Investor Releases

Budapest, August 12, 2004

2004 interim results: stable financial and operational results despite regulatory and competitive pressure

BUDAPEST - August 12, 2004 - Matáv (NYSE: MTA.N and BSE: MTAV.BU), the leading Hungarian telecommunications service provider, today reported its consolidated financial results for the first half of 2004, according to International Financial Reporting Standards (IFRS)

Highlights:

• Revenues grew slightly by 0.4% to HUF 297.9 bn (EUR 1   163.4 m) in 1H 2004 compared to 1H 2003 as a result of higher mobile and data transmission revenues, offset by a decline in revenues from domestic and international traffic, and lower other usage.
• EBITDA declined by 2.3% to HUF 126.1 bn, with EBITDA margin reaching 42.3%.
• Gross additions to tangible and intangible assets amounted to HUF 35.4 bn. Of this, the portion relating to the fixed line segment reached HUF 14.6 bn, with mobile at HUF 17.3 bn and MakTel reporting HUF 3.5 bn.
• Fixed line segment: revenues declined by 6.4%; EBITDA margin was 36.3%.
• Mobile segment: revenues grew by 4.4%, EBITDA margin was 41.6% in 1H 2004. T-Mobile Hungary kept its leading position with a market share of 47.7% at the end of June 2004.
• International segment: revenues grew by 4.0% with EBITDA margin reaching a strong 51.7%. EBITDA fell slightly to HUF 17.4 bn from HUF 18.0 bn in the same period last year.
• Group operating profit reduced to HUF 57.6 bn mainly driven by a 10.8% growth in depreciation and amortization. Net income declined to HUF 30.3 bn (EUR 118.3 m).
• Net cash from operating activities increased to HUF 101.3 bn due to the combined impact of a decline in EBITDA and a fall in working capital requirements. Net cash utilized in investing activities reduced to HUF 38.7 bn. This was due to higher gross additions to tangible and intangible assets (primarily at the fixed line segment) together with a lower purchase of subsidiaries and increased proceeds from real estate sales. Net cash used in financing activities was HUF 49.1 bn, mainly explained by the higher dividend paid at the parent company and increased borrowing as a result of this.
• Net debt has been reduced by HUF 41.5 bn since the end of June 2003 resulting in a net debt ratio (net debt to net debt plus equity plus minority interest) of 34.6% compared to 36.6% at the end of June 2003.

Elek Straub, Chairman and CEO commented: "For the first half of the year we have witnessed a balanced financial and operational performance for the Group. As expected, the fixed line segment reported a decline in revenues and EBITDA due to the strengthening regulatory and competitive pressure. The Regulator published its final resolution on Matáv's new reference interconnection offer in June. This resulted in a further reduction compared to January, with interconnection traffic fees now close to the relevant EU benchmarks. A new player appeared in the Hungarian fixed line market in the second quarter, increasing the competition for customers in this segment. In the broadband business, the ADSL rollout program has continued in line with our aims. The line per employee ratio at the parent company exceeded 353 (compared to 341 at end-June last year). In the mobile segment, the rebranding of Westel into T-Mobile Hungary was very successful, with rapid growth in awareness of the new brand. I am pleased to say that the perception of T-Mobile Hungary is very positive. We have also seen a smooth start to mobile number portability. The segment reported healthy financials driven by a balanced focus on maximising the value of the customer base and optimizing acquisition and retention costs. At MakTel, the pressure on revenues did not prohibit the achievement of a strong EBITDA margin in the first half of this year. Finally, let me mention that at the end of the second quarter, we paid the vast majority of the dividend relating to 2003 earnings, resulting in an increase in net debt ratio to close to 35%, fully in line with the dividend policy announced in March of last year."

Fixed line: Successful line retention; further growth in customised packages, competitive and regulatory pressure

Fixed line revenues fell by 6.4% to HUF 153.9 bn with EBITDA margin at 36.3%. Domestic and international traffic revenues combined fell by 13.2% mainly due to lower volumes and price discounts. At the same time, leased line and data revenues continued to grow, rising by 23.2%, driven by a volume increase in ADSL and increased Internet subscribers. The total number of lines was down by only 0.5% compared to 1H 2003 and flat compared to 1Q 2004; evidence of Matáv's success in halting line number erosion. By the end of June 2004, 18.6% of Matáv's total fixed lines were ISDN channels. Customised tariff packages represented around 55% of the total number of lines with 1.6 million lines at the end of the second quarter 2004. The successful ADSL program resulted in 142   430 ADSL lines being installed by the end of 1H 2004. Matáv's Internet subsidiary, Axelero, retained its leading position among ISPs in the dial-up market with a market share of around 44% and a total of 233   989 Internet subscribers at the end of June 2004 (up by 35.2% year-on-year).

Mobile: Successful rebranding, improving customer base, healthy financials despite strong competition

Mobile revenues rose by 4.4% mainly driven by higher traffic, enhanced service revenues and equipment sales. EBITDA increased to HUF 52.8 bn, while the EBITDA margin reached 41.6%. Operating profit reduced by 5.7% as the vast majority of the write-off relating to the Westel rebranding was accounted for in the first quarter of 2004. T-Mobile Hungary maintained its leading position in a highly competitive market with 47.7% market share, while GSM penetration was 81.2% at end-June. T-Mobile Hungary's customer base exceeded 3.9 million at the end of 1H 2004. In the same period, the proportion of postpaid customers increased to 26.9% of the total customer base, compared with 25.5% at end of 1H 2003. Average acquisition cost per customer fell by 20.7% to HUF 10   284 in 1H 2004 from HUF 12   974 a year earlier. When calculating subscriber acquisition cost, we include the connection margin (connection fee less the SIM card cost) and the sales related equipment subsidy and agent fee. MOU (monthly average minutes of use per subscriber) increased to 111 in 1H 2004 from 110 a year earlier. Blended ARPU (monthly average revenue per user) declined to HUF 4   923; within this postpaid ARPU reached HUF 12   103 and prepaid ARPU was HUF 2   349. Due to new packages, the usage slightly grew but the discounts that some of these provide as well as the regulatory impacts resulted in downward pressure on ARPU. The enhanced services revenue (mainly SMS) grew to HUF 595 (12.1% of total ARPU), from HUF 550 (10.6% of total ARPU) in the same period last year. The churn rate of postpaid customers was successfully kept at the low level of 11.1% in 1H 2004. The churn rates at both prepaid and postpaid segments showed a decline compared to 1H 2003.

International: EBITDA margin maintained at an impressive level despite limited top line growth

International revenues rose by 4.0% to HUF 33.7 bn in 1H 2004 driven mainly by favourable foreign exchange rate movement. Mobile telecommunications services revenues grew, as did domestic traffic revenues. However, these were partially offset by a fall in international traffic revenues. EBITDA reached HUF 17.4 bn with a strong EBITDA margin of 51.7%. The closing number of employees fell by 4.1% to 3   543 at the end of the second quarter this year over the same period last year. Fixed line penetration in Macedonia was around 29%, and mobile penetration grew further to 38% over 21% in 1H 2003. The number of fixed line customers grew to 623   741, up by 1.9% from the previous year's figure. Within this, analog subscribers remained broadly unchanged at 584   429. ISDN channels, at the same time, showed a growth of 46.1% to 39   312. The mobile customer base rose by 51.1% to 623   285, broadly the same as the fixed line customer base. MakTel's mobile market share stood at 80% at end-June 2004. The number of Internet subscribers at the end of the second quarter of 2004 increased to 56   426 (up by 34.4% year-on-year).

About Matáv

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 subsidiary is Hungary's largest mobile telecom provider. Matáv also holds a majority stake in Stonebridge Communications AD, which controls MakTel, the sole fixed line and the leading mobile operator in Macedonia. Key shareholders of Matáv as of June 30, 2004 include MagyarCom Holding GmbH, owned by Deutsche Telekom AG (59.21%). The remainder, 40.79% is publicly traded.

This investor news contains forward-looking statements. Statements that are not historical facts, including statements about our beliefs and expectations, are forward-looking statements. These statements are based on current plans, estimates and projections, and therefore should not have undue reliance placed upon them. Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update publicly any of them in light of new information or future events.

Forward-looking statements involve inherent risks and uncertainties. We caution you that a number of important factors could cause actual results to differ materially from those contained in any forward-looking statement. Such factors are described in, among other things, our Annual Report on Form 20-F for the year ended December 31, 2003 filed with the U.S. Securities and Exchange Commission.

Matáv Consolidated Balance Sheets - IFRS (HUF million)	June 30, 2003 (Unaudited)		June 30, 2004 (Unaudited)		June 30, 2003 - June 30, 2004 % change
ASSETS
Current assets
Cash and cash equivalents	18   532		34   700		87,20%
Financialinstruments held for trading	381		407		6,80%
Trade and other receivables	103   328		103   117		-0,20%
Inventories	10   965		10   585		-3,50%
Assets held for disposal	2   201		3   489		58,50%
Total current assets	135   407		152   298		12,50%
Non current assets
Property, plant and equipment	632   642		595   669		-5,80%
Intangible assets	289   909		278   086		-4,10%
Associates	4   389		5   584		27,20%
Deferred taxes	5   905		4   143		-29,80%
Other non current assets	25   048		7   600		-69,70%
Total non current assets	957   893		891   082		-7,00%
Total assets	1   093   300		1   043   380		-4,60%
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Loans and otherborrowings - third party	67   311		42   078		-37,50%
Loans from related parties	167   769		116   644		-30,50%
Trade and other payables	107   178		107   479		0,30%
Deferred revenue	2   357		1   805		-23,40%
Provisionfor liabilities and charges	7   288		5   292		-27,40%
Short term derivatives	0		11		n.a.
Total current liabilities	351   903		273   309		-22,30%
Non current liabilities
Loans and otherborrowings - third party	58   872		49   904		-15,20%
Loans from related parties	73   675		133   675		81,40%
Deferred revenue	3   451		1   897		-45,00%
Deferred taxes	1   967		2   492		26,70%
Other non current liabilities	46		103		123,90%
Long term derivatives	234		103		-56,00%
Total non current liabilities	138   245		188   174		36,10%
Minority interests	66   392		66   180		-0,30%
Shareholders' equity
Common stock	104   281		104   281		0,00%
Additional paid in capital	27   382		27   382		0,00%
Treasury stock	-4   488		-3   842		-14,40%
Cumulative translation adjustment	1   699		-1   204		n.m.
Retained earnings	407   886		389   100		-4,60%
Total shareholders' equity	536   760		515   717		-3,90%
Total liabilities and shareholders' equity	1   093   300		1   043   380		-4,60%

Matáv Consolidated Income Statements - IFRS (HUF million)	June 30, 2003 (Unaudited)		June 30, 2004 (Unaudited)		% change
Revenues
Subscriptions,connections and other charges	48   913		48   164		-1,50%
Domestic traffic revenue	58   205		51   296		-11,90%
Other usage	6   438		2   782		-56,80%
Domesticfixed line telecommunications services	113   556		102   242		-10,00%
International traffic revenues	11   727		9   409		-19,80%
Mobile telecommunications services	95   547		104   905		9,80%
Revenue from international activities	32   281		33   540		3,90%
Leasedlines and data transmission	18   539		23   480		26,70%
Equipment sale	10   376		11   009		6,10%
Other revenues	14   836		13   332		-10,10%
Total revenues	296   862		297   917		0,40%
Employee-related expenses	-42   519		-45   660		7,40%
Depreciation and amortization	-61   773		-68   442		10,80%
Paymentsto other network operators	-40   691		-42   932		5,50%
Costof telecommunications equipment sales	-17   844		-17   484		-2,00%
Other operating expenses	-66   740		-65   771		-1,50%
Total operating expenses	-229   567		-240   289		4,70%
Operating profit	67   295		57   628		-14,40%
Netinterest and other charges	-20   478		-17   655		-13,80%
Share of associates'results before income tax	430		2   099		388,10%
Profit before income tax	47   247		42   072		-11,00%
Income tax expense	-7   573		-7   035		-7,10%
Profit after income tax	39   674		35   037		-11,70%
Minority interest	-6   423		-4   747		-26,10%
Net income	33   251		30   290		-8,90%

Matáv Consolidated Cash Flow Statement - IFRS (HUF million)	6 months ended June 30, 2003 (Unaudited)		6 months ended June 30, 2004 (Unaudited)		% change
Cashflows from operating activities
Operating profit	67   295		57   628		-14,40%
Depreciation andamortization of fixed assets	61   773		68   442		10,80%
Change in working capital	-6   382		839		n.m.
Amortization of deferred income	-1   370		-744		-45,70%
Interest paid	-14   970		-16   411		9,60%
Commissions and bank charges	-1   250		-1   642		31,40%
Income tax paid	-3   732		-5   665		51,80%
Other non-cash items	-3   401		-1   189		-65,00%
Netcashflows from operating activities	97   963		101   258		3,40%
Cashflows from investing activities
Purchase oftangible and intangible assets	-37   385		-42   724		14,30%
Purchase ofsubsidiaries and business units	-5   545		-462		-91,70%
Cashacquired through business combinations	72		16		-77,80%
Interest received	356		761		113,80%
Dividends received	575		1   000		73,90%
Sale oftrading investments - net	66		27		-59,10%
Proceeds from disposal oftangible and intangible assets	569		2   697		374,00%
Netcashflows from investing activities	-41   292		-38   685		-6,30%
Cashflows from financing activities
Dividends paid toshareholders and minority interest	-20   493		-76   997		275,70%
Net repayment ofloans and other borrowings	-27   909		27   901		n.m.
Netcashflows from financing activities	-48   402		-49   096		1,40%
Effect of foreign exchange rate changes oncash and cash equivalents	1   412		-909		n.m.
Change incash and cash equivalents	9   681		12   568		29,80%
Cash and cash equivalents, beginning of year	8   851		22   132		150,10%
Cash and cash equivalents, end of year	18   532		34   700		87,20%
Change incash and cash equivalents	9   681		12   568		29,80%

Summary of key operating statistics

	2Q 2003		2Q 2004		% change
EBITDA margin	43,50%		42,30%		n.a.
Operating margin	22,70%		19,30%		n.a.
Net income margin	11,20%		10,20%		n.a.
ROA	6,10%		5,80%		n.a.
Netdebt to total capital	36,60%		34,60%		n.a.
Number of closing lines
Residential	2   027   696		2   018   997		-0,40%
Business	264   369		256   739		-2,90%
Payphone	31   911		28   687		-10,10%
ISDN channels	520   948		527   316		1,20%
Total lines	2   844   924		2   831   739		-0,50%
Digitalizationof exchanges with ISDN	87,40%		90,40%		n.a.
Penetration *	37,70%		37,60%		n.a.
Fixed line employees (closing full equivalent, Matáv Rt.)	8   342		8   013		-3,90%
Total no. ofemployees (closing full equivalent)	15   227		14   789		-2,90%
Linesper fixed line employees	341		353,4		3,60%
Lines per fixed line employees at Matáv Rt. + Emitel	337,9		349,9		3,60%
Traffic in minutes (thousands) at Matáv Rt.
Domestic	4   088   149		4   036   646		-1,30%
International outgoing	69   321		68   547		-1,10%
Managed leased lines (FLEX-Com connections)	11   415		10   760		-5,70%
ADSL lines	57   399		142   430		148,10%
Internet subscribers	173   083		233   989		35,20%
Cable television customers	344   712		366   809		6,40%
Emitel fixed line numbers incl. ISDN channels	78   536		78   329		-0,30%
Emiteldomestic traffic (thousand minutes)	79   095		73   521		-7,00%
Emitel internationaloutgoing traffic (thousand minutes)	1   125		1   124		0,00%
MakTel fixed lines	611   816		623   741		1,90%
Traffic in minutes (thousands) at MakTel
Domestic	n.a.		1   252   921		n.a.
International outgoing	n.a.		19   368		n.a.
MakTel mobileRPCs (Revenue Producing Customers)	412   373		623   285		51,10%
MakTel mobile ARPU (Average Traffic Rev./RPC/Month)	5   269		4   049		-23,10%
MakTel mobile MOU (Monthly av.minutes of Use/subsc.)	85		68		-20,60%
MakTel Internet subscribers (inc. prepaid from Jan 1, 2004)	41   970		56   426		34,40%
Westel 0660 RPCs	9   552		0		-100,00%
T-Mobile Hungary RPCs	3   509   518		3   913   282		11,50%
Total cellular RPCs	3   519   070		3   913   282		11,20%
T-Mobile Hungary's MOU	110		111		0,90%
T-Mobile Hungary's ARPU	5   203		4   923		-5,40%
T-Mobile Hungary's postpaid ARPU	12   824		12   103		-5,60%
T-Mobile Hungary's prepaid ARPU	2   642		2   349		-11,10%
T-Mobile Hungary's overall churn	24,10%		10,50%		n.a.

Analysis of the Financial Statements for 2Q04 (six months ended June 30, 2004) EXCHANGE RATE INFORMATION

The Euro weakened by 4.9% against the Hungarian Forint year on year (from 266.30 HUF/EUR on June 30, 2003 to 253.23 HUF/EUR on June 30, 2004). From the year-end 2003, the Euro weakened by 3.4% against the Hungarian Forint (from 262.23 HUF/EUR on December 31, 2003 to 253.23 HUF/EUR on June 30, 2004). The average HUF/EUR rate increased from 247.11 in 2Q2003 to 256.07 in 2Q2004.

The U.S. Dollar depreciated by 10.4% against the Hungarian Forint year on year (from 232.98 HUF/USD on June 30, 2003 to 208.76 HUF/USD on June 30, 2004). From the year-end 2003 to June 30, 2004, the U.S. Dollar strengthened by 0.4% against the Hungarian Forint (from 207.92 HUF/USD to 208.76 HUF/USD).

ANALYSIS OF GROUP INCOME STATEMENTS

Revenues

Revenues from subscriptions, connections and other charges decreased by 1.5% in the first half of 2004 compared to the same period in 2003. Revenues from connection fees declined, which resulted from the promotions given to new customers and the 50% decrease in business analog connection fee from June 1, 2004. The 35% decrease in ISDN 2 connection fee effective from January 1, 2004 and lower ISDN gross additions also contributed to the decrease. As a result of successful campaigns gross additions of analog lines almost doubled in 2Q2004 compared to 2Q2003. In accordance with the Act C of 2003 on Electronic Communications effective from January 1, 2004 Matáv Rt. cannot charge for itemized billing, which resulted in lower revenue from digifon services.

These decreases were partly offset by business analog subscription fee increases from January 1, 2004. The ISDN subscription fee revenue also increased in 2Q2004 compared to 2Q2003 due to the higher number of average ISDN connections.

Domestic traffic revenue in 2Q2004 amounted to HUF 51.3 bn compared to HUF 58.2 bn in 2Q2003. While domestic traffic decreased by 1.4% in the fixed line segment, the higher decrease in revenue is due to lower average per minutes fees. While Matáv increased its tariffs on January 1, 2004, it offered several discounts to customers choosing different tariff packages.

Revenues from other usage for the first half of 2004 decreased by 56.8% compared to the same period in 2003. The main reason of this significant decrease in other usage revenue is the almost complete LTO-mobile by-pass due to interconnection agreements between LTOs and mobile operators. The decrease was also attributable to lower rates and, to a lesser extent, to a change in mix of calls in LTO relation (the loss of traffic was the greatest in the LTO to mobile call relation, which has the highest per minute interconnection rate).

International traffic revenues decreased to HUF 9.4 bn for the six months ended June 30, 2004 compared to HUF 11.7 bn for the same period in 2003. Both outgoing and incoming international traffic revenue declined. Outgoing international traffic revenue decreased by 7.8% mainly due to price discounts given to subscribers of optional tariff packages (Rhythm, Says a Lot, Chat, Halving). Incoming international traffic revenues declined by 28.0% mainly due to 20.8% lower incoming traffic. The decrease in incoming international traffic was more significant for mobile terminated traffic due to mobile by-pass, while calls terminated in Matáv areas declined to a lesser extent. Incoming international traffic revenues were also negatively affected by the lower settlement rates with international partners.

Revenues from mobile telecommunications services amounted to HUF 104.9 bn for the first half of 2004 compared to HUF 95.5 bn for the six months ended June 30, 2003 (a 9.8% increase). The growth mainly resulted from the 11.7% higher T-Mobile Hungary average customer base. Prepaid customers accounted for approximately 70.6% of gross additions in the first half of 2004 and represent 73.1% of total T-Mobile Hungary customers as of June 30, 2004.

T-Mobile Hungary's average usage per customer per month measured in MOU increased by 0.9% from 110 minutes in 2Q2003 to 111 minutes in 2Q2004. T-Mobile Hungary's average revenue per user ("ARPU") decreased by 5.4% from HUF 5   203 in 2Q2003 to HUF 4   923 in 2Q2004 as the proportion of calls within the T-Mobile Hungary network with lower per minute fees increased. In addition, the 10% decrease of the fixed to mobile termination fees from September 1, 2003 also contributed to the ARPU decrease.

Within mobile telecommunications services, enhanced services show the highest increase with 21.0% growth year over year, which represents 12.1% of the ARPU in the first half of 2004. This revenue includes primarily short message service ("SMS") and multimedia messaging service ("MMS"). The revenue growth is due to the increasing proportion of content messages with higher rates.

Revenue from international activities shows consolidated revenues of MakTel, our subsidiary acquired in 2001. Revenues from international activities increased and reached HUF 33.5 bn in the first half of 2004. Domestic traffic revenues increased as a result of price increases, partly compensated by lower usage. Revenues from mobile telecommunications services grew as well due to the 47.3% higher average customer base year over year, partly offset by lower MOU and lower tariffs. Revenues from data transmission and leased lines also increased due to a growth in Internet revenues resulting from increased number of customers as well as increased interconnection revenues from the second mobile telecommunications operator, Cosmofon. These increases were partly offset by decreased international leased line revenues due to lower USD exchange rate compared to 2003 as well as lower number of international leased line contracts in 2004. Equipment sale revenues also increased as a result of higher equipment sales at MobiMak due to increased gross additions and higher average sales price of phonesets. These increases were partially offset by lower subscriptions, connections and other charges revenue due to lower analog gross adds and decreased ISDN subscription fee, while analog subscription fee and the number of ISDN gross additions increased. Outgoing international traffic revenues also decreased resulting from decreased usage as well as lower prices and incoming international revenues decreased due to strengthening of the MKD against the SDR, partly offset by higher incoming traffic.

Revenues from leased lines and data transmission grew to HUF 23.5 bn for 2Q2004 compared to HUF 18.5 bn for the same period in 2003. This growth was due to the strong increase in the number of ADSL and Internet subscribers. The number of ADSL subscribers grew to 142   430 (from 57   399 at the end of the first half of 2003) and the number of Internet connections grew by 35.2% to 233   989 at period-end. The proportion of higher revenue generating leased line and broadband Internet customers significantly grew within the customer base, which also contributed to the revenue growth.

Revenue from equipment sale increased to HUF 11.0 bn for the six months ended June 30, 2004 compared to HUF 10.4 bn for the same period in 2003. Equipment sale revenue increase is due to higher phoneset upgrades and higher average price of phonesets at T-Mobile Hungary as well as more equipment sold at Matáv Rt. during campaigns. These increases were partly offset by the 33.0% lower gross additions of T-Mobile Hungary customers.

Other revenues amounted to HUF 13.3 bn for the first six months of 2004 compared to HUF 14.8 bn for the same period in 2003. Other revenues include construction, maintenance, cable television, audiotex and miscellaneous revenues. The decrease in this category is mainly due to lower subsidy from Universal Electronic Communications Support Fund. This decrease was partly offset by the growth in cable TV revenue resulting from the increase in average number of cable TV subscribers and price increases as well as higher Drop Charge revenue at Matáv Rt.

Operating Expenses

Employee-related expenses for the first half of 2004 amounted to HUF 45.7 bn compared to HUF 42.5 bn for the same period in 2003 (an increase of 7.4%). The main driver of the increase is the 6.0% average wage rate increase at Matáv Rt. from April 1, 2004.

This increase was partly offset by a decrease in the group headcount figure, which fell from 15   227 on June 30, 2003 to 14   789 on June 30, 2004. The number of lines per fixed line employee increased to 349.9 at the end of June 2004 compared to 337.9 a year earlier.

Depreciation and amortization increased by 10.8% reaching HUF 68.4 bn in 2Q2004 compared to HUF 61.8 bn for the same period in 2003. This increase is mainly due to the impairment of Westel brand name as a result of rebranding as T-Mobile Hungary from May 1, 2004, which resulted in a HUF 4.5 bn additional amortization charge. The increase is also due to higher software gross book value and the resulting higher software depreciation expense at T-Mobile Hungary.

Payments to other network operators for 2Q2004 reached HUF 42.9 bn compared to HUF 40.7 bn for the same period in 2003. The increase was mainly due to the 5.6% increase in domestic network access charges, mainly driven by T-Mobile Hungary's outpayments to other GSM service providers due to higher mobile penetration, partly offset by lower outpayments to LTOs for call terminations due to both lower traffic and lower interconnection rates. International network access charges show a 5.1% increase driven by higher roaming outpayments at T-Mobile Hungary as well as increased international outpayments at MakTel. This increase was partly compensated by lower average settlement rates with foreign service providers, the strengthening of HUF against the SDR as well as lower outgoing traffic at Matáv Rt.

The cost of telecommunications equipment sales for the first half of 2004 was HUF 17.5 bn compared to HUF 17.8 bn for the same period in 2003. This decrease is mainly due to lower gross additions to subscribers at T-Mobile Hungary, partly offset by higher average cost of phonesets and higher level of upgrade costs. Cost of equipment sales at Matáv Rt. and MakTel also increased as a result of more equipment sold in promotions.

Other operating expenses decreased by 1.5% year over year. Other operating expenses include materials, maintenance, marketing, service fees, outsourcing expenses, energy and consultancy. Contribution to the Universal Electronic Communications Support Fund decreased significantly in 2Q2004 compared to 2Q2003. The lower amount of bad debt write-offs at Matáv Rt. also contributed to the decrease. These decreases were partly offset by higher marketing expenses mainly at Matáv Rt. due to intensive advertising of new products and tariff packages. Agency fees also increased as a result of increased outpayments related to Drop Charge.

Operating Profit

Operating margin for the six months ended June 30, 2004 was 19.3%, while operating margin for the same period in 2003 was 22.7%. The decrease is mainly due to the significant increases in depreciation charges and higher employee-related expenses.

Net Interest and Other Charges

Net interest and other charges were HUF 17.7 bn for 2Q2004 compared to HUF 20.5 bn for 2Q2003. Net interest and other charges decreased significantly due to the HUF 6.0 bn decrease in net foreign exchange loss. This change in net foreign exchange loss resulted mainly from the significant decrease of the average foreign exchange loan balance and the strengthening of the HUF. The decrease was partially offset by increased interest expenses owing to higher portion of HUF denominated loans with higher average interest rates. Net interest and other charges include HUF 0.2 bn net FX gain, HUF 16.9 bn interest expense, HUF 1.6 bn commissions and other charges and HUF 0.6 bn interest and financial income.

Share of associates' results before income tax

Share of associates' results amounted to HUF 2   099 million for the first half of 2004 compared to HUF 430 million for the same period in 2003, reflecting the significant gain on Hunsat's sale of its investment in Eutelsat.

Income tax

Income tax expense decreased from HUF 7.6 bn for 2Q2003 to HUF 7.0 bn for 2Q2004 resulting from the decreased profit before tax of the mobile and international segments. The change in the income tax rate from 18% to 16% in 2004 also decreased the income tax expense.

Minority Interest

Minority interest for the first six months of 2004 was HUF 4.7 bn compared to HUF 6.4 bn for the same period in 2003. This 26.1% decrease mainly results from the weaker performance of MakTel. While revenues in the international segment showed a moderate growth, the operating expenses increased more significantly, resulting in a decreased operating profit.

Analysis of group balance sheets

Total assets and total shareholders' equity and liabilities as of June 30, 2003 were HUF 1   093 bn. Total assets and total shareholders' equity and liabilities amounted to HUF 1   043 bn as of June 30, 2004.

Loans and other borrowings

The current portion of loans and other borrowings decreased by 32.5% from June 30, 2003 to HUF 158.7 bn at June 30, 2004. This decrease in current loans and other borrowings reflects the strong cash generation of Matáv, which allowed to repay EUR 105 million from the Deutsche Telekom intercompany loan on August 14, 2003, to repay the maturing HUF 13 bn Matáv 2003/B MTN (Medium Term Note), to prepay the loans drawn under the EIB Telecommunications Project II with value date December 15, 2003 and to repay the maturing HUF 12.5 bn EIB Telecommunications Project II/B loan with value date June 25, 2004.

Non-current loans and other borrowings increased by 38.5% from June 30, 2003 to HUF 183.6 bn at June 30, 2004. This increase is mainly due to the loans taken from DT International Finance BV to finance the dividend payment of Matáv Rt.

At June 30, 2004, almost 100% of the loan portfolio was HUF denominated. At the end of the first half of 2004, 44.0% of the loans bore floating interest rates. The gearing ratio defined as net debt divided by net debt plus equity plus minority interest was 34.6% at June 30, 2004 compared to 36.6% a year earlier.

Analysis of group cashflow

Net cashflows from operating activities increased by 3.4% compared to the first six months of 2003 and amounted to HUF 101.3 bn in the first half of 2004. The increase was mainly due to higher increase in trade creditor balance and lower increase in debtors balance in the first half of 2004 compared to the same period in 2003.

Net cashflows from investing activities amounted to minus HUF 38   685 million in the first six months of 2004, while it was minus HUF 41   292 million in the same period of 2003. This HUF 2   607 million decrease in cash outflow is due to lower amount of purchase of subsidiaries and business units, partly offset by the increase in gross additions to tangible and intangible assets predominantly at Matáv Rt. due to ADSL investments and capital expenditures relating to regulatory compliance.

Net cashflows from financing activities amounted to minus HUF 48   402 million in the first half of 2003 compared to minus HUF 49   096 million in the same period of 2004. While in the first six months of 2004, Matáv took a net HUF 27   901 million loan to repay its loans, in the same period of 2003 it repaid a net HUF 27   909 million. In the first half of 2004 Matáv paid dividends to its shareholders in an amount of HUF 76   997 million compared to HUF 20   493 million in the same period of 2003. This significant growth is due to the increase in dividend per share from HUF 18 in 2002 to HUF 70 in 2003.

Analysis of segment results

The sum of the financial results of the three segments presented below does not equal to the group financial results because of intersegment eliminations.

Fixed line segment

Fixed line segment includes Matáv Rt. and its consolidated subsidiaries, other than MakTel, MobiMak, Stonebridge, Telemacedónia, T-Mobile Hungary and Westel 0660.

HUF millions	2Q2003		2Q2004		Change (%)
Revenues	164   497		153   922		(6,4)
EBITDA	63   342		55   841		(11,8)
Operating profit	27   392		22   193		(19,0)
Property, plant and equipment	430   365		401   076		(6,8)
Intangible assets	32   332		32   688		1,1
Gross additions to tangibleand intangible fixed assets	10   546		14   543		37,9
Headcount (closing full equivalent)	9   752		9   469		(2,9)

* EBITDA = Earnings before net interest and other charges, taxes, depreciation and amortization

Revenues from the fixed line segment showed a 6.4% decrease year over year. Matáv's domestic fixed voice business experienced a 10.6% decline due to price and usage decreases. International revenues declined by 19.9% due to lower prices as well as lower outgoing and incoming traffic and the stronger HUF against the SDR. Leased lines and data transmission services increased by 23.2% in the first half of 2004 compared to the first six months of 2003. Leased lines and data transmission revenue growth was driven by strong volume increases in the number of ADSL and Internet customers.

Operating profit of the fixed line segment decreased by 19.0%. Within operating expenses payments to other network operators and depreciation and amortization expenses decreased. These decreases were partly offset by increases in employee- related expenses as well as increase in other operating expenses and cost of telecommunications equipment sales.

Mobile segment

Mobile segment includes T-Mobile Hungary and Westel 0660 and the goodwill amortization arising from their consolidation.

HUF millions	2Q2003		2Q2004		Change (%)
Revenues	121   542		126   887		4,4
EBITDA	47   723		52   803		10,6
Operating profit	28   412		26   798		(5,7)
Property, plant and equipment	115   185		116   393		1,0
Intangible assets	201   873		190   576		(5,6)
Gross additions to tangibleand intangible fixed assets	15   681		17   348		10,6
Headcount (closing full equivalent)	1   780		1   777		(0,2)

* EBITDA = Earnings before net interest and other charges, taxes, depreciation and amortization

Mobile penetration reached 81.2% in Hungary and T-Mobile Hungary accounts for 47.7% market share in the very competitive mobile market.

Revenues in the mobile segment increased by 4.4% in the first half of 2004 compared to the same period in 2003 due to strong increases in the number of mobile customers. T-Mobile Hungary's customer base surged 11.5% to 3   913   282 subscribers, including 2   860   300 prepaid customers by June 30, 2004. Average monthly usage per T-Mobile Hungary subscriber increased by 0.9% from 110 minutes in 2Q2003 to 111 minutes in 2Q2004. T-Mobile Hungary's ARPU decreased by 5.4% from HUF 5   203 in 2Q2003 to HUF 4   923 in 2Q2004.

Operating profit shows a 5.7% decrease. While revenues grew only by HUF 5.3 bn, operating expenses increased by HUF 7.0 bn year over year. The decrease is due to the significant increases in depreciation charges (resulting from the impairment on brand name) and payments to other network operators, partly offset by lower other expenses and lower cost of equipment sales.

International segment

International segment includes the operations of MakTel, MobiMak, Stonebridge, Telemacedónia, and the goodwill amortization arising from the consolidation of MakTel.

HUF millions	2Q2003		2Q2004		Change (%)
Revenues	32   448		33   734		4,0
EBITDA	18   003		17   426		(3,2)
Operating profit	11   491		8   637		(24,8)
Property, plant and equipment	87   092		78   200		(10,2)
Intangible assets	55   704		54   822		(1,6)
Gross additions to tangibleand intangible fixed assets	4   047		3   486		(13,9)
Headcount (closing full equivalent)	3   695		3   543		(4,1

* EBITDA = Earnings before net interest and other charges, taxes, depreciation and amortization

MakTel's fixed line subscribers increased by 1.9%, reaching 623   741 at June 30, 2004. Mobile subscribers increased significantly by 51.1% to 623   285, and its Internet subscribers reached 56   426 by June 30, 2004 from 41   970 a year earlier.

Revenues from the international segment increased and reached HUF 33.7 bn at June 30, 2004. Domestic traffic revenues increased mainly due to general price increases as tariff rebalancing occurred in May 2003. Lower international outgoing traffic revenues resulted from decreased usage as well as from lower prices. International incoming traffic revenues decreased as well, mainly due to stronger MKD against the SDR. Mobile revenues showed an increase due to the 47.3% higher average mobile customer base. The revenue effect of the increase in the number of mobile subscribers was partly offset by lower MOU and lower tariffs. Equipment sales revenues increased significantly due to the higher number of mobile gross additions and higher average price of phonesets.

Total operating expenses increased significantly by 19.8%, mainly because of increases in depreciation and amortization, payments to other network operators as well as increased cost of equipment sales.

In 2003, MakTel reviewed the useful life of its property, plant and equipment. The review resulted in generally shorter useful lives for mainly telecommunications equipment than applied earlier and, as a consequence, higher monthly depreciation charges.

Minority interest represents the share of income accruing to the minority owners of MakTel and Stonebridge. It decreased by 25.5% to HUF 4.7 bn in the first half of 2004 due to the lower operating profit of MakTel. Minority interest is not calculated on the amortization relating to the goodwill acquired by Matáv Rt.

Company name:	Matáv Rt.	Tel.:	+36 (1)-458-04-24
Company address:	H-1013 Budapest Krisztina krt. 55.	Telefax:	+36 (1)-458-04-43
Sector:	Telecommunications	E-mail:	investor.relations@ln.matav.hu
Reporting period:	January 1, 2004 - September 30, 2004	Investor Relations manager:	Szabolcs Czenthe

PK1. General information about financial data

	Yes	No
Audited		X
Consolidated	X
	Hungarian	IFRS	Other
Accounting principles		X

PK2. Consolidated Companies with direct ownership of Matáv Rt.

Name	Equity / Registered Capital (mHUF)		Interest held (direct and indirect)		Voting right		Classification
Stonebridge	349 mEUR		89,51%		89,51%		L
T-Mobile Magyarország Távközlési Rt.	8   031		100,00%		100,00%		L
Matávcom	6   158		100,00%		100,00%		L
Axelero	1   906		100,00%		100,00%		L
InvesTel	4   862		100,00%		100,00%		L
Emitel	3   110		100,00%		100,00%		L
Vidanet	2   000		49,90%		49,90%		L
Egertel	1   425		100,00%		100,00%		L
MatávkábelTV	920		100,00%		100,00%		L
Rába Szolgáltatóház	615		100,00%		100,00%		L
EPT	777		97,20%		97,20%		L
Kis-Astrasat	300		90,00%		49,90%		L
Cardnet	58		72,00%		72,00%		L
Tele-Data	39		50,99%		50,99%		L
ProMoKom	21		100,00%		100,00%		L
Mindentudás Egyeteme Kht.	5		60,00%		60,00%		L
BCN	3		100,00%		100,00%		L
Viabridge Telecommunications Holding Ltd.	0   251 mEUR		100,00%		100,00%		L
Telemacedónia	0,01 mEUR		88,00%		88,00%		L

PK6. Significant off-balance sheet items

Description	Value (HUF million)
Future finance lease obligations	1   011
Future obligations from rentaland operating lease contracts	6   317
Futureobligation from capex contracts	12   918
Other future obligations	153

TTSZ2/1. Changes in the headcount (number of persons) employed

	End of reference period		Current period opening		Current period closing
Company	8   342		8   071		8   013
Group	15   227		14   710		14   789

TSZ2/2. Changes in the headcount (number of persons) employed in full time by the company/group

	Start of the business year		End of the I. quarter		End of the II. quarter		End of the III. quarter		End of the business year
Company	8   071		8   043		8   013
Group	14   710		14   838		14   789

RS1. Ownership Structure, Ratio of Holdings and Votes

Description of owners	Total equity
	Year Opening(January 1st , 2004)						Closing(March 31st , 2004)
	Owner- ship ratio%		Voting right%		No. of shares		Owner- ship ratio%		Voting right%		No. of shares
Domestic institution/company	14,01		14,07		146   060   542		13,92		13,98		145   106   443
Foreign institution/company	84,04		84,44		876   416   274		84,15		84,56		877   568   304
Domestic individual	0,02		0,02		204   057		0,01		0,01		144   872
Foreign individual	0,00		0,00		200		0,00		0,00		200
Employees, senior officers	n.a.		n.a.		n.a.		n.a.		n.a.		n.a.
Treasury Shares	0,47		0,00		4   900   000		0,47		0,00		4   900   000
Government Institutions	0,15		0,15		1   570   585		0,14		0,14		1   465   885
International Development Institutions	1,29		1,30		13   495   276		1,30		1,30		13   495   276
Not registered	0,02		0,02		164   666		0,01		0,01		130   620
"B" Share	0,00		0,00		1		0,00		0,00		1
TO T A L	100,00		100,00		1   042   811   601		100,00		100,00		1   042   811

RS2. Volume (qty) of treasury shares held in the year under review

	1, January		31, March		30, June		30, September		31, December
Company	4   900   000		4   900   000		4   900   000
Subsidiaries	0		0		0
TOTAL	4   900   000		4   900   000		4   900   000

RS3. List and description of shareholders with more than 5% (at the end of period)

Name	Nationality	Activity	Quantity	Interest (%)		Voting right (%)		Remarks
MagyarCom Holding GmbH	Foreign	Institutional	617   478   081	59,21		59,49		Strategic owner
JP Morgan Chase Bank	Foreign	Depository	122   775   190	11,77		11,83		ADR Depository

TSZ3. Senior officers, strategic employees

Type*	Name	Position	Beginning of assignment	End / termination of assignment	No. of shares held
SE BM	Elek Straub	Chairman-CEOBoard Member	July 17, 1995May 24, 1995	-	76   338
SE BM	Dr. Klaus Hartmann	Chief Financial OfficerBoard Member	December 5, 2000April 27, 2000	-	8   000
BM	Achim Berg	Board Member	April 28, 2004	-	0
BM	Dr. István Földesi	Board Member	2003. április 25.	-	0
BM	Michael Günther	Board Member	April 26, 2002	-	0
BM	Horst Hermann	Board MemberRemuneration Committee Member	April 25, 2003	-	400
BM	Dr. Mihály Patai	Board MemberRemuneration Committee Member	April 28, 1998	-	58   190
BM	Dr. Ralph Rentschler	Board MemberRemuneration Committee Member	April 25, 2003	-	0
BM	Dr. György Surányi	Board Member	April 28, 2004	-	0
SBM	Dr. László Pap	Supervisory Board -ChairmanAudit Committee - Chairman	May 26, 1997	-	0
SBM	Böhm Géza	Supervisory Board Member	April 26, 2002	-	0
SBM	Attila Csizmadia	Supervisory Board Member	April 25, 2003	-	6   272
SBM	Arne Freund	Supervisory Board Member	April 25, 2003	-	0
SBM	Wolfgang Hauptmann	SupervisoryBoard MemberAudit Committee Member	April 25, 2003	-	0
SBM	Gellért Kadlót	Supervisory Board Member	April 26, 2002	-	700
SBM	Joachim Kregel	SupervisoryBoard MemberAudit Committee Member	April 27, 2001	-	0
SBM	Dr. Klaus Nitschke	Supervisory Board Member	April 26, 2002	-	0
SBM	Péter Vermes	Supervisory Board Member	June 27, 1995	-	8   800
SE	László Bodnár	ChiefServices and Logistics Officer	March 16, 1999	-	881
SE	Peter Janeck	Chief Technical Officer and Chief Officer, Network Systems	July 12, 2004	-	0
SE	Christopher Mattheisen	ResidentialServices LOB Chief Officer	September 1, 2002	-	0
SE	Dr. Tamás Pásztory	Chief HumanResources and Legal Officer	February 1, 1996	-	0
SE	Zoltán Tankó	BusinessServices LOB Chief Officer	January 1, 2002	-	1   100
Own share property TOTAL:					160   681

* Strategic Employee (SE), Board Member (BM), Supervisory Board Member (SBM)

Members of the Board of Directors and Supervisory Board serve until the date of the Annual General Meeting concluding the business year of 2003.

ST1. Extraordinary reports published in the period under review

Date	Subject matter, brief summary
January 13, 2004	Matáv announced that the Communications Authority published its approval of the new reference unbundling, interconnection andleased line interconnection offers.
February 23, 2004	Matáv announced that its subsidiary, Makedonski Telekomunikacii (MakTel) held its Annual General Meeting and among other items it has made a decision on dividend payment in a total amount of MKD 2.5 billion.
March 22, 2004	Matáv announced that the Board of Directors will propose to shareholders a dividend payment of HUF 70 per share (par value HUF 100) forthe financial year 2003.
March 22, 2004	Matáv announced that final decision has been made on the rebranding of Westel as T-Mobile Hungary. The one-step rebranding will commence on May 1, 2004.
March 31, 2004	Matáv announced that Manfred Ohl, Chief Technical Officer of Matáv leaves his position on April 30, 2004.
April 22, 2004	Matáv announced that the Board of the Hungarian National Communications Authority (NCA) has published its draft resolution concerning the new reference interconnection andleased line interconnection offer.
April 28, 2004	Matáv held its Annual General Meeting and among other items it has made a decision on dividend payment of HUF 70 per share (par value HUF 100) forthe financial year 2003.
May 10, 2004	Matáv announced that SEEF Holdings Ltd., a subsidiary of Soros Investment Capital has decided to exercise its put option with respect toits shareholding in Stonebridge.
May 19, 2004	The Matáv Board of Directors extended the CEO post of Mr. Elek Straub to June 30, 2008
May 19, 2004	Matáv announced the signature of a loan agreement with Deutsche Telekom on a short-term Hungarian forint-denominated loan.
May 21, 2004	Matáv announced the rules of dividend payment after thefiscal year of 2003.
May 21, 2004	Matáv announced the rules of dematerialisation of the company's ordinary printed shares.
May 21, 2004	Matáv announced the completion and rules of conversion of ordinary shares with a nominal value of HUF 10   000 to ordinary shares with a nominalvalue of HUF 100.
June 1, 2004	Matáv announced the signature of a loan agreement with Deutsche Telekom Group for a Hungarian forint-denominated loan. The loan will be used to partially finance Matáv's dividend payment.
June 15, 2004	Matáv announced that the Board of the Hungarian National Communications Authority has published its draft resolution concerning thenew reference unbundling offer.
June 16, 2004	Matáv made an agreement with IKO Media Group to form a joint holding. The aim of this venture is to facilitate a common offering of interactive solutions and value added content services and to unite the stakes that both companies currently own inHungarian RTL Television Company.
June 30, 2004	Matáv's Board of Directors appointed Peter Janeck as the new Chief Technical Officer and head of the Network Systems Line of Business, effective July 12, 2004.
July 15, 2004	Matáv signed an agreement with T-Systems International on the establishment of a joint venture and international carrier cooperation. T-Systems Hungary, the Hungarian subsidiary of T-Systems International, and Matáv also reached anagreement on strategic partnership.

Matáv Rt. publishes its announcements in Magyar Tőkepiac.

Change in the organizational structure

The position of Matáv's Chief Strategy and International Officer was terminated on May 31, 2004. In the future, the Central Strategy Organization of the Matáv Group will operate under the direct control of the CEO. From June 1, 2004 the former acting Chief Officer, Mr. András Balogh will be the head of the Central Strategy Organization of the Matáv Group for an indefinite period. His area of responsibility and scope of authority will remain the same.