Investor Releases

September 25, 2001

Matáv (NYSE: MTA.N and BSE: MTAV.BU), the leading Hungarian telecommunications service provider, currently the 51% owner of Westel and Westel 0660, has sent a notification to Deutsche Telekom to exercise its option to acquire the remaining 49% stakes currently owned by Deutsche Telekom (the 'Westel Stakes').

According to the option agreement between Deutsche Telekom and Matav, Matav had to notify Deutsche Telekom of its intention to exercise the option by 30 September, 2001 The closing of the transaction will take place by the end of 2001

Under the terms of the option agreement, Matáv will pay a fixed price of US$885 million for the Westel Stakes. The purchase price is expected to be financed from debt provided by Deutsche Telekom.

Elek Straub, Chairman and CEO of Matáv said: 'I am very happy that we have been able to take full control over Westel, the leading mobile telecommunications provider in the fast growing Hungarian market with excellent service quality and impressive financials.

'Westel is the largest mobile operator in Hungary with 2.1 million subscribers and over 50% GSM market share as of August 2001

Westel 0660 is the sole analogue mobile operator in Hungary with 55,000 subscribers as of August 2001

Matáv is the principal provider of telecom services in Hungary. 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 include the Hungarian State (holder of the Golden Share), MagyarCom, owned by Deutsche Telekom AG (59.49%), while 40.51% is publicly traded.

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.