EXPLANATORY MEMORANDUM TO THE INTERIM REPORT OF AS STARMAN'S GROUP FOR THE FIRST HALF-YEAR 2007


General                                                                         

Success of Starman continued in the first half-year 2007. Telephone services    
rendered a considerable additional impact on the strong market position in the  
spheres of cable-TV and the internet. Starman is currently offering the best    
bundled triple play service in the home user sector. The triple play service is 
now available to the majority of the company's customers. Through its cable     
network, Starman is currently represented in most of Estonia's major cities,    
predominantly in densely populated areas. In December last year, the product    
portfolio of Starman was supplemented with a DTT (digital terrestrial           
television) service. ZUUMtv, which was positioned separately, is transmitted    
through air and Starman's cable network is not used for delivering this product.
ZUUMtv is expected to attract a considerable number of new customers already in 
the near future, especially in those regions of Estonia where Starman was not   
present thus far.                                                               
Starman Group's total revenue for the first half-year 2007 amounted to 8.75     
million euros, representing a 17% increase compared to the same period a year   
ago. EBITDA for the first half-year 2007 amounted to 3.16 million euros and net 
profit attributable to shareholders to 1.33 million euros - respectively an 1%  
and 14% decrease compared to the first half of the previous year. The good      
performance is built on the company's successful long-term activities relating  
to traditional services. As expected, the starting ZUUMtv had a negative impact 
on Starman's profit figures. A drop of 0.63 million euros in EBITDA - Starman's 
main performance indicator - is directly attributable to ZUUMtv, plus certain   
indirect costs whose amount cannot be determined precisely as they were         
allocated to a number of different products. The negative impact of ZUUMtv on   
the financial results of the Group is anticipated to continue also in the near  
future. However, in the long run the new product is expected to strengthen the  
company's market position and profitability.                                    
                                                                                


Financial ratios                                                                

A selection of ratios for evaluating the economic activities in the first       
half-year 2007:                                                                 
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|                                |     2005     |     2006     |    2007 H1    |
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| Sales increase                 |     26%      |     25%      |      17%      |
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| EBITDA margin                  |     33%      |     40%      |      36%      |
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| Gross margin                   |     15%      |     21%      |      16%      |
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| Net margin                     |     12%      |     19%      |      15%      |
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| Revenue/average assets         |     0.67     |     0.72     |     0.72      |
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|                                |              |              |               |
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| Equity ratio                   |     54%      |     58%      |      54%      |
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| Debt to equity                 |     0.69     |     0.56     |     0.61      |
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| Debt/EBITDA                    |     1.76     |     1.19     |     1.35      |
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| Investments/EBITDA             |     1.16     |     0.83     |     1.17      |
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|                                |              |              |               |
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| Current ratio                  |     0.67     |     1.09     |     1.28*     |
--------------------------------------------------------------------------------
| Invoice turnover rate (annual) |     20.2     |     20.0     |     26.7      |
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Definitions:                                                                    
Sales increase = increase compared to the same period last                      
year                                                                            
EBITDA = operating profit + depreciation and amortisation                       
EBITDA margin =                                                                 
EBITDA / total revenue                                                          
Gross margin = operating profit / total revenue                                 
Net                                                                             
margin = net profit attributable to shareholders / total revenue                
Revenue /                                                                       
average assets - for comparison purposes, the revenue for the first half-year   
2007 has been multiplied by 2                                                   
Equity ratio = equity / total assets                                            
Debt =                                                                          
borrowings + long-term borrowings                                               
Debt to equity - for comparison purposes,                                       
EBITDA for the first half-year 2007 has been multiplied by 2                    
Current ratio =                                                                 
current assets / current liabilities                                            
Invoice turnover rate = revenue for the                                         
period / accounts receivable at the end of the period; for comparison purposes, 
revenue for the first half-year 2007 has been multiplied by 2                   
* As to this ratio, it should be borne in mind that because of the special      
nature of the accounting principles applied in preparing this report, only loans
repayable within the current financial year are recognised as short-term        
borrowings under current liabilities (i.e. in the case of the first half-year,  
loan payments due within the following six months) unlike the year-end figures  
where all loans repayable within the following year are recognised as short-term
borrowings. Consequently, the current ratio for the first half-year is somewhat 
overestimated vis-à-vis the year-end figures. Upon eliminating this difference  
from the figures of the first half-year 2007, the current ratio amounts to 1.07.

Group structure                                                                 

Starman Group consists of AS Starman being the parent company and, starting from
October 2006, Eesti Digitaaltelevisiooni AS being a subsidiary company. 66% of  
shares in Eesti Digitaaltelevisiooni AS are held by Starman and 34% of the      
shares by AS Levira. The financial results of Eesti Digitaaltelevisiooni AS have
been consolidated into the Group report line-by-line separately indicating the  
minority share.                                                                 

Revenue and expenses                                                            

Traditionally, cable television and internet services contributed the majority  
of Starman's total revenue for the first half-year 2007, accounting for 46% and 
33% of total revenue, respectively. Telephone services, growing faster than the 
latter two, accounted for 17% of the total revenue for the half-year. The       
digital terrestrial television (DTT) service had practically no effect on the   
revenue yet.                                                                    
Revenue from cable television services increased by 14% compared to the first   
half-year 2006. Organic growth in the market has mostly been achieved at the    
expense of price increase in recent years. In the first quarter of 2007 the     
prices of Starman's cable television services further approached those of       
countries with a similar living standard but still remain rather low. In        
addition to the regular price increase, the ARPU (average revenue per user) is  
also supported by structural changes. As regards structural changes, the triple 
packages that do not contain smaller programme ranges and the new possibilities 
such as digital television should be mentioned. As to the digital television    
service launched in autumn 2005, a major improvement was introduced in the first
quarter of 2007 when the company piloted a video on demand service. The service 
is currently going through a test phase with nearly 500 customers - it was taken
to market cautiously, being still under constant development. At the end of June
2007, the company had a total of 132 thousand cable television customers, 4.7%  
of which were digital television users. The number of cable television customers
at the end of June exceeded the last year's relevant figure by 1.9%, which is   
quite a good result given the saturated market and tightened competition.       
Revenue from internet services increased by 10%, compared to the first half of  
the previous year. At the end of June 2007, the company had 43 thousand internet
customers - a 27% increase compared to the same period a year ago. Starman      
maintained its position as the market leader of broadband internet for private  
customers in its footprint. In line with the general impacts of the market, the 
ARPU continued to show a downward trend, with the average figure of the first   
half-year 2007 dropping by 13% compared to the last year's relevant figure.     
Starman's popular triple packages in which the internet services are cheaper    
have a growing impact on the internet ARPU. However, the supporting influence of
the triple packages on other services and, hence, also on the average aggregate 
revenue per user cannot be disregarded.                                         
Of the three primary services, the telephone service continues to show the best 
growth figures, although the growth rate has somewhat decelerated, with the     
revenue for the first half-year 2007 having increased 33% in comparison with the
same period a year ago. As of the end of June 2007 the company had 36 thousand  
telephone clients, i.e. 56% more than at the same time last year. There has been
a decline in the ARPU of the telephone services lately, partly due to the fact  
that the services are being offered on increasingly favourable terms in the     
post-subscription phase. The average ARPU for the first half-year 2007 decreased
by 18% when compared to the corresponding figure of the previous year.          
Starman views its cable television, internet and telephone services as a single 
integrated service. Since the provision of the integrated service has remained a
part of the corporate strategy for a long period of time, and the services are  
designed to support each other, separate analysis of the respective segments    
might not give the most accurate picture. In the first half-year 2007, the      
average aggregate revenue from the given services per client was 13% higher in  
comparison with the same period a year ago.                                     
ZUUMtv was launched with content slightly weaker than planned. Eesti            
Digitaaltelevisiooni AS is trying to make up for the initial setback by         
expanding the coverage area and improving the selection of programmes. The      
coverage area changed notably in the second quarter; by the end of the quarter  
ZUUMtv covered as much as 93% of Estonian households. Although the relevant     
figure was 60% at the launch of the product, it encompassed mainly densely      
populated areas such as Tallinn and Tartu where the traditional cable television
is more economically feasible and where the potential of ZUUMtv is thus         
relatively modest. While until now the three main local channels were available 
to ZUUMtv clients in analogue format, then from the end of April the first of   
them - Eesti Televisioon - is available digitally. At the end of June, Eesti    
Digitaaltelevisiooni AS had 4.3 thousand customers.                             
Starman's operating expenses amounted to 5.59 million euros in the first        
half-year 2007, having grown by 30% compared to the same period in the previous 
year. The fact that the operating expenses grew faster than the revenue is      
primarily attributable to ZUUMtv - when eliminating the direct costs relating to
this newly launched product, the increase in operating expenses would amount to 
12%. The impact of ZUUMtv is most notable among expenses reported under         
“Services purchased” which include the transmission charge payable to Levira as 
a new major expense item. The amount of the transmission charge depends         
primarily on coverage, and therefore its impact on profit figures after the     
product has just been introduced and customer figures are far from the company's
long-term targets is quite substantial. In addition to the impact of ZUUMtv, the
increase of marketing expenses by 68% when compared to the first half of the    
previous year resulted from the continuing aggressive competition in promoting  
of telecommunications services. Of major expense items, expenses on the rental  
of communication ducts (a growth of 50%) and personnel expenses have also shown 
fast growth compared to the same period a year ago. All in all, despite the     
pressure on several input prices due to fast-growing salaries, the company has  
been quite successful in managing the growth in operating expenses.             
In the first half-year 2007, personnel expenses increased 25% year on year. As  
regards personnel expenses, it should be noted that this indicator includes 81% 
of the total wage fund, since the remainder is capitalised in accordance with   
the corporate accounting rules. The average number of employees was 223 in the  
first half-year 2007 (206 in the first half-year 2006). As of 30 June 2007, the 
company employed 223 people. Part-time employees accounted for 16% of the staff.
The average number of employees translated to the full employment equivalent was
199 in the first half-year 2007, up 4% compared to the same figure a year ago.  
As to expenses related to asset valuation, the provision for bad debts amounted 
to 32 thousand euros, i.e. to merely 0.4% of the period turnover just like in   
the corresponding period a year ago. Losses and write-downs of inventories      
totalled 26 thousand euros in the first half-year 2007 (64 thousand euros in the
first half-year 2006).                                                          
EBITDA for the first half-year 2007 amounted to 3.16 million euros. When        
eliminating the direct influence of ZUUMtv, the EBITDA margin would amount to   
44%. Hence, the first half-year 2007 was record-breaking in terms of            
profitability of traditional services.                                          
Depreciation costs increased by 28% compared to the first half-year 2006. Owing 
to the extensive investing activities carried out in recent years, the          
depreciation costs continued to have a considerable impact on the profit        
figures.                                                                        
The net profit attributable to shareholders for the first half-year 2007        
amounted to 1.34 million euros. The result for minority shareholders - their    
share in the loss of Eesti Digitaaltelevisiooni AS - was 0.25 million euros     
negative. When assessing profit figures one should note that expenses for the   
second quarter include the income tax expenditure of 0.17 million euros         
resulting from the disbursement of dividends.                                   

Balance sheet, investments and financing                                        

In the first half-year 2007, Starman's investments in fixed assets amounted to  
3.69 million euros. The company made the following investments: 1.58 million    
euros in cable network construction and renovation; 0.62 million euros in       
internet equipment (incl. 0.47 million euros in Head-Ends); 0.44 million euros  
in STBs (incl. 0.35 million euros for provision of ZUUMtv); 0.36million euros in
analogue cable television Head-Ends; 0.29 million euros in telephone modems; and
0.40 million euros in other spheres.                                            
When compared to earlier years, projects aiming at network expansion are notable
among investments in the cable network. There are still some locations in       
Estonia where cable network expansion should be profitable, given the company's 
current success in providing telecommunications services. In addition to the    
usual trend of moving along with real estate developments in Tallinn and its    
surroundings the company made investments in, e.g., Tapa, Kadrina, Võru and     
Pärnu in the first half-year 2007. While work aimed at the modernisation and    
enhancement of the data communication capability of the existing network is     
continued, the relative share of that particular type of network investments is 
diminishing, given the level already achieved. As of 30 June 2007, Starman's    
network covered 258 thousand households with 237 thousand - i.e. 92% - of the   
households being served by a network with the data communication facility (as of
31 December 2006 the comparable figures were 251 thousand, 225 thousand and 90%,
respectively). Investments in telephone modems and STBs are directly related to 
the growth in the number of customers. Investments in the internet and cable    
television equipment primarily enhanced quality in the environment of ever      
growing data communication volumes.                                             

Starman's balance sheet structure continues to be characterised by high         
capitalisation, a relatively low debt level and a sufficient liquidity. Due to  
dividend payments made at the beginning of July, a higher than average level of 
both “Payables” and “Cash” can be observed on the Balance Sheet prepared as of  
30 June 2007. While most of the investments made in the first half-year 2007    
were financed out of the company's own resources, the volumes of borrowed funds 
were increased to a certain extent, as well. The high level of inventories as of
30 June 2007 is mainly due to the value of STBs designated for the ZUUMtv offer 
amounting to 1.11 million euros in the balance sheet of Eesti                   
Digitaaltelevisiooni AS. Considering the anticipated market capacities for the  
new product and the delivery schedule of the STBs the level of these inventories
will probably remain high also in the future.                                   

Rändy Hütsi                                                                     
Member of the Management Board                                                  
+372 677 9977                                                                   
Additional information: AS Starman interim report for the first half-year 2007

Attachments

starman_2007_6m_eur_eng_finstatements.doc starman_2007_6m_eek_eng_finstatements.doc