements.

New Accounting Pronouncements

International Financial Reporting Standards as adopted by the EU (IFRS)

     For information on new standards, amendments and interpretations see note 3 to our consolidated financial statements.

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New US GAAP Accounting Pronouncements

     In May, 2005 the FASB issued Statement 154 (“SFAS 154”), “Accounting Changes and Error Corrections.” SFAS 154 replaces APB Opinion No. 20, “Accounting Changes” and FASB Statement No. 3, “Reporting Accounting Changes in Interim Financial Statements.” SFAS 154 applies to all voluntary changes in accounting principles and changes the accounting for and reporting of a change in accounting principle, and requires the retrospective application to prior periods’ financial statements of a voluntary change in accounting principle unless it is impracticable. We are required to adopt SFAS 154 as of January 1, 2006. The adoption of SFAS 154 will only affect us when we implement changes in accounting principles that are addressed by the standard or correct accounting errors in future periods.

     In February 2006, the FASB issued Statement 155, “Accounting for Certain Hybrid Financial Instruments” (“SFAS 155”), which amends SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS 133”) and SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities” (“SFAS 140”). SFAS 155 provides guidance to simplify the accounting for certain hybrid instruments by permitting fair value remeasurement for any hybrid financial instrument that contains an embedded derivative, as well as, clarifies that beneficial interests in securitized financial assets are subject to SFAS 133. In addition, SFAS 155 eliminates a restriction on the passive derivative instruments that a qualifying special-purpose entity may hold under SFAS 140. SFAS 155 is effective for all financial instruments acquired, issued or subject to a new basis occurring after the beginning of an entity’s first fiscal year that begins after September 15, 2006. We believe that the adoption of this statement will not have a material effect on our results of operations, financial position and cash flows.

     In March 2006, the FASB issued Statement 156, “Accounting for Servicing of Financial Assets” (“SFAS 156”), which amends SFAS No. 140. SFAS 156 provides guidance addressing the recognition and measurement of separately recognized servicing assets and liabilities, common with mortgage securitization activities, and provides an approach to simplify efforts to obtain hedge accounting treatment. SFAS 156 is effective for all separately recognized servicing assets and liabilities acquired or issued after the beginning of an entity’s fiscal year that begins after September 15, 2006, with early adoption being permitted. We believe that the adoption of this statement will not have a material effect on our results of operations, financial position and cash flows.

Cautionary Statement Regarding Forward-Looking Statements

     Reference is made to the Cautionary Statement Regarding Forward-Looking Statements contained in the Introduction to this Annual Report on page 2.

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Item 6 Directors, Senior Management and Employees

Directors and Senior Management

Management Structure

The Board of Directors consists of ten members, of whom six are elected at a general meeting of shareholders. In addition, Danish law grants the employees of a company the right to elect a number of directors equal to one half the numbers of directors elected by shareholders at a general meeting (currently four directors).

     Following the completion of the tender offer for the shares of TDC Thorleif Krarup, Niels Heering, Kurt Anker Nielsen, Preben Damgaard, Christine Bosse and Per-Arne Sandström resigned as members of the Board on the Extraordinary General Meeting held on February 28, 2006. At the Extraordinary General Meeting Kurt Björklund, Lawrence H. Guffey, Oliver Haarmann, Gustavo Schwed and Ricard Wilson were elected as members of the board of directors of TDC. Subsequently, the board of directors appointed Kurt Kjörklund as Chairman.

At the Annual General Meeting held on April 26, 2006, Kurt Björklund, Vagn Ove Sørensen, Lawrence H. Guffey, Oliver Haarmann, Gustavo Schwed and Ricard Wilson were elected as members of the board of directors. Subsequently, the board of directors appointed Kurt Björklund as Chairman and Vagn Ove Sørensen as Vice Chairman.

     The directors elected by the shareholders serve terms of one year, terminating at the next Annual General Meeting. Directors elected by employees are elected for a period of four years. Current directors elected by employees were elected in April 2004. There is no restriction on the re-election of directors.

     Set forth below is a list of the current members of the Board of Directors, their business experience and the year of their initial election as Directors.

   Name
Age
Title

Kurt Björklund 37 Chairman
Vagn Sørensen 46 Vice-Chairman
Lawrence H. Guffey 38 Director
Oliver Haarmann 38 Director
Gustavo Schwed 44 Director
Richard Wilson 40 Director
Jan Bardino 53 Director — Employee elected
Leif Hartmann 62 Director — Employee elected
Steen Jacobsen 56 Director — Employee elected
Bo Magnussen 58 Director — Employee elected

     The Annual General Meeting of shareholders held on April 26, 2006, elected Ola Nordquist as alternate for Kurt Björklund, Jan Nielsen as alternate for Lawrence H. Guffey, Nicolas Gheysens as alternate for Oliver Haarmann, Torsten Winkler as alternate for Gustavo Schwed, and Andrew Sillitoe as alternate for Richard Wilson.

     On June 22, 2006 the President and Chief Executive Officer of TDC, Henning Dyremose, accepted an offer to become Chairman of the Board of TDC. He is expected to be elected new Chairman in connection with TDC’s Annual General Meeting in March 2007. See “Recent Developments” in Item 5.

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Our Management

     The Executive Committee manages our daily operations and is appointed by the Board of Directors. Set forth below is information regarding the members of the Executive Committee as of June 21, 2006, along with their business experience and date of initial appointment.

The following table presents information about the members of the Executive Committee of TDC:

   Name
Age
  Title

Henning Dyremose
60
  President and Chief Executive Officer; member of the Executive Committee
Hans Munk Nielsen
59
  Senior Executive Vice President and Chief Financial Officer; member of the Executive Committee

     On June 22, 2006 TDC announced that Jens Alder, former President and CEO of Swisscom, is expected to become the new President and Chief Executive Officer of TDC, effective November 1, 2006. See “Recent Developments” in Item 5.

Set forth below is certain biographical information concerning the above individuals:

     Henning Dyremose has been Chief Executive Officer of TDC since 1998. Mr. Dyremose also serves as Chairman of the Confederation of Danish Industries and the Danish Trade Council, as Vice Chairman of the boards of Brødrene A. O. Johansen A/S and A.O. Invest A/S and as a member of the board of Carlsberg A/S.

     Hans Munk Nielsen has been Chief Financial Officer of TDC since 1991. Mr. Nielsen also serves as Chairman of the board of CMO-Denmark Fonden and as a member of the boards of Nordea Invest A/S and OMX A.B. (Publ.).

     Kurt Björklund is a Partner with Permira. Prior to joining Permira in 1996, Mr. Björklund worked for the Boston Consulting Group in Stockholm and prior to that for an IT reseller in Finland.

     Vagn Sørensen has been President and Chief Executive Officer of Austrian Airlines in the period 2001 - 2006. Mr. Sørensen is also a director of a number of other companies, and is the chairman of the board of directors of Codan, Brandtex, DeSter B.V and Select Service Partner Plc..

     Lawrence H. Guffey is a Senior Managing Director with Blackstone and is in the firm’s Private Equity group, leading its activities in the media and communications sector. Prior to joining Blackstone in 1991, Mr. Guffey worked in the Acquisitions Group at Trammell Crow Ventures, the principal investment arm of Trammell Crow Company. He is a member of the board of directors of Axtel, Kabel BW, Cine UK, Centennial Communications, iPCS/AirGate, Fibernet, Corp Group, LiveWire Systems and PaeTec.

     Oliver Haarmann is a Member of KKR. Prior to joining KKR in 1999, Mr. Haarmann was a principal of private equity funds affiliated with Dillon Read & Co. and, prior to that, worked in corporate finance at Lazard Frères and Bankers Trust Co. He is a member of the board of A.T.U. Auto-Teile-Unger Holding GmbH.

     Gustavo Schwed is a Managing Director of Providence. Prior to joining Providence in 2004, Mr. Schwed served as managing director of Morgan Stanley, where he was one of the managing directors leading Morgan Stanley’s European private equity activities and was Chairman of the firm’s Global Emerging Markets Fund. Prior to Morgan Stanley, Mr. Schwed was a principal at Bassini, Playfair and Associates, an emerging markets private equity firm, and held several positions in the private equity and venture capital units of Donaldson, Lufkin & Jenrette.

     Richard Wilson is a Partner with Apax. He is responsible for Apax’s technology and telecoms team in Europe. Prior to joining Apax in 1995, Mr. Wilson served as a consultant with Scientific Generics, a business and technology

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management consulting company and also worked for Marconi Space Systems in computer simulation. He is a member of the boards of Digital Bridges Ltd. and Corvil Ltd.

     Jan Bardino is a systems developer at TDC. He was first elected to the Board of Directors by TDC’s employees in 2004.

     Leif Hartmann is a systems technician at TDC. He was first elected to the Board of Directors by TDC’s employees in 1996.

     Steen Jacobsen is a specialist technician at TDC. He was first elected to the Board of Directors by TDC’s employees in 1996.

     Bo Magnussen is a senior clerk at TDC. He is also Chairman of the Association of Managers and Employees in Special Positions of Trust (Lederforeningen) at TDC. He was first elected to the Board of Directors by TDC’s employees in 1996.

The business address of each director and member of the Executive Committee is TDC A/S, Nørregade 21, DK-0900 Copenhagen C, Denmark.

Aggregate Compensation of Directors and Officers

     In 2005, compensation to the Board of Directors and the Executive Committee amounted to DKK 9 million and DKK 22 million, respectively, aggregating DKK 31 million. The compensation to the Board of Directors included special compensation to the Board of Directors of DKK 6 million for a heavy workload with 16 extra board meetings during the period leading up to the Acquisition, and the compensation to the Executive Committee included special compensation for an extraordinary workload in connection with the Acquisition. For further disclosures regarding Board of Directors and the Executive Committee compensation information, including compensation elements on an individual basis, please see note 6 to our Consolidated Financial Statements.

     Performance based bonuses have been paid to the Executive Committee and are included in the above amount. Approximately 300 top managers participate in a bonus program called the Top Managers’ Compensation Program, and approximately 2,200 managers and specialists participate in a bonus program called the Managers’ Compensation Program.

     The bonus programs are based on specific, individual annual targets, including personal, financial and operational targets. These targets depend on the individual employee’s organizational position within TDC and are weighted in accordance with specific rules. All targets must support improved profitability and business development at TDC.

     Bonus payments are calculated as the individual employee’s basic salary times the bonus percentage times the degree of target fulfillment. The bonus percentage achieved when targets are met is called the on-target bonus percentage. For the Top Managers’ Compensation Program, this percentage is fixed in the contract of employment with the individual employee and usually varies within a range of 10-25%. The on-target bonus percentage is somewhat lower for the Managers’ Compensation Program. The bonus could be a maximum of 200% of the on-target bonus.

     The bonus program for the members of the Executive Committee is based on the same principles as those for other managers.

     In 2005, 52,040 options to purchase our shares were granted to members of the Executive Committee at an average exercise price of DKK 292 per share. This brought the total number of outstanding options held by members of the Executive Committee to 340,742 with an average exercise price of DKK 298 per share. One third of the options vested annually and consequently each grant vested fully in three years. Share options could, however, be exercised in the event of change of control of TDC whether they were vested or unvested. The options expired 10 years after the date of grant. In connection with NTC’s equity tender offer for acquiring the Company and conditional on the completion thereof, TDC gave the members of the Executive Committee an offer to exercise existing share options and offered to buy certain existing share options. The members of the Executive Committee accepted both offers for all their share options. Consequently, they

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currently do not hold any share options. Since 2003, members of the Board of Directors have not received share options. For further disclosures regarding the Executive Committee’s share options, please see note 6 to our Consolidated Financial Statements.

Board Practices

     The members of the Board of Directors do not have service contracts providing for termination benefits. The contracts of the members of the Executive Committee provide for notice periods of 12-18 months in the event of termination by TDC; the employment agreement of the Chief Executive Officer cannot be terminated by TDC before March 31, 2008. In the event of a change of control of TDC, and for a period of 24 months thereafter, members of the Executive Committee are entitled to a prolonged termination notice of 36 months with full rights to salary and pensions, as well as compensation for benefits, bonuses and share options. The members of the Executive Committee also have the right to voluntarily terminate their employment in a period between three and six months following the first change of control of TDC after November 30, 2005 (which occurred in connection with the completion of the Tender Offer) and receive the benefits of the prolonged termination period.

     Until the completion of the tender offer by NTC, the committees of the Board of Directors of TDC included an Audit Committee and a Compensation Committee. Following completion of the tender offer by NTC, the Board of Directors itself now functions as the Audit Committee. In 2005, the Audit Committee held five meetings. The primary purposes of the Audit Committee were to assist the Board of Directors in fulfilling its oversight of:

  o   the integrity of TDC’s annual report and financial reporting process and TDC’s systems of internal accounting and financial controls;
     
  o  the engagement of the independent registered public accounting firm and the evaluation of the independent registered public accounting firm’s qualifications and independence;
     
  o   the TDC Group’s compliance with legal and regulatory requirements relating to the annual report and financial reporting, including the Group’s disclosure controls and procedures; and
     
  o   the performance of the internal audit function and oversight of the performance of the independent registered public accounting firm.

The Board of Directors and the Executive Committee now effectively fulfill these functions.

Employees

Overview

     We place a high priority on training our employees. We have established an extensive management training program. Approximately 200 of our managers participate in this program. We believe that the management training program has enhanced the skill base of our managers. As a result, even as the skills we need to operate our business evolve, in 2005 we have been able to recruit 75% of all candidates for managerial positions internally and to retain approximately 90% of the existing managers. In addition, we have an incentivized salary system. Approximately 2,500 managers and specialists participate in our bonus plan. In addition, approximately 550 sales employees get paid on a commission basis.

     We monitor employee satisfaction each year by conducting an employee survey. After receiving the results of the survey, we engage in dialogue with our employees to identify ways to improve the work environment for our staff.

     We have recently begun to reduce our domestic workforce. Customers are switching from traditional landline telephony to mobile and IP-based broadband solutions, which are less labor intensive than traditional landline telephony.

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     In recent years, we have implemented two domestic redundancy programs and initiated a third: the first covering the period from 2003-2004 and the second covering 2005. During these periods, we achieved workforce reductions partly through our redundancy programs and partly from attrition. In 2004, 494 employees were covered by the redundancy programs and 630 employees in 2005. In 2005, we reduced the number of domestic full-time employees from 14,437 to 13,876. However, our domestic workforce reduction has been offset by the addition of employees in our international operations as a result of our international acquisition activity and our recruitment of new employees with sought after skills. At year-end 2005, we had 20,225 full-time employee equivalents compared with 19,497 in 2004. The after-tax cost related to the redundancy programs was DKK 410 million in 2004 and DKK 320 million in 2005. In 2006, we have initiated a redundancy program with respect to up to 570 employees through voluntary resignations in accordance with our agreements with certain unions involving voluntary termination, as described below in “Unions.” The total costs related to workforce reductions in 2006 are estimated at DKK 342 million after tax. In 2006, we have also initiated a reduction in the workforce in Switzerland by 145 employees, corresponding to 5.7 pct. The aim is to strengthen TDC Switzerland’s cost structure to the competitive environment. The total costs associated with the workforce reduction are estimated at approximately CHF 15m pre-tax (corresponding to approximately DKK 72m). The total costs will be expensed in the second quarter of 2006.

The following table shows our full-time employee equivalents by business line inclusive of all affiliates:

  As of December 31  
   Business line
2004   2005  


 
 
TDC Solutions 11,432   12,231  
      Domestic Operations 10,072   9,727  
      International Operations 1,360   2,504  
TDC Mobile International 2,464   2,434  
      Domestic Operations 1,113   1,088  
      International Operations 1,352   1,346  
TDC Switzerland 2,307   2,454  
TDC Cable TV 862   1,030  
Other 2,432   2,076  
      Domestic Operations 2,390   2,031  
      International Operations 42   45  
 
 
 
Total 19,497   20,225  
      Domestic Operations 14,437   13,876  
      International Operations 5,060   6,349  

Unions

     We estimate that more than 70% of our employees are members of unions. We believe that we have a good relationship with our unions.

     We have in place collective labor agreements with the telecommunications department of the Danish Metal workers Union (Dansk Metal), the Association of Managers and Employees in Special Positions of Trust in TDC (Lederforeningen i TDC)(LTD), the Danish Confederation of Professional Associations (AC-organisationerne) (“AC”), 3F and Radiotelegrafistforeningen. Our agreement with LTD prohibits striking and other industrial actions.

     We have entered into “Borgfredsaftaler,” collective agreements, with the telecommunication departments of Dansk Metal,, LTD and AC (collectively, the “Borgfredsaftale unions”). In these Borgfredsaftaler we have agreed to follow certain procedural guidelines in connection with the implementation of reductions in our workforce including providing redundant employees with training that would make them suitable for reassignment within TDC in certain circumstances. Pursuant to our Borgfredsaftale with Dansk Metal, the parties have agreed to enter into dialogue within 24 hours of an imminent conflict in order to prevent industrial action. The Borgfredsaftaler expire at the end of 2007, however they may be terminated by us or the unions subject to three months notice in the event the assumptions behind the agreements lapse or change.

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     We also have entered into collective agreements with the Borgfredsaftale unions regarding the terms and conditions of voluntary resignations by employees as an incentive to encourage voluntary resignations. These agreements may be terminated by either party subject to two months notice.

Employment Agreements for Members of the Executive Committee

     The contracts of the members of the Executive Committee provide for notice periods of 12-18 months in the event of termination by TDC; the employment agreement of the Chief Executive Officer cannot be terminated by TDC before March 31, 2008. In the event of a change of control of TDC, and for a period of 24 months thereafter, members of the Executive Committee are entitled to a prolonged termination notice of 36 months with full rights to salary and pensions, as well as compensation for benefits, bonuses and share options. The members of the Executive Committee also have the right to voluntarily terminate their employment in a period between three and six months following the first change of control of TDC after November 30, 2005 (which occurred in connection with the completion of the NTC’s Equity Tender Offer for acquiring the Company) and receive the benefits of the prolonged termination period.

Share Purchase and Option Plans

     TDC had a revolving share-option program for employees in TDC’s Danish enterprises until the Purchaser acquired control of TDC. TDC’s revolving share-option program covered about 200 managers employed in Denmark and stationed in TDC’s foreign enterprises. After the earnings release for the year was published, share options were granted to participants in accordance with contracts of employment. The number of options was based on an agreed percentage of the employee’s basic salary and a calculated price per option (number of options = basic salary times option percentage divided by price per option). The option percentage varied for the different employees within a range of 20-35%. In addition, share options were granted on an individual basis in special cases. The price per option to be used only to calculate the number of options to be granted was calculated at the time of granting using the Black-Scholes formula. The exercise price of each option was determined as TDC’s share price on the Copenhagen Stock Exchange on the day of granting.

     In connection with Nordic Telephone Company ApS’ equity tender offer for acquiring the Company, TDC gave participants in TDC’s revolving share-option program an opportunity to exercise their options and offered to buy certain existing share options. The offers were accepted by most option holders, including the members of the Executive Committee. For share-option holders who did not accept the offers, the share options granted before 2005—in total 201,065—continue unchanged.

     Furthermore, following the completion of NTC’s equity tender offer, TDC offered share-option holders employed in foreign subsidiaries the opportunity to exercise their share options or receive cash settlement of their share options. The offers were accepted by most option holders. If employees did not accept either offer, their share options lapsed.

     The share-option program has now been discontinued. At the annual general meeting of TDC held on April 26, 2006, the meeting passed resolutions that authorize the Board of Directors, without any preemption rights for the shareholders of TDC, to issue warrants to managers of TDC or its subsidiaries and the chairman and vice-chairman of TDC entitling the holders to subscribe for TDC shares for a nominal value of up to DKK 49,593,790, and to implement the capital increases relating to the warrants. However, no decision has yet been taken as to the form of any option program at TDC or elsewhere. ATP has reserved the right to challenge authorizations adopted at the annual general meeting of TDC on April 26, 2006, as illegal, in particular authorizations (i) to issue warrants to management and others and (ii) to repurchase shares. TDC and NTC have responded to these claims by ATP.

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Item 7 Major Shareholders and Related Party Transactions

Major Shareholders and Brief History of Share Capital

     At December 31, 2005 our share capital amounted to DKK 991,875,885, consisting of 198,375,177 shares with a nominal value of DKK 5 per share.

     From the date of our international share issue, in April 1994, until February 28, 1997, the Danish State owned the majority of our class A shares, corresponding to 51.0% of our share capital as of February 28, 1997. The remaining privately held class A shares were purchased by the Danish State on March 1, 1997, at a predetermined price of DKK 125 per share. After the purchase, the Danish State owned 51.73% of our share capital and the remaining 48.27% was split among the class B shareholders.

     When the class A shares were purchased by the Danish State on March 1, 1997, the previous owners of the class A shares retained their right to receive dividends with respect to their shareholdings in 1996 (which were to be paid after the Annual General Meeting in 1997) and the first two months of 1997 (which were to be paid after the Annual General Meeting in 1998). Dividends on the class A shares were limited to DKK 10 per share (10% of their nominal value) until March 1, 1997, after which dividends on one class A share equaled dividends paid on ten class B shares, until June 1998.

     At the end of October 1997, we announced a strategic partnership with Ameritech, a leading American telecommunications company. Ameritech supported the partnership by acquiring, on January 12, 1998, 4,500,000 of our class A shares from the Danish State, representing 34.4% of our share capital.

     At an Extraordinary General Meeting on January 19, 1998, shareholders approved a repurchase of the Danish State’s remaining 2,277,023 class A shares. Each such share was purchased for DKK 4,381.77. After canceling the repurchased shares on April 24, 1998, our share capital was reduced to DKK 1,082 million, composed of 4,500,000 class A shares, nominal value DKK 100 per share, and 63,229,770 class B shares, nominal value DKK 10 per share.

     On June 1, 1998 each class A share was converted into ten class B shares.

     At an Extraordinary General Meeting on May 21, 1999, our shareholders approved a 2 for 1 stock split. As of June 2, 1999, the number of our shares outstanding has equaled 216,459,540, each with a nominal value of DKK 5.

     Following a change in our Memorandum of Association, after April 24, 1998, no person or depositary has been allowed to control, through ownership or otherwise, shares representing more than 9.5% of our share capital without the consent of the Board of Directors. At the time of the announcement of our strategic partnership with Ameritech, this consent was granted.

     In October 1999, Ameritech merged into SBC Communications. As a result, as of December 31, 2003, SBC Communications owned 41.58% of our share capital.

     In June 2004 SBC reduced its shareholding in TDC to 9.5% and in November 2004, SBC sold its remaining 9.5%. As a result, TDC shareholder structure comprised mainly North American and European institutional investors as well as private individuals. In connection with SBC’s selling of TDC shares in June 2004, TDC bought 18,084,363 of its own shares or equivalent to approximately 8.4% of the outstanding shares. Upon the completion of the transaction TDC held approximately 10% of its share capital.

     At the Annual General Meeting held on March 17, 2005 it was resolved to reduce our share capital by cancellation of a part of our own shares equal to the number acquired from SBC, i.e. approximately 8.4% of TDC’s share capital.

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     Following the expiration of a 3 month advertisement period in which no creditors had proven their claims, the share reduction was completed on June 30, 2005.

     At the Annual General Meeting held on March 17, 2005 it was also resolved to amend the Articles of Association by lifting the provision according to which no shareholder should be entitled to own and/or control shares corresponding to more than 9.5% of the authorized share capital of the company, unless the Board of Directors had consented.

     On November 30, 2005, TDC announced a tender offer made by NTC for the shares in TDC A/S, which tender offer was completed on February 1, 2006. Following completion of the tender offer, NTC hold 175,013,648 shares corresponding to 88.2% of the authorized share capital of TDC A/S.

     Shareholders owning more than 5% of our shares at any time since January 1, 2001, and their respective holdings at the end of 2001, 2002, 2003, 2004 and 2005, are set forth in the table below.

                         
          Arbejdsmarkedets          
  SBC Communications   Tillægspension   Franklin / Templeton  
 
 
 
 
  Shares   Percent   Shares   Percent   Shares   Percent  
 
 
 
 
 
 
 
                         
December 31, 2001 90,000,000   41.58  
16,871,300
 
7.79
  1,554,000  
0.72
 
December 31, 2002 90,000,000   41.58  
14,708,000
 
6.79
  8,229,000  
3.80
 
December 31, 2003 90,000,000   41.58  
12,885,254
 
5.95
  9,750,154  
4.50
 
December 31, 2004 0   0  
11,576,967
 
5.35
  11,166,758  
5.16
 
December 31, 2005 0   0  
10,923,113
 
5,51
  10,728,175  
5,41
 

 

                       
    Capital   TDC   NTC  
   
 
 
 
    Shares   Percent   Shares Percent   Shares Percent  
   
 
 

 

 
                       
December 31, 2001   0   0.00   1,206,059
0.56
  0
0
 
December 31, 2002   0   0.00   1,671,471
0.77
  0
0
 
December 31, 2003   6,719,702   3.10   3,167,764
1.46
  0
0
 
December 31, 2004   17,514,399   8.09   21,582,145
9.97
  0
0
 
December 31, 2005   0   0   3,661,655
1.85
  20,000,000
10,1
 

   The major shareholders listed above do not have voting rights different from other shareholders.

  We are not currently aware of any arrangements that may, at a subsequent date, result in a change of control of TDC Group.

Related Party Transactions

   Danish companies in the TDC Group have entered into certain lease transactions with their related Danish pension funds. For further information about related party transactions, please see note 31 to our consolidated financial statements.

Interests of Experts and Counsel

   Not applicable.

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Item 8 Financial Information

Consolidated Statements and Other Financial Information

See Item 17, “Financial Statements.”

 

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Item 9 The Offer and Listing

Offer and Listing

     The table below sets forth, for the calendar periods indicated, the high and low prices for our shares, as reported by the Copenhagen Stock Exchange in Danish kroner, and our ADSs, as reported on the New York Stock Exchange Composite Tape in US dollars.

                   
  DKK per share   USD per ADS  
   
 
 
Year
  High   Low   High   Low  

 
 
 
 
 
2001  
440
 
250
 
27.13
 
15.46
 
2002  
305
 
150.5
 
18.35
 
10.19
 
2003  
218.5
 
144
 
18.16
 
10.56
 
2004  
255
 
188.5
 
21.64
 
15.43
 
2005  
378.5
 
236
 
30.31
 
20.56
 
                   
Year   DKK per share   USD per ADS  

 
 
 
2003  
High
 
Low
High
Low
 
   
 
 
 
 
First quarter  
193
 
144
 
13.80
 
10.56
 
Second quarter  
196
 
160
 
15.49
 
11.84
 
Third quarter  
216.5
 
183
 
16.30
 
14.07
 
Fourth quarter  
218.5
 
199
 
18.16
 
15.74
 
   
 
 
 
 
2004  
 
 
 
 
First quarter  
255
 
217
 
21.56
 
18.31
 
Second quarter  
226.5
 
188.5
 
18.66
 
15.43
 
Third quarter  
223
 
196
 
18.42
 
15.93
 
Fourth quarter  
237
 
210.25
 
21.64
 
17.4
 
   
 
 
 
 
2005  
 
 
 
 
First quarter  
258.5
 
236
 
23.02
 
20.56
 
Second quarter  
271
 
241.5
 
23.07
 
20.86
 
Third quarter  
339
 
261
 
27.92
 
20.91
 
Fourth quarter  
378.5
 
327.5
 
30.31
 
26.33
 
   
 
 
 
 
2006  
 
 
 
 
First quarter  
397
 
370
 
33.1
 
30.63
 
                   
    DKK per share   USD per ADS  
   
 
 
Month   High   Low   High   Low  

 
 
 
 
 
November 2005  
378.5
349
29.85
 
27.53
 
December 2005  
377.5
375
30.31
 
29.41
 
January 2006  
397
370
33.1
 
29.88
 
February 2006  
394
384
31.84
 
30.63
 
March 2006  
395
383
31.48
 
31.30
 
April 2006  
391
183.5
31.69
*
15.53
*
               
* The ADSs where delisted on NYSE effective April 19, 2006.

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     Fluctuations in exchange rates between the Danish kroner and the US dollar will affect the US dollar equivalents of the Danish kroner price of our shares on the Copenhagen Stock Exchange and, as a result, will affect the market prices of our ADSs in the United States.

Plan of Distribution

     Not applicable.

Markets

     Our shares are listed for trading on the Copenhagen Stock Exchange (ISIN DK00-1025333-5) and our American Depositary Shares ("ADSs") were previously listed on the New York Stock Exchange ("NYSE").

     At the Extraordinary General Meeting held on 28 February 2006, NTC, inter alia proposed that TDC seek to delist its shares and ADSs from the Copenhagen Stock Exchange and from the NYSE, respectively, and subsequently seek to deregister all securities from the U.S. Exchange Act. This proposal attained an affirmative vote of over 90% of the share capital of TDC represented at the Extraordinary General Meeting and the resolution was declared passed by the Extraordinary General Meeting. ATP, a Danish pension fund holding 5.5% of the shares in TDC, has filed a writ with the Copenhagen City Court (which has been passed on to the Eastern High Court) against both TDC and NTC seeking an acknowledgment of the invalidity of inter alia the authorization to delist from the Copenhagen Stock Exchange and the NYSE granted at the Extraordinary General Meeting. TDC has proceeded with its intention to delist its ADSs from the NYSE, which delisting occurred on April 19, 2006. TDC and NTC have responded to the claims by ATP.

Selling Shareholders

     Not applicable.

Dilution

     Not applicable.

Expenses of the Issue

     Not applicable.

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Item 10 Additional Information

Share Capital

     Not applicable.

Memorandum and Articles of Association

     TDC A/S is registered as a public limited company at the Danish Commerce and Companies Agency with the registration no. CVR 1477 3908.

Our Objects

     Our objects are, according to Article 3(1) of our Articles of Association, to conduct business within communications, services, directories and media, investment, financing, advisory services, trade and any other related business, whether in Denmark or abroad, if appropriate in the form of joint ventures with other Danish or foreign-based companies.

Powers of the Directors

     All members of our Board of Directors have equal voting rights, and all resolutions are passed by a simple majority of votes. However, in the event of a tie, the Chairman, or in his absence, the Vice-Chairman, shall have the casting vote. The Board of Directors forms a quorum when a majority of its members is present.

     According to the Danish Companies Act, no member of the Board of Directors or the Executive Committee may take part in the consideration of any business involving agreements between any member of the group and himself, legal actions brought against himself, or any business involving agreements between any member of the group and any third party or legal actions brought against any third party, if he has a major interest therein that might conflict with our interests.

     The Danish Companies Act also prohibits us from granting loans or providing securities to any members of the Board of Directors or the Executive Committee. This prohibition also applies to anyone particularly close to such a member of the Board of Directors or the Executive Committee.

     In legal transactions, we are bound by the joint signatures of the Chairman of the board and a director or a manager, by the joint signatures of any two members of the Executive Committee or by the joint signatures of the entire Board of Directors.

     Compensation of the Board of Directors must be approved by the shareholders at a General Meeting.

     Neither our constituent documents nor the Danish Companies Act requires our directors to retire when a certain age is reached, and there are no shareholding requirements for our directors; however the Board of Directors has resolved that the directors must retire at the age of 67.

Dividends

     If the shareholders at an Annual General Meeting approve a suggestion from the Board of Directors to pay dividends, then all shareholders and holders of ADSs are entitled to receive dividends pro rata to their shareholding in TDC A/S.

At the Extraordinary General Meeting held on February 28, 2006, the general meeting authorized the Board of Directors until the next general meeting in 2006 to resolve to distribute interim dividend, provided that TDC’ and the group’s financial position warrants such distribution.

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     At the Annual General Meeting held on April 26, 2006, the general meeting authorized the Board of Directors to revolve to distribute interim dividend, provided that TDC’ and the group’s financial position warrants such distribution.

     The shares rank equal in the event of a return on capital by the company, upon a winding-up, liquidation or otherwise.

Voting Rights

     All the ordinary shares carry equal rights to vote at general meetings.

     Except as otherwise provided, decisions that shareholders are entitled to make pursuant to Danish law or our Articles of Association may be made by a simple majority of the votes cast. In the case of elections, the persons who obtain the most votes cast are deemed elected. However, certain decisions, including resolutions to waive preferential rights in connection with any share issue, to approve a merger or demerger, to amend our Articles of Association or to authorize an increase or reduction in our share capital must receive the approval of at least two thirds of the aggregate number of votes cast as well as two thirds of share capital represented at a shareholders meeting.

Redemption Provisions

     At the Extraordinary General Meeting held on February 28, 2006, NTC proposed the introduction of a new clause into the articles of association of TDC permitting the compulsory acquisition of the shares of minority shareholders. This proposal attained an affirmative vote of over 90% of the share capital of TDC represented at the Extraordinary General Meeting and such resolution was declared passed by the Extraordinary General Meeting. Subsequently, the Danish Commerce and Companies Agency ruled that it would not register the new articles of association. TDC has filed a writ with the Eastern High Court against the Danish Commerce and Companies Agency seeking an acknowledgment of the registration of the squeeze-out provision in the articles of association.

      Further, ATP, a Danish pension fund holding 5.5% of the shares in TDC, has filed a writ with the Copenhagen City Court (which has been passed on to the Eastern High Court) against both TDC and the NTC seeking an acknowledgment of the invalidity of inter alia the squeeze-out provisions in the articles of association. On April 5, TDC and NTC announced that they would challenge the ruling from the Danish Commerce and Companies Agency in the Danish courts. If ATP succeeds in its litigation, we will be unable to proceed with the compulsory acquisition. TDC and NTC have responded to the claims by ATP.

Convening of Shareholder Meetings and Admission

     General Meetings shall be convened by the Board of Directors and shall be held in Greater Copenhagen. The meetings shall be convened by a letter sent to all shareholders entered in the Company’s Register of Shareholders who have so requested and by a notice inserted in one or more Danish or foreign daily newspapers as directed by the Board of Directors.

     The Annual General Meeting is held every year before the end of April and shall be called by not less than 14 days or more than 28 days notice.

     Extraordinary General Meetings, which may be called by resolution of either the Board of Directors, our Auditors, or by the shareholders at an Annual General Meeting shall be called by not less than 8 days or more than 28 days notice. Furthermore, an Extraordinary General Meeting shall be convened whenever, for the consideration of a specified subject, a shareholder holding at least one-tenth of our share capital requests such a meeting in writing. The Extraordinary General Meeting shall be convened within 14 days of receipt of the pertinent request.

     Every shareholder is entitled to attend a General Meeting provided that he has obtained an admission card from our head office during ordinary office hours at least five days before the date of the General Meeting.

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     Shareholders may appoint proxies by a written and dated instrument. Proxies may not be appointed for a period exceeding one year.

     According to the Danish Companies Act, the affirmative vote of two thirds of the votes cast as well as two thirds of the aggregate share capital represented at the general meeting is required to amend our Articles of Association. Furthermore, any amendment which would reduce any shareholders’ right in respect of dividend payments or rights upon liquidation, or restrict the transferability of shares, requires a majority vote of at least 90%. Any amendment which will alter the legal relationship between shares that were previously equal or make any issued shares redeemable needs the consent of all shareholders affected thereby.

Limitations on Rights to Own Securities

     No limitations on the rights of nonresident or foreign owners to hold or vote our shares or ADSs are imposed by the laws of Denmark, our Articles of Association, nor any of our other constituent documents.

Ownership Disclosure

     According to the Danish Companies Act, a shareholder must disclose its ownership if it owns more than 5% of our nominal share capital.

Changes in Capital

     The conditions imposed by our Articles of Association and other constitutive documents regarding changes in capital are no more stringent than those required by the Danish Companies Act.

Exchange Controls

     There are no governmental laws, decrees, regulations or other legislation in Denmark, including but not limited to foreign exchange controls, that restrict the export or import of capital, or that affect the remittance of dividends, interest or other payments to nonresident holders of our shares or ADSs.

     There are no limitations on the rights of nonresident or foreign owners to hold or vote our shares or ADSs imposed by the laws of Denmark, our Articles of Association, or any of our other constituent documents.

     With effect from April 19, 2006 TDC’s ADSs were delisted from the New York Stock Exchange.

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Taxation

     The following is a summary of certain Danish and United States federal income tax consequences of the ownership and disposition of shares or ADSs as of the date hereof. The summary does not purport to be a comprehensive description of all of the tax considerations that may be relevant to the ownership or disposition of shares or ADSs. YOU ARE STRONGLY ENCOURAGED TO CONSULT YOUR OWN TAX ADVISERS REGARDING THE TAX CONSEQUENCES TO YOU OF ACQUIRING, OWNING OR DISPOSING OF SHARES OR ADSs IN THE COMPANY. This summary applies to you only if you hold shares or ADSs as capital assets for tax purposes. This summary does not apply to you if you are a member of a class of holders subject to special rules, such as:

  a dealer in securities or currencies;
  a trader in securities that elects to use a mark-to-market method of accounting for securities holdings;
  a financial institution;
  a real estate investment trust;
  a regulated investment company;
  an insurance company;
  a tax-exempt organization;
  a person that holds shares or ADSs as part of a hedging, integrated or conversion transaction, a constructive sale or a straddle;
  a person liable for the alternative minimum tax;
  a partnership or other pass-through entity for United States federal income tax purposes;
  a person whose “functional currency” for tax purposes is not the US dollar; or
  a person that owns or is deemed to own ten percent or more of our voting stock.

     The summary is based on Internal Revenue Code of 1986, as amended (the “Code”), other laws, treaties, judicial decisions and regulatory interpretations in effect on the date hereof, all of which are subject to change, possibly on a retroactive basis. You should consult your own tax advisers regarding the tax consequences of purchasing, owning, or disposing of shares or ADSs in the light of your particular circumstances, including the effect of any state, local, or other national laws. In addition, this summary is based, in part, upon representations made by the depositary to the company and assumes such deposit agreement, and all other related agreements, will be performed in accordance with their terms.

Danish Tax Considerations

     The following discussion applies to holders of shares or ADSs that are not resident in Denmark for tax purposes (or otherwise subject to full Danish tax liability), and do not hold shares or ADSs in connection with a trade or business conducted through a permanent establishment in Denmark.

     Dividends. Dividends paid by us to you are generally subject to Danish withholding tax at a 28 percent rate. You may, however, qualify for a reduced rate of taxation under an applicable income tax treaty. If you so qualify, you may be able to claim a reduced rate of withholding or a refund of the difference between the amount initially withheld and the amount determined by applying the applicable treaty rate. The income tax treaty between Denmark and the United States (the “Treaty”) generally provides for Danish withholding tax on dividends at a reduced rate of 15 percent. You should consult your own tax advisers regarding the specific procedures for claiming a reduced rate of withholding or refund of Danish withholding tax.

     Sales of Shares or ADSs. Capital gain realized by you on a sale of shares or ADSs will be exempt from Danish taxation.

     Estate, Gift and Wealth Taxes. No Danish estate taxes will be payable in respect of shares or ADSs held by an individual non-resident of Denmark whose estate is not administered in Denmark. No Danish gift taxes will be payable if

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neither the donor nor the donee of shares or ADSs is resident in Denmark. No Danish wealth tax will be payable in respect of shares or ADSs held by a non-resident of Denmark.

US Federal Income Tax Considerations

     The following summary describes certain United States federal income tax consequences of the ownership of our shares and ADSs as of the date hereof. The discussion set forth below is applicable to United States Holders (as defined below) (i) who are residents of the United States for purposes of the Treaty, (ii) whose shares or ADSs are not, for purposes of the Treaty, effectively connected with a permanent establishment in Denmark and (iii) who otherwise qualify for the full benefits of the Treaty. As used herein, the term “United States Holder” means a holder of a share or ADR that is for United States federal income tax purposes:

  an individual citizen or resident of the United States;
  a corporation (or other entity treated as a corporation for United States federal income tax purposes) created or organized in or under the laws of the United States, any state thereof or the District of Columbia;
  an estate the income of which is subject to United States federal income taxation regardless of its source; or
  •  a trust if it (1) is subject to the primary supervision of a court within the United States and one or more United States persons have the authority to control all substantial decisions of the trust or (2) has a valid election in effect under applicable United States Treasury regulations to be treated as a United States person.

     If a partnership holds shares or ADSs, the tax treatment of a partner will generally depend upon the status of the partner and the activities of the partnership. If you are a partner of a partnership holding shares or ADSs, you should consult your tax advisors.

     This summary does not contain a detailed description of all the United States federal income tax consequences to you in light of your particular circumstances and does not address the effects of any state, local or non-United States tax laws. If you are considering the purchase, ownership or disposition of shares or ADSs, you should consult your own tax advisors concerning the United States federal income tax consequences to you in light of your particular situation as well as any consequences arising under the laws of any other taxing jurisdiction.

     The U.S. Treasury has expressed concerns that parties to whom ADSs are released may be taking actions that are inconsistent with the claiming of foreign tax credits for United States holders of ADSs. Such actions would also be inconsistent with the claiming of the reduced rate of tax, described below, applicable to dividends received by certain non-corporate holders. Accordingly, the analysis of the creditability of Danish taxes and the availability of the reduced tax rate for dividends received by certain non-corporate holders, each described below, could be affected by actions taken by parties to whom the ADSs are released.

ADSs

     If you hold ADSs, for United States federal income tax purposes, you generally will be treated as the owner of the underlying shares that are represented by such ADSs. Accordingly, deposits or withdrawals of shares for ADSs will not be subject to United States federal income tax.

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Taxation of Dividends

     The gross amount of distributions on the ADSs or shares (including amounts withheld to reflect Danish withholding taxes) will be taxable as dividends, to the extent paid out of our current or accumulated earnings and profits, as determined under United States federal income tax principles. Such income (including withheld taxes) will be includable in your gross income as ordinary income on the day actually or constructively received by you, in the case of the shares, or by the depositary, in the case of ADSs. Such dividends will not be eligible for the dividends received deduction allowed to corporations under the Code.

      With respect to non-corporate United States investors, certain dividends received before January 1, 2011 from a qualified foreign corporation may be subject to reduced rates of taxation. A qualified foreign corporation includes a foreign corporation that is eligible for the benefits of a comprehensive income tax treaty with the United States which the United States Treasury Department determines to be satisfactory for these purposes and which includes an exchange of information provision. The United States Treasury Department has determined that the current income tax treaty between the United States and Denmark meets these requirements, and the Company believes it is eligible for the benefits of that treaty. However, non-corporate holders that do not meet a minimum holding period requirement during which they are not protected from a risk of loss or that elect to treat the dividend income as "investment income" pursuant to Section 163(d)(4) of the Code will not be eligible for the reduced rates of taxation. In addition, the rate reduction will not apply to dividends if the recipient of a dividend is obligated to make related payments with respect to positions in substantially similar or related property. This disallowance applies even if the minimum holding period has been met. You should consult your own tax advisors regarding the application of this legislation to your particular circumstances.

     The amount of any dividend paid in Danish kroner will equal the United States dollar value of the Danish kroner received calculated by reference to the exchange rate in effect on the date the dividend is received by you, in the case of shares, or by the Depositary, in the case of ADSs, regardless of whether the Danish kroner are converted into United States dollars. If the Danish kroner received as a dividend are not converted into United States dollars on the date of receipt, you will have a basis in the Danish kroner equal to their United States dollar value on the date of receipt. Any gain or loss realized on a subsequent conversion or other disposition of the Danish kroner will be treated as United States source ordinary income or loss.

     The maximum rate of withholding tax on dividends paid to you pursuant to the Treaty is 15 percent. You may be required to properly demonstrate to the company and the Danish tax authorities your entitlement to the reduced rate of withholding under the Treaty. Subject to certain conditions and limitations, Danish withholding taxes on dividends may be treated as foreign taxes eligible for credit against your United States federal income tax liability. For purposes of calculating the foreign tax credit, dividends paid on the ADSs or shares will be treated as income from sources outside the United States and will generally constitute passive income. Further, in certain circumstances, if you:

  have held ADSs or shares for less than a specified minimum period during which you are not protected from risk of loss, or
  are obligated to make payments related to the dividends,

you will not be allowed a foreign tax credit for foreign taxes imposed on dividends paid on ADSs or shares. The rules governing the foreign tax credit are complex. You are urged to consult your tax advisors regarding the availability of the foreign tax credit under your particular circumstances.

     To the extent that the amount of any distribution exceeds our current and accumulated earnings and profits for a taxable year, as determined under United States federal income tax principles, the distribution will first be treated as a tax-free return of capital, causing a reduction in the adjusted basis of the ADSs or shares (thereby increasing the amount of gain, or decreasing the amount of loss, to be recognized by you on a subsequent disposition of the ADSs or shares), and the balance in excess of adjusted basis will be taxed as capital gain recognized on a sale or exchange. Consequently, such distributions in excess of our current and accumulated earnings and profits would generally not give rise to foreign source income and you would generally not be able to use the foreign tax credit arising from any Danish withholding tax imposed

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on such distributions unless such credit can be applied (subject to applicable limitations) against United States federal income tax due on other foreign source income in the appropriate category for foreign tax credit purposes. However, we do not expect to keep earnings and profits in accordance with United States federal income tax principles. Therefore, you should expect that a distribution will generally be treated as a dividend (as discussed above).

     Passive Foreign Investment Company

     We do not believe that we are, for United States federal income tax purposes, a passive foreign investment company (a “PFIC”), and we expect to operate in such a manner so as not to become a PFIC. If, however, we are or become a PFIC, you could be subject to additional United States federal income taxes on gain recognized with respect to the ADSs or shares and on certain distributions, plus an interest charge on certain taxes treated as having been deferred under the PFIC rules. Non-corporate United States Holders will not be eligible for reduced rates of taxation on any dividends received from us prior to January 1, 2011, if we are a PFIC in the taxable year in which such dividends are paid or in the preceding taxable year.

Information reporting and backup withholding

     In general, information reporting will apply to dividends in respect of our ADSs or shares and the proceeds from the sale, exchange or redemption of our ADSs or shares that are paid to you within the United States (and in certain cases, outside the United States), unless you are an exempt recipient such as a corporation. A backup withholding tax may apply to such payments if you fail to provide a taxpayer identification number or certification of other exempt status or fail to report in full dividend and interest income.

     Any amounts withheld under the backup withholding rules will be allowed as a refund or a credit against your United States federal income tax liability provided the required information is furnished to the Internal Revenue Service.

Dividends and Paying Agents

     Not applicable.

Statement by Experts

     Not applicable.

Documents on Display

     We are subject to the informational requirements of the Securities Exchange Act of 1934. We file annual and special reports and other information with the Securities and Exchange Commission. You may read and copy this information at the following location:

Public Reference Room
450 Fifth Street, N.W.

Room 1024
Washington, D.C. 20549

     Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. Copies of these materials can also be obtained by mail at prescribed rates from the Public Reference Section of the Securities and Exchange Commission, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549.

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     Copies of this Annual Report on Form 20-F can be obtained upon request from TDC, Investor Relations, Nørregade 21, DK-0900 Copenhagen C, Denmark. Copies can also be downloaded from the Investor Relations pages on tdc.com. The Form 20-F is also filed and can be viewed via EDGAR on www.sec.gov.

Subsidiary Information

     Not applicable.

Item 10C Material Contracts

     Not applicable.

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Item 11 Qualitative and Quantitative Disclosures about Market Risk

     Our business is exposed to certain market and credit risks related to our financial portfolio, investments in foreign companies, and purchases and sales of goods and services denominated in foreign currencies. As a result, we have established risk management policies and procedures to identify, monitor and control each of these risks. Our Management approves these policies and procedures, and the Board of Directors defines the highest acceptable levels of exposure.

     The market values of financial assets and liabilities and of interest-rate, exchange-rate, credit and share-price exposures are computed on a daily basis.

     Generally, we hold or issues derivatives for economic hedging purposes only.

Market Risk
     TDC is exposed to certain market and credit risks related to its financial portfolios, investments in foreign companies, and purchases and sales of goods and services denominated in foreign currencies.

     TDC identifies, monitors and controls each of these risks through risk management policies and procedures approved by Management. The market values of financial assets and liabilities and interest-rate, exchange-rate, credit and share price exposures are computed on a daily basis. The Board of Directors defines the highest acceptable levels of exposure.

Refinancing
     In order to reduce its refinancing risk, TDC aims to even out the maturity profile of the loan portfolio. To further reduce its refinancing risk, TDC had committed credit lines of DKK 7.4bn at year-end 2005.

Liquidity risk
      TDC is exposed to liquidity risk only to a small degree as TDC places cash resources exclusively in highly marketable securities.

Interest rate
      TDC has raised floating and fixed interest-rate loans with maturities of up to 10 years.

     Interest-rate risk management involves surveillance of TDC’s interest-bearing assets, liabilities and financial instruments. The interest-rate risk is calculated according to the value-at-risk method and is managed using interest-rate swaps.

Exchange rate
     The net exchange-rate exposure in domestic companies from trade accounts payable and receivable is hedged on the date on which it is known.

     The exchange-rate exposure from TDC’s business activities relates materially to the net income in foreign subsidiaries, as their income and expenses are denominated mainly in local currencies.

     Currency swaps and forward-exchange contracts are used to minimize exposures from financial activities in foreign currencies. However, TDC does not consider positions in euro (EUR) to constitute a major risk because of the fixed-exchange-rate policy of the Danish government in terms of the euro.

     TDC does not hedge investments in foreign enterprises, but has decided to hedge the investment in TDC Switzerland. Currency gains/losses resulting from this activity are reflected in currency translation adjustments under shareholders’ equity.

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Value at risk

     Market risk is the risk of fluctuations in the market value of a financial instrument as a result of changes in market factors. Statistical models based on fluctuations in historical prices can estimate potential losses that could arise from changes in market conditions. The estimates are calculated using a probability-based approach for measuring TDC’s exposure to market risks.

     TDC performs daily value-at-risk analyses (VaR) of all its significant financial instruments based on volatilities of and correlations between exchange rates and interest rates respectively. The VaR calculations are based on the portfolios held and express how adverse changes in market prices affect the market value of TDC’s financial instruments.

     The daily estimates represent the maximum potential financial loss to TDC, at a 95% confidence level, from adverse changes in either interest rates or foreign exchange rates over a one-year period.

     The interest rate VaR for net interest-bearing debt amounted to DKK 873m at year-end 2005 compared with DKK 1,165m at year-end 2004.

     The average interest VaR for 2005 totaled DKK 1,042m and moved within an interval between DKK 871m and DKK 1,167m. In its financial strategy TDC’s has established a maximum of DKK 2,000m for interest VaR. The highest interest VaR observed was 58% of the maximum approved amount.

     Foreign exchange VaR for net interest-bearing debt, the investment in TDC Switzerland as well as trade accounts payable and receivable amounted to DKK 3m at year-end 2005 compared with DKK 4m at year-end 2004.

     The average foreign-exchange VaR for 2004 amounted to DKK 3m and moved within an interval between DKK 1m and DKK 7m. In its financial strategy TDC’s has established maximum of DKK 300m for foreign-exchange. The highest foreign-exchange VaR observed was 2% of the approved maximum.

     In TDC’s opinion, its approved maximum amounts for interest-rate and currency exposures are acceptable compared with its expected future earnings, equity and market capitalization.

                               
Value at risk amounts from adverse changes in interest rates and foreign exchange rates1
                DKKm

  1Q04 2Q04 3Q04 4Q04 1Q05 2Q05 3Q05 4Q05
                               
Interest rate value-at-risk on net interest-bearing debt 1.291   1.218   1.089   1.165   1,109   1,058   980   873
Foreign exchange rate value-at-risk on net interest-bearing debt, the                              
investment in TDC Switzerland and net trade accounts 5   5   3   4   2   1   2   3
1 End-of-period figures for TDC A/S, TDC Solutions A/S, TDC Mobile International A/S, TDC Mobil A/S, TDC Directories A/S, TDC Services A/S and TDC Cable TV A/S. TDC
  Directories is not included in fourth quarter 2005 due to the disposal.

 

Credit risk

     TDC is exposed to credit risks in a variety of areas: as a supplier of services to Danish and international customers and business partners, as counterparty to financial contracts, and as a holder of securities.

     Credit risks associated with TDC’s financial contracts are managed by a set of policies and procedures stating approved maximum credit limits based on e.g. credit ratings of counterparties.

New capital structure

     Following the acquisition of TDC by NTC, TDC’s capital structure has changed as described in “Recent developments” in Item 5. On March 3, 2006 TDC entered into a Senior Facility Agreement including term loans and a revolving credit facility of originally approximately EUR 9.6 billion, which replaced our previous credit facilities. The facilities provided under the Senior Credit Facilities have subsequently been reduced to term loans of EUR 6.5 billion and a revolving credit facility of EUR 700m.

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     Further, the new capital structure has affected interest and foreign exchange value at risk. As of May 30, 2006 the interest value at risk amounted to DKK 1,192m. Due to economic interest rate hedging of the senior facilities the interest value at risk has not changed significantly compared to December 31, 2005. As of May 30, 2006 the foreign-exchange value at risk amounted to DKK 166m. The foreign-exchange value at risk has increased significantly compared to December 31, 2005 as the senior facilities are denominated in EUR, but in part due to the limited bank of movement of the Danish kroner against the euro due to the Exchange Rate Mechanism II system applicable to the Danish kroner, is still significantly below the maximum of DKK 300m previously employed in our financial strategy prior to the adoption of the new capital structure.

     The Board of Directors is expected to approve an updated Financial Strategy with defined levels of acceptable exposures during the second half of 2006.

     TDC no longer has a significant exposure to liquidity risk on marketable securities etc. as these have been disposed in connection with the payment of dividends as described in “Interim dividends” under “Recent developments” in Item 5.

Shares
     TDC has no significant shareholdings other than shares held in subsidiaries and associated enterprises.

     TDC held 3,661,655 treasury shares or almost 2% of TDC’s outstanding shares at year-end 2005. TDC’s portfolio of treasury shares was intended to cover the commitments under TDC’s share option program.

TDC’s pension funds

     TDC’s pension funds invest in a variety of marketable securities, including equities. The rate of return on these investments has implications for TDC’s financial results and pension plan funding requirements. TDC is obliged to cover any shortfall in these pension funds’ ability to comply with the premium reserve requirements under the Danish Act on Company Pension Funds.

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Item 12 Description of Securities Other than Equity Securities

     Not applicable.

Item 13 Defaults, Dividend Arrearages and Delinquencies

     None.

Item 14 Material Modifications to the Rights of Security Holders and Use of Proceeds

     In respect to the redemption of shares, please cf. “Additional Information”.

Item 15 Controls and Procedures

Evaluation of disclosure controls and procedures

     We carried out an evaluation under the supervision and with the participation of our management, including our chief executive officer and our chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2005. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon our evaluation, our chief executive officer and our chief financial officer have concluded that the disclosure controls and procedures as of December 31, 2005 were effective to provide reasonable assurance that information required to be disclosed in the reports we file and submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported as and when required.

     There have been no changes in our internal control over financial reporting during 2005 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Item 16A Audit committee financial expert

     At the Extraordinary General Meeting in TDC A/S held on February 28, 2006, Kurt Anker Nielsen resigned as audit committee financial expert within the meaning of Item 16A.

Following the Extraordinary General Meeting the Board of Directors of TDC did not include directors that satisfied the "independence" standards under the New York Stock Exchange Corporate Governance Standards. TDC was therefore unable to comply with Subsection 303A.06 of the New York Stock Exchange Listed Company Manual, which requires that the Company have an audit committee, each member of which satisfies the independence standards of the New York Stock Exchange. Consequently, the Board of Directors of TDC decided not to form an audit committee. As a result, TDC was in material non-compliance with the New York Stock Exchange Corporate Governance Standards applicable to foreign private issuers. Following delisting from the NYSE on 19 April 2006, the New York Stock Exchange Corporate Governance Standards do not apply to TDC and TDC is, consequently, no longer in material non-compliance therewith.

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Item 16B Code of Ethics

     We have not adopted a code of ethics, as defined in Item 16B of Form 20-F under the Securities Exchange Act of 1934, as amended, because our senior executive and financial officers are bound by Danish mandatory ethics rules and a number of internal rules and guidelines, which we believe have collectively a purpose and function that is substantially similar to a code of ethics within the meaning of Item 16B.

Item 16C Principal Accountant Fees and Services

Audit fees

     The aggregate audit fees for 2005 amounted to DKK 24 million compared with DKK 15 million in 2004.

     Audit fees consist of fees billed for the annual audit of our consolidated financial statements and the financial statements of the parent company, TDC A/S. They also include fees billed for other audit services, which are those services that only the statutory auditor can provide, and include the review of documents filed with the SEC.

Audit-related fees

     The aggregate audit-related fees for 2005 amounted to DKK 38 million compared with DKK 13 million in 2004.

     Audit-related fees consist of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements and include consultations concerning financial accounting and reporting standards, internal control reviews and due diligence services.

Tax fees

     The aggregate tax fees for 2005 amounted to DKK 7 million compared with DKK 6 million in 2004.

     Tax fees include fees billed for tax compliance services, including assistance on the preparation of tax returns and claims for refund; tax consultation and -assistance, tax advice related to mergers and acquisitions, transfer pricing, and requests for rulings or technical advice from tax authorities; tax planning services; and expatriate tax compliance, consultation and planning services.

All other fees

     For 2005, all other fees to the independent auditor amounted to DKK 0 million compared with DKK 3 million in 2004.

     All other fees included fees for risk management advisory services and actuarial services.

Pre-approval policies

     Under Danish law, a company’s independent auditor must be elected and can only be removed by the shareholders at the Annual General Meeting. The Board of Directors is responsible for the appointment, compensation and oversight of the work of TDC’s independent auditor. The Board of Directors is furthermore responsible for pre-approving all audit and non-audit services to be performed by TDC’s independent auditor. The Board of Directors has adopted guidelines for the pre-approval of these services. Under these guidelines, TDC’s independent auditor may not perform any audit or permitted non-audit service unless the Board of Directors or a designated member of the Board of Directors has pre-approved the engagement. The pre-approval policy requires the Board of Directors to assess the nature and scope of the proposed services including engagement terms and fees for all audit and non-audit services prior to the engagements in order to assure that the provision of such services does not impair the auditor’s independence in light of applicable Danish and

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international law, as well as the principles and other guidance enunciated by the Securities and Exchange Commission and the Public Company Accounting Oversight Board. The Board of Directors will also take into account other factors in this determination, such as the ratio of audit to non-audit services for a given period and whether the level of non-audit services, even if permissible under applicable law, is appropriate in light of the independence of the auditor.

     The guidelines also set forth policies and procedures for the pre-approval of audit and permitted non-audit services. Under these policies and procedures, TDC’s independent auditor may be engaged to perform designated services in each of four categories: audit services, audit-related services, tax services and other services. The policies and procedures provide that the fee for each individual engagement in respect of a particular designated service may not exceed an amount, which varies in accordance with the services. In addition, the policies and procedures limit the total amount of fees that may be charged for services pre-approved in each of the four categories.

     None of the accountant services listed above were approved by the Board of Directors pursuant to any de minimis exception from the pre-approval policy.

Item 16E Purchase of Equity Securities by the Issuer and Affiliated Purchasers

          (c) Total      
          Number of   (d) Maximum  
          Shares   Number of  
          Purchased as   Shares that  
          Part of   may yet be  
      (b) Average   Publicly   purchased  
  (a) Total Number   Price Paid   Announced   under the  
  of Shares   per Share in   Plans or   Plans or  
2005 Purchased   DKK   Programs   Programs (1)  
 
 
 
 
 
December 1-31 (2) 820,379   377,60   820,379   16,175,662  
 
 
 
 
 
Total 820,379   377,60   820,379   -  
 
 
 
 
 
(1)   The Board of Directors may direct TDC to acquire its own shares at a nominal value of up to 10 percent of the share capital in accordance with section 48 of the Danish Companies Act. The Board of Directors was authorized by TDC’s shareholders at its April 9, 2003 Annual General Meeting to acquire up to 10 percent of the share capital of TDC. Such shareholder authorization must be renewed at each subsequent Annual General Meeting, and on March 29, 2004, on March 17, 2005 as well as on April 26, 2006 the Annual General Meeting approved such an authorization until the next Annual General Meeting.
(2)   The treasury shares purchased in December 2005 at an average price per share of DKK 377.60 (USD 59.95) were primarily purchased to hedge our commitments under the share option program for the Executive Committee and other management employees.

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Item 17 Financial Statements

Index to Consolidated Financial Statements

  Page
 
Report of Independent Registered Public Accounting Firm
F-2
Balance Sheets
F-3
Statements of Income
F-5
Statements of Cash Flow
F-6
Statement of Changes in Equity
F-7
Notes
F-8

Item 18 Financial Statements

     The Registrant has responded to Item 17 in lieu of responding to this item.

Item 19 Exhibits

The following documents are being filed as exhibits to this annual report:

  1.   Articles of Association of TDC A/S (filed in English translation).
  8.   Subsidiaries of TDC A/S (set forth in note 32 to our consolidated financial statements).
  12.. CEO Certification
  12.2 CFO Certification.
  13.1 Section 906 Certification.

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Signatures

     The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

TDC A/S (Registrant)

By: /S/ Hans Munk Nielsen

Name: Hans Munk Nielsen

Title: Executive Vice-President and Chief Financial Officer

Dated: June 23, 2006.

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     Exhibit 12.1
     CEO CERTIFICATION
     I, Henning Dyremose, certify that:
1.  
I have reviewed this annual report on Form 20-F of TDC A/S;
2.  
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
     
3.  
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;
     
4.  
The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15e and 15d-15e) for the company and have:
       
(a)  
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
       
(b)  
Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and
       
(c)  
Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and
     
5.  
The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):
       
(a)  
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and
       
(b)  
Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal controls over financial reporting
       
June 23, 2006
 
/S/ Henning Dyremose
 
 
Henning Dyremose
 
Chief Executive Officer

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     Exhibit 12.2
     CFO CERTIFICATION
     I, Hans Munk Nielsen, certify that:
  1.   I have reviewed this annual report on Form 20-F of TDC A/S;
  2.   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
  3.   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;
  4.   The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15e and 15d-15e) for the company and have:
    (a)        Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
    (b)        Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and
    (c)        Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and
  5.   The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):
    (a)        All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and
    (b)        Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal controls over financial reporting
June 23, 2006  
 
/S/ Hans Munk Nielsen
 
   
  Hans Munk Nielsen
  Chief Financial Officer

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Exhibit 13.1

Certification

Pursuant to Section 906 of the Sarbanes Oxley Act of 2002

(Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)

     Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code), each of the undersigned officers of TDC A/S, a Danish corporation (the "Company") does hereby certify, to such officer’s knowledge, that:

     The Annual Report on Form 20-F for the year ended December 31, 2005 (the “Form 20-F”) of the Company fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and information contained in the Form 20-F fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: June 23, 2006

 
/S/ Hans Munk Nielsen
 
   
  Hans Munk Nielsen
  Chief Financial Officer

Dated June 23, 2006

 
/S/ Hans Munk Nielsen
 
   
  Hans Munk Nielsen
  Chief Financial Officer

     A signed original of this written statement required by Section 906 has been provided to TDC A/S and will be retained by TDC A/S and furnished to the Securities and Exchange Commission or its staff upon request.

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CONSOLIDATED FINANCIAL STATEMENTS OF TDC A/S

Report of Independent Registered Public Accounting Firm F-2
   
Balance Sheets F-3
   
Statements of Income F-5
   
Statements of Cash Flow F-6
   
Statement of Changes in Equity F-7
   
Notes F-8

The Financial Statements of 50 percent or less owned companies which are accounted for by the equity method have not been included even though the registrant’s proportional share of income from continuing operations before income taxes from its investment in Belgacom SA/NV exceeded 20% of consolidated income from continuing operations before income taxes in fiscal year 2004 due to the gain on the sale of the investment in March 2004 because the registrant would not have been able to obtain separate financial statements as required under rule 3-09 of Regulation S-X for Belgacom SA/NV without undue difficulty and expense and accordingly requested and obtained a waiver from the SEC Staff from separate financial statement requirements under rule 3-09 of Regulation S-X for its investment in Belgacom SA/NV in Form 20-F filings with the Securities and Exchange Commission.

The Consolidated Financial Statements listed below are presented in Danish Kroner (DKK).

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and shareholders of TDC A/S

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, of cash flow and changes in equity present fairly, in all material respects, the financial position of TDC A/S and its subsidiaries at December 31, 2005 and 2004, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2005 in conformity with International Financial Reporting Standards as adopted by the European Union. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

International Financial Reporting Standards as adopted by the European Union vary in certain significant respects from accounting principles generally accepted in the United States of America. Information relating to the nature and effect of such differences is presented in Note 33 to the consolidated financial statements.

/S/ PricewaterhouseCoopers

PricewaterhouseCoopers

 

February 21, 2006
Copenhagen, Denmark

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BALANCE SHEETS AS OF DECEMBER 31

          DKKm  
             
  Note 2005  2004
 


Assets            
             
Non-current assets            
Intangible assets 14   33,118   33,495  
Property, plant and equipment 15   26,054   26,252  
Investments in associates and joint ventures 16   2,126   1,579  
Minority passive investments     9   44  
Deferred tax assets 11   784   993  
Pension assets 28   5,645   5,435  
Receivables 17   464   1,190  
Derivative financial instruments 27   90   470  
Pre-paid expenses 19   325   407  
     
 
 
Total non-current assets     68,615   69,865  
     
 
 
Current assets            
Inventories 20   650   534  
Receivables 17   8,617   8,472  
Income tax receivable 11   9   19  
Derivative financial instruments 27   1,042   474  
Pre-paid expenses 19   654   650  
Marketable securities     3,687   3,412  
Cash     10,063   6,838  
Assets held for sale 12   187   0  
     
 
 
Total current assets     24,909   20,399  
     
 
 
Total assets     93,524   90,264  
     
 
 

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BALANCE SHEETS AS OF DECEMBER 31

          DKKm  
               
Note  2005 2004



Equity and liabilities            
             
Equity            
Common shares     992   1,082  
Reserves     78   261  
Retained earnings     42,450   35,044  
Proposed dividends     0   2,436  
Equity attributable to Company shareholders     43,520   38,823  
Minority interests     275   27  
     
 
 
Total equity 21   43,795   38,850  
     
 
 
Non-current liabilities            
Deferred tax liabilities 11   3,494   4,677  
Provisions 24   1,274   1,190  
Pension liabilities, etc. 28   332   264  
Loans 22   24,890   29,142  
Deferred income 23   1,141   1,052  
     
 
 
Total non-current liabilities     31,131   36,325  
     
 
 
Current liabilities            
Loans 22   5,425   1,337  
Trade and other payables 25   9,210   9,535  
Income tax payable 11   295   675  
Derivative financial instruments 27   500   531  
Deferred income 23   2,661   2,573  
Provisions 24   436   438  
Liabilities concerning assets held for sale 12   71   0  
     
 
 
Total current liabilities     18,598   15,089  
     
 
 
Total liabilities     49,729   51,414  
     
 
 
Total equity and liabilities     93,524   90,264  
     
 
 

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STATEMENTS OF INCOME

          DKKm  
             
  Note    2005   2004  



Revenue 4, 5   46,588   42,339  
             
Transmission costs and cost of goods sold     (17,164 ) (15,630 )
Other external expenses     (9,536 ) (8,091 )
Wages, salaries and pension costs 6   (8,073 ) (7,417 )
     
 
 
Total operating expenses before depreciation, etc     (34,773 ) (31,138 )
Depreciation, amortization and impairment losses     (6,827 ) (6,661 )
     
 
 
Total operating expenses     (41,600 ) (37,799 )
     
 
 
Other income and expenses 7   257   1,180  
     
 
 
Operating income     5,245   5,720  
     
 
 
Income from associates 16   334   5,632  
             
Fair value adjustments 8   (184 ) 178  
Financial income 9   2,454   2,547  
Financial expenses 10   (3,326 ) (3,441 )
     
 
 
Net financials     (1,056 ) (716 )
     
 
 
Income before income taxes     4,523   10,636  
Income taxes 11   (1,026 ) (1,041 )
     
 
 
Net income from continuing operations     3,497   9,595  
Net income from discontinued operations 12   3,953   315  
     
 
 
Net income     7,450   9,910  
     
 
 
Attributable to:        
Shareholders of the Parent Company     7,474   9,912  
Minority interests     (24 ) (2 )
     
 
 
Total     7,450   9,910  
     
 
 
Earnings per share (DKK) 13      
Earnings per share, basic     38.3   48.4  
Earnings per share, diluted     38.1   48.3  
Earnings per share from continuing operations, basic     18.0   46.9  
Earnings per share from continuing operations, diluted     17.9   46.8  
Earnings per share from discontinued operations, basic     20.3   1.5  
Earnings per share from discontinued operations, diluted     20.2   1.5  

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STATEMENTS OF CASH FLOW

          DKKm  
             
    Note    2005   2004  



Operating income     5,245   5,720  
Reversal of depreciation, amortization and impairment losses     6,827   6,661  
Reversal of items without cash flow effect 36   (236 ) (1,472 )
Change in working capital 37   (149 ) 1,212  
     
 
 
Cash flow from operating activities before net financials and tax     11,687   12,121  
Interest received     2,325   2,493  
Interest paid     (3,268 ) (3,723 )
Realized currency adjustments     77   108  
     
 
 
Cash flow from operating activities before tax     10,821   10,999  
Corporate income tax paid     (2,296 ) (364 )
Cash flow from operating activities in continuing operations     8,525   10,635  
Cash flow from operating activities in discontinued operations     166   449  
     
 
 
Total cash flow from operating activities     8,691   11,084  
     
 
 
Investment in subsidiaries 38   (514 ) (4,761 )
Investment in property, plant and equipment     (4,460 ) (4,426 )
Investment in intangible assets     (1,087 ) (909 )
Investment in marketable securities     (1,022 ) (2,442 )
Investment in other non-current assets     (10 ) (80 )
Divestment of subsidiaries 39   48   1,152  
Sale of property, plant and equipment     120   117  
Divestment of associates     5   867  
Sale of marketable securities     596   1,084  
Sale of other non-current assets     18   820  
Change in loans to associates     189   (32 )
Dividends received from associates     156   11,525  
     
 
 
Cash flow from investing activities in continuing operations     (5,961 ) 2,915  
Cash flow from investing activities in discontinued operations 40   4,735   (26 )
     
 
 
Total cash flow from investing activities     (1,226 ) 2,889  
     
 
 
Proceeds from long-term loans     1   55  
Repayments of long-term loans     (871 ) (6,707 )
Change in short-term bank loans     (693 ) 151  
Change in interest-bearing receivables     80   398  
Change in minority interests     16   14  
Dividends paid     (2,440 ) (2,555 )
Acquisition and disposal of treasury shares, net     (194 ) (3,531 )
     
 
 
Cash flow from financing activities in continuing operations     (4,101 ) (12,175 )
Cash flow from financing activities in discontinued operations     (128 ) (398 )
     
 
 
Total cash flow from financing activities     (4,229 ) (12,573 )
     
 
 
Total cash flow     3,236   1,400  
Cash and cash equivalents at January 1 41   6,827   5,438  
     
 
 
Cash and cash equivalents at December 31     10,063   6,838  
     
 
 

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STATEMENT OF CHANGES IN EQUITY

                          DKKm  
  Equity attributable to Company shareholders        
 








       
      Reserve for                    
    currency          
  Common translation Retained Proposed   Minority  
  shares adjustments earnings dividends Total interests Total
 
 
 
 
 
 
 
 
Equity at January 1, 2004 1,082   0   29,331   2,560   32,973   2   32,975  
Adjustment relating to changes in accounting policies
  0   2,956   0   2,956   0   2,956  
 
 
 
 
 
 
 
 
Adjusted equity at January 1, 2004 after changes in accounting policies
1,082   0   32,287   2,560   35,929   2   35,931  
Changes in accounting policies at January 1, 2004 regarding pensions
    (1,137 )   (1,137 )  0   (1,137 )
 
 
 
 
 
 
 
 
Adjusted equity at January 1, 2004 1,082   0   31,150   2,560   34,792   2   34,794  
Changes in equity in 2004              
Currency translation adjustment, foreign enterprises
  193   (96 )   97   0   97  
Tax related to changes in equity   68   (12 )   56   0   56  
Net gain/(loss) recognized directly in equity   261   (108 )   153   0   153  
Net income     7,476   2,436   9,912   (2 ) 9,910  
Total comprehensive income   261   7,368   2,436   10,065   (2 ) 10,063  
Distributed dividends     0   (2,598 ) (2,598 )   (2,598 )
Dividends, treasury shares     5   38   43     43  
Acquisition of treasury shares     (3,573 )   (3,573 )   (3,573 )
Disposal of treasury shares     42     42     42  
Share-based payment     52     52     52  
Additions during the year, minority interests           27   27  
Total changes in equity in 2004   261   3,894   (124 ) 4,031   25   4,056  
 
 
 
 
 
 
 
 
Equity at December 31, 2004 1,082   261   35,044   2,436   38,823   27   38,850  
 
 
 
 
 
 
 
 
Changes in equity in 2005              
Currency translation adjustment, foreign enterprises
  (176 ) 0     (176 ) (8 ) (184 )
Reversal of currency translation adjustment, foreign enterprises
  27   0     27   0   27  
Tax related to changes in equity   (34 ) 0     (34 ) 0   (34 )
Net gain/(loss) recognized directly in equity   (183 ) 0     (183 ) (8 ) (191 )
Net income     7,474   0   7,474   (24 ) 7,450  
 
 
 
 
 
 
 
 
Total comprehensive income   (183 ) 7,474   0   7,291   (32 ) 7,259  
Distributed dividends     0   (2,706 ) (2,706 )   (2,706 )
Dividends, treasury shares     (4 ) 270   266     266  
Cancellation of treasury shares (90 )   90     0     0  
Acquisition of treasury shares     (310 )   (310 )   (310 )
Disposal of treasury shares     116     116     116  
Share-based payment     40     40     40  
Additions during the year, minority interests           280   280  
 
 
 
 
 
 
 
 
Total changes in equity in 2005 (90 ) (183 ) 7,406   (2,436 ) 4,697   248   4,945  
 
 
 
 
 
 
 
 
Equity at December 31, 2005 992   78   42,450   0   43,520   275   43,795  
 
 
 
 
 
 
 
 

Retained earnings include capital in excess of par value of DKK 8,652m, which is no longer to be transferred to a special undistributable reserve due to amendments to the Danish Companies Act.

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NOTES

Overview    


 
1   Significant Accounting Policies
     
2   Critical accounting estimates and judgments
     
3   New accounting standards
     
4   Segment reporting
     
5   Revenue
     
6   Wages, salaries and pension costs
     
7   Other income, expenses and government grants
     
8   Fair value adjustments
     
9   Financial income
     
10   Financial expenses
     
11   Income taxes
     
12   Discontinued operations and assets held for sale
     
13   Earnings per share
     
14   Intangible assets
     
15   Property, plant and equipment
     
16   Investments in associates and joint ventures
     
17   Receivables
     
18   Contract work in process
     
19   Pre-paid expenses
     
20   Inventories
     
21   Equity
     
22   Loans
     
23   Deferred income
     
24   Provisions
     
25   Trade and other payables
     
26   Research and development costs
     
27   Financial instruments, etc.
     
28   Pension assets and pension obligations
     
29   Other financial commitments and lease receivables
     
30   Contingent assets and contingent liabilities
     
31   Related parties
     
32   Overview of Group companies at December 31, 2005
     
33   Reconciliation to United States Generally Accepted Accounting Principles (US GAAP)
     
34   Auditors’ remuneration
     
35   Net interest-bearing debt
     
36   Reversal of other items without effect on cash flow
     
37   Change in working capital
     
38   Investments in subsidiaries
     
39   Divestment of subsidiaries
     
40   Cash flow from investing activity in discontinued operations
     
41   Cash and cash equivalents
     
42   Post balance sheet events

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NOTES

Note 1   Significant Accounting Policies

The Consolidated Financial Statements 2005 of TDC have been prepared in accordance with the International Financial Reporting Standards (IFRS) as adopted by the European Union and additional Danish disclosure requirements for annual reports of listed companies. The additional Danish disclosure requirements are provided in the IFRS Executive Order issued by the Danish Commerce and Companies Agency in pursuance of the Danish Financial Statements Act. The Consolidated Financial Statements of TDC have also been prepared in accordance with the International Financial Reporting Standards (IFRS) issued by IASB.

These Consolidated Financial Statements are the first to be prepared in accordance with IFRS. When adopting these standards we have applied IFRS 1 on the presentation of first-time financial statements under IFRS.

The Consolidated Financial Statements have been based on the historical cost convention. When preparing the Consolidated Financial Statements, Management makes assumptions that affect the reported amount of assets and liabilities at the balance sheet date and the reported revenue and expenses during the accounting period. The accounting estimates and judgments considered material to the preparation of the Consolidated Financial Statements appear from note 2 below.

Changes in accounting policies

In accordance with IFRS 1, the opening balance sheets at January 1, 2004 and comparative figures for 2004 have been prepared in accordance with IFRSs/IASs and IFRICs/ SICs effective at December 31, 2005. The opening balance sheets at January 1, 2004 have been prepared as if these standards and interpretations had always been applied, except for the specific transition and implementation provisions described below. Comparative figures and selected financial and operational data for previous years have been restated accordingly.

The accounting policies have been changed in relation to:

  Goodwill — Goodwill is no longer amortized. Previously, goodwill was amortized over the estimated economic life. Goodwill amortization was discontinued with retroactive effect from January 1, 2002. Since this date, TDC has performed impairment tests annually and if events or changes in circumstances indicate that an asset is impaired
     
  Pensions — Pension costs relating to defined benefit plans are now calculated in accordance with IAS 19. Previously, such costs were calculated in accordance with US GAAP FAS Nos. 87-88. The recognition of pensions has been changed with retroactive effect from January 1, 2004. In accordance with IFRS 1, unrecognized actuarial losses are recognized directly in equity. TDC still applies the corridor method for recognizing actuarial gains and losses incurred after January 1, 2004. In addition, in the Opening Balance Sheets at January 1, 2004, unrecognized transition obligation arising in connection with the implementation of FAS 87 and unrecognized prior service cost have been recognized. Previously, these liabilities were recognized in the Statements of Income by amortization over the average expected remaining service lives of the employees concerned
     
  Share-based payment — The value of services received from employees as compensation for incentives is recognized in the Statements of Income over the vesting period and is measured at the fair value at the grant date of the share options. Previously, no expenses relating to share-based payment were recognized, except for any differences between the market price of TDC A/S’s shares at the grant date and the exercise price of the share-based incentives recognized over the vesting period as wages, salaries and pension costs
     
  Indirect production costs related to development projects — Certain indirect production costs related to development projects, including computer software, are expensed. Previously, such costs were capitalized and amortized over their estimated economic lives
     
  Jubilee benefits — Jubilee benefits provided for employees are recognized in the Statements of Income over the vesting period. Previously, such benefits were expensed as paid
     
  Sale and leaseback agreements with pension funds — Gains from the sale of property to pension funds related to TDC and subsequent lease expenses resulting from such agreements are not recognized. The

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NOTES

    properties are recognized in the Balance Sheets as assets and the amount payable to the pension funds as liabilities. Previously, the resulting gains were recognized in the Statements of Income at the date of the sales agreement, and the lease payments were expensed
     
  Currency adjustments regarding translation of foreign enterprises’ financial statements — Currency adjustments regarding translation of foreign enterprises’ statements of income and balance sheets are as previously recognized directly in equity under a separate reserve. In accordance with IFRS 1, currency translation adjustments occurring before January 1, 2004 are not recognized in this reserve

Besides changes in accounting policies, the following reclassifications and changes of reporting format have been made:

  Statements of Income — ‘Work performed for own purposes and capitalized’ is no longer included as revenue. The related cost items are reduced correspondingly. Previously, Work performed for own purposes and capitalized was included as income at an amount corresponding to the costs incurred. These costs were included under the respective items in the Statements of Income. A new item ‘Other income and expenses’ includes income, which was previously included under ‘Other operating income’, as well as losses from e.g. the sale of non-current assets, which were previously included under ‘Other external expenses’. And ‘Income from associates’ is now shown net after corporate income taxes. Previously, income taxes in associates were included under ‘Income taxes’
     
  Balance Sheets — The classification of assets and liabilities as non-current or current assets, as well as non- current or current liabilities, respectively, has been changed in some respects. Deferred tax liabilities, pensions and similar liabilities as well as provisions are no longer presented as a separate main category in the Balance Sheets, but are included under current or non-current liabilities
     
  Statements of Cash Flow — ‘Cash and cash equivalents’ now comprises only cash and marketable securities with an insignificant risk of changes in value. An insignificant risk is assumed to exist when the remaining life does not exceed three months at the time of purchase. Therefore, purchase and sale of securities with a remaining life exceeding 3 months at the time of purchase are reclassified to cash flow from investing activities.
Previously, cash and cash equivalents included all securities

Except for the changes mentioned above, accounting policies are unchanged from last year.

Impact on Consolidated Financial Statements 2004

              DKKm  
                   
            Effect of      
      Previous     change in      
      accounting     accounting      
      policies   Reclassifications   policies   IFRS  
     
 
 
 
 
Net income   8,742   (2 ) 1,170   9,910  
  Goodwill         1,507      
  Pensions         130      
  Indirect production costs         (5 )    
  Share-based payment         (62 )    
  Jubilee benefits         5      
  Sale and leaseback agreements         8      
  Divestment of enterprises 1          (413 )    
 

1 Indirect effect of the other changes.

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NOTES

Impact on Consolidated Financial Statements 2004

            DKKm  
               
          Effect of    
      Previous     change in    
      accounting     accounting    
      policies   Reclassifications   policies   IFRS  
     
 
 
 
 
Total assets at December 31, 2004   87,546   0   2,718   90,264  
  Goodwill       4,088    
  Pensions       (1,296 )  
  Indirect production costs       (109 )  
  Sale and leaseback agreements       35    
                   
Total equity at December 31, 2004   35,963   27   2,860   38,850  
  Goodwill       4,082    
  Pensions       (1,009 )  
  Indirect production costs       (78 )  
  Share-based payment       31    
  Jubilee benefits       (73 )  
  Sale and leaseback agreements       (93 )  
                   
Total liabilities at December 31, 2004   51,583   (27 ) (142 ) 51,414  
  Goodwill       6    
  Pensions       (287 )  
  Indirect production costs       (31 )  
  Share-based payment       (31 )  
  Jubilee benefits       73    
  Sale and leaseback agreements       128    
           
Cash flows          
  Cash flow from operating activities   11,134   0   (50 ) 11,084  
  Cash flow from investing activities   4,243   (1,415 ) 61   2,889  
  Cash flow from financing activities   (12,562 ) 0   (11 ) (12,573 )
     
 
 
 
 
  Increase/(decrease) in cash and cash equivalents   2,815   (1,415 ) 0   1,400  
     
 
 
 
 

Consolidation policies

The Consolidated Financial Statements include the Financial Statements of the Parent Company and subsidiaries in which TDC A/S has a direct or indirect controlling influence. Associates in which the Group has a significant influence are recognized using the equity method.

The Consolidated Financial Statements have been prepared on the basis of the Financial Statements of TDC A/S and its consolidated enterprises, which have been restated to Group accounting policies combining items of a uniform nature.

On consolidation, intra-group income and expenses, shareholdings, dividends, internal balances and realized and unrealized profits and losses on transactions between the consolidated enterprises have been eliminated.

On acquisition of subsidiaries and associates, the purchase method is applied, and acquired assets, liabilities and contingent liabilities are measured on initial recognition at fair values on the date of acquisition. Identifiable intangible assets are recognized if they can be separated and the fair value can be reliably measured. Deferred tax of the revaluation made is recognized.

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NOTES

Any remaining positive differences between cost and fair value of the assets, liabilities and contingent liabilities acquired on acquisition of subsidiaries are recognized in the Balance Sheets under Intangible assets as goodwill. Positive differences on acquisition of associates are recognized in the Balance Sheets under Investments in associates. Goodwill is not amortized, but tested annually for impairment.

Acquired enterprises are recognized in the Consolidated Financial Statements from the time of acquisition, whereas divested enterprises are recognized up to the time of disposal. However, enterprises that meet the criteria for discontinued operations are presented separately.

Gains and losses related to disposal of subsidiaries and associates are recognized as the difference between the proceeds and the carrying value of net assets with the addition of goodwill and accumulated currency translation adjustments recognized in equity at the time of disposal with the addition of disposal expenses.

Foreign currency translation

A functional currency is determined for each of the Group’s enterprises. The functional currency is the currency applied in the primary economic environment of each enterprise’s operations. Transactions in currencies other than the functional currency are transactions in foreign currencies. The Consolidated Financial Statements are presented in Danish kroner (DKK), which is the Parent Company’s functional and presentation currency.

Transactions in foreign currencies are translated at the transaction-date rates of exchange. Foreign exchange gains and losses arising from differences between the transaction-date rates and the rates at the date of settlement are recognized as net financials in the Statements of Income.

Cash, marketable securities, loans and other amounts receivable or payable in foreign currencies are translated into Danish kroner at the official rates of exchange quoted at the balance sheet date. Currency translation adjustments are recognized as net financials in the Statements of Income.

The balance sheets and group goodwill of consolidated foreign enterprises are translated into Danish kroner at the official rates of exchange quoted at the balance sheet date, whereas the statements of income of the enterprises are translated into Danish kroner at monthly average rates of exchange. Currency translation adjustments arising from the translation of equity at the beginning of the year into Danish kroner at the official rates of exchange quoted at the balance sheet date are recognized directly in equity under a separate reserve for currency translation adjustments. This also applies to adjustments arising from the translation of the statements of income from the monthly average rates of exchange to the rates of exchange quoted at the balance sheet date.

Currency translation adjustments of receivables from foreign subsidiaries and associates that are considered to be part of the overall investment in the enterprise are recognized directly in equity.

Derivative financial instruments

On initial recognition, derivative financial instruments are recognized in the Balance Sheets on inception at fair values and subsequently remeasured also at fair values. Quoted market prices are used for derivative financial instruments traded in an active market. A number of different, recognized measurement methods, depending on type of instrument, are applied for derivative financial instruments not traded in an active market. Measurement of financial assets is based on bid prices, and offer prices are applied for financial liabilities.

Changes in the fair values of derivative financial instruments that qualify as hedges of future cash flows are recognized directly in equity net of tax. Gains and losses from hedges of future cash flows are transferred from equity and are as a general rule recognized in the same item as the hedged transaction when the cash flow is realized (for example when the hedged sale has been effected). If the hedged transaction results in recognition of a non-monetary item (such as inventories) or a liability, gains or losses from equity are, however, included in the cost of the asset or liability.

Fair value changes of derivative financial instruments that do not qualify for hedge accounting are recognized immediately in the Statements of Income.

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NOTES

Changes in the fair values of derivative financial instruments that qualify as net investment hedges in foreign subsidiaries or associates, and that effectively hedge exchange rate changes in these enterprises, are recognized directly in equity net of tax.

Revenue recognition

Revenue comprises goods and services provided during the year after deduction of VAT and rebates relating directly to sales.

The significant sources of revenue are recognized in the Statements of Income as follows:

  Revenue from telephony is recorded at the time the call is made
     
  Sales related to pre-paid products are deferred, and revenue is recognized at the time of use
     
  Revenue from leased lines is recognized over the rental period
     
  Revenue from subscription fees is recognized over the subscription period
     
  Revenue from non-refundable up-front connection fees is deferred and amortized over the expected term of the related customer relationship
     
  Revenue from printed directories is recognized when the directory is distributed. Revenue from online directory services is recognized over the period during which the services are provided
     
  Revenue from the sale of equipment is recognized on delivery. Revenue from the maintenance of equipment is recognized over the contract period

Revenue arrangements with multiple deliverables are recognized as separate units of accounting, independent of any contingent element related to the delivery of additional items or other performance conditions.

Revenue is recognized gross when TDC acts as principal in a transaction. For agreements involving the resale of third-party services in which TDC acts as agent, revenue is recognized net of direct costs.

The percentage of completion method is used to recognize revenue from contract work in process based on an assessment of the stage of completion.

Share options

The value of services received from employees as compensation for incentives is measured at the grant date at the fair value of the share options granted and is recognized over the vesting period in the Statements of Income under wages, salaries and pension costs. The set-off item is recognized directly in equity.

For initial recognition of share options, the number of options that employees are expected to be entitled to is based on an estimate. Changes in the estimated number of legally acquired options are subsequently adjusted so that the total recognition is based on the actual number of legally acquired options.

Calculations of fair values of share options granted have been based on the Black-Scholes option-pricing model, taking into account the terms and conditions attached to the granted share options.

Employee shares

When employees are given the opportunity of purchasing shares at a price below market price, the discount is recognized as a cost under wages, salaries and pension costs at the time of acquisition. The set-off item is recognized directly in equity. The discount is measured at the time of acquisition as the difference between fair value and purchase price.

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NOTES

Research

Research costs are expensed as incurred. Contributions received from third parties in connection with research projects are recognized as income concurrently with the incurrence of related expenses.

Intangible assets

Goodwill is recognized at cost less accumulated write-downs. As of January 1, 2002, goodwill is no longer amortized. The carrying value of goodwill is tested for impairment annually and whenever events or changes in circumstances indicate that the carrying value may not be recoverable, and is subsequently written down to the recoverable amount in the Statements of Income if exceeded by the carrying value.

Licenses, customer-related assets, proprietary rights, patents, etc. are measured at cost less accumulated amortization and impairment losses and are amortized on a straight-line basis over their estimated economic lives.

Development projects, including costs of computer software purchased or developed for internal use, are recognized as intangible assets if the cost can be calculated reliably and if they are expected to generate future economic benefits. Costs of development projects include wages, external charges, depreciation and amortization that are directly attributable to the development activities as well as interest expenses in the production period. Development projects that do not meet the criteria for recognition in the Balance Sheets are expensed as incurred in the Statements of Income.

The main amortization periods are as follows:

UMTS licenses 12-16 years
Other licenses 3-10 years
Customer-related assets 3-5 years
Other rights, etc. 2-26 years
Development projects 3-5 years

Development projects in process and intangible assets of indefinite useful lives are tested for impairment at least annually and written down to recoverable amount in the Statements of Income.

Intangible assets are recorded at the lower of recoverable amount or carrying value.

Property, plant and equipment

Property, plant and equipment, including improvements, are measured at cost less accumulated depreciation and write-down for impairment.

Cost comprises purchase price and costs directly attributable to the acquisition until the date on which the asset is ready for use. The cost of self-constructed assets includes direct and indirect payroll costs, materials, parts purchased and services rendered by sub-suppliers or contractors, indirect production costs as well as interest expenses in the construction period. Cost also includes estimated asset retirement costs if the related obligation meets the conditions for recognition as a provision.

Indirect production costs comprise wages, salarie and pension costs together with other external expenses calculated in terms of time consumed on self-constructed assets in the relevant departments.

The depreciation base is measured while observing the asset’s residual value less any write-downs. The residual value is reviewed regularly. If the residual value exceeds the asset’s carrying value, depreciation is discontinued. Depreciation is provided on a straight-line basis over the estimated useful lives of the assets. The main depreciation periods are as follows:

Buildings 20 years
Telecommunications installations 5-20 years
Other installations 3-8 years

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NOTES

Non-current assets that have been disposed of or scrapped are eliminated from accumulated cost and accumulated depreciation. Gains and losses arising from sale of property, plant and equipment are measured as the difference between the sales price less selling expenses and the carrying value at the time of sale. The resulting gain or loss is recognized in the Statements of Income under Other income and expenses.

Software that is an integral part of for example telephone exchange installations is presented together with the related assets. Useful lives are estimated individually.

Installation materials are measured at the lower of weighted average cost and recoverable amount.

Leased property, plant and equipment that qualify as capital leases are recognized as assets acquired. The cost of capital leases are measured at the lower of the assets’ fair value and the present value of future minimum lease payments. Lease payments on operating leases are accrued and expensed over the term of the lease.

Property, plant and equipment are recognized at the lower of recoverable amount and carrying value.

Investments in associates

Investments in associates are recognized under the equity method.

A proportional share of the enterprises’ income after income taxes is recognized in the Statements of Income. Proportional shares of intra-group profits and losses are eliminated.

Investments in associates are recognized in the Balance Sheets at the proportional share of the associate’s equity value calculated in accordance with Group accounting policies with addition of goodwill.

Associates with negative equity value are measured at DKK 0, and any receivables from these enterprises are written down by the share of the negative equity value. If a legal or constructive obligation exists to cover the associate’s negative balance, a provision for that obligation is recognized.

Minority passive investments

Interest-bearing securities are classified as loans and receivables and are recognized at amortized cost. Annual amortization is recognized as interest income.

Other investments whose fair value cannot be reliably determined are classified as available for sale and recognized at cost. When a reliable fair value is determinable, such investments are measured accordingly, and fair value adjustments are recognized in the Statements of Income.

Inventories

Inventories are measured at the lower of weighted average cost and net realizable value. The cost of merchandise covers purchase price and delivery costs.

Receivables

Receivables are measured at amortized cost. Write-downs for anticipated uncollectibles are based on individual assessments of major receivables and historically experienced write-down for anticipated losses on other receivables.

Contract work in process

Contract work in process is measured at the selling price of the work performed and recognized under receivables. The selling price is measured at cost of own labor, materials, etc., the share of indirect production costs and the addition of a share of the profit based on the stage of completion. The stage of completion is measured by comparing costs incurred to date with the estimated total costs for each contract.

Write-downs are made for anticipated losses on work in process based on assessments of estimated losses on the individual contracts through to completion.

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NOTES

Payments on account are offset against the value of the individual contract to the extent that such billing does not exceed the amount capitalized. Received payments on account exceeding the amount capitalized are recognized under prepayments from customers.

Marketable securities

Marketable securities recognized under current assets are measured at fair value at the balance sheet date. All fair value adjustments (except principal repayments) are recognized in the Statements of Income.

Treasury shares

The cost of treasury shares is deducted from equity under retained earnings on the date of acquisition. Payments received in connection with the disposal of treasury shares are similarly recognized directly in equity.

Dividends

Dividends expected to be distributed for the year are recognized under a separate item in equity. Dividends are recognized as a liability at the time of adoption by the annual general meeting.

Currency translation reserve

Currency translation reserve comprises exchange rate differences arising from translation into Danish kroner of the functional currency of foreign enterprises’ financial statements. Translation adjustments are recognized in the Statements of Income when the net investment is realized.

On the preparation of the opening balance sheets at January 1, 2004, currency translation adjustments occurring before January 1, 2004 have not been recognized in the currency translation reserve in accordance with IFRS 1.

Pensions

The Group’s pension plans include defined benefit plans and defined contribution plans.

The Group has an obligation to pay a specific benefit to defined benefit plans at the time of retirement. A pension asset or pension obligation corresponding to the present value of the obligations less the defined pension plans’ assets and adjustment for unrecognized actuarial gains and losses is recognized for these benefit plans.

The obligations are determined annually by independent actuaries using the “Projected Unit Credit Method” assuming that each year of service gives rise to an additional unit of benefit entitlement, and each unit is measured separately to build up the final obligations.

Estimation of future obligations is based on the Group’s projected future developments in mortality, early retirement, future wages, salaries and benefit levels, interest rate, etc. The defined pension plans’ assets are estimated at fair value at the balance sheet date.

Differences between the projected and realized developments in pension assets and pension obligations are referred to as actuarial gains and losses. In connection with the adoption of IFRS, accumulated actuarial gains and losses are fully recognized in the opening balance sheets at January 1, 2004. If the value of subsequent accumulated actuarial gains and losses at the beginning of a fiscal year exceeds 10% of the higher of the pension obligations’ value and the fair value of the pension plans’ assets, the excess amount is recognized in the Statements of Income in accordance with the corridor method over the projected average remaining service lives of the employees concerned. Actuarial gains and losses not exceeding the above-mentioned limits are not recognized, but disclosed in the notes.

Estimated net assets are recognized if they offset unrecognized actuarial losses, future repayments from the pension plan, or if future payments to the plan are reduced.

In case of changes in benefits relating to employees’ previous service period, a change in the estimated present value of the pension obligations will occur, which will be recognized immediately if the employees have acquired a final

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NOTES

right to these changed benefits. If not, the change is recognized over the period in which the employees become entitled to the changed benefit.

For the pension plan for former civil servants, the onetime payment in 1994 to the Danish government is recognized in the Statements of Income over the expected remaining service lives of the employees concerned.

For the defined contribution plans, the Group will pay in a fixed periodic contribution to separate legal entities and will have no further obligations after the payment has been made. Recognition in the Statements of Income is made in the vesting period.

Current and deferred corporate income taxes

Tax for the year comprises current tax, changes in deferred tax and adjustments from prior years.

Current tax liabilities and current tax receivables are recognized in the Balance Sheets as tax payable or tax receivable.

Deferred tax is measured under the balance-sheet liability method on the basis of all temporary differences between the carrying values and the tax bases of assets and liabilities at the balance sheet date except for temporary differences arising from goodwill where amortization for tax purposes is disallowed. Tax computed on expected dividends from associates is also recognized as deferred tax.

Deferred tax assets including the tax value of tax loss carry-forwards are recognized at the value at which they are expected to be realized. Realization is expected to be effected either by elimination in tax on future earnings or by set-off against deferred tax liabilities within the same legal tax entity.

Adjustment of deferred tax is made concerning elimination of unrealized intra-group profits and losses.

Deferred tax is measured on the basis of the tax rules and tax rates in the respective countries that will be effective under the legislation at the balance sheet date when the deferred tax is expected to be realized as current tax. Changes in deferred tax as a result of changes in tax rates are recognized in the Statements of Income.

Provisions

Provisions are recognized when — as a consequence of an event occurring before or on the balance sheet date — the Group has a legal or constructive obligation, where it is probable that economic benefits must be sacrificed to settle the obligation, and the amount of the obligation can be estimated reliably.

Provisions for restructuring etc. are recognized when a final decision thereon has been made before or on the balance sheet date and has been announced to the parties involved, provided that the amount can be measured reliably. Provisions for restructuring are based on a defined plan, which means that the restructuring is commenced immediately after the decision has been made.

When the Group is under an obligation to demolish an asset or re-establish the site where the asset was used, a liability corresponding to the present value of estimated future costs is recognized in the Statements of Income.

Financial liabilities

Interest-bearing loans are recognized initially at the proceeds received net of transaction expenses incurred. In subsequent periods, loans are measured at amortized cost so that the difference between the proceeds and the nominal value is recognized in the Statements of Income over the term of the loan.

Other financial liabilities are measured at amortized cost.

Deferred income

Deferred income recognized as liabilities comprises payments received covering income in subsequent years.

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NOTES

Disclosure of discontinued operations

Discontinued operations constitute entities comprising separate major lines of business or geographical areas, whose activities and cash flows for operating and accounting purposes can be clearly distinguished fro