10/25/2007

QSC grows revenues and EBITDA in 3rd quarter of 2007 / Guidance for 2007 reduced

• Revenues grew by 22 percent to € 83.2 million
• EBITDA rose by 42 percent to € 7.4 million
• Intensified price competition in voice telephony
• Growth delayed due to connection delays
• Higher preliminary expenses as a result of network expansion in Q3
• Lower forecast for the full 2007 fiscal year:
  
  
  • About € 325 million in revenues planned
  • About € 35 million EBITDA planned

Cologne, October 25, 2007. In a difficult market environment characterized by a further intensified price competition in conventional voice telephony as a result of flat rate and Voice over IP offerings, QSC AG succeeded in growing its revenues: According to preliminary results, they rose by 22 percent to € 83.2 million in the third quarter of 2007, as opposed to € 68.4 million for the same quarter the year before. QSC posted its strongest growth in the Wholesale/Reseller segment, where revenues rose by 74 percent to € 31.8 million. However, there were unanticipated delays and capacity constraints in the company's collaboration with large wholesale partners and in the provision of unbundled local loops by Deutsche Telekom respectively.

In spite of sustained price pressure in conventional voice telephony revenues also advanced in the segments of Large Accounts and Business Customers: In the third quarter of 2007, QSC recorded revenues of € 18.6 million with Large Accounts, as opposed to € 17.7 million during the corresponding period the year before; revenues with Business Customers rose to € 21.5 million, as opposed to € 20.0 million in the third quarter of 2006. QSC-internal, process-related bottlenecks in connecting new customers slow the growth in these two segments. Nevertheless, total revenues in the company's three strategic segments increased by 29 percent to € 72.0 million, accounting for 87 percent of total revenues. In the non-strategic Residential Customer segment, sustained price pressure led to an even faster-than-anticipated decline in revenues to € 11.2 million, as opposed to € 12.4 million for the same quarter the year before.

The disappointingly small profitability growth in the third quarter was due to the ongoing price pressure in conventional voice telephony and delays in connecting new customers, coupled with expansion of network coverage by nearly 10 percent in the last quarter alone and the resulting operating expenses. According to preliminary results, QSC generated an EBITDA of € 7.4 million in the third quarter of 2007, as opposed to € 5.2 million for the same period the year before. Due to the continued expansion of the network, depreciation expense rose to € 12,6 million as opposed to € 7,2 million in the third quarter of 2006. Consequently, the consolidated net loss rose to € -4.4 million as opposed to € -2.0 million in the same period the year before.

Since the beginning of the year, the monthly level of new orders has risen by some 60 percent without generating a direct and corresponding revenue growth. Because of these delays, QSC has decided to restructure its operations and review customer management processes. The company's organizational structure now reflects its strategic lines of business and the growth engines of Managed Services, Direct Access and Wholesale business; all three business units are fully responsible for their own processes and profitability, and report directly to the Management Board. This will result in shorter decision-making, clearer responsibilities and will play a key role in overcoming the bottlenecks in transforming new orders into corresponding revenues. However the full effects of the restructuring will not take effect until the next fiscal year.

Given the weaker-than-anticipated operational development, QSC is therefore reducing its forecast for the current fiscal year: The company now anticipates revenues of about € 325 million for 2007 instead of the previous forecast of more than € 350 million, an EBITDA of about € 35 million instead of between € 50 and € 60 million, as well as a marginally positive net income instead of the previously forecast € 15 million.

In the fourth quarter of 2007, profitability will be impacted by non-recurring integration costs as a result of plans to merge Broadnet with QSC. Beginning next year, this merger will produce synergy effects in the lower single-digit range, especially in the network and in administration.

The growing level of new orders provides a solid base for QSC to resume its high-margin growth in 2008 and beyond after overcoming the internal delays and bottlenecks. From the first quarter of 2008 onwards, the company will also profit from the completed network expansion to nearly 2,000 central offices.

Queries to:
QSC AG
Claudia Zimmermann
Head of Public Relations
Fon: +49(0)221-6698-235
Fax: +49(0)221-6698-289
E-mail: presse@qsc.de

Notes:
From November 19, 2007, the complete 9-months report will be available under http://www.qsc.de/en/investor-relations.html. This corporate news contains forward-looking statements. These forward-looking statements are based on current expectations and forecasts of future events by the management of QSC AG. Due to risks or mistaken assumptions, actual results may deviate substantially from those made in such forward-looking statements. The assumptions that may involve material deviations due to unforeseeable developments include, but are not limited to, the demand for our products and services, the competitive situation, the development, dissemination and technical performance of DSL technology and its prices, the development and dissemination of alternative broadband technologies and their respective prices, changes in respect of telecommunications regulation, legislation and adjudication, prices and timely availability of essential third-party services and products, the timely development of additional marketable value-added services, the ability to maintain and enlarge upon marketing and distribution agreements and to conclude new marketing and distribution agreements, the ability to obtain additional financing in the event that management's planning targets are not attained, the punctual and full payment of outstanding debts by sales partners and resellers of QSC AG, and the availability of sufficient skilled personnel.