Press Releases

Budapest, August 14, 2000

MATÁV (NYSE: MTA.N and BSE: MTAV.BU), the leading Hungarian telecommunications service provider, today reported its first half 2000 financial results.

Highlights:

• Revenues grew by 17.6% (14.7% in EUR terms) to 213.8 billion forints (830.2 million EUR) compared to 181.7 billion forints in the first half of 1999. This growth was achieved as
  • the outstanding performance of our mobile business which delivered traffic revenue growth of 34.7%,
  • the impact of significantly higher monthly fees, as a result of tariff rebalancing ahead of full liberalization,
  • and the above average growth of 31.6% of leased lines and data transmission revenues counterbalanced the flat domestic and declining international traffic revenues.
  • EBITDA increased 15.7% (12.8% in EUR terms) to 100.3 billion forints (389.4 million EUR) compared to 86.7 billion forints in the first half of 1999.
  • Net income increased by 14.6% (11.7% in EUR terms) to 41.6 billion forints (161.4 million EUR) versus 36.3 billion forints in the same period of last year.
• EBITDA and net income margins decreased slightly in the first half of 2000 relative to the same period in 1999, due to the increasing weight of the mobile segment, and pressure on prices due to the growing competitiveness of the Hungarian telecommunications marketplace.

Elek Straub, MATÁV Chairman and CEO, commented: "For the first time since our IPO, Matáv's source of growth lies outside of our traditional core businesses. Matáv's fixed voice services are reaching a more mature and cash generative stage, but we've only just begun to witness the potential of our new growth businesses underpinned by exciting mobile, data and IP trends. Our most powerful driver in the near term remains the mobile segment. Nevertheless, we expect second half 2000 bottom line growth for the group to be slightly below the first half growth rate. We consider the coming period to be important in the transition of our business, to secure our mobile leadership and to lay the foundation for Matáv's success in the new economy."

Mobile revenues increased 34.7% to 49.8 billion forints. Westel continued its strong track record of net additions in the first half of 2000. The number of GSM subscribers increased 69.9% year-on-year to nearly 1.2 million. This corresponds to a 41.4% year-to-date increase, spurred by the growth of prepaid customers.

Despite the entrance of a third mobile operator in December of 1999, Westel retained its leadership of the GSM market with a market share of approximately 56%. GSM mobile penetration in Hungary was 21.2% at the end of June 2000 and we expect it to grow to approximately 27% by the end of the year. The average monthly usage per Westel subscriber remained high at 187 minutes in the first half of 2000, slightly lower than in the same period of 1999 due to the growing proportion of mass market, prepaid customers. The relatively stable level of usage per subscriber combined with lower prices resulted in the average monthly revenue per Westel customer of 9,562 forints, versus 11,265 forints in the same period of 1999.

We saw modest growth in the fixed line business during the first half of 2000. Although income from subscription fees produced a significant improvement of 48.8% due to the nearly 50% increase in monthly charges effective February 1, connection revenues were down significantly relative to the same period last year, due to a lower number of new connections as well as price decreases. The total number of analog lines decreased by more than 50,000 in the first half of 2000, but this was offset by a strong increase in the number of ISDN channels, which drove an increase in penetration to 38.8%. Higher monthly fees, as well as the substitution effect of mobile solutions, caused demand for analog lines to decrease, and MATÁV also adopted a stricter policy with regard to bad debt. In the first half of this year MATÁV made great progress in developing ISDN as a mass-market product, connecting around 67,000 new lines, a 58.5% year-to-date increase.

Domestic traffic revenues remained flat year-on-year at 65.2 billion forints. While fixed-to-mobile revenues increased during the first six months of 2000 as a result of rapidly expanding mobile penetration, local and long distance revenues decreased in the same period. Effective from February 1 MATÁV reduced local charges by approximately 11% and domestic long distance fees by nearly 13% in nominal terms. Furthermore, between May 1 and August 31 we are running a marketing campaign: our customers can make off-peak domestic long distance calls within our service area for approximately 60% lower prices on average. The 12.6% year-on-year increase of total domestic minutes could just offset the effect of the lower tariffs.

International traffic revenues decreased by 2.4% to 20.4 billion forints mainly due to the 12% decrease in international tariffs as of February 1, as well as the 4.5% decline in international outgoing minutes.

Data revenues showed above average growth of 31.6%, data transmission is a key driver of our success, powered by our continuously upgraded IP capacity. MATÁVNet, our market-leading internet subsidiary, achieved a 97.7% year-over-year increase in dial-up internet subscribers to over 70,904, representing a market share of 47%.

MATÁV continued to broaden its product portfolio in the first half of 2000, while promoting usage on existing lines through various marketing campaigns. We introduced several new tariff packages and special prices (Favorite Countries, an off-peak flat rate package, special domestic long-distance fees, ISDN-Net, Office-Net) and also new data products (MATÁVmultiLAN, IP VPN). In addition we enabled customers to use Caller ID nationwide, and we launched a prepaid international calling card.

Employee-related expenses increased by only 1.9% year-on-year to 28.6 billion forints. The moderate growth results from wage increases effective April 1, 2000 partially offset by an 8.8% reduction in the average headcount and decreases in welfare costs mainly due to the partial reversal of provision for postretirement benefits. In negotiation with the trade unions we came to more favorable terms which allowed the recalculation of our liabilities for postretirement benefits. At the end of June, 2000 the number of lines per fixed employee was 257 outperforming our public target of 250 for the end of 2000.

This year brought very important changes in Matáv's ownership structure. Deutsche Telekom purchased full control of MagyarCom, the joint venture holding company with SBC which now owns 59.49% of Matáv's share capital. With the Hungarian telecommunications market expected to be fully liberalized in about one-and-a-half years, MATÁV will rely more heavily upon Deutsche Telekom's know-how, scale and resources.

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. Key shareholders as of June 30, 2000 include the Ministry for Transport, Communications and Water Management (holder of the Golden Share), MagyarCom, owned by Deutsche Telekom AG and SBC (59.49%), while 40.51% is publicly traded.