The report of the Board of Directors for 2005

As of 1 January 2005, the Finnish Accounting Standards (FAS) were replaced by the International Financial Reporting Standards (IFRS) in Elisa Corporation?s consolidated reporting.

This financial statement has been prepared in accordance with the IFRS recognition and measurement principles.

The market situation was tight throughout 2005. Prices continued to fall for the average call/minute rate in the mobile phone business, and subscriber usage increased. The year saw several marketing campaigns offering low-rate voice and SMS services. The number of Elisa?s own mobile phone subscriptions continued to develop favourably.

The number of broadband subscriptions in the fixed network business continued to grow strongly, but the decrease in the number of traditional subscriptions and their usage was even stronger than before.

	Financial statements
EUR million	1-12/2005	1-12/2004
Mobile communications	740	713
Fixed network	617	654
Other businesses	38	111
Inter-segment sales	-112	-122
Total	1 337	1 356

The decrease in Elisa?s turnover was due to the sale of Comptel, Yomi Software and Estera shares, which were not included in Elisa?s core business. The comparable revenue for 2005 improved slightly on the previous year.

The revenue from the mobile phone business was affected by an increase in the number of subscriptions in Elisa?s network, growth in usage of the subscriptions and the increase in traffic generated by Saunalahti?s subscribers. Revenue growth was curtailed by a heavy reduction in interconnection fees and consumer prices. Revenue growth in the fixed network business was attributable to the acquisition of a new subsidiary, Tikka Communications, and growth in the broadband business.

	Financial statements		Exclusive of non-recurring items
EUR million	1-12/2005	1-12/2004	1-12/2005*	1-12/2004**
Mobile communications
EBITDA	220	227	190	227
EBITDA-%	30 %	32 %	26 %	32 %
EBIT	130	138	100	138
Fixed network
EBITDA	160	201	156	201
EBITDA-%	24 %	31 %	23 %	31 %
EBIT	45	91	41	91
Other business and corporate functions
EBITDA	66	27	0	13
EBIT	58	12	-8	-2
Total
EBITDA	446	455	346	441
EBITDA-%	33 %	34 %	26 %	33 %
EBIT	233	242	133	227

* Capital gain on the divestment of Yomi Software, EUR 4 million; compensations for damage in interconnection traffic, EUR 28 million;  capital gain on real estate, EUR 15 million; capital gain on the disposal of Comptel shares and the related impact on earnings, EUR 40 million; IFRS adjustment relating to the transfer of pension liabilities, EUR 13 million; provision for reorganizing operations, EUR -6 million; and capital gain on the sale of Estera, EUR 6 million.
** EUR 9 million capital gain on real estate and EUR 5 million revenue recognition due to a change in the calculating principles of the pension provision.

Elisa?s EBITDA decreased by 2 per cent from the previous year, and relative profitability decreased by one percentage point to 33 per cent of the revenue. EBITDA for 2005 included a capital gain on the divestment of Yomi Software Ltd and Estera, capital gain on the disposal of Comptel shares, compensation for damages received from TeliaSonera and capital gain on real estate. Thus the relative profitability, excluding non-recurring items, decreased from 33 to 26 per cent. This was affected by the decrease in average consumer prices and interconnection fees in mobile communications, diminished traffic volumes in the fixed network, frontloading of costs in the broadband business and market investments.

The Group?s other financial income and expenses totalled EUR -22 million (-30). The financial income also included the share of the associated companies? results, EUR 1.2 million (1.3). The reduced financial expenses were mainly due to a significant decrease in interest-bearing liabilities.

Income taxes in the income statement amounted to EUR -34 million (-53). The Finnish corporate tax rate was altered from 29 per cent to 26 per cent at the beginning of 2005.

The group?s January-December results after taxes and minority interests stood at EUR 176 million (152). The group?s earnings per share (EPS) amounted to EUR 1.22 (1.10). At the end of 2005, the consolidated equity per share stood at EUR 8.06 (6.23 at the end of 2004).

Elisa sold the entire share capital of Yomi Software Ltd, a 100 per cent subsidiary of Elisa, to Sysopen Digia Plc. The selling price was EUR 12.1 million, and Elisa was also released from a EUR 1.5 million debt liability.

Elisa and IBM signed an agreement on the allocation of Elisa?s application management services to IBM as of 1 April 2005. On the same date, 150 Elisa employees transferred to IBM.

The merger of Liedon Puhelin Oy with Lounet Oy was entered in the trade register on 31 March 2005. Elisa previously owned 16.8 per cent of Liedon Puhelin. Following the merger, Elisa?s holding in Lounet decreased from 50.2 per cent to 46.7 per cent. Lounet remains consolidated in Elisa as a group company on the basis of actual control.

The merger of Kestel Oy and Kesnet Oy with Elisa was entered in the trade register on 31 March 2005, the merger of Finnet International Ltd on 31 May 2005 and the merger of Elisa Matkapuhelinpalvelut Ltd on 31 December 2005.

On 29 April 2005 Elisa submitted a public tender offer for the shares of Tikka Communications Oy. In May, Elisa?s holding in the company exceeded 50 per cent, after which Tikka Communications Oy was consolidated as a subsidiary as of 1 June 2005. Elisa acquired a 100 per cent holding in the company by mid-December.

Elisa?s ownership of Comptel Corporation decreased from 58.1 per cent to 19.9 per cent after Elisa sold 40,946,000 Comptel Corporation shares to investors for EUR 65.1 million at the end of May. Comptel Corporation was consolidated as a subsidiary until 31 May 2005.

On 1 June 2005, Elisa sold its 35 per cent holding of Racap Solutions Oy to Capgemini Finland Oy.

On 27 June 2005 Elisa sold a 55.1 per cent stake in Lippupiste Oy?s share capital to Interavanti Oyj and a 25 per cent stake to Cardplus Oy. Elisa still has a 19.9 per cent holding in Lippupiste Oy, which the buyers have agreed to purchase from Elisa after a period of two years.

As of 1 July 2005, Elisa transferred its personnel?s statutory pension coverage from the pension fund to Varma Mutual Pension Insurance Company and supplementary pensions to Sampo Life Insurance Company Limited.

On 7 July 2005 Elisa made a public tender offer for all shares issued by Saunalahti Group Oyj and a bid to Saunalahti option holders. Elisa?s ownership of Saunalahti Group Oyj stood at approximately 97 per cent at the end of the year. In order to acquire all Saunalahti shares, Elisa made a redemption offer on all remaining shares and share options. Simultaneous with the redemption offer, Elisa initiated compulsory acquisition proceedings for minority shareholders in accordance with the Finnish Companies Act. The proceedings ended on 13 January 2006 at 4.30 pm. Elisa has initiated arbitration proceedings in accordance with the Finnish Companies Act in relation to the redemption of the Saunalahti Group Oyj shares.

On 4 November 2005, Elisa sold the entire share capital of Estera Oy, a security business company, to ISS Security Oy. In connection with the sale, Estera Oy sold part of its business to its operative management.

On 30 November 2005 Elisa sold the entire share capital of Kiinteistö Oy Espoon Keilasatama 5, which was formerly used by Radiolinja, to Local Government Pensions Institution. The sold property is not included the holdings that are in line with Elisa?s strategy.

	9-12/2005	9-12/2004	1-12/2005	1-12/2004
Total number of subscriptions (Finland and Estonia)	2 228 101	1 609 015	2 228 101	1 609 015
Number of subscriptions in Finland *	1 962 101	1 383 515	1 962 101	1 383 515
- Network operator in Finland **	1 483 129	1 383 515	1 483 129	1 383 515
- Saunalahti subscriptions	478 973	-	478 973	-
Subscriptions in Estonia	266 000	225 500	266 000	225 500

* Elisa?s network operator in Finland
** Elisa?s network operator in Finland, exclusive of Saunalahti

Operating figures in Finland, exclusive of Saunalahti	9-12/2005	9-12/2004	1-12/2005	1-12/2004
Revenue/subscription *** (ARPU), €	30,4	37,0	32,5	37,8
Churn ***, %	22,6	38,9	28,4	33,7
Usage, million minutes *	1 070	659	3 509	2 498
Usage, min/subscription/month ***	180	161	172	156
SMS, million msg *	275	154	827	537
SMS, msg/subscription/month ***	40	38	38	34
Value-added services/revenue, %	17 %	14 %	16 %	14 %

* Elisa?s network operator in Finland
*** Elisa?s network operator in Finland, exclusive of Saunalahti

Elisa?s network operator significantly increased the number of its subscriptions during the year as Saunalahti shifted its subscriptions to Elisa?s network. At the end of 2005 Elisa?s network stood at approximately two million subscriptions. Exclusive of Saunalahti subscriptions, the number of Elisa subscriptions stood at 1,483,129, showing an increase of 2,335 subscriptions from the previous quarter.

In 2005 the call minutes per subscription of Elisa?s own service operator rose by approximately 10 per cent and the number of SMS messages increased by approximately 12 per cent on the previous year. The call minutes of the network operator rose by 40 per cent and SMS messages by 54 per cent. The increased volume of the network operator was substantially affected by additional traffic generated by Saunalahti after 1 September 2005.

Revenue per subscription (ARPU) decreased by approximately 14 per cent on the previous year. This was mainly due to a fall in interconnection fees and consumer prices.

The business operations of Elisa?s subsidiary in Estonia were favourable. Revenue was EUR 88.1 million (75.3), EBITDA EUR 27.9 million (22.5) and EBIT 18.5 million (13.2). The number of subscriptions stood at 266,000 (225 500) at the end of 2005. Elisa agreed on new mobile interconnection fees with Telia-Sonera Finland and Finnet Networks. As of 1 June 2005, Elisa?s mobile interconnection fee was reduced to 8.4 cents per minute, compared to 10 cents per minute prior to this date.

Elisa announced the launch of the Vodafone Push Email service, which will make sending and receiving email with a mobile phone easier.

Elisa introduced a new mobile communications concept, which integrates the handset and services into one package. Elisa?s Mobi menu give users easy access to value-added and entertainment services as well as the main features of the mobile phone.

Elisa introduced the citizen certificate on a GSM SIM card for its customers. The service is provided in collaboration with the Population Register Centre and offers consumers easy, safe and user-friendly access to electronic services.

Number of subscriptions	31 Dec 2005	31 Dec 2004	Change, %
Number of subscriptions, total	420 465	250 390	68 %
- Elisa subscriptions	384 909	222 307	73 %
- Saunalahti subscriptions	35 556	28 083	27 %
ISDN channels	128 665	159 591	-19 %
Cable TV subscriptions	214 054	198 447	8 %
Analogue and other subscriptions	578 002	639 202	-10 %
Subscriptions, total	1 305 630	1 219 547	7 %

The demand for Elisa?s broadband subscriptions continued briskly throughout 2005. The number of subscriptions showed an increase of 73 per cent on the previous year. Elisa achieved market leadership in the Finnish broadband market.

The target set in the national broadband strategy - one million subscriptions - was exceeded in June. The number of traditional  subscriptions continued to decrease as voice calls shifted to the mobile communication networks and data transfers to broadband subscriptions.

Changes in the pricing principles applied to calls made from the fixed network to mobile phones took effect at the beginning of March. This made it possible to reduce the price of these calls for end customers.

The average number of personnel at Elisa was 4,989 (5,590) during 2005. At the end of 2005, the number of personnel stood at 4,681 (5,376).

	31 Dec 2005	31 Dec 2004	Change, %
Mobile communications	1 629	1 477	+10  %
Fixed network	3 001	3 015	-0 %
Other business operations	-	814	-
Corporate functions	51	70	-27 %
Total	4 681	5 376	-13 %

During the year, the disposal of Comptel reduced the number of personnel by approximately 420, the disposal of Estera by approximately 160 and the disposal of Yomi Software by approximately 260. The consolidation of Tikka Communications and Saunalahti increased the number of personnel by approximately 260 people for each company.

Elisa executed a major business reorganisation in spring and summer 2005. It was further specified at the year-end. As part of extensive streamlining measures, Elisa initiated a reorganisation of operations, aimed at simplifying and rationalising its operations. This led to outsourcing and a need for fewer personnel. Reductions in the number of personnel were achieved through pension arrangements and support packages.

EUR million	1-12/2005	1-12/2004
Capital expenditures, of which	204	182
- mobile communications business	86	68
- GSM leasing liability buy-backs	4	20
- fixed network business	112	88
- others	2	6
Shares	415	61
- of which achieved through an exchange of shares	361	47
Total	619	243

Elisa?s financial position and liquidity remained good throughout the year. Cash flow after investments amounted to EUR 308 million (225). This was particularly affected by the divestment of non-core businesses, loan receivables and fixed assets, and compensations for damages received.

On 17 June 2005 Elisa entered into a seven-year EUR 170 million revolving credit facility. The facility replaced a comparable arrangement that Elisa had entered into in June 2003.

Before shifting Elisa?s TEL pension liabilities to Varma Mutual Pension Insurance Company, Elisa repaid EUR 64 million in pension loans to the Elisa Group?s Pension Fund ahead of schedule.

On 7 November 2005 Elisa updated the EMTN programme in compliance with the new directive requirements.

Financial key indicators
EUR million	31 Dec 2005	31 Dec 2004
Net debt	293	462
Gearing, %	21,7	50,6
Equity ratio, %	61,7	49,3
	1-12/2005	1-12/2004
Cash flow after investments	308	225

Valid finance arrangements
EUR million	Maximum amount	In use on 31 Dec 2005
Committed credit limit	170	0
Commercial paper programme 1)	150	0
EMTN programme 2)	1 000	452

1) The programme is not committed.
2) European Medium Term Note programme, not committed.

Long-term credit ratings
Credit rating agency	Rating	Outlook
Moody?s Investor Services	Baa2	Stable
Standard & Poor?s	BBB	Negative

At the end of 2005 the company?s total number of shares was 166,066,016 (141,989,109). The market capitalisation on 31 December stood at EUR 2,596 million (1,682).

In 2005 a total of 248.3 million shares were traded on the Helsinki Stock Exchange for an aggregate of EUR 3,464 million. The exchange was 171.5 per cent of the number of shares on the market.

Elisa did not have any valid warrants on 31 December 2005.

At the end of 2005 the total number of Elisa?s shares owned by group companies was 180,000 (210,672 at the end of 2004). The nominal value of the shares totalled EUR 90,000, and their proportion of the share capital and voting rights was 0.11 per cent.

The group invested EUR 8 million (17) in research and development in 2005. Important research trends included IP technologies, development of terminals and service-oriented architecture. Customer-centred R&D is of key importance in developing new services. As a measure of enhancing customer-centeredness, the R&D unit was relocated in to the business units.

On 5 December 2005, Elisa Corporation?s Extraordinary General Meeting resolved to pay an extra dividend of EUR 0.40 per share in accordance with the Board of Director?s proposal. The number of members at the company?s Board of Directors was also increased by two to eight members. President and CEO Lasse Kurkilahti and attorney Matti Manner were elected new members. Voting limitation was removed from the Articles of Association.

On14 March 2005 the Annual General Meeting approved the Board of Directors? proposal authorising the Board of Directors to decide on increasing the company?s share capital. The authorisation is valid for one year. A maximum aggregate of 28.3 million of the company?s shares can be issued, and the company?s share capital can be increased by a maximum of EUR 14,150,000 in total.

The Annual General Meeting approved the Board of Directors? proposal concerning the authorisation to acquire and assign treasury shares. The authorisation applies to a maximum of 6,888,000 treasury shares.

The Annual General Meeting adopted the Board of Directors proposal concerning the sale of shares in the joint book-entry account in accordance with Chapter 3a, section 3a of the Finnish Companies Act.

On 7 July 2005 Elisa made a public tender offer for all shares issued by Saunalahti Group Oyj. The consideration offered by Elisa in the tender offer was 1 Elisa share for 5.6 Saunalahti shares. The calculated total value of the consideration offered by Elisa was approximately 27 per cent higher than the average volumeweighted price of the Saunalahti shares traded in the previous 12 months. Elisa also made an offer to Saunalahti option holders, offering EUR 1.53 in cash for each share option of the 2002 option programme, and EUR1.82 in cash for each share option of the 2003 option programme. The calculated total amount of the consideration offered by Elisa was approximately EUR 320 million at the time of the offering.

Following Elisa's tender offer for Saunalahti shares and share options, which ended on 4 November 2005, Elisa?s proportion of Saunalahti shares and voting rights exceeded two thirds (2/3) of the voting rights of Saunalahti?s shares. On 11 November 2005 Elisa decided to complete the public tender offer, and the right of ownership to Saunalahti shares was transferred to Elisa on 14 November 2005. By the end of 2005 Elisa held approximately 97 per cent of Saunalahti shares and voting rights.

On 12 December 2005, Elisa made a redemption offer for Saunalahti shares and share options. The offer expired on 13 January 2006 at 4.30 pm. Simultaneous with the redemption offer, Elisa initiated compulsory acquisition proceedings for minority shareholders in accordance with the Finnish Companies Act to acquire all Saunalahti shares.

Elisa and TeliaSonera agreed on abandoning the legal proceedings regarding the claim for restitution and compensation of mobile interconnection fees and the patent action brought on by TeliaSonera. As part of the overall solution, TeliaSonera Finland paid Elisa EUR 30 million in compensation. Elisa also reached an agreement over mobile interconnection fees regarding Finnet Networks, and paid Finnet Networks EUR 2 million in compensation. At the beginning of 2006, Finnet Verkot initiated arbitration proceedings concerning Saunalahti interconnection fees.

In the redemption proceeding regarding the merger of Yomi Plc, the arbitration court set the redemption price at EUR 7.30 per share. The redemption concerned 636,294 former shares of Yomi Plc. The handling of the matter with regard to 428,600 shares is continuing in the district court.

The Helsinki District Court issued a ruling in favour of Elisa and dismissed the action for annulment of the decision taken at Elisa Matkapuhelinpalvelut Oy?s (previously known as Oy Radiolinja Ab) Annual General Meeting in the spring of 2000. The plaintiffs have appealed against the decision. The merger of Elisa Matkapuhelinpalvelut Oy with Elisa was entered in the trade register on 31 December 2005.

With regard to the redemption procedure of Oy Radiolinja Ab?s shares pursuant to the Finnish Companies Act, the arbitration court set the redemption price at EUR 7,904.83 in 2001. Processes related to the redemption price concerning 325 shares are still pending.

Elisa has initiated arbitration proceedings pursuant to the Finnish Companies Act aimed at the redemption of the remaining Tikka Communications Oy shares. The right of ownership to the shares to be redeemed was transferred to Elisa in December 2005.

Elisa has initiated arbitration proceedings pursuant to the Finnish Companies Act aimed at the redemption of Saunalahti Group Oyj shares. Elisa demands the redemption price be set at EUR 2.29 per share. The redemption price concerning approximately 3.8 million shares is pending a decision by the arbitration court.

The public authorities are currently conducting investigations into Elisa concerning the pricing of broadband and fixed network traffic and interconnection fees.

The competition in the telecommunication business is extremely tight in Elisa?s main markets. The competitive situation may affect Elisa?s business.

The rapid technological developments in the telecommunications business may have a significant impact on Elisa?s business.

Elisa?s main market is Finland, where the number of mobile phones per inhabitant is among the highest in the world. Thus the overall market of mobile subscriptions in Finland cannot grow significantly. Furthermore, the share of fixed network traffic has decreased in the past few years. These factors may restrict growth potential.

The telecommunications industry is subject to heavy regulation. Elisa and its business are monitored and regulated by several public authorities. This regulation also affects the price level of some products and services offered by Elisa.

On 2 January 2006, Elisa and Manpower signed an agreement concerning the outsourcing of the outbound telemarketing services of Elisa?s Contact Centers to Manpower Business Solutions Oy from the beginning of February. In connection with the business transfer, 134 employees transferred from Elisa?s Contact Centers to Manpower as established employees as of 1 January 2006.

Elisa revised its business model, aiming at enhanced customerorientation and efficiency in line with Elisa?s strategic choices. As part of this effort, Elisa invited some Saunalahti executives to its Executive Board, also rotating other members and redistributing responsibilities.

Competition in the Finnish telecommunications market remains challenging, while the focus is increasingly shifting to services. The use of mobile communications and broadband products continues to increase. Elisa?s aim is to further reinforce its position as the leading service supplier.

The group?s revenue is expected to increase clearly on the previous year. Changes in the operating environment are creating uncertainty concerning the predictability of the group?s performance. However, Elisa expects to see an improvement in EBITDA and EBIT excluding non-recurring items in 2006. This will be due to e.g. the synergy benefits created by the Saunalahti deal and Elisa?s rationalisation procedures.

Capital expenditures during the year are estimated to total 13 to 15 per cent of the revenue, and cash flow will be clearly positive. Certain non-recurring items due to IT and production system reforms, which will support the ?One Elisa? operational model, are scheduled for 2006.