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Investor Releases

Matáv first half 2001 results

August 14, 2001

Matáv (NYSE: MTA.N and BSE: MTAV.BU), the leading Hungarian telecommunications service provider, today reported its financial results for the first half of 2001

Highlights:

Revenues grew by 23.1% (21.3% in euro and 13.6% in dollar terms) to 263.3 billion forints (EUR 1,006.7 million or US$ 904.9 million) compared to 213.8 billion forints in the first half of 2000

- Mobile segment revenues amounted to 92.5 billion forints in the first half of 2001 compared to 73.8 billion forints in the same period of last year, an increase of 25.4%. The main contributor to revenue growth in the mobile business were increased traffic due to the 71% increase in net subscribers.

- MakTel added 27.1 billion forints to Matáv’s revenues. The key components of revenues were domestic traffic revenues, mobile and international traffic revenues.

- Fixed line segment revenues grew by 4.2% to 164.9 billion forints, as higher subscription fees and ISDN, leased lines and data revenue growth offset lower traffic revenues.

EBITDA increased by 11.2% (9.5% in euro terms), amounting to 111.5 billion forints (EUR 426.3 million or US$ 383.2 million) versus 100.3 billion forints a year ago. The EBITDA margin was 42.3% for the first six months of 2001

Net interest and other charges recorded 181 million forints in the first half of the year versus 11.3 billion forints in the same period of last year. This was a joint effect of foreign exchange gains on the euro denominated debt portfolio mainly of Matáv Rt. and Westel resulting from the strengthening of the forint against the euro in the second quarter, and the losses on mainly MakTel’s dollar denominated loans as dollar strengthened against the euro.

Net income increased by 1.3% (0.2% decrease in euro terms) to 42.1 billion forints (EUR 161.0 million or US$ 144.8 million), compared to 41.6 billion forints in the first six months of 2000 The net income margin was 16.0% for the first half of 2001

Elek Straub, Chairman and CEO commented: “This set of results reflects the progress we have made in our businesses in the first half of the year and underscores Matáv’s success in implementing its strategy for growth by focusing its resources on mobile, data, Internet and international acquisitions. Westel has improved its financial performance by continuing mobile subscriber growth and increasing traffic. MakTel, our first international acquisition, is increasing revenues in line with our expectations.

In the fixed line segment growth was driven by data services, increased Internet usage and fixed to mobile traffic revenues. We have also been successful in increasing our ISDN sales doubling connections in the last twelve months. In addition, we have completed a major restructuring of our fixed line business announced at the end of last year to counteract the slowdown and rising competition in this segment. As a result, by the end of June headcount reduced to 9,790 at Matáv Rt. a 13.8% decline compared to a year ago."

Mobile: Continuing strong growth

Mobile segment revenues experienced strong growth to 92.5 billion forints, an increase of 25.4% over the first half of 2000 Enhanced services show the highest increase with over 100% growth year over year.

Gross GSM additions totaled 569,000, and net subscriber growth was 71% year-on-year. The proportion of prepaid customers grew to 61% of the total subscriber base compared to 39% a year ago.

EBITDA was 34.2 billion forints in the first half of the year versus 26.5 billion forints in the same period of last year. The EBITDA margin improved to 37.0% compared to 36.0% a year ago. The increase in EBITDA and a HUF 2.4 billion foreign exchange gain contributed to an improvement in Westel’s first half net income to HUF 11.6 billion, a 54.9% increase compared to the same period of last year.

Westel retained its leading position in the Hungarian GSM market with a market share of 52.7% at the end of June, capturing 50.5% of total GSM net additions in the first six months of the year. Hungary’s mobile penetration rate reached 39.1% at the end of June.

Monthly average minutes-of-use per subscriber reached 150 minutes in the first half of the year, a drop of 19.8% compared to last year. Westel’s average revenue per unit was 7,006 forints in the first half of the year, a decline of 26.7% compared to the same period of last year. Churn rate was 14.4%.

Fixed Line: Higher subscription fees and ISDN and data revenue growth make up for lower traffic revenues

Fixed line segment revenues grew by 4.2% year on year to 164.9 billion forints thanks mainly to the higher volume of ISDN subscribers and higher monthly subscription charges and wider use of value added services. The penetration rate in Matáv’s service areas has stabilized at 39%, underscoring the saturation of the fixed line service segment. The nearly 30% increase in monthly subscription fees this February has resulted in decreased demand for Matáv’s basic package at the lower end of the residential market. Matáv has successfully retained customers in this segment with its low-user calling plan, which had 315,000 subscribers at the end of the second quarter. At the high end of the market, the number of ISDN channels continued to increase significantly, resulting in growth of over 100% year on year. By the end of June 13% of Matáv’s total fixed lines were ISDN channels.

Domestic traffic measured in minutes increased by 8.7% year over year, mainly due to increases in Internet usage and fixed-to-mobile traffic. The growth in local traffic was partially offset by lower per-minute charges introduced in February and the shift towards lower-cost Internet and off-peak rates calls. The dynamic development of the mobile market has resulted in the growth of fixed-to-mobile traffic, though growth has somewhat abated as more and more traffic stays within the mobile networks. Despite significant reductions in long distance and international tariffs in February, traffic here continued to decline as residential customers did not take advantage of the lower rates and Matáv competitors targeted business customers with alternative service offers.

Data revenue growth of 30% was driven by the growth of ISDN data, managed leased lines, Internet and cable TV revenues. Managed leased lines grew by 34%, driven by the growth in demand for broadband connectivity. The number of Internet customers has increased by 56% to 110,384 compared to 70,904 a year ago. Number of cable TV connections increased by over 50% year over year.

EBITDA margins in the fixed line segment decreased to 38.5% from 46.6% a year ago. The main drivers of operating expense growth were the 12.5% wage increase at Matáv Rt. in April, the higher outpayments due to higher traffic between Matáv Rt. and the mobile service providers and higher outsourcing and subcontractor fees for customer support which relates to the expanded product offering the company.

As a result of reducing headcount by 1,437 in the first half of the year, lines per employee efficiency ratio increased to 300 by the end of the reporting period.

International segment contributed 10.3% to group revenues

The most dynamically growing revenue lines were MakTel’s increased mobile and international call revenues in the second quarter. MakTel had 532,780 fixed line subscriber, 153,364 mobile customers and 15,178 Internet subscriber at the end of June. EBITDA margin in the first half of the year was 50.9% at our international segment. MakTel’s contribution to group EBITDA was negatively effected by the strengthening of the forint against the euro and thus the Macedonian denar.

Matáv is the principal provider of telecom services in Hungary and holds the national concession for national and international long distance telephony. Matáv provides a broad range of services including telephony, data transmission, value-added services, and through its subsidiaries is Hungary's largest mobile telecom provider. Matáv also holds a majority stake in Stonebridge Communications AD controlling MakTel, the sole fixed line and mobile operator in Macedonia. Key shareholders of Matáv as of June 30, 2001 include the Hungarian State (holder of the Golden Share), MagyarCom, owned by Deutsche Telekom AG (59.49%), while 40.51% is publicly traded.