SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 6-K

Report of Foreign Issuer

Pursuant to Rule 13a-16 or 15d-16

of the Securities Exchange Act of 1934

As of and for the three month and six month periods ended
June 30, 2003 and 2002

Polska Telefonia Cyfrowa Sp. z o.o.

(Exact Name of Registrant as Specified in Its Charter)

Al. Jerozolimskie 181, 02-222 Warsaw

(Address of Principal Executive Offices)

Poland

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.

Form 20-F

Form 40-F ______________

Indicate by check mark whether the registrant by furnishing the information contained in the Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

Yes

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): N/A

We, Polska Telefonia Cyfrowa Sp. z o.o., are a limited liability company organized under the laws of the Republic of Poland.

References to the ‘‘10¾% Notes’’ are to the 10¾% Senior Subordinated Guaranteed Discount Notes due July 1, 2007. The 10¾% Notes were issued in July 1997 by PTC International Finance B.V., a wholly-owned finance company subsidiary of ours organized under the laws of The Netherlands.

References to the ‘‘11¼% Notes’’ are to the 11¼ % Senior Subordinated Guaranteed Notes due December 1, 2009. The 11¼% Notes were issued in November 1999 by PTC International Finance II S.A., a company organized under the laws of Luxembourg. PTC International Finance II S.A. is a wholly-owned subsidiary of PTC International Finance (Holding) B.V., a wholly owned holding company subsidiary of ours organized under the laws of The Netherlands.

References to the ‘‘10⅞% Notes’’ are to the 10⅞% Senior Subordinated Guaranteed Notes due May 1, 2008. The 10⅞% Notes were issued in May 2001 by PTC International Finance II S.A., a company organized under the laws of Luxembourg. PTC International Finance II S.A. is a wholly-owned subsidiary of PTC International Finance (Holding) B.V., a wholly owned holding company subsidiary of ours organized under the laws of The Netherlands.

The 10¾% Notes, 11¼% Notes and 10⁷/₈% Notes (together, the ‘‘Existing Notes’’) are fully and unconditionally guaranteed by us on a senior subordinated basis. PTC International Finance B.V., PTC International Finance (Holding) B.V. and PTC International Finance II, S.A. do not file separate reports under the Securities Exchange Act of 1934 (the ‘‘Exchange Act’’). We have no other subsidiaries.

We publish our Financial Statements in Polish Zloty. In this quarterly report on Form 6-K (the ‘‘Form 6-K’’), references to ‘‘Zloty’’ or ‘‘PLN’’ are to the lawful currency of the Republic of Poland, references to ‘‘U.S. dollars’’, ‘‘U.S.$’’, ‘‘USD’’ or ‘‘$’’ are to the lawful currency of the United States of America, references to ‘‘€’’ and ‘‘Euro’’ are to the single currency of those member states of the European Union participating in the third stage of European Economic and Monetary Union. Our Financial Statements for the three month and six month periods ended June 30, 2003 and 2002, included in this Form 6-K have been prepared in accordance with Internatio nal Financial Reporting Standards (‘‘IFRS’’), which differ in certain respects from generally accepted accounting principles in the United States (‘‘U.S. GAAP’’) (see Note 13 to the Financial Statements). Unless otherwise stated herein, all financial information presented in this Form 6-K has been prepared in accordance with IFRS.

This report contains translations of Zloty amounts into U.S. dollars at specified rates solely for the convenience of the reader. No representation is made that the amounts referred to in this report as convenience translations could have been or could be converted from Zloty into U.S. dollars at these rates, or at any particular rate or at all. Unless otherwise indicated, all translations in this report of Zloty amounts into U.S. dollars are at the rate of $1 = PLN 3.8966, the Fixing Rate announced by the Polish National Bank on June 30, 2003.

____________________________

Our registered office and our headquarters are located at Al. Jerozolimskie 181, 02-222 Warsaw, Poland; our telephone number is (+48.22.413.6000).

TABLE OF CONTENTS

Item 1. Financial Statements

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Item 3. Quantitative And Qualitative Disclosures About Market Risks

Part II. Other Information

Item 1. Legal proceedings

Item 2. Material contracts

Item 3. Business environment

SIGNATURES

Part I. Financial Information

Item 1. Financial Statements

See “Financial Statements” attached to this form 6-K.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

This Quarterly Report on Form 6-K contains certain "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are statements other than historical information or statements of current condition. Some forward looking statements may be identified by use of such terms as "believes", "anticipates", "intends", or "expects". These forward-looking statements relate to the plans, objectives and expectations of our future operations. In light of the risks and uncertainties inherent in all such projected operational matters, the inclusion of forward-looking statements in this report should not be regarded as a representation by us or any other person that our objectives or plans will be achieved or that any of our operating expectations will be realized. Our revenues and results of operations are difficult to forecast and could differ materially from those projected in the forward-looking statements contained in this report as a result of numerous factors including among others, the following: (i) changes in customer rates per minute; (ii) foreign currency fluctuations; (iii) termination of certain service agreements or inability to enter into additional service agreements; (iv) inaccuracies in our forecast of traffic growth; (v) changes in or developments under domestic or foreign laws, regulations, licensing requirements or telecommunications standards; (vi) domestic or foreign political or economic instability; (vii) changes in the availability of transmission facilities; (viii) loss of the services of key officers; (ix) loss of a customer which provides us with significant revenues; (x) highly competitive market conditions in the industry; (xi) concentration of credit ris k; (xii) availability of long term financing; and availability and functionality of new technologies in both handsets and infrastructure. The foregoing review of the important factors should not be considered as exhaustive.

Operating Results

The following section should be read in conjunction with our Financial Statements (including the Notes thereto) presented elsewhere in this Form 6-K. The Financial Statements, and the related financial information set forth and discussed in this section, have been prepared in accordance with International Financial Reporting Standards, which differ in certain respects from U.S. GAAP. For a description of the material differences between International Financial Reporting Standards and U.S. GAAP, see Note 13 to the Financial Statements for the three month and six month periods ended June 30, 2003 and 2002, and as of June 30, 2003 and December 31, 2002. The financial data presented in accordance with International Financial Reporting Standards included and discussed below for the three month and six month periods ended June 30, 2003 and 2002, and as o f June 30, 2003 have been derived from unaudited Financial Statements.

Statement of Operations Data

	Three months ended June 30, 2003		Six months ended June 30, 2003	Three months ended June 30, 2002	Six months ended June 30, 2002
	$⁽¹⁾	PLN	PLN	PLN	PLN
	(in thousands, except subscribers and churn rate data)
Income Statement Data
International Financial Reporting Standards (unaudited)
Net sales:
Service revenues and fees	349,499	1,361,857	2,597,004	1,156,985	2,230,180
Sales of telephones and accessories	9,783	38,122	77,685	38,082	91,067
Total net sales	359,282	1,399,979	2,674,689	1,195,067	2,321,247
Cost of sales:
Cost of services sold	(154,655)	(602,632)	(1,161,510)	(492,806)	(939,251)
Cost of sales of telephones and accessories	(79,641)	(310,328)	(652,462)	(228,164)	(469,200)
Total cost of sales	(234,296)	(912,960)	(1,813,972)	(720,970)	(1,408,451)
Gross margin	124,986	487,019	860,717	474,097	912,796
Operating expenses:
Selling and distribution costs	(39,939)	(155,626)	(322,304)	(146,357)	(282,864)
Administration and other operating costs	(16,009)	(62,380)	(119,395)	(62,271)	(115,756)
Total operating expenses	(55,948)	(218,006)	(441,699)	(208,628)	(398,620)
Operating profit	69,038	269,013	419,018	265,469	514,176
Interest and other financial expenses, net	(28,148)	(109,681)	(218,466)	(232,940)	(414,791)
Profit before taxation	40,890	159,332	200,552	32,529	99,385
Taxation charge	(9,798)	(38,180)	(36,972)	(19,303)	(33,929)
Net profit	31,092	121,152	163,580	13,226	65,456
U.S. GAAP (unaudited)
Revenues	359,277	1,399,957	2,674,636	1,195,228	2,321,630
Cost of sales	(233,701)	(910,639)	(1,809,456)	(719,424)	(1,404,140)
Operating expenses	(55,948)	(218,006)	(441,699)	(208,628)	(398,620)
Interest and other financial expenses, net	(29,736)	(115,870)	(342,725)	(300,676)	(546,307)
Taxation charge	(9,176)	(35,753)	(22,672)	(2,841)	(10,022)
Net gain	30,716	119,689	58,084	(36,341)	(37,459)
Other Financial and Operating Data (unaudited)
EBITDA (IFRS)(2)	128,729	501,607	883,474	509,866	986,702
EBITDA (U.S. GAAP)(2)	128,703	501,505	883,085	509,921	986,766
Net cash from operating activities	21,689	84,512	487,867	341,309	744,700
Net cash used in investing activities	(23,849)	(92,932)	(214,179)	(83,262)	(293,335)
Net cash used in financing activities	(938)	(3,657)	(308,963)	(269,485)	(473,068)
Subscribers at end of period		5,600,609	5,600,609	4,244,393	4,244,393
Monthly churn rate (%) (3)		1.5	1.4	1.5	1.7

(1)

Solely for the convenience of the reader, Zloty amounts have been translated into U.S. dollars at the rate of PLN 3.8966 per $1.00, the Fixing Rate announced by the National Bank of Poland on June 30, 2003. The translated amounts should not be construed as representations that the Zloty has been, could have been, or could in the future be converted into U.S. dollars at this or any other rate of exchange.

(2)

EBITDA represents earnings before interest and other financial expenses (net), taxes, depreciation and amortization. EBITDA is included as supplemental disclosure because it is generally accepted as providing useful information regarding a company’s ability to service and incur debt. EBITDA should not, however, be considered in isolation as a substitute for net income, cash flow provided from operating activities or other income or cash flow data or as a measure of a company’s profitability or liquidity. Please refer to the reconciliation of the EBITDA amounts presented below

(3)

The churn rate is calculated as the average of the monthly churn rates in the relevant period. The monthly churn rate is calculated as the total number of voluntary and involuntary deactivations and suspensions during the relevant month expressed as a percentage of the average number of subscribers for the month (calculated as the average of the month end total number of subscribers and the total number of subscribers at the end of the previous month).

Balance Sheet Data
	At June 30, 2003 (unaudited)		At December 31, 2002
	$⁽¹⁾	PLN	PLN
	(in thousands)
International Financial Reporting Standards
Long-term assets and deferred taxes	1,616,898	6,300,404	6,343,195
Total assets	1,886,894	7,352,472	7,265,044
Long-term liabilities, deferred tax liabilities and provisions	1,274,448	4,966,015	5,038,435
Total liabilities	1,475,914	5,751,047	5,912,517
Shareholders’ equity	410,980	1,601,425	1,352,527
U.S. GAAP
Long-term assets and deferred taxes	1,554,789	6,058,393	6,222,084
Total assets	1,875,022	7,306,212	7,378,253
Shareholders’ equity	348,280	1,357,109	1,213,927

Reconciliation of the EBITDA amounts


	Three months ended June 30, 2003		Six months ended June 30, 2003	Three months ended June 30, 2002	Six months ended June 30, 2002
	$⁽¹⁾	PLN	PLN	PLN	PLN
	(in thousands)
IFRS (unaudited)
Operating income	69,038	269,013	419,018	265,469	514,176
Depreciation and Amortization	59,691	232,594	464,456	244,397	472,526
EBITDA	128,729	501,607	883,474	509,866	986,702

U.S. GAAP (unaudited)
Operating income	69,628	271,312	423,481	267,176	518,870
Depreciation and Amortization	59,075	230,193	459,604	242,745	467,896
EBITDA	128,703	501,505	883,085	509,921	986,766

Operating overview

PTC was formed in December 1995, and was awarded a 15-year non-exclusive GSM 900 License in February 1996 by the Polish Ministry of Communications. Thereafter, we commenced construction of our GSM network and, in September 1996, started offering services to our subscribers under the brand name Era GSM. Since that time, we have experienced rapid growth.

In August 1999, we were granted a GSM 1800 License, also on a 15-year non-exclusive basis. Our GSM 1800 License enabled us to substantially enhance our call volume capacity, particularly in major urban areas. We commenced services under our GSM 1800 License on March 1, 2000.

In 2001 we started offering fast GPRS data transmission using our GSM network.

In December 2000, we were granted a UMTS License, on a 20-year non-exclusive basis. Our UMTS License will allow us to provide high-speed data and Internet services over our mobile network. All operators are currently required to launch UMTS services no later than January 1, 2005 and no earlier than January 1, 2004. Operators are required to cover 20 percent of the population of Poland by the end of 2005 and 40 percent of the population by the end of 2008.

On July 10, 2003, all three mobile operators, holders of UMTS licenses, applied to OTRP for a delay of the obligatory date for the launch of UMTS services from 1 January 2005 to 1 January 2006. The applicants also requested delaying the date for achieving a 20% population coverage of the UMTS network until the end of 2007 and for cancellation of the 40% population coverage requirement, as currently set in the license.

We provide a broad range of high-quality wireless telephony services. These services include call forwarding, call waiting, voicemail, account information, short messaging services, multimedia messaging services, information services, wireless Internet access (enabled by WAP and GPRS technology) and multimedia services offered through the Era Omnix platform. We believe that our UMTS License will enable us to offer subscribers a wider range of products as we introduce broadband wireless services. We offer a range of differentiated tariff plans aimed at attracting and retaining subscribers with varying service needs. In particular, our strategic focus has been on acquiring and retaining high volume users on our post-paid service and expanding our exposure to the fast growing but lower usage pre-paid segment whilst minimizing churn to increase recurring cash flow from each of our subscribers. We provide roaming capabilities to our subscribers through 273 international roaming agreements with GSM operators in 143 countries (as at June 30, 2003), including all European countries with GSM services. Based on agreements with our roaming partners we provide prepaid roaming services in 23 countries and as of mid May 2003 offer our subscribers GPRS roaming in forty four networks in thirty five countries. We provide GPRS in-bound roaming for customers of forty six foreign operators.

Since our inception, we have benefited from the experience, expertise and financial and operating support of T-Mobile and Elektrim Telekomunikacja Sp. z o.o. and of their parent companies, Deutsche Telekom AG, Vivendi Universal S.A. and Elektrim S.A. The high quality standard of service that we provide has been confirmed by a series of ISO certifications. The latest achievement is the Quality Management System ISO 9001:2000 certificate, which is unique to telecommunications in Poland in that it covers all business processes of the Company.

We have achieved rapid growth in our subscriber base since we first launched our services in September 1996. For the quarter ended June 30, 2003, we acquired an average of approximately 120 thousand additional net subscribers per month compared to approximately 90 thousand in the corresponding period of 2002. In the second quarter of 2003 our churn rate remained unchanged compared to the second quarter of 2002 and was equal to an average of 1.5% of the subscriber base per month. As of June 30, 2003, we provided wireless services to approximately 2.7 million post-paid subscribers and approximately 2.9 million pre-paid subscribers. Since we started our activity we have been usingEra GSM brand name, which we changed, in March 2001, toEra to begin positioning it as a technology independent brand in advance of the UMTS launch. We have two sub-categories of postpaid tariff plansEra Biznes, for business customers, andEra Moja for private customers. We also useEraTak Tak brand for our pre-paid services.

The following table sets forth our key business indicators:

	Three months ended June 30, 2003	Six months ended June 30, 2003	Three months ended June 30, 2002	Six months ended June 30, 2002

Subscribers:
Gross subscribers additions	611,504	1,165,431	454,333	880,098
Churn rate (monthly average) (%)	1.5	1.4	1.5	1.7
Net subscriber additions	360,236	732,321	271,201	468,741
Total subscribers	5,600,609	5,600,609	4,244,393	4,244,393
Of which:
Post-paid subscribers	2,729,317	2,729,317	2,410,969	2,410,969
Pre-paid subscribers	2,871,292	2,871,292	1,833,424	1,833,424
Growth of total subscriber base in the preceding twelve months (%)	32%	32%
Traffic:
Average monthly minutes of use	81.9	79.8	97.4	97.5
Average monthly number of SMSs	24	23	15	16
Average monthly revenue per user	79.8	79.6	91.4	90.8
Change from prior year (%)	(12.6)	(12.3)
Coverage of GSM cellular network in Poland:
Geographical area covered (%)	96.5	96.5	96.5	96.5
Population covered (%)	99.5	99.5	99.5	99.5

Data for three month and six month periods ended June 30, 2002 restated according to definitions used in 2003 to ensure comparability.

We provide average monthly revenue per user as a useful measure of demand for our services. As different groups of clients may have different propensities to use and pay for services provided by us, we measure the average revenue per user separately for customers from the pre-paid and post-paid segments of the market as a useful information about their impact on the revenues we generate and the value of those customers to us. To calculate average revenue per user we divide certain service revenues (including interconnection fees for incoming calls) that clients generate by the average monthly number of those clients in the period.

	Three months ended June 30, 2003	Six months ended June 30, 2003	Three months ended June 30, 2002	Six months ended June 30, 2002
All customers
Service revenues and fees¹⁾	1,298,051	2,499,625	1,125,110	2,170,707
Average number of subscribers	5,419,531	5,233,361	4,103,452	3,984,761
Average revenue per user per month	79.8	79.6	91.4	90.8

Post-paid customers
Service revenues and fees¹⁾	1,055,941	2,037,658	953,349	1,847,248
Average number of post-paid subscribers	2,678,934	2,618,865	2,382,135	2,365,316
Average revenue per post-paid user per month	131.4	129.7	133.4	130.2

Pre-paid customers
Service revenues and fees¹⁾	242,110	461,967	171,761	323,459
Average number of pre-paid subscribers	2,740,597	2,614,496	1,721,317	1,619,445
Average revenue per pre-paid user per month	29.4	29.4	33.3	33.3

¹⁾Service revenues and fees, which are not included in the calculation of average revenue per user include revenues generated by customers of foreign operators roaming in our network, fees we receive for activating new clients and for selling our transmission lines capacity (leased lines) and other revenues not related to the use of services by our subscribers. The items not included in the calculation of average revenue per user constituted 4.7% and 2.8% of total service revenues and fees in the periods of three months ended June 30, 2003 and June 30, 2002, respectively.

Financial Review

Factors Affecting Revenues

Overview

We are the largest GSM wireless telephony services provider in Poland with approximately 5.6 million subscribers, a 36.2% share of the total Polish wireless market and a 38.2% share of the post-paid market, in each case, as of June 30, 2003. Among wireless service providers in Poland, we believe that we lead the market in terms of the number of subscribers, revenues, EBITDA, network quality, distribution network and brand awareness. We have national GSM 900, GSM 1800 and UMTS Licenses granted by the Polish government. As of June 30, 2003, our GSM network covered approximately 96.5% of the geographic area of Poland, representing approximately 99.5% of the total Polish population. In addition, we have selectively rolled out GSM 1800 services, which allow us to increase capacity and to offer a seamless nationwide dual-band (GSM900/1800) service. To distr ibute our products and services, we use a network of 18 dealers with 874 points of sale and 395 Authorized Business Advisors, a direct sales force of 93 Business Advisors and a national network of our own 68 retail outlets (all data as of June 30, 2003).

The main source of our revenue is airtime tariffs, consisting primarily of monthly service fees, and charges for calls that originate or terminate in our network, including international calls that originate outside Poland and terminate in our network. Other significant revenue sources include service activation fees and revenues from the sale of telephones and accessories. Airtime tariffs include revenues from incoming and outgoing calls, a relatively small amount of charges for roaming calls and revenue from the usage of prepaid airtime cards. Airtime charges are paid by the initiators of calls, and when our subscribers travel outside Poland, they are also charged for the international and call forward cost of their incoming calls.

Starting from February 1, 2003 we commenced internetworking settlements with the two other Polish mobile operators, PTK Centertel and Polkomtel, related to SMS messages sent between the networks. Agreements provide for symmetrical rates for each message, paid by the operator in whose network the message has been originated to the operator who terminates the message. During the second quarter of 2003 revenues amounting to PLN 29.6 million were recognized from this source.

Our revenues depend on the level of competition in the Polish telecommunications market. Competition in the market may increase if the Polish Government decides to run a tender for a fourth mobile operator in the future or if any of the entities which have obtained licenses to operate virtual mobile networks agree with one of the existing operators on terms permitting access to the incumbent’s network and launch their operations.

The higher data transmission rates of GPRS and UMTS in the air interface relative to GSM enables network operators to offer a broader range of services than is possible using GSM. We expect that these new services will appeal to the mass market and increase our revenues over time but we can provide no assurance that this will be the case. In addition, the success of these new services substantially depends on the availability of user-friendly handsets from handsets producers and our ability to identify and enter into agreements with content providers, content aggregators, applications service providers and mobile commerce partners to deliver such services to our subscribers. We believe that, if we are successful in these efforts, we may be able to reverse the downward trend in average revenue per user by replacing falling average voice revenues with r evenues for use of data services, commissions received from mobile commerce partners and charges for advertising.

Our revenues depend on the number of subscribers, call and data volume and tariff pricing. Our total number of subscribers is affected by the number of new subscriber activations and by our rate of churn. Continued subscriber and traffic volume growth will depend on a number of factors, including pricing and promotions (including handset replacement programs), as well as general economic and market conditions, the level of competition for obtaining new subscribers and the capacity and coverage of our network. We expect that average minutes of use and revenue per subscriber will fall as the cellular telephone penetration level in Poland increases. We believe that this trend has been accentuated by the increase in our pre-paid subscriber base.

Subscriber Growth

New subscriber activations are driven by the success of marketing efforts and unmet demand for telecommunications services in Poland resulting from the growth of the Polish economy and low wireline penetration rates.

During the second quarter of 2003, we attracted approximately 612 thousand new gross subscribers, approximately 34.6% more than in the second quarter of 2002. We increased our total net subscriber base by 32.0% to 5,600,609 subscribers as of June 30, 2003, from 4,244,393 subscribers as of June 30, 2002. As of June 30, 2003, our subscribers consisted of approximately 48.7% post-paid subscribers and 51.3% pre-paid subscribers. During the second quarter of 2003, our post-paid subscriber base reached 2,729,317 subscribers, a 13.2% increase from 2,410,969 at the end of the second quarter of 2002. Pre-paid subscribers totaled 2,871,292, which represents a 56.6% growth over 1,833,424 a year ago. The majority of new customers select pre-paid tariffs. During the last three months, the proportion of new customers selecting post-paid tariffs was similar to that i n the corresponding period of 2002 at 39.9%.

We estimate that the overall Polish wireless market grew by approximately 4.4% in the second quarter of 2003 to approximately 15.5 million subscribers, representing 40.4% market penetration.

During the last several quarters, the total prepaid market grew much faster than the postpaid market. In the second quarter of 2003, however, due to the disconnection of 300 thousand prepaid customers announced by Polkomtel, we estimate the growth of the prepaid market at 3.7%. The postpaid market growth in the three months ended June 30, 2003, is estimated at 5.1%.

We estimate our prepaid and postpaid market shares at 34.5% and 38.2%, respectively, at the end of the second quarter of 2003, compared to 32.6% and 38.6%, respectively, at the end of March of 2003. During the first half of 2003 PTC has stepped up its efforts in the postpaid private market to complement the good performance seen in the business and prepaid segments during 2002. Management believes that the new tariffs and non-voice advantages of our Omnix service leave us better placed than in 2002 to make satisfactory returns on acquisition investment in the postpaid private segment. Further benefits are expected to follow from high marketing emphasis placed on MMS-capable terminals and handsets in the marketing activities of recent quarters.

Our subscriber base represents approximately 36.2% of the total wireless market, which continues to position us as the leader among wireless services providers in Poland and is up from 35.0% at the end of 2002. Through our higher than average exposure to postpaid subscribers and business customers, we are able to maintain a revenue market share estimated at approximately 36.9%.

PTC’s share of net additions in the second quarter of 2003 is estimated at 56% versus approximately 30.7% a year earlier. This unusually high share was partly caused by Polkomtel announcing the disconnection of 300 thousand prepaid subscribers who had been dormant for over 12 months. Improvement in share has been achieved through greater acquisition, retention and marketing investments that reduced EBITDA margin from 42.7%¹ in the second quarter of 2002 to 35.8%¹ in the second quarter of 2003. However, this investment should pay back through faster revenue growth in subsequent quarters.

Churn Rate

”Churn” refers to disconnected subscriptions, either voluntary (due to our subscribers switching to competing networks or terminating their use of cellular communications services) or involuntary (due to non-payment of bills or suspected fraudulent use). We calculate churn rate using widely accepted general principles, by dividing the number of deactivations during a given period by the average subscriber base for such period. Prepaid customers are deactivated and recorded as churn 12 months after their last recharge, which we believe is broadly the stated practice of all three Polish operators.

We seek to minimize voluntary customer churn by providing a high quality network, loyalty programs and extensive subscriber service at competitive prices. In order to better enable us to recover subscriber acquisition costs from churn, we require our subscribers who purchase services during promotional campaigns to pay a fee, approximately equal to the discount on the full cost of their handset less activation fee, if they change tariff plans or cancel their subscriber contract prior to the expiration of a minimum period (generally two years).

Non-payment churn is managed through sophisticated fraud, credit checking and dunning techniques. Customers whose initial two-year contract has expired are free to terminate their service, without additional charges. Over the past two years the proportion of post-paid customers reaching the end of their initial subscription contracts has increased significantly. We have responded by initiating and successfully improving a loyalty program similar to airline mileage award programs which is based on minutes of airtime used by subscribers. It was upgraded in April 2003 by offering new awards for our subscribers, who can obtain packages of free airtime minutes or SMSs. For higher ARPU customers who decide to extend their contracts with us we offer a subsidized handset replacement program. Nevertheless, we believe that our success in subscriber retention or cost recovery measures will depend to a large extent upon competitive factors beyond our control. In particular, we believe that the tariff structure and minimum subscription period requirements implemented by our principal competitors will be a significant factor in our subscriber retention.

The average monthly churn rate in the second quarter of 2003, was similar to that recorded in the second quarter of 2002 and amounted to 1.5%. The average monthly churn rate for post-paid subscribers in the second quarter of 2003 amounted to 1.6% and was similar to the figure in the corresponding period of 2002, mainly as a result of attractive value propositions introduced together with the new tariffs launched in October and May 2003, as well as intensified retention activities. PTC is continuously focusing on customer value in the postpaid private segment and carefully assessing the profitability of its retention offers.

The monthly churn rate for pre-paid customers increased to 1.5% in the second quarter of 2003, compared to 1.3% in the corresponding quarter of 2002. Some deterioration in the average quality of prepaid additions, accepted as part of increasing PTC’s exposure to prepaid during 2002, is now beginning to affect the prepaid churn statistics.

Subscriber Mix

Our revenues are affected by the mix between our post-paid and pre-paid subscribers. Post-paid subscribers generally have higher lifetime average subscriber values than pre-paid subscribers, as they tend to make a higher number of calls. The monthly revenue generated by post-paid customers is on average 4.4 times higher than the revenue coming from pre-paid customers. A particularly attractive part of the post-paid market is the business segment with more sophisticated needs and even higher lifetime subscriber value.

Those advantages of having post-paid subscribers come at a higher cost to the operator, as they require high network capacity and drive additional expenses of billing, customer service and bad debts. The most attractive characteristics of the pre-paid customers are the lower acquisition costs to the operator which equal less than a tenth of the cost of acquiring a post-paid subscriber, generation of cheap-to-supply off peak traffic, high unit profit margins, no bad debts and lower working capital requirements. The main draw-back of pre-paid customers is the weaker customer relationship and low traffic volumes to cover fixed costs.

Our subscriber base currently consists of 51.3% of pre-paid subscribers and of 48.7% post-paid subscribers. The company expects the proportion of its pre-paid subscribers to increase in the future, which may result in a continued decline in Average Revenue Per User Per Month (ARPU) in respect of voice services.

With the further popularization of GPRS-based services and the introduction of UMTS services we expect to be able to extend our presence in the market of “machine to machine” or telematic services. These services are tailored for business subscribers to enable their fixed assets or products to be connected to its network for the purpose of transmitting and receiving data that increases operating efficiency or improves product functionality.

Tariff Policy

In the past few quarters we introduced new tariff plans for post-paid retail and business customers as well as for pre-paid customers. Tariff pricing, consisting of the rates we charge subscribers for airtime, monthly service and service activation, is significantly dependent on competitive factors. During the second quarter of 2003 our offer consisted of 15 post-paid tariff structures and three pre-paid tariff structures, with different airtime and monthly access charges catering to the usage patterns of different subscriber market segments. Airtime tariffs for domestic calls can be optionally differentiated depending on the time of day a call is made or if the call is made within the Era network or to other operators, while tariffs for international calls vary according to the destination of the call. We charge separately for certain bundles of the value-added services offered, such as call waiting, short message service and data and facsimile transmission.

We regularly run promotions in which our price for service activation, handsets or both is reduced for promotion period. Our future price level will depend on the level of competition in the Polish telecommunications services market, demand for our services, the general level of Polish price inflation, other changes in factors affecting underlying costs, and increased competition from other technologies, including both cellular and other mobile telecommunications systems, as well as the availability within Poland of wireline telephones and any limitations on price increases imposed by regulators. Tariffs for inbound traffic are set by interconnection agreements with Telekomunikacja Polska S.A (“TPSA”), Polkomtel, Centertel, El-Net, Netia and other fixed-line operators.

Starting from July 1, 2002, we began offering a new tariff plan for pre-paid subscribers. Launch of the new tariff plan aimed to further increase attractiveness of our pre-paid offer and follows the changes introduced in May 2002 (SMS focused tariff plan). The new tariff plan “Together” is for those who make most of their calls within the Era network (cheap intra-network calls and SMSs). We also revised the existing “All Day” tariff and refreshed the “You and Me” tariff as “SMS Fan”, featuring cheap SMS rates. All pre-paid customers transitioned automatically from the previous plans to the new cheaper plans.

Starting from October 21, 2002, we introduced new tariff plans for both post-paid private and post-paid business customers. The main innovations introduced together with these tariff plans are: optional per 1 second billing (for an additional monthly fee), bundled minutes-SMSs exchangeability, cheaper SMSs, flat rate per minute and optional on-net/off-net and peak/off-peak differentiation. The new set of monthly fee and bundled minute options is tailored more to higher ARPU customers. These new post-paid tariffs are expected to reduce post-paid ARPU over coming quarters but also support usage levels due to elasticity effects. Improving our price positioning and introducing pricing innovations to the market is intended to support our market share leadership in the post-paid market. These were the first major price reductions on post-paid tariffs since November 2000.

On May 6, 2003, PTC introduced new tariffs “Taka jak Ty” for private and business postpaid subscribers. A differentiating feature of the “Taka jak Ty” tariff plans is a digressive rate per minute for an increasing volume of use. These are the only tariffs in the market which do not include airtime minutes bundled in the monthly fee, but offer a simple price per minute of use with an additional incentive of price reductions for higher usage customers.

PTC’s existing range of Moja and Biznes tariffs, including bundled minutes and as upgraded last October, continue to be offered alongside “Taka jak Ty” and are chosen by a majority of customers. These tariff ranges have been expanded to include ultra high user bundles with the addition of Moja 500 VIP and Biznes 500 VIP tariffs during the second quarter of 2003.

Minutes of Use

Our revenue depends on the intensity of usage of our services by our subscribers, which is reflected in the number and length of calls they make, number of messages they send and volume of usage generated by using other voice and data services that we offer. We seek to stimulate usage by increasing the number of free minutes bundled in the monthly fee, lowering tariffs, by the introduction of one-second billing for post-paid customers and by tailoring tariffs to customers’ requirements through a digressive rate per minute of use for an increasing volume of usage, which is reflected in the new post-paid tariffs offered since May 2003.

The average number of Minutes of Use per subscriber per month (“MoU”) in the second quarter of 2003 was 81.9 compared to 97.4 in the corresponding quarter of 2002 and 77.5 in the first quarter of 2003. The average number of MoUs per month was 134.4 minutes for post-paid subscribers and 30.7 minutes for pre-paid subscribers compared to 142.7 and 34.6 minutes in the second quarter of 2002.

This decrease in the average number of MoUs was caused by an increasing proportion of pre-paid subscribers among our customers as well as by a decreasing volume of incoming minutes, especially from fixed-line operators. In addition, as outbound minutes are measured based on the billing increment of the relevant tariffs, the switch to per second billing made by many postpaid customers results in lower reported usage for a given length of actual talk-time.

Short Message Services

The average number of SMS was almost 24 SMSs per subscriber per month in the second quarter of 2003 compared to 15 in the second quarter of 2002. The average monthly number of SMSs was 26 messages per post-paid subscriber and 21 messages per pre-paid subscriber compared to 17 and 13, respectively, in the three months ended June 30, 2002.

The increase in the second quarter of 2003 was primarily due to the decrease in SMS prices offered as part of the new tariffs since October 2002, increased flexibility related to exchangeability of minutes and SMSs bundled in the monthly fee and the success of our marketing and promotional campaigns.

We believe that the number of SMSs will increase in future, thereby increasing the portion of ARPU coming from data transmission.

Average Revenue Per User²

During the second quarter of 2003, monthly Average Revenue per User (ARPU) was PLN 79.8 a decrease of 12.6% when compared to the result for the second quarter of 2002, which was PLN 91.4, and an increase of 0.6% when compared to PLN 79.4 in the first quarter of 2003. ARPU from postpaid subscribers during the second quarter of 2003 was PLN 131.4, down by 1.5% comparing to the second quarter of 2002. ARPU from prepaid subscribers was PLN 29.4, which is 11.5% less than in the same period of 2002.

The decrease in average ARPU recorded in the quarter was driven by continuing changes in customer mix, reflected in a significant growth in the number of pre-paid customers.

Post-paid ARPUs are relatively stable in spite of price reductions made in October 2002 due to better customer mix and strong non-voice revenue growth. ARPU for both post-paid and pre-paid subscribers was positively affected by revenues coming from interconnection agreement with PTK Centertel and the interconnection revenue from SMS traffic originated in other mobile networks and terminated in the PTC network.

Lower pre-paid ARPU was the result of a dilution of average ARPU in this segment as it grows strongly with successively lower ARPU from new users of mobile services.

Factors Affecting Expenditures

The principal components of our operating expenditures are cost of sales and operating expenses, the latter consisting of selling and distribution costs and administration and other operating costs.

Cost of Sales

Our cost of sales includes:

•

costs of equipment sold (principally handsets and related accessories that we sell to dealers and subscribers) for purposes of customer acquisition or retention;

•

amortization and depreciation charges associated with licence fees and fixed assets;

•

other external services and network maintenance fees;

•

payments for the provision by third parties, principally TPSA, of leased lines between other operators’ networks and our network, and also between elements of our network;

•

commission payments to the dealers and sales force associated with subscriber acquisition and retention; and

•

payments to other operators for delivering calls that terminate outside our network.

We anticipate that as our network and subscriber base grows and the business matures in the coming years, the relative proportions of these expenses will shift away from the cost of merchandise sales for acquisition purposes and fixed asset amortization and depreciation charges towards aggregated leased line and interconnection fees, which vary with call volumes, content fees for data services and cost of merchandise sales for retention purposes.

Until January 1, 2003, TPSA had been the only entity in Poland permitted to provide international telecommunications services. In view of the liberalization of the international services market we have entered into interconnection agreements with certain foreign operators to carry international inbound and outbound traffic to and from our network, respectively. The pricing obtained for these services is now significantly more favourable than the arrangements with TPSA prior to January 1, 2003.

Starting from February 1, 2003 we commenced internetworking settlements with the two other Polish mobile operators, PTK Centertel and Polkomtel, related to SMS messages sent between the networks. Agreements provide for symmetrical rates for each message paid by the operator in whose network the message has been originated to the operator who terminates the message. In the second quarter of 2003 the cost of SMS interconnect almost doubled in comparison with the first quarter of 2003 and amounted to PLN 27.3 million.

Operating Expenses

Our operating expenses consist of:

•

selling and distribution costs (other than fixed commissions to the dealers and sales force, who acquire subscribers, that are included in cost of sales), including advertising costs and provisions for doubtful debtors; and

•

administration and other operating costs, including external services and operations and staffing costs associated with headquarters and regional offices.

Results of Operations for the three months ended June 30, 2003 and 2002

Net Sales

Total net sales increased by approximately 17.1% to PLN 1,400.0 million in the three months ended June 30, 2003 from PLN 1,195.1 million in the three months ended June 30, 2002. Total net sales consist of service revenues and fees and sales of telephones and accessories.

Service Revenues and Fees. Service revenues and fees increased by 17.7% to PLN 1,361.9 million in the three months ended June 30, 2003 from PLN 1,157.0 million in the three months ended June 30, 2002. Service revenues and fees represented 97.3% of total net sales in the second quarter of 2003 compared to 96.8% in the corresponding period of 2002.

The increase in service revenues and fees in the three months ended June 30, 2003 compared to the three months ended June 30, 2002 was due primarily to an increase in the number of subscribers by approximately 32.0% and higher interconnection revenues. We believe that the substantial increase in our subscriber base in the above period was due primarily to the success of our marketing efforts in attracting new customers in a dynamic market.

PTC’s revenue was positively impacted by the interconnection agreement with PTK Centertel, which came into effect in June 2002. The revenues coming from this agreement totaled PLN 57.9 million or 4.1% of total revenues in the second quarter of 2003, whilst in the second quarter of 2002 PLN 8.7 million was recognized from this source. Revenues from SMS Interconnection with PTK Centertel and Polkomtel, effective from February 1, 2003 almost doubled in the second quarter of 2003 comparing to the first quarter and amounted to PLN 29.6 million.

The rate of growth in revenues was lower than the rate of increase in our subscriber base due to the following factors:

•

an increased proportion of pre-paid customers in the subscriber base, who use our services less intensively on average than our post-paid subscribers;

•

falling average usage of voice services by our customers;

•

lower prices for our services offered in our new tariff plans than in our previous tariff plans.

Faster subscriber growth and higher share of net additions in comparison with 2002, together with stable post-paid revenues per customer is enabling PTC to reach its objective of faster revenue growth than the 13.5 percent achieved in 2002.

Sales of Telephones and Accessories. Revenues on sales of telephones and accessories remained unchanged compared to the figure for the second quarter of 2002 and amounted to PLN 38.1 million in the three months ended June 30, 2003. Revenues on sales of telephones and accessories represented 2.7% of total net sales in the three months ended June 30, 2003, compared to 3.2% in the three months ended June 30, 2002.

The stabilization in value of telephones and accessories sold was recorded in a period of a significant increase in the number of gross additions. This was caused by successful promotional campaigns for post-paid subscribers, who buy subsidized handsets, and by maintaining a low share of sales of handsets for pre-paid activations relative to starter packs, which consist of only a SIM card, without a handset.

As a general matter, we do not intend to achieve positive overall margins on the sale of telephones and accessories because we believe that substantially all future margins will come from airtime revenues, including revenues related to non-voice services, and monthly service fees rather than activation fees and the sale of handsets and accessories. In addition, we believe that discounts on the sale of handsets sold for activation purposes will continue to have a decreasing impact on our results of operations, whilst discounts on the sale of handsets for retention purposes will have an increasingly negative impact on our results of operations.

Cost of Sales

Total cost of sales increased by 26.6% to PLN 913.0 million in the three months ended June 30, 2003 from PLN 721.0 million in the three months ended June 30, 2002. Total cost of sales consists of cost of services sold and cost of sales of telephones and accessories.

Cost of Services Sold. Costs of services sold increased by approximately 22.3% to PLN 602.6 million in the three months ended June 30, 2003 from PLN 492.8 million in the three months ended June 30, 2002.

The increase in cost of services sold in the second quarter of 2003 compared to the second quarter of 2002 was due primarily to:

•

more than twofold increase in interconnection charges to PLN 190.7 million in the second quarter of 2003 from PLN 77.6 million in the corresponding period of 2002 as a higher proportion of traffic moves to mobile networks and away from the fixed line networks. Interconnection cost included PLN 76.1 million of charges related to the agreement with PTK Centertel which is effective since mid-June 2002. In the second quarter of 2002 PLN 11.2 million of cost was recorded from that source. SMS Interconnect charges included in this cost category since February almost doubled in comparison with the first quarter of 2003 and amounted to PLN 27.3 million in the second quarter of 2003. Correcting for the new interconnect cost and revenue items, cost of services sold would have increased by 3.6% compar ed to the second quarter of 2002 versus adjusted service revenue growth of 11.0%;

•

higher commission charges due to a significantly higher number of gross additions recorded in the second quarter of 2003 comparing to the corresponding period of the previous year and to higher sales performance bonuses payable than in the corresponding period.

Cost of Sales of Telephones and Accessories. Cost of sales of telephones and accessories increased by PLN 82.1 million, or 36.0%, to PLN 310.3 million in the three months ended June 30, 2003 from PLN 228.2 million in the three months ended June 30, 2002. The increase in the cost of telephones and accessories of 36.0% was the result of the following factors:

•

34.6% higher gross additions than in the second quarter of 2002;

•

continuation of retention programs involving offers of subsidized replacement terminals for our higher ARPU customers;

•

a 17.2% higher average Zloty rate against the Euro in the second quarter of 2003 compared to the average rate in the second quarter of 2002, increasing the Zloty cost of handsets and accessories, which are purchased based on Euro denominated contracts.

Gross Margin

Gross margin for the second quarter of 2003 was PLN 487.0 million, compared with gross margin of PLN 474.1 million in the same period of 2002. As a percentage of total net sales, gross margin decreased to 34.8% in the second quarter of 2003 from 39.7% for the second quarter of 2002.

The increase in gross margin in the three months ended June 30, 2003 compared to the three months ended June 30, 2002 was primarily due to increased revenues resulting from the growth in subscriber base during the period, partly offset by increased interconnection and subscriber acquisition expenses in a period of fast subscriber growth as well as higher retention expenses. The fall in gross margin percentage was influenced by the interconnection agreement with PTK Centertel and the SMS interconnection which gross up revenues and costs, having an overall negative effect on margin, as well as by the impact of the weaker Zloty on indexed expenses.

Acquisition expenses have increased in the second quarter of 2003 as we acquired 34.6% more subscribers than in the corresponding period of 2002 and strengthened our market share. Negative margin on acquisition is driven by the need to match competitors’ moves back into heavy handset subsidization in the pre-paid segment of the market, late in the first quarter of 2003.

Operating Expenses

Operating expenses for the three months ended June 30, 2003 increased to PLN 218.0 million from PLN 208.6 million in the second quarter of 2002. Compared to the second quarter of 2002, operating expenses increased by 4.5% and when compared to the first quarter of 2002 operating expenses decreased by 2.5%. Operating expenses are comprised of selling and distribution costs and administration and other operating expenses.

Selling and Distribution Costs. As a percentage of total net sales, selling and distribution costs decreased to 11.1% in the three months ended June 30, 2003 from 12.2% in the three months ended June 30, 2002. In absolute terms, selling and distribution costs increased by 6.3% to PLN 155.6 million in the three months ended June 30, 2003 from PLN 146.4 million in the three months ended June 30, 2002. Compared to the value of PLN 166.7 million for the first quarter of 2003 this cost category decreased by 6.6%. Selling and distribution costs are primarily driven by our efforts to acquire new subscribers. The number of new subscribers acquired in the second three months of 2003 was significantly higher than in the corresponding period of 2002.

The main reason for the cost increase year-on-year was PLN 5.1 million higher external services expenses as well as bad debt provision and depreciation and amortization charges, which increased by PLN 4.7 million and PLN 4.4 million, respectively. A partially offsetting item was a decrease in advertising costs by PLN 5.5 million.

Administration and Other Operating Costs. As a percentage of total net sales, administration and other operating costs were approximately 4.5% and 5.2% in the three months ended June 30, 2003 and 2002, respectively. Administration and other operating costs remained virtually unchanged compared to the second quarter of 2002 and amounted to PLN 62.4 million. Increases in administration and other operating expenses are mainly due to PLN 3.4 million increase in cost of wages, salaries and social security and other benefits , partly offset by lower costs of external services, material and energy and lower depreciation charges, which decreased by PLN 2.9 million, PLN 0.8 million and PLN 0.6 million, respectively.

Operating Profit

Operating profit for the three months ended June 30, 2003, was PLN 269.0 million, an increase of 1.3% when compared to PLN 265.5 million in the same period of 2002 and almost double the result for the first quarter of the current year.

The increase in operating profit in the second quarter of 2003 is the result of a 2.7% increase in gross margin being partly offset by the increase in selling and distribution costs by 6.3% comparing with figures for the second quarter of 2002.

Depreciation for the quarter was PLN 232.6 million, less than the depreciation for the second quarter of 2002 of PLN 244.4 million. The decrease was due to the reversal of depreciation provisions made during 2002 to cover potential write-offs associated with a network fixed assets count completed during the course of 2002. Most of these provisions were released following completion of the count in the fourth quarter of 2002.

As a percentage of total net sales, operating profit amounted to 19.2% in the second quarter of 2003 compared to 22.2% in the corresponding period of the previous year and to 11.8% in the first three months of the current year.

Financial Expenses

Foreign exchange gains, interest expense, derivatives and other financial gains together resulted in a net financial expense of PLN 109.7 million in the three months ended June 30, 2003 compared to the net financial expense of PLN 232.9 million in the second quarter of 2002, a decrease of 52.9%.

For the three months ended June 30, 2003, net interest expense was PLN 96.0 million, compared to PLN 101.5 million a year ago. Net interest expense includes PLN 17.9 million of call premium payable on the redemption of the 10³/₄% Notes due 2007. The fall in recurring interest payments reflects the decline in the debt level, partially offset by a weaker Zloty exchange rate against the Euro increasing the Zloty equivalent of foreign currency interest payments.

Cash interest paid, net for the three months ended June 30, 2003, was PLN 158.7 million.

The depreciation of the local currency against the Euro (1.2%) and the appreciation against the U.S. Dollar (3.8%) during the quarter resulted in a net foreign exchange gain of PLN 45.8 million, compared to a net foreign exchange loss of PLN 155.3 million for the second quarter of 2002. Net foreign exchange gain includes a net gain of PLN 22.2 million that relates to realized transactions.

Losses on hedging transactions net (realization and fair valuation of forward contracts and accrued part of cross currency swap payments) amounted to PLN 45.6 million and are included in net loss on derivatives.

During the quarter PTC recorded a net loss on derivatives and other financial expenses totaling PLN 59.5 million compared to a gain of PLN 23.8 million in the second quarter of 2002. The loss on derivatives was PLN 56.9 million and comprised of a net loss of PLN 45.6 million on realization and fair valuation of forward contracts and accrued part of cross-currency swap payments, a loss of PLN 13.2 million on the fair valuation of call options embedded in our Notes, including the write-off of the option related to the 10¾ Notes due 2007, and a net gain of PLN 1.9 million related to rental derivatives and index swaps. Other financial loss net totaled PLN 2.6 million.

Net financial expense for the second quarter is after capitalization of interest expenses, foreign exchange differences and related hedges and swaps totaling PLN 54.3 million into tangible and intangible fixed assets, in comparison to PLN 118.1 million in the second quarter of 2002.

PTC is managing its foreign exchange and interest rate risks through its hedging policy, implemented early in 2000. The hedging policy is monitored and updated continuously.

Derivatives pricing models and their underlying assumptions impact the amount and timing of unrealized gains and losses recognized as other financial expenses in our statements of operation. Changes in the foreign exchange currency spot and forward rates together with interest rates may impact our estimates of fair value in the future, potentially affecting our net income.

Profit before tax and taxation charge

The profit before taxation amounted to PLN 159.3 million for the three months ended June 30, 2003, compared to a profit before taxation of PLN 32.5 million for the three months ended June 30, 2002. For the three months ended June 30, 2003, we had a tax charge of PLN 38.2 million compared to a tax charge of PLN 19.3 million for the three months ended June 30, 2002. The tax charge resulted mainly from a deferred tax provision of PLN 37.8 million.

Net profit

Flat operating profit and significantly lower net financial expenses in the second quarter of 2003 compared to the figures for the respective period of the previous year were partially offset by a higher level of income tax provision.

A tax charge recognized in the second quarter of 2003 amounted to PLN 38.2 million as compared to a tax charge of PLN 19.3 million a year ago.

As a result, net income for the second quarter of 2003 significantly increased to PLN 121.1 million, compared to a net income of PLN 13.2 million in the corresponding period of the previous year.

Results of Operations for the six months ended June 30, 2003 and 2002

Net Sales

Total net sales increased by approximately 15.2 % to PLN 2,674.7 million in the six months ended June 30, 2003 from PLN 2,321.2 million in the six months ended June 30, 2002. Total net sales consist of service revenues and fees and sales of telephones and accessories.

Service Revenues and Fees. Service revenues and fees increased by 16.4 % to PLN 2,597.0 million in the six months ended June 30, 2003 from PLN 2,230.2 million in the six months ended June 30, 2002. Service revenues and fees represented 97.1 % of total net sales in the first half of 2003 compared to 96.1 % in the corresponding period of 2002.

The increase in service revenues and fees in the six months ended June 30, 2003 compared to the six months ended June 30, 2002 was due primarily to an increase in the number of subscribers by approximately 32.0% and higher interconnection revenues. We believe that the substantial increase in our subscriber base in the above period was due primarily to the success of our marketing efforts in attracting new customers in a dynamic market.

PTC’s revenue was positively impacted by the interconnection agreement with PTK Centertel, which came into effect in June 2002. The revenues coming from this agreement totaled PLN 109,4 million or 4.1% of total revenues in the first half of 2003, whilst in the corresponding period of 2002 PLN 8.7 million was recognized from this source. Revenues from SMS interconnection with PTK Centertel and Polkomtel, effective from February 1, 2003 represent another new element of revenues comparing to the prior year and amounted to PLN 46.3 million in the first half of 2003 constituting 1.7% of total revenues.

The rate of growth in revenues was lower than the rate of increase in our subscriber base due to the following factors:

•

an increased proportion of pre-paid customers in the subscriber base, who use our services less intensively on average than our post-paid subscribers;

•

falling average usage of voice services by our customers;

•

lower prices for our services offered in our new tariff plans than in our previous tariff plans.

Faster subscriber growth and higher market share of net additions in comparison with the figures for the first half of 2002, together with stable post-paid revenues per customer is enabling PTC to reach its objective of faster revenue growth in 2003 than the 13.5% achieved in 2002.

Sales of Telephones and Accessories. Revenues on sales of telephones and accessories decreased by 14.7% to PLN 77.7 million compared to PLN 91.1 million in the first half of 2002. Revenues on sales of telephones and accessories represented 2.9% of total net sales in the six months ended June 30, 2003, compared to 3.9 % in the six months ended June 30, 2002.

The decrease in value of telephones and accessories sold was recorded in a period of a significant increase in the number of new subscriber additions. This was caused by maintaining a low share of sales of handsets for pre-paid activations relative to starter packs, which consist of only a SIM card, without a handset and by successful promotional campaigns for post-paid subscribers, who buy subsidized handsets.

Cost of Sales

Total cost of sales increased by 28.8 % to PLN 1,814.0 million in the six months ended June 30, 2003 from PLN 1,408.4 million in the six months ended June 30, 2002. Total cost of sales consists of cost of services sold and cost of sales of telephones and accessories.

Cost of Services Sold. Costs of services sold increased by approximately 23.7% to PLN 1,161.5 million in the six months ended June 30, 2003 from PLN 939.3 million in the six months ended June 30, 2002.

The increase in cost of services sold in the first half of 2003 compared to the first half of 2002 was due primarily to:

•

more than twofold increase in interconnection charges to PLN 354.0 million in the first half of 2003 from PLN 137.5 million in the corresponding period of 2002 as a higher proportion of traffic moves to mobile networks and away from the fixed line networks. Interconnection cost included PLN 143.3 million of charges related to the agreement with PTK Centertel which is effective since mid-June 2002. In the second quarter of 2002 PLN 11.2 million of cost was recorded from that source. SMS interconnection charges included in this cost category since February 2003 amounted to PLN 43.1 million in the first half of 2003. Correcting for the new interconnection cost and revenue items, cost of services sold would have increased by 5.1% compared to the first half of 2002 versus adjusted service revenu e growth of 9.9%;

•

higher commission charges due to a significantly higher number of gross additions recorded in the first half of 2003 comparing to the corresponding period of the previous year and to higher sales performance bonuses payable than in the corresponding period.

Cost of Sales of Telephones and Accessories. Cost of sales of telephones and accessories increased by PLN 183.3 million, or 39.1%, to PLN 652.5 million in the six months ended June 30, 2003 from PLN 469.2 million in the six months ended June 30, 2002. The increase in the cost of telephones and accessories of 39.1% was the result of the following factors:

•

32.4% higher gross additions than in the first half of 2002;

•

attractive and therefore more expensive handsets offered to new post-paid subscribers;

•

continuation of retention programs involving offers of subsidized replacement terminals for our higher ARPU customers;

•

a 16.4% higher average Zloty rate against the Euro in the first half of 2003 compared to the average rate in the first half of 2002, increasing the Zloty cost of handsets and accessories, which are purchased based on Euro denominated contracts.

Gross Margin

Gross margin for the first half of 2003 was PLN 860.7 million, compared with gross margin of PLN 912.8 million in the same period of 2002. As a percentage of total net sales, gross margin decreased to 32.2 % in the first half of 2003 from 39.3% in the corresponding period of 2002.

The decrease in gross margin in the six months ended June 30, 2003 compared to the six months ended June 30, 2002 was primarily due to increased interconnection and subscriber acquisition expenses in a period of fast subscriber growth as well as higher retention expenses, partly offset by increased revenues resulting from the growth in subscriber base during the period.

The fall in gross margin percentage was influenced by the interconnection agreement with PTK Centertel and the SMS interconnection which gross up revenues and costs, having an overall negative effect on margin, as well as by the impact of the weaker Zloty on indexed expenses.

Acquisition expenses have increased in the first half of 2003 as we acquired 32.0% more subscribers than in the corresponding period of 2002 and strengthened our market share.

Operating Expenses

Operating expenses for the six months ended June 30, 2003 increased to PLN 441.7 million from PLN 398.6 million in the first half of 2002. Compared to the first half of 2002, operating expenses increased by 10.8%. Operating expenses are comprised of selling and distribution costs and administration and other operating expenses.

Selling and Distribution Costs. As a percentage of total net sales, selling and distribution costs decreased slightly to 12.1% in the six months ended June 30, 2003 from 12.2% in the six months ended June 30, 2002. In absolute terms, selling and distribution costs increased by 13.9% to PLN 322.3 million in the six months ended June 30, 2003 from PLN 282.9 million in the six months ended June 30, 2002. Selling and distribution costs are primarily driven by our efforts to acquire new subscribers. The number of new subscribers acquired in the first six months of 2003 was significantly higher than in the corresponding period of 2002.

The main reason for the cost increase year-on-year were PLN 24.6 million higher advertising costs, as well as depreciation and amortization charges and external services expenses, which increased by PLN 7.6 million and PLN 6.5 million, respectively.

Administration and Other Operating Costs. As a percentage of total net sales, administration and other operating costs were approximately 4.5% and 5.0% in the six months ended June 30, 2003 and 2002, respectively. Administration and other operating costs increased by 3.1% to PLN 119.4 million compared to PLN 115.8 million in the first half of 2002.

Increases in administration and other operating expenses are mainly due a PLN 2.5 million increase in cost of wages, salaries, social security and other benefits, as well as higher depreciation and amortization cost and taxes and charges, each of the two items growing by PLN 1.1 million. This was partly offset by lower costs of external services and materials and energy expenses.

Operating Profit

Due to the above factors operating profit for the six months ended June 30, 2003, was PLN 419.0 million, a decrease of 18.5% when compared to PLN 514.2 million in the same period of 2002.

The decrease in operating profit in the first half of 2003 is the result of a 5.7% decrease in gross margin coupled with the increase in operating expenses by 10.8% comparing with figures for the first half of 2002.

Depreciation for the first half of 2003 was PLN 464.5 million, less than the depreciation for the first half of 2002 of PLN 472.5 million. The decrease was due to the reversal of depreciation provisions made during 2002 to cover potential write-offs associated with the network fixed assets count completed during the course of 2002. Most of these provisions were released following completion of the count in the fourth quarter of 2002.

As a percentage of total net sales, operating profit amounted to 15.7% in the first half of 2003 compared to 22.2% in the corresponding period of the previous year.

Financial Expenses

Foreign exchange gains, interest expense, derivatives and other financial gains together resulted in a net financial expense of PLN 218.5 million in the six months ended June 30, 2003 compared to the net financial expense of PLN 414.8 million in the first half of 2002, a decrease of 47.3%.

For the six months ended June 30, 2003, net interest expense was PLN 178.5 million, compared to PLN 209.1 million a year ago. Net interest expense includes PLN 17.9 million of call premium payable on the redemption of the 10³/₄% Notes due 2007. The fall in recurring interest payments reflects the decline in the debt level, partially offset by a weaker Zloty exchange rate against the Euro increasing the Zloty equivalent of foreign currency interest payments.

Cash interest paid, net for the six months ended June 30, 2003, was PLN 257.2 million.

The depreciation of the local currency against the Euro by 10.9% and the U.S. Dollar by 1.5% during the first half of 2003 resulted in a net foreign exchange loss of PLN 177.4 million, compared to a net foreign exchange loss of PLN 271.9 million for the first half of 2002, whereas in the first half of 2002 the Zloty depreciated by 13.8% against the Euro and by 1.4% against the U.S. Dollar. Net foreign exchange loss includes a net gain of PLN 24.1 million that relates to realized transactions and the remaining amount relates to the revaluation of financial assets and liabilities denominated in foreign currencies.

Gains on hedging transactions net (realization and fair valuation of forward contracts and accrued part of cross currency swap payments) amounted to PLN 75.0 million and are included in net gain on derivatives.

During the six months ended June 2003 PTC recorded a net gain on derivatives and other financial expenses totaling PLN 137.4 million compared to PLN 66.2 million of other financial gain in the first half of 2002. The gain on derivatives was PLN 140.4 million and comprised of a net gain of PLN 75.0 million on realization and fair valuation of forward contracts and accrued part of cross-currency swap payments, a gain of PLN 62.4 million on the fair valuation of call options embedded in our Notes, including the write-off of the option related to the 10¾ Notes due 2007, and a net gain of PLN 3.0 million related to rental derivatives and index swaps. Other financial loss net totaled PLN 3.0 million.

Net financial expense for the first half of 2003 is after capitalization of interest expenses, foreign exchange differences and related hedges and swaps, totaling PLN 142.0 million, into tangible and intangible fixed assets, in comparison to PLN 197.2 million in the first half of 2002.

PTC is managing its foreign exchange and interest rate risks through its hedging policy, implemented early in 2000. The hedging policy is monitored and updated continuously.

Profit before tax and taxation charge

The profit before taxation amounted to PLN 200.5 million for the six months ended June 30, 2003, compared to a profit before taxation of PLN 99.4 million for the six months ended June 30, 2002. For the six months ended June 30, 2003, we had a tax charge of PLN 37.0 million compared to a tax charge of PLN 33.9 million for the six months ended June 30, 2002. The tax charge in 2003 resulted mainly from a deferred tax provision of PLN 36.3 million.

Net profit

Net income for the first half of 2003 increased to PLN 163.6 million from PLN 65.5 million for the first half of 2002 as a result of significantly lower net financial expenses in the first half of 2003 compared to the figures for the respective period of the previous year.

Inflation

Inflation has not had a significant effect on our operations or financial condition during the three months ended June 30, 2003. Since launching services in 1996, we have not increased our tariffs as a result of inflation, while many of our costs, particularly labour costs, are inflation sensitive.

Liquidity and Capital Resources

We expect to have substantial liquidity and capital resources requirements as we continue to develop and expand our wireless business. We expect our principal requirements to consist of the following:

•

capital expenditures for existing and new network operations, including significant UMTS network build-out costs;

•

payment of UMTS license payables starting in 2005;

•

debt service requirements relating to existing debt; and

•

working capital requirements.

Historically, our liquidity requirements have arisen primarily from the need to fund capital expenditures for the expansion of our business and for our working capital requirements. We expect to continue to incur substantial additional capital expenditures in order to expand and improve the quality of our network. However, now that our coverage roll-out is virtually complete our expenditures on second generation telecommunication infrastructure are much lower than in earlier years. This trend will continue until we begin significant roll-out of our UMTS network, currently required in 2004. Investments in information technology and new service platforms will continue to be important elements of our expenditures over coming years.

Sources of Financing

Primary sources of financing available to us consist of the following:

•

cash flow from operating activities;

•

financing from banks;

•

financing from the issuance of Senior Subordinated Guaranteed Notes;

•

vendor financing; and

•

operating leases.

During 2001, we signed two credit agreements totaling €700 million with a Bank Consortium led by Deutsche Bank AG Luxembourg. The original agreements limited the usage of those funds to operational and capital expenditures. Following the delay of the UMTS services launch date, announced in May 2002, PTC has renegotiated the use of proceeds for the above mentioned Bank Credit Facilities with the lenders to include the possibility of refinancing outstanding subordinated debt obligations. The terms of the Bank Credit Facilities were amended again during the second quarter of 2003 by increasing the limits of funding which we can utilize for redemption of subordinated debt. The necessary amendments to the credit agreements were accepted by the General Shareholders Assembly.

Following the above amendments to the Bank Credit Facilities agreements, we called 50.15% of the 10¾% Notes, a principal amount of US$ 127.0 million of its aggregated US$ 253.2 million due in 2007 at the price of 105.375% with redemption date of August 20, 2002.

In the third quarter of 2002 we also repurchased EUR 12.5 million of the 10⅞% Notes issued in May 2001 and EUR 17.25 million of the 11¼% Notes issued in November 1999. In the first quarter of 2003 we repurchased EUR 5.0 million of the 10⅞% Notes issued in May 2001, leaving EUR 182.5 million of the 10⅞% Notes and EUR 282.75 million of the 11¼% Notes outstanding and listed on the Luxembourg Stock Exchange.

In the second quarter of 2003 PTC decided to call all outstanding 10¾% Notes due 2007 with the principal amount of US$ 126.2 million, constituting 49.85% of the initial total amount of the Notes, at the price of 103.583% with the date of redemption on July 1, 2003.

PTC may from time to time decide to further repurchase or call any of the outstanding Existing Notes. As of June 30, 2003, PTC had drawn down PLN 1,026.7 million of the Zloty tranche and US$ 26.0 million of the multi-currency tranche of the senior secured Bank Credit Facilities, leaving approximately Euro 420.3 million available, which represents 60.0% of the total Bank Credit Facilities. Total debt as of June 30, 2003 was PLN 4,031.1 million, which comprised of PLN 3,978.1 million of long-term debt and PLN 53.0 million of current debt. Total debt to annualized EBITDA remained unchanged compared to the preceding quarter and amounted to 2.1x as of June 30, 2003, down from 2.4x a year ago.

EBITDA for the three months ended June 30, 2002, amounted to PLN 501.6 million compared to PLN 77.2 million in PTC’s investments in its GSM business. Accordingly, the Company is continuously generating significant free cash flow from its existing second generation GSM network and GPRS and other data transmission (so called 2.5G or 2.5 generation) systems, which after debt service and increases in working capital allowed for a PLN 62.9 million of the reduction in total debt which includes long term Notes, Bank Credit Facilities, overdraft facilities, finance lease and index swaps. An amount of PLN 455.9 million has been spent to redeem the 10³/₄% Notes due 2007, funded primarily from Senior Debt.

During the second quarter of 2003 net debt repayment was significantly lower than recorded in 2002 and the first quarter of 2003 due to the lower EBITDA posted in the first quarter and investment made in working capital as follows:

•

an increase in inventories by PLN 48.4 million caused by increased stocking of more sophisticated and expensive handsets sold to postpaid subscribers,

•

an increase in debtors by PLN 138.7 million resulting from increased accounts receivable related to the dynamic post-paid subscriber base growth and interconnection payments unusually not falling due until early July;

•

a decrease in trade payables and accruals by PLN 82.6 million mainly as a consequence of PTC utilizing early payment discounts offered by certain major vendors for the first time.

We believe that our short-term (up to 12 months) liquidity position is sufficient to fund our current operations due to the expected continuation of strong operating cash flows, moderate investment recorded in the second quarter of 2003 and the absence of significant mandatory debt repayments during 2003 (other than Bank Credit Facilities roll-overs). However, the expected commencement of current income tax payments during 2003 will limit our ability to grow cash flow over the levels seen in 2002.

Under our current long-term business plan, we expect that borrowings under the Bank Credit Facilities and under our various senior subordinated notes, together with future potential vendor financing, will provide us with the financing we require to fund our operations. We cannot assure you, however, that we will not need additional financing or that such additional financing will be available on satisfactory and commercially acceptable terms or at all.

The need for additional financing, as well as our revenues, the capital expenditures required to further build out our GSM and UMTS networks and the expenses involved in our operations will depend on a number of elements, including:

•

growth in our market penetration, our market share and the level of competition in the markets;

•

number of our customers and cost of acquiring and retaining them, including the level of handset subsidization;

•

cost of new network equipment and maintenance of our networks;

•

regulatory changes;

•

currency exchange rate fluctuations and changes in interest rates;

•

the availability and terms of vendor financing;

•

changes in technology;

•

the availability of UMTS infrastructure and handsets; and

•

corporate income tax rates;

•

working capital requirements.

As our capital expenditure and operating expenses are linked directly to our subscriber growth, our actual capital expenditure requirements and other cash operating needs may also increase if we add more new subscribers than expected. If our capital expenditure requirements and other cash operating needs were to increase, we may also need other additional financing. We cannot assure you that any additional financing would be available on satisfactory and commercially acceptable terms or at all.

Cash Flow from Operating Activities

Net cash generated from operating activities was PLN 487.9 million in the six months ended June 30, 2003 compared to PLN 744.7 million in the six months ended June 30, 2002. Non-cash provisions and net non-operating items for the same periods were PLN 716.9 million and PLN 917.5 million, respectively. These principally reflect depreciation, amortization, charge to provisions and write-offs for doubtful debtors, foreign exchange losses/gains, changes in the fair value of financial instruments and interest expense net resulting from business growth and expanded financial activities

Net cash requirements resulting from changes in working capital items were PLN 162.0 million in the six months ended June 30, 2003, compared to PLN 2.5 million of decrease in working capital requirements in the six months ended June 30, 2002.

The lower level of operating cash flows to the corresponding period of 2002 reflects the rapid growth of our subscriber base recorded in the second quarter of 2003, which affected our working capital needs and operational results.

Cash Flow used in Investing Activities

Net cash used in investing activities was PLN 214.2 million in the six months ended June 30, 2003 compared to PLN 293.3 million in the same period of 2002. Payments to suppliers of tangible fixed assets, which consist primarily of network capital equipment used in the ongoing build-out of our GSM network, were PLN 177.2 million in the six months ended June 30, 2003 and PLN 313.4 million in the corresponding period of 2002. Payments for purchases of intangible fixed assets in the first half of 2003 amounted to PLN 39.4 million, compared to PLN 74.5 million in the same period of 2002. These amounts differ from the amount of gross additions to tangible and intangible fixed assets because of the impact of credit payment terms on purchases of equipment, and due to interest and foreign exchange gains and losses capitalization, mainly into our UMTS licence c arrying value.

Capital Expenditure for Tangible Assets

The mobile communications industry is highly capital intensive, requiring significant capital to construct mobile telecommunications networks. Capital expenditures, reflecting additions to tangible assets, for the six months ended June 30, 2003 totaled approximately PLN 110.9 million 52.3% less than in the previous year. The growth in the proportion of pre-paid subscribers, who tend to call more often in the off-peak hours, enables us to improve our network utilization and decreases the need for new capital expenditures on network infrastructure. Reduced spending in the second quarter of 2003 also reflects a shift towards new services investments and away from capacity and coverage investments. However, due to accelerated subscriber growth, we expect the rate of usage growth to increase later in 2003, increasing our rate of investment.

Capital Expenditure for Intangible Fixed Assets

In the six months ended June 30, 2003, capital expenditures related to intangible assets, reflecting additions to intangible assets excluding transaction costs, amounted to PLN 33.2 million, compared to PLN 73.8 million in the first half of 2002.

Cash Flow from and used in Financing Activities

Net cash used in financing activities was PLN 309.0 million in the six months ended June 30, 2003, compared to net cash used in financing activities of PLN 473.1 million in the corresponding period of 2002. The 2003 amount includes PLN 477.3 million of Notes redemption, of which PLN 455.9 million was used in the second quarter of 2003 to redeem the outstanding part of the 10¾% Notes due 2007. Notes redemptions were funded primarily from the Bank Credit Facilities, the proceeds from which totaled PLN 132.4 million in the first six months of the year.

The amount for 2002 reflects a partial repayment of the revolving Bank Credit Facility.

Capital expenditures future commitments

As a result of the UMTS network build-out, we expect that capital expenditures for our wireless network will continue to represent a significant portion of our total capital expenditures over at least the next few years and possibly longer, as we continue to expand network capacity and quality in order to improve our GSM services and launch UMTS services. However, now that our coverage roll-out is virtually complete our expenditures on second generation telecommunication infrastructure are much lower that in earlier years.

We anticipate that our capital investment will stay below historical averages until we commence our UMTS build-out. In the meantime, the majority of capital spending will be on network software, new service functionalities and information technology rather than on the 2G radio network. However, we are examining the capabilities, capacities and costs of EDGE (a technology which enhances the capacity of GPRS based data networks) enabling all or part of our 2G GSM network and we do not exclude the possibility that we may begin to make significant incremental investments in this technology in the future or even in advance of commencing our UMTS roll-out.

We expect our non-license capital expenditures to total approximately PLN 3.0 billion to PLN 3.5 billion between 2003 and 2005, of which up to 50% is expected to relate directly to our UMTS network build-out costs. Subject to a favorable decision of OTRP on our application to further defer UMTS build-out deadlines, this investment schedule may be delayed or reduced further.

We are required to pay the equivalent of €390 million for the UMTS License over the period from 2005 to 2022.

Item 3. Quantitative And Qualitative Disclosures About Market Risks

The Federal Reserve Bank of New York does not certify for customs purposes a noon buying rate for the Zloty. For the convenience of the reader, this Form 6-K (if not otherwise stated) contains translations of:

•

certain U.S. dollar amounts into Zlotys at the rate of U.S.$1.00 = PLN 3.8966, the exchange rate quoted for accounting purposes by the National Bank of Poland, the Polish central bank, on June 30, 2003; and

•

certain Euro amounts into Zlotys at the rate of €1.00 = PLN 4.457, the exchange rate quoted for accounting purposes by the National Bank of Poland, the Polish central bank, on June 30, 2003.

These translations should not be construed as representations that such Zloty amounts actually represent such U.S. dollar amounts or could be, or could have been, converted into U.S. dollars at the rates indicated or at any other rate.

Qualitative Information About Market Risk

General Risk Management Procedures

The general goal of our Treasury Department is to obtain cost efficient funding for us and to identify, measure and, if necessary, hedge financial risk. The Hedging Policy provides principles for our overall financial risk management. The Hedging Policy sets a framework within which hedging activity should be conducted. However, it allows some discretion in the precise hedging strategy to be adopted, to allow the Treasury Department to react to market conditions. Each year the Treasury Department prepares a Hedging Strategy according to the Hedging Policy, which is later submitted to the Management Board and Operating Parties. The ultimate responsibility for agreeing the details of the annual hedging strategy rests with the Management Board and Operating Parties based on the recommendations of the Risk Management Committee, consisting of the Director o f Finance, the Treasurer, the Controller and the Tax Manager. The responsibility for the execution of foreign exchange and interest rate hedge transactions, within the agreed strategy and in conformity with the Policy rests with our treasury function. On the other hand, the Management Board and the Operating Parties must approve all actions taken to hedge translation risk.

Primary Market Risk Exposures

We are subject to market risk associated with fluctuations of foreign exchange rates and interest rates.

Foreign Exchange Risk

Foreign currency risk management is aimed both at minimizing the volatility of our cash flows in Zloty terms (arising from fluctuations in the exchange rate of the Zloty against other currencies) and at minimizing the adverse effect of movements in exchange rates on our earnings and value in Zloty terms. The foreign exchange rate exposure may be either transaction exposure or translation exposure.

Transaction Exposure.

Foreign exchange transaction exposure occurs when we have cash inflows or outflows in currencies other than Zloty. Our Treasury Department manages the transaction exposure based on forecasts of cash flows denominated in foreign currencies. These forecasts distinguish between forecasts of cash flows where there is significant certainty as to both the amount and timing of the cash flow (”Committed Exposures”) and those where there is some uncertainty about the amount and/or timing of the cash flow (”Uncommitted Exposures”). Hedging activities are undertaken on the basis of a rolling 12 month forecast provided by the Treasury Department and our business units. We normally seek to cover Committed Exposures in the range of such figures to be agreed by the Management Board and Operating Shareholders on at least annual basis, providing hed ging can be obtained. We may seek to cover individually identified Uncommitted Exposures providing they are in compliance with the Hedging Policy and constitute an integral part of annually accepted hedging strategy.

Translation Exposure.

Foreign exchange translation exposure occurs when profit and loss or balance sheet items are denominated in foreign currencies. The movement of the Zloty against these currencies between reporting dates will result in a movement in the Zloty value of these items. The Management Board and Operating Parties must approve any action taken to hedge translation exposure.

We do not speculate in foreign currency. Speculation is defined as any action taken to increase an exposure beyond that which exists due to an underlying commercial activity, in the expectation of making a foreign currency gain.

Foreign exchange risk management transactions may be undertaken using the following instruments:

•

forward and Non Deliverable Forward (“NDF”) transactions;

•

currency swaps;

•

cross-currency interest rate swaps; or

•

FX options.

Interest Rate Risk

We are exposed to interest rate risk related to interest payables and, to a smaller extent, to interest receivables on short term investments. Interest rate risk exposure arises from external financing denominated both in domestic and foreign currency. Our interest bearing liabilities are based on fixed and floating interest rates.

Debt liabilities based on fixed interest rate are as follows:

•

the 11¼% Notes for the total value of U.S.$ 150,000,000

•

the 11¼% Notes for the total value of € 282,750,000

•

the 10⁷/₈% Notes for the total value of € 182,500,000

Debt liabilities based on floating interest rate consist of our Bank Credit Facilities for the total bank commitments of €700 million of which €387.5 million is available in Zloty and €312.5 million is available in other currencies. The interest rate related to each drawdown is determined at the drawdown date and fixed for the maturity of the respective drawdown. Interest rates are subsequently reset at the time of any roll-over of existing drawdown.

The interest rate exposure consists of a risk of increasing short term interest rates which would result in higher financing costs as well as a risk of decrease in short term interest rates which may result in a decrease in returns on short-term investments. Interest rate exposure also arises from the possibility of decreasing long-term interest rates that would result in a relative increase in financing costs versus market yields. We are protected against such a scenario by a series of call options embedded into our Existing Notes. In general, much more important to us is the impact of interest rate fluctuations on the financing costs than on revenues.

Our interest rate exposure is managed by:

•

managing the maturity periods of investments and borrowings;

•

varying the proportions of our debt which bear interest on a fixed and a floating basis; and

•

varying the period of time for which the interest rate is fixed in respect to the Bank Credit Facilities.

In addition to the interest rate management tools described above we may, in line with our Hedging Policy, and with the consent of our Operating Parties, enter into the following interest rate hedging transactions:

•

forward rate agreements (FRAs);

•

interest rate swaps; and

•

interest rate options (caps, floors, collars).

Credit Risk

Commercial Credit Risk

We operate in one industry segment, providing cellular telephone communication services. Substantially all of our trade debtors are Polish businesses and individuals. Further, we have established a network of dealers within Poland to distribute our products. The dealers share many economic characteristics, therefore receivables from each of these dealers present similar risks to us.

Concentrations of credit risk with respect to trade receivables are limited due to the large number of subscribers comprising our customer base. Ongoing credit evaluations of our customers’ financial condition are performed and generally no collateral is required. We maintain provisions for potential credit losses and such losses, in the aggregate, have not exceeded management’s estimates. No single customer accounts for 10% or more of revenues, except for transactions with TPSA.

Financial Credit Risk

There is a risk that the counterparties may be unable to meet their obligations related to financial instruments. This credit risk is monitored and measured by our Treasury Department. In order to minimize our risk we limit our counterparties to a sufficient number of major banks and financial institutions.

The direct credit risk represents the risk of loss resulting from counterparty default in relation to on-balance sheet products. The held to maturity and market investments are subject to high quality credit criteria. The investments are also closely monitored by our Treasury Department. The Treasury Department does not expect that we would be exposed to credit risk from our counterparties due to their high credit ratings.

Changes in Future Reporting Periods

In 2003 we plan to keep the existing hedging coverage of future foreign currency operating transaction exposure resulting from handsets purchases by rolling over transactions concluded in 2002. However, we plan to complete these roll-overs at times when available forward rates are relatively attractive and, as a result, the total amount covered in relation to operating transactions can fluctuate significantly. We plan to further extend our coverage of foreign currency financing exposure by increasing the number of forward transactions (including subordinated ones) hedging our foreign currency cash flow exposures related to the nominal value of principal of the Existing Notes. The increase in hedging coverage of foreign currency financing exposure may be also achieved by redemptions of our outstanding Notes. We may also enter into new FRA transactions a imed at reduction of interest rate fluctuations.

Starting from third quarter of 2003 we will reallocate swap transaction hedging coupons on redeemed 10¾ Notes to the USD tranche drawn under the Bank Credit Facilities. After reallocation the transaction will be treated as a stream of forward transactions (par forward) hedging the planned amortization schedule of the USD tranche.

Quantitative Information about Market Risk

Interest Rate Risk

Our significant liabilities consist of the Bank Credit Facilities, the Existing Notes, finance lease agreements and license fee payables. Our Bank Credit Facilities are based on variable interest rates and, consequently, are a source of interest rate risk for us. At any time, a sharp rise in interest rates could have a material adverse impact upon our cost of working capital and interest expenses. No material changes have occurred that would impact our exposure to interest rate risk.

The Bank Credit Facilities as at June 30, 2003 consisted of a Zloty tranche of PLN 1026.7 million at the rate of WIBOR plus a margin and USD 26 million at the rate of LIBOR plus a margin under the €550 million Bank Credit Facility. The €150 million Bank Credit Facility is not utilized. The table below presents principal and interest payments on the Bank Credit Facilities as at June 30, 2003. For the purpose of the calculation of future debt cash flows, we used WIBOR rates as at June 30, 2003, plus a margin. The weighted average interest rates computed do not consider the rate at which individual drawdowns of the facility will be refinanced. Each drawdown has a short-term maturity date and can be rolled over, subject to the annual schedule for the entire facility.

Principal and interest payments under the Bank Credit Facilities (in thousands of PLN)

€550 Million Bank Credit Facility	2003	2004	2005	2006	2007	Thereafter	Total	Fair Value 06/30/03
Variable Rate (PLN)	31,725	176,494	720,575	230,401	-	-	1,159,195	1,026,756
Weighted Average Effective Interest Rate 6.18%
€550 Million Bank Credit Facility	2003	2004	2005	2006	2007	Thereafter	Total	Fair Value 03/31/03
Variable Rate (USD)	940	1,880	1,880	99,205	-	-	103,905	102,907
Weighted Average Effective Interest Rate of Tranche A - 1.90%
€550 Million Bank Credit Facility - Total	2003	2004	2005	2006	2007	Thereafter	Total	Fair Value 03/31/03
Variable Rate	32,665	178,374	722,455	329,606	-	-	1,263,100	1,129,663

The €150 million Bank Credit Facility was not utilized as at June 30, 2003.

In comparison, as at December 31, 2002 our interest rate risk liabilities consisted of Bank Credit Facilities.

Principal and interest payments under the Bank Credit Facilities (in thousands of PLN)

€550 Million Bank Credit Facility	2003	2004	2005	2006	2007	Thereafter	Total	Fair Value 12/31/02
Variable Rate (PLN)	84,564	281,551	636,412	200,406	-	-	1,202,933	990,217
Weighted Average Effective Interest Rate 8.54%

The €150 million Bank Credit Facility was not utilized as at December 31, 2002.

The fair value of variable rate long-term debt presented in the table normally equals to the carrying amount.

The fair value of fixed rate long-term debt presented in the table is estimated using the expected future payments discounted at market rates except for publicly traded liabilities which are valued at market prices.

Foreign Currency Risk

As of June 30, 2003 approximately 74% of our total long-term debt was denominated in foreign currencies (Euro and U.S. Dollar). The total financing debt represents selected liabilities as presented in the Financial Statements including the Bank Credit Facilities, the drawn tranches denominated in PLN and U.S. dollars, 11¼% Notes and 10⅞% Notes, which are denominated in U.S. dollars and Euros and a finance lease payable together with index swaps embedded in the lease contract, which are denominated in U.S. dollars. A significant proportion of our other liabilities is also denominated in foreign currencies. These include our liability to the Polish government for the UMTS license which is linked to the Euro and payable in Zloty, liabilities to our suppliers of handsets, which are generally denominated or linked to Euros. As a result, operating income and cash flows are and will remain significantly exposed to an appreciation in these non-Polish currencies against the Polish Zloty.

Foreign Currency Obligations

The table below summarizes, as at June 30, 2003 our foreign currency denominated long-term obligations together with short-term portions thereof, including their fair value together with accrued interest. For purposes of calculating the future cash flows, we used applicable debt interest rates in the case of fixed interest liabilities and the average exchange rates quoted by National Bank of Poland on June 30, 2003, which were PLN 3.8966 per U.S.$1.00 and PLN 4.4570 per €1.00

Principal and interest payments under foreign currency obligations (in thousands of PLN)

	2003	2004	2005	2006	2007	Thereafter	Total	Fair Value 06/30/03
Fixed interest rate (Euro)
UMTS License	-	-	66,855	66,855	66,855	1,537,665	1,738,230	815,354
10⅞ Notes	44,229	88,457	88,457	88,457	88,457	879,746	1,277,803	962,521
11¼ Notes	70,887	141,774	141,774	141,774	141,774	1,543,767	2,181,750	1,438,861
Fixed interest rate (U.S.$)
11¼ Notes	32,878	65,755	65,755	65,755	65,755	716,000	1,011,898	669,025
Headquarters Lease⁽¹⁾	15,361	31,643	32,593	33,570	34,578	252,956	400,701	216,838

Total	163,355	327,629	395,434	396,411	397,419	4,930,134	6,610,382	4,102,599

(1)

Includes index swaps embedded in the lease contract.

The table below summarizes comparative data as at December 31, 2002. For purposes of calculating the future cash flows, we used applicable debt interest rates in the case of fixed interest liabilities and the exchange rates applied for the calculation were PLN 3.8388 per U.S.$1.00 and PLN 4.0202 per €1.00.

Principal and interest payments under foreign currency obligations (in thousands of PLN)

	2003	2004	2005	2006	2007	Thereafter	Total	Fair Value 12/31/02
Fixed interest rate (Euro)
UMTS License	-	-	60,303	60,303	60,303	1,386,969	1,567,878	441,952
10⅞ Notes	81,974	81,974	81,974	81,974	81,974	815,269	1,225,139	839,701
11¼ Notes	127,880	127,880	127,880	127,880	127,880	1,392,472	2,031,872	1,235,214
Fixed interest rate (U.S.$)
10¾ Notes	52,085	52,085	52,085	52,085	536,599	-	744,939	543,894
11¼ Notes	64,780	64,780	64,780	64,780	64,780	705,380	1,029,280	632,082
Headquarters Lease⁽¹⁾	30,956	31,883	32,840	33,825	34,840	253,828	418,172	218,931

Total	357,675	358,602	419,862	420,847	906,376	4,553,918	7,017,280	3,911,774

(1)

Includes index swaps embedded in the lease contract.

Hedging Transactions

A formalized risk management policy was implemented at the beginning of 2000 and describes the procedures and controls over executing these transactions. This policy also recommends natural hedging strategies such as changing the supplier invoicing currency to Zloty and increasing Zloty commitments in the Bank Credit Facilities. Under our current treasury risk management policy we do not speculate in foreign currencies, although, due to the administrative requirements imposed by IAS 39 to achieve hedge accounting, short-term hedging transactions are presented as derivative financial instruments which are held for trading purposes.

In 2000, we engaged in our first hedging transactions. Our Treasury was focused on hedging short-term transactional exposure with use of forward and NDF instruments. In 2001 we increased the hedging coverage of short-term foreign currency transactional exposure and we started hedging transactional exposures related to long term financial cash flows. In 2002 we extended the hedging of short-term transaction exposure, while the share of hedged long-term financial cash flows also increased, due to redemption of part of our Existing Notes. We also started hedging of floating interest rate risk arising from PLN tranches of our Bank Credit Facilities and we commenced hedging of principal risk related to some of our Existing Notes after negotiating subordinated credit lines that meet the requirements of our Bank Credit Facilities.

Short term hedging transactions

In order to manage the volatility relating to our more significant short-term operating risks (cash outflows), we entered into a number of hedging transactions, including forward foreign currency exchange contracts and non-deliverable forward exchange currency contracts. In 2002, we entered into 105 forward and Non Deliverable Forward transactions for a total notional amount of €240.0 million and U.S. $4.5 million of which 52 transactions for a total amount of €120.0 million were still open at the end of June 2003.

In the second quarter of 2003 we entered into 14 forward and Non Deliverable Forward transactions for a total notional amount of €35 million maturing in the first quarter of 2004 in order to roll forward hedging transactions concluded in 2002 and settled in the first quarter of 2003. All these transactions remained open at the end of June 2003.

As at June 30, 2003 we had 66 open forward and Non Deliverable Forward transactions for a notional amount of €155.0 million. The purpose of these transactions is to partially hedge our short-term foreign currency cash flow exposures arising from payments for handsets.

As we have not applied our Hedge Accounting to the forward and Non Deliverable Forward transactions, these contracts are valued in the balance sheet at their fair value calculated based on the market models. The fair value of open short-term Euro transactions as of June 30, 2003, amounted to PLN 42.2 million and they all were presented under current assets in our Financial Statements.

During the second quarter of 2003 we entered into 4 forward rate agreement (FRA) contracts for a total notional amount of PLN 400 million in order to protect against interest rate volatility. Two of those transactions for the total notional amount of PLN 200 million were still open at the end of June 2003. The fair value of open FRA transactions as of June 30, 2003, amounted to a liability of PLN 0.2 million and was presented under current liabilities in our Financial Statements.

Medium and long term hedging

In 2001, we entered into seven cross-currency interest rate swaps hedging our foreign exchange risk exposure to changes in future cash flows arising from the future coupon payments on the Existing Notes for a total notional amount of €375 million and U.S.$200 million. The transactions were concluded in order to hedge 75% of the coupon payments on the 10⁷/₈% Notes and the Euro portion of the 11¼% Notes and 50% of the coupon payments on the 10¾% Notes and the U.S. dollar portion of 11¼% Notes. In 2002 some 50% of 10¾% Notes were redeemed and 6.3% of 10⁷/₈% Notes and 5.8% of the Euro portion of the 11¼% Notes were repurchased in the secondary market and redeemed. In the first quarter of 2003 an additional 2.5% of original amount of 10⁷/₈% Notes were rep urchased in secondary market transactions and redeemed. After these operations the coupon payments coverage of each of the Notes increased to respectively 100%, 80% and 82%. At the end of the second quarter of 2003 all outstanding 10¾ Notes were redeemed and starting from the beginning of the third quarter the relevant swap transaction will be reallocated to hedge the USD tranche under our Bank Credit Facilities.

As of June 30, 2003, the fair value of all open cross currency interest rate swap transactions amounted to PLN 30.6 million, out of which a receivable of PLN 32.9 million referred to swaps hedging against Euro exposure and a liability of PLN 63.5 million referred to swaps hedging against U.S. dollar exposure.

The fair value of cross currency interest rate swaps hedging a part of future interest payments on the Existing Notes (excluding the swap hedging coupons on 10¾ Notes) amounted to a liability of PLN 1.9 million. In accordance with IAS 39 we applied Hedge Accounting to these transactions and we recognized an increase in fair value in the six month period ended June 30, 2003, in the amount of PLN 85.3 million (net of deferred tax effect) as other reserve capital in equity. Additionally, as of June 30, 2003, PLN 0.1 million was transferred from equity to the statements of operations (as other financial expense) to match with hedged interests (as it affects the statements of operation). The fair value of the cross currency interest swap hedging coupons on 10¾% Notes amounted to a liability of PLN 28.7 million. Due to the redemption of the Notes and in accordance with IAS 39, we reclassified Hedge Accounting treatment of the relevant cross currency interest rate swap and transferred the fair value amount from equity to the statements of operations. Starting from the beginning of the third quarter of 2003 we will treat this instrument as a stream of forwards hedging repayments of the U.S. Dollar tranche of our Bank Credit Facility and we will report the changes in the fair value in the statements of operations.

In 2002 we entered into seven medium term transactions hedging risk related to nominal value of the Existing EUR Notes for the total amount of €140 million. Due to restrictions of Bank Credit Facility agreements these transactions were concluded on a subordinated basis. The fair value of open subordinated forward transactions as of June 30, 2003, amounted to PLN 59.2 million and they all were presented under long term assets in our Financial Statements.

In the second quarter of 2003 we entered into 6 forward and Non Deliverable Forward transactions for a total notional amount of USD 30 million maturing on December 1, 2004, in order to hedge the risk related to nominal value of the Existing USD Notes. As the restrictions of Bank Credit Facility agreements regarding hedging of nominal value of outstanding Notes were waived by the Bank Syndicate, these transactions were concluded on an unsubordinated basis. The fair value of open medium term forward transactions as of June 30, 2003, amounted to PLN 5.2 million and they all were presented under long term assets in our Financial Statements.

The table below provides information about foreign currency derivative instruments as at June 30, 2003.

Derivative instruments subject to foreign exchange risk (in thousands PLN)

	2003	2004	2005	2006	2007	Thereafter	Total	Fair Value 6/30/03
Foreign currency forward contracts
Buy Euro/sell PLN¹	32,822	9,360	-	-	-	-	42,182	42,182
Buy USD/sell PLN 1		5,180					5,180	5,180
Total	32,822	14,540	-	-	-	-	47,362	47,362
Foreign currency subordinated forward contracts
Buy Euro/sell PLN¹		33,706	25,504	-	-	-	59,210	59,210
Total		33,706	25,504	-	-	-	59,210	59,210
Cross currency interest rate swaps
Receive fixed EUR, pay fixed PLN²	(1,638)	(3,881)	(3,363)	(3,948)	(3,782)	-	(16,612)	32,934
Receive fixed USD, pay fixed PLN²	(12,794)	(26,383)	( 26,078)	(11,321)	(11,380)	-	(87,956)	(63,574)
Total	(14,432)	(30,264)	(29,441)	(15,269)	(15,162)	-	(104,568)	(30,640)

(1)

Represents estimated cash inflows/outflows net from settlement of the contracts using settlement rates applicable to the current settlement period.

(2)

Represents estimated cash inflows/outflows net from settlement of the contracts using current spot rates, not discounted.

The fair values of derivative financial instruments generally reflect the estimated amount that we would receive or pay to terminate the contract at the reporting date, thereby taking into account the current unrealized gains and losses on open contracts.

Other hedging activities

Following our entry into the Bank Credit Facilities in February 2001 and the amendment to the €150 Million Bank Credit Facility in September 2001, the payments related to our foreign currency obligations under our senior debt obligations changed. As the PLN tranches were substantially increased we are able to limit foreign currency drawdowns and decrease the foreign currency risk carried in our balance sheet.

To reduce the level of foreign currency exposure resulting from the Existing Notes we redeemed in 2002 and 2003 the 10¾% Notes for a total amount of U.S.$253.2 million. Due to the same reason we repurchased in the secondary market and redeemed part of 11¼% Notes and 10⁷/₈% Notes for the total amount of €17.2 million and €12.5 million respectively. Further reduction of the level of foreign currency exposure was continued in the first quarter of 2003, when we repurchased and redeemed €5.0 million of the 10⁷/₈% Notes.

All these operations were financed from Bank Credit Facilities, of which primarily the Zloty tranches were utilized, and from Zloty operating cash flows.

Options Embedded in the Existing Notes

All Existing Notes issued by our subsidiaries have embedded derivatives- options of issuer and holders. The issuer options are separated from host contracts and accounted for as derivatives.

The valuations of these options are done by us with a binominal model. The model is based on the backward induction methodology using the replication rules, stating that a portfolio of base instruments at their value can replace an option.

Note options represent the estimated fair values of call options embedded in the Company’s Notes. Upon exercise of the call option or upon redemption of the Notes by other means, the fair value of the relevant call options is written back to income immediately. The reduced interest payments resulting from the redemption of the relevant notes will be recognized as they accrue.

As at June 30, 2003, we recognized the fair value of options of PLN 189.5 million and presented them as long-term financial assets in the balance sheet.

Part II. Other Information

Item 1. Legal proceedings and Regulatory Matters

On January 20, 2003 the Company was informed that TP SA lodged a cassation request to the Supreme Court against the Antimonopoly Court’s judgment upholding the decision of the Chairman of the Office for Telecommunication and Post Regulation (“OTRP”) from May 28, 2001, which forced TPSA to pay PTC fees for international calls terminated in PTC’s network equal to local fixed to mobile interconnection rates. Management, based on counsels advice, is of the opinion that the possibility that the Supreme Court will accept the cassation and cancel the Antimonopoly Court’s judgment is little and is treated as a contingent liability.

Due to having more than a 25 percent share in our market, in December 2002 PTC was deemed an operator with “significant market power” in the Polish mobile telephony market (“SMP operator”) by OTRP. PTC has appealed against this decision on the basis of apparent procedural failures on the part of OTRP. Both PTC’s existing direct competitors in the market have also been deemed SMP operators. An SMP operator is obliged to grant interconnection to its network on request of any legally operating telecommunication operator in Poland, if the necessary technical conditions are fulfilled.

On May 22, 2003, the Polish Parliament passed the amendment to the telecommunication law. The new telecommunication law was published on June 30 and will come into force on October 1, 2003. The main purpose of the amendment was to align the Polish telecommunication law with the European Union regulations, however prior to the introduction of the new EU Directives which came into force on July 25, 2003. The most significant new Polish laws are related to number portability in fixed-line telecommunications networks and obligations on SMP fixed-line operators to facilitate their customers the choice of provider of telecommunications services (such as domestic and international long-distance calls and fixed-to-mobile calls). The new telecommunication law introduces regulations abolishing the monopoly of TPSA for carrying fixed-to-mobile calls and constitut es a further step in liberalisation of the telecommunication market. The new law strengthens the authority of the market regulator to regulate retail tariffs and interconnection rates, which generally have to be non-discriminatory and based on transparent and objective criteria, and in case of SMP fixed-line operators have to be set based on the cost involved in providing the service.

On April 26, 2003, the law on sharing customer credit information between trade partners and competitors came into force. According to the new law such information will be distributed through Economic Information Bureaus (BIG – “Biuro Informacji Gospodarczej”) to promote good business practices and eliminate non-payment and fraud. PTC is participating in a group of leading Polish companies which are active in creating BIGs on the Polish market.

On July 1, 2003, the Company was informed about placing by Tele2 a request to the Chairman of OTRP for setting interconnection rates between Tele2 and PTC’s network. The Company has previously proposed terms of interconnection to Tele 2 and is ready to sign an agreement on terms similar to those offered to other fixed-line operators in Poland. In the opinion of the Company the risk of the Regulator issuing a decision unfavourable to PTC is remote.

On July 10, all three mobile operators, holders of UMTS licences, applied to OTRP for a delay of the obligatory date for the launch of UMTS services from January 1, 2005 to January 1, 2006. The applicants also requested delaying the date for achieving a 20 percent population coverage of the UMTS network until the end of 2007 and for cancellation of the 40 percent population coverage requirement, as currently set in the licence. The application leaves the operators the option to request access to their frequencies to begin services from January 1, 2004.

Item 2. Material contracts

none

Item 3. Business environment

Business Overview

Polska Telefonia Cyfrowa Sp. z o.o., or PTC, which operates under the brand name ofEra, was incorporated in 1995 by Elektrim, DeTeMobil and MediaOne. We are a company with limited liability organized under the laws of Poland. Our registered office is located at Al. Jerozolimskie 181, Warsaw, Poland. Our telephone number is +48.22.413.6000. We are governed by the provisions of the Polish Commercial Law, and are registered in the National Court Register kept by District Court in Warsaw, XIX Economic Department of National Court Register, entry No. KS 0000029159. We are authorized under our Formation Deed, our Polish law constitutive documents, to carry out telecommunications activities, in particular mobile telephony, data transmission, data communications, Internet-related services, and services connected with fixed-line telephony. We are also authorized under our Formation Deed to conduct industrial, trading and financial operations if they are directly or indirectly necessary to or supportive of the performance of our core business. We may establish branches and set up companies in Poland and abroad.

On February 23, 1996, the Minister of Post and Telecommunications issued us a license to provide telecommunications services based on the GSM standard within the 900 MHz band, together with a permit to install and use a GSM 900 network (the ”GSM 900 License”). This network was launched six months later in August 1996 and services were first offered in September 1996. On August 11, 1999, we obtained a license to provide telecommunications services based on the GSM standard within the 1800 MHz band (the ”GSM 1800 License”). We launched our GSM 1800 network on March 1, 2000. On December 20, 2000 we obtained a Universal Mobile Telecommunications System, or UMTS, license (the ”UMTS License”), which is valid through January 1, 2023. In 2001, all three holders of the UMTS licenses asked for the postponement of the commercial lau nch date to January 1, 2005. In May 2002 OTRP agreed to change license terms and allow a one-year delay in the required date of commercial launch of UMTS services, now obligatory between January 1, 2004 and January 1, 2005.

At the end of February 2001 we changed our brand name fromEra GSMtoEra, to reflect the acquisition of our UMTS License in December 2000.

Recent Development of the Company

Amendment of the terms of the Bank Credit Facilities

The Credit Agreements totaling Euro 700 million, signed with a consortium of banks led by Deutsche Bank AG Luxembourg, include certain limitation on the use of funds. Following the delay of the UMTS services launch date, announced in May 2002, and in anticipation of a further delay for which we have applied, we renegotiated the use of proceeds under the terms of the Bank Credit Facilities with the lenders to include the possibility of refinancing outstanding subordinated debt obligations. Some of the limitations on use of proceeds were first waived in 2002. On May 30, 2003, the senior lenders approved further redemptions or repurchases of High Yield Notes. Other changes to the Credit Facilities allow refinancing of finance lease agreements, entering into hedging transactions in respect to principal of all High Yield Notes issues on an unsubordinated basis and re-denomina tion of on-lending agreements between PTC and its subsidiary PTC International Finance (Holding) B.V into Zloty.

Redemption of High Yield Notes

Following the above amendments to the Bank Credit Facilities agreements, PTC decided to call the 10¾% Notes in 2002 and 2003, with a total principal amount of US$ 253.2 million.

During the third quarter of 2002, we repurchased EUR 12.5 million of the 10⅞%Notes issued in May 2001 and EUR 17.25 million of the 11%¼Notes issued in November 1999. In the first quarter of 2003 we repurchased EUR 5.0 million of the 10⅞% Notes issued in May 2001. We applied to the Luxembourg Stock Exchange to delist the principal amount of repurchased Notes.

The Notes which remain outstanding following the redemptions are as follows:

•

11¼ % Notes due 2009 for the total principal amount of US$150 million,

•

11¼ % Notes due 2009 for the total principal amount of Euro 282,75 million,

•

10⁷/₈% Notes 2009 for the total principal amount of Euro 182.5 million.

These Notes continue to be listed on the Luxemburg Stock Exchange. However PTC may from time to time decide to further repurchase or call any of the outstanding Notes thus continuing to use its surplus cash-flows to de-leverage its balance-sheet and reduce the cost of financing.

Change in tax regulations

On 18 March 2003 a new treaty on avoidance of double taxation between Poland and the Netherlands became law. The new treaty will provide for a 5 percent withholding tax on interest payments whereas previously no tax was due. PTC is working with its legal advisors to assess the implications of the new treaty on its future costs of financing through its guaranteed Dutch subsidiary PTC International Finance B.V.

Sponsorship

In July 2003 PTC announced a new strategy of sport sponsorship, aimed at promoting PTC’s corporate values expressed in the “You can do more” (“Możesz więcej”) motto, such as dynamism, innovation and appeal. In line with this strategy PTC has become a strategic sponsor of the Wisła Cracow football team, reigning Polish Champions, who will participate in the qualifying games to the group stage of the UEFA Champions League. PTC has also signed a sponsorship agreement with the Polish Basketball Association, which provides for sponsorship of the national basketball league as well as Polish senior and youth national teams. PTC’s contribution to sport sponsorship is aimed at popularization of the sponsored sport disciplines and development of interest and active attitude towards sports activities.

New Tarrifs

On May 6, 2003, PTC introduced new tariffs for postpaid subscribers called “Taka jak Ty” for private and business postpaid subscribers. A differentiating feature of the new tariff plans “Taka jak Ty” is a digressive rate per minute for an increasing volume of use. These are the only tariffs in the market which do not include airtime minutes bundled in the monthly fee, but offer a simple price per minute of use with an additional incentive of price reductions for higher usage customers.

PTC’s existing range of Moja and Biznes tariffs, including bundled minutes and as upgraded last October, continue to be offered and are chosen by a majority of customers. These tariff ranges have been expanded during the second quarter to include ultra high user bundles with the addition of Moja 500 VIP and Biznes 500 VIP tariffs.

Upgrade of PTC rating

In June two rating agencies upgraded PTC credit ratings:

•

Standard&Poor’s Rating Services raised its long-term corporate credit rating on PTC to ’BB+’ from ’BB’ and subordinated debt ratings to ‘BB-‘ from ’B+’ on guaranteed subsidiaries PTC International Finance B.V. and PTC International Finance II S.A.– the issuers of PTC’s subordinated debt;

•

Moody’s Investors Service raised its senior implied credit rating on PTC to ‘Ba1’ from ‘Ba2’, Moody’s also raised subordinated debt ratings and issuer ratings to Ba3 from B1 on PTC’s guaranteed subsidiaries – the issuers of PTC’s subordinated debt.

Both upgrades reflect PTC’s on-going progress in reducing debt through internally generated cash flows and the agencies’ expectation that PTC should be able to continue to generate meaningful levels of cash flow and further strengthen its financial profile through additional debt reductions, continue to grow subscriber numbers and maintain a leading position in the Polish mobile market.

Personnel changes in the Supervisory Board

Mr Maciej Raczkiewicz, member of the Supervisory Board since 2002, resigned from his position in early April 2003. Mr Raczkiewicz was appointed as a member of the Supervisory Board by Elektrim Telekomunikacja Sp. z o.o.

Mr. Zygmunt Solorz-Żak has been appointed a new member of the Supervisory Board effective April 30, 2003. Mr. Zygmunt Solorz-Żak is a Chairman of the Supervisory Board of Elektrim S.A. He is Chairman of Supervisory Boards of Telewizja Polsat S.A., Polsat Media S.A. and Invest Bank S.A. He is also co-founder of Polska Telewizja Satelitarna Polsat S.A. Mr Solorz-Żak has technical background.

Dr. Uli Kühbacher was nominated to PTC’s Supervisory Board by T-Mobile Deutschland GmbH, effective June 12, 2003. He replaces Mr. Gerd Kareth, who had been a member of PTC’s Supervisory Board since June 22, 2001. The new Supervisory Board Member is General Counsel of T-Mobile International. In 1997 he joined the transaction and joint venture legal department of Deutsche Telekom AG. In 2000 he was appointed General Counsel of T-Mobile International and since then he has been acting as group General Counsel of the T-Mobile Group and as member of several Supervisory Boards in T-Mobile Group companies. Dr Kühbacher studied law at the University of Freiburg. He was admitted to the Bar of Frankfurt in 1991. Dr Kühbacher worked from 1989 to 1992 as an assistant professor at the University of Darmstadt specializing in internati onal business and banking law, in which area he obtained his Ph.D. In 1992 he joined the German law firm Hengeler Mueller in Frankfurt am Main where he worked as a business lawyer until 1997, with a one year break for the work at the UK law firm Slaughter and May in London.

New services

During the second quarter of 2003 we introduced several new products for our customers continuing our policy of introducing the most innovative services and products.

At the beginning of the second quarter of 2003 we started to offer polyphonic ringtones and colour Java games for a large number of handset models supporting these functionalities. Games and ringtones portfolio is continuously enhanced, by adding new items and increasing range of handsets supported.

In May we enhanced our offer of multimedia services offered through the Era Omnix platform by launching video streaming service featuring transmission of video clips with popular tv novels, extreme sports, soft-erotic and live web cameras. PTC is the only operator in Poland offering video streaming service, which is available to both postpaid and prepaid subscribers.

In addition we introduced user interactivity on its Era Omnix platform, through voting services.

For summer holidays PTC subscribers were offered a new service called MMS Postcard. A picture taken with a mobile phone or selected from the eraomnix.pl portal can be printed out with a quality of a standard postcard and mailed to the addressee.

From July 1 our customers can exchange multimedia messages (MMS) with the other two Polish mobile networks.

Since June we has been offering to its subscribers voice SMS service, which enables sending SMS from mobile telephone to fixed lines. The new feature of this service is automatic text recognition, including Polish letters, necessary for correct pronunciation of messages.

In July we introduced a new, enhanced directory assistance with a database containing more than 820 thousand entries of phone numbers of companies and institutions. Standard service is available in English and Polish, locally and abroad. The database also includes information on private PTC’s subscribers phone numbers.

In July we completed tests of a system of documents authorization with the use of e-signature via mobile phones. The system is based on Public Key Infrastructure (PKI) technology. The new service will allow to authorize electronic documents and transactions executed via Internet or Era Omnix.

As of May 2003 we offer our subscribers GPRS roaming accessible in forty six networks in thirty five countries. GPRS in-bound roaming is available for customers of forty four foreign operators.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

POLSKA TELEFONIA CYFROWA Sp. z o.o.

(Registrant)

By:/s/ Boguslaw Kulakowski

Boguslaw Kulakowski, Director General

By:/s/ Martin Schneider

Martin Schneider, Director of Strategy, Marketing and Sales

By:/s/ Jonathan Eastick

Jonathan Eastick, Director of Finance

August 1 4 , 2003

Footnotes

¹ EBITDA margin is calculated as a relation of EBITDA (as reconciled in Item 2. - Management's Discussion and Analysis of Financial Condition and Results of Operations – Statement of Operations Data) to Total Net Sales.

² Please refer to calculations used to derive ARPU statistics presented in Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations – Operating Overview.

Polska Telefonia Cyfrowa SP Zoo Inactive 6-KReport of Foreign Issuer [Rules 13A-16 and 15D-16]

Footnotes