Investor Releases

Solid financial performance; market leading positions maintained in spite of intense competition

BUDAPEST - May 13, 2004 - Matáv (NYSE: MTA.N and BSE: MTAV.BU), the leading Hungarian telecommunications service provider, today reported its consolidated financial results for the first quarter of 2004, according to International Financial Reporting Standards (IFRS).

• Revenues grew by 0.8% to HUF 146.1 bn (EUR 561.9 m) in Q1   2004 over the same period of 2003 mainly driven by higher mobile and data transmission revenues, partly offset by a decline in revenues from domestic and international traffic, and lower other usage.
• EBITDA fell by 5.2% to HUF 63.2 bn, with EBITDA margin reaching 43.2%
• Gross additions to tangible and intangible assets reached HUF 15.8 bn. Of this, the portion relating to fixed segment reached HUF 6.0 bn, with mobile at HUF 9.0 bn and MakTel reporting HUF 0.8 bn.
• Fixed line segment: revenues declined by 7.1%; EBITDA margin was 37.7%
• Mobile segment: revenues grew by 5.8% mainly driven by higher traffic, enhanced service revenues and equipment sales. EBITDA margin was 41.8% in Q1   2004. Westel preserved its leading position with a market share of 47.7% at the end of March 2004.
• I nternational segment: revenues grew by 8.4% with EBITDA margin reaching an impressive 52.5%. EBITDA grew to HUF 8.9 bn from HUF 8.7 bn in the same period last year.
• Group operating profit reduced to HUF 26.6 bn mainly driven by a 20.9% growth in depreciation and amortization. Net income declined to HUF 14.1 bn (EUR 54.1m).
• Net cash from operating activities reached HUF 40.9 bn due to a decline in EBITDA and a growth in working capital requirements (driven mainly by a change in trade payables). Net cash utilized in investing activities grew to HUF 22.3 bn. This was due to slightly higher gross additions to tangible and intangible assets (primarily at the fixed segment). Net cash used in financing activities fell to HUF 13.5 bn, mainly explained by a lower debt repayment than in Q1   2003.
• Net debt has been reduced by HUF 14.2 bn since the end of December 2003 resulting in a net debt ratio (net debt to net debt plus equity plus minority interest) of 30.4% compared to 36.6% at the end of March 2003.

Elek Straub, Chairman and CEO commented: "We reported today solid financial results across the Group for the beginning of this year. However, each of the three business segments shows a different picture. The fixed line segment reported revenue and EBITDA decline due to unfavorable changes in the regulatory and market environment. However, we successfully maintained our leading position in the key businesses, and saw a growth in productivity with a line per employee ratio at the parent company exceeding 352 (compared to 340 at end-March last year). On another positive note, I am pleased to report on the effectiveness of the steps we have taken to stop line erosion. In a change to the trend of continuous quarterly reduction, fixed line numbers in this first quarter were successfully maintained at the level of the fourth quarter 2003. In the mobile segment, in line with our expectations, there was a significant slowdown in the growth of mobile penetration with competition among the three players remaining intense. Despite the difficult market conditions, Westel was able to preserve its leading position. Moreover, during the last six months, the company has even increased its market share, whilst maintaining solid financial results. I am convinced that the rebranding of Westel will put the company in an even better position to capitalise on opportunities in the market, ultimately having a positive impact on the financials. At our international subsidiary, MakTel, the profitability was preserved with an EBITDA margin approaching 53% despite the still unfavorable macroeconomic conditions. Finally, let me mention that following the Board proposal made this March, the recent AGM approved a HUF 70 per share dividend payment for 2003 earnings emphasizing Matáv's full commitment to its dividend policy announced last March"

Fixed line: Line erosion halted; customised packages in majority, increasing competitive pressure

Fixed line revenues fell by 7.1% to HUF 76.4 bn with EBITDA margin at 37.7%. Domestic and international traffic revenues combined fell by 13.1% mainly due to lower volumes and price discounts. At the same time, leased line and data revenues continued to grow, rising by 21.6%, driven by volume growth in ADSL and increased Internet subscribers. Matáv's fixed line penetration stabilised at 37.8% (after 37.7% in the fourth quarter of 2003 and 38.1% a year ago). The total number of lines was down by only 0.9% compared to Q1   2003 and flat compared to Q4   2003; evidence of Matáv's success in halting line number erosion. By the end of March 2004, 18.6% of Matáv's total fixed lines were ISDN channels. Customised tariff packages represented more than half of the total number of lines with 1.5 million lines at the end of the first quarter 2004. The Company continued its successful ADSL program with 125   000 ADSL lines by the end of Q1   2004. Matáv's Internet subsidiary, Axelero, maintained its leading position among ISPs in the dial-up market with a market share of around 44% and had a total of 228   526 Internet subscribers at the end of March 2004 (up by 42.6% year-on-year).

Mobile: strong position in a market close to saturation and characterised by intense competition

Mobile revenues increased by 5.8%. EBITDA increased to HUF 25.5 bn, while the EBITDA margin reached 41.8%. However, operating profit fell by 32.8% as the vast majority of the write-off relating to the Westel rebranding was accounted for in the first quarter. Westel maintained its leading position in a highly competitive market with 47.7% market share, while GSM penetration reached 79.6% at end-March. Westel's customer base was 3.8 million at the end of Q1   2004. In the same period, the number of post-paid customers increased to 26.4% of the total customer base, compared with 25.1% at end of Q1   2003. Average acquisition cost per customer fell by 9.2% to HUF 10   763 in Q1   2004 from HUF 11   854 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) grew to 107 in Q1   2004 from 103 a year earlier. Blended ARPU (monthly average revenue per user) declined to HUF 4   800, within this postpaid ARPU reached HUF 11   871 and prepaid ARPU was HUF 2   292. Although the usage grew thanks to new packages, the discounts that some of these provide to customers result in downward pressure on ARPU. The revenue derived from enhanced services (mainly SMS) grew to HUF 601 (12.5% of total ARPU), showing a steady development compared to HUF 534 (10.6% of total ARPU) in the same period last year. The churn rate of contracted customers was successfully kept at low level of 11.2% in Q1   2004. The churn rates at both pre-paid and post-paid segments showed a decline compared to Q1   2003.

International: Top line hit, but profitability successfully preserved

International revenues grew by 8.4% to HUF 16.9 bn in Q1   2004 driven mainly by 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 improved by 1.8% to reach HUF 8.9 bn with a strong EBITDA margin of 52.5%. The closing number of employees fell by 2.7% to 3   552 at the end of the first quarter this year over the same period last year. Fixed line penetration in Macedonia was around 29%, and mobile penetration rose to 33% compared to 19% in Q1   2003. The number of fixed line customers grew to 621   509, up by 2.8% from the previous year's figure. Within this, analog subscribers remained broadly unchanged at 583   651. ISDN channels, at the same time, showed an impressive growth of 54.3% to 37   858. The mobile customer base rose by 46.4% to 565   170. MakTel's mobile market share stood at 83% at end-March 2004. The number of Internet subscribers at the end of the first quarter of 2004 reached 52   888 (up by 41.3% 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 March 31, 2004 include MagyarCom 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)	Mar 31, 2003 (Unaudited)		Mar 31, 2004 (Unaudited)		Mar 31, 2003 - Mar 31, 2004 % change
ASSETS
Current assets
Cash and cash equivalents	13   776		26   208		90,20%
Financial investments	341		450		32,00%
Receivables	95   800		96   550		0,80%
Inventories	10   442		9   003		(13,8%)
Assets held for disposal	2   285		3   051		33,50%
Total current assets	122   644		135   262		10,30%
Property, plant and equipment	636   733		604   056		(5,1%)
Intangible assets	290   374		281   347		(3,10%)
Associates andother long term investments	4   555		5   791		27,10%
Total fixed assets	5   361		5   108		(4,70%)
Other non current assets	13   972		6   554		(53,10%)
Total non current assets	950   995		902   856		(5,10%)
Total assets	1   073   639		1   038   118		(3,30%)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Loans and otherborrowings - third party	64   503		56   696		(12,10%)
Loans from related parties	155   509		126   644		(18,60%)
Trade and other payables	92   855		87   230		(6,10%)
Deferred revenue	2   568		1   841		(28,30%)
Provisionsfor liabilities and charges	7   905		6   331		(19,90%)
Total current liabilities	323   340		278   742		(13,80%)
Non current liabilities
Loans and otherborrowings - third party	68   870		47   080		(31,60%)
Loans from related parties	73   675		73   675		0,00%
Deferred revenue	3   926		2   095		(46,60%)
Deferred taxes	1   308		2   479		89,50%
Other non current liabilities	46		0		(100,00%)
Total non current liabilities	147   825		125   329		(15,20%)
Minority interests	65   328		63   096		(3,40%)
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	-2   364		-2   411		2,00%
Retained earnings	412   335		445   541		8,10%
Total shareholders' equity	537   146		570   951		6,30%
Total liabilities and shareholders' equity	1   073   639		1   038   118		(3,30%)

Matáv Consolidated Income Statements - IFRS (HUF million)	March 31, 2003 (Unaudited)		March 31, 2004 (Unaudited)		% change
Revenues
Subscriptions,connections and other charges	24   458		24   005		(1,90%)
Domestic traffic revenue	29   539		26   090		(11,70%)
Other usage	3   386		1   253		(63,00%)
Domestic telecommunications services	57   383		51   348		(10,50%)
International traffic revenues	5   772		4   599		(20,30%)
Mobile telecommunications services	45   933		50   359		9,60%
Revenues from international activities	15   565		16   880		8,40%
Leasedlines and data transmission	9   138		11   378		24,50%
Equipment sale	4   208		5   361		27,40%
Other revenues	6   932		6   209		(10,40%)
Total revenues	144   931		146   134		0,80%
Employee related expenses	(21   011)		(22   428)		6,70%
Depreciation and amortization	(30   277)		(36   601)		20,90%
Paymentsto other network operators	(19   806)		(20   793)		5,00%
Costof telecommunications equipment sales	(6   937)		(8   301)		19,70%
Other operating expenses	(30   494)		(31   422)		3,00%
Total operating expenses	(108   525)		(119   545)		10,20%
Operating profit	36   406		26   589		(27,00%)
Netinterest and other charges	(10   203)		(8   110)		(20,50%)
Share of associates'results before income tax	(47)		1   184		n.m.
Profit before income tax	26   156		19   663		(24,80%)
Income tax expense	(3   836)		(3   196)		(16,70%)
Profit after income tax	22   320		16   467		(26,20%)
Minority interest	(3   302)		(2   390)		(27,60%)
Net income	19   018		14   077		(26,00%)

Matáv Consolidated Cash Flow Statement - IFRS (HUF million)	3 months ended March 31, 2003 (Unaudited)		3 months ended March 31, 2004 (Unaudited)		% change
Cashflows from operating activities
Operating profit	36   406		26   589		(27,00%)
Depreciation andamortization of fixed assets	30   277		36   601		20,90%
Change in working capital	(3   782)		(7   388)		95,30%
Amortization of deferred income	(684)		(510		(25,40%)
Interest paid	(10   238)		(9   554)		(6,70%)
Commissions and bank charges	(565)		(826)		46,20%
Income tax paid	(2   645)		(3   025)		14,40%
Other non-cash items	(3   967)		(979)		(75,30%)
Netcashflows from operating activities	44   802		40   908		(8,70%)
Cashflows from investing activities
Purchase oftangible and intangible assets	(21   363)		(23   698)		10,90%
Purchase ofsubsidiaries and business units	0		(452)		n.a.
Cashacquired through business combinations	0		16		n.a.
Interest received	172		309		79,70%
Sale oftrading investments - net	106		25		(76,40%)
Proceeds from disposal oftangible and intangible assets	134		1   452		983,60%
Netcashflows from investing activities	(20   951)		(22   348)		6,70%
Cashflows from financing activities
Dividends paid toshareholders and minority interest	(8)		(3   140)		39150,00%
Net repayment ofloans and other borrowings	(19   507)		(10   314)		(47,10%)
Other	72		0		(100,00%)
Netcashflows from financing activities	(19   443		(13   454)		(30,80%)
Effect of foreign exchange rate changes on cash and cash equivalents	517		(1   030)		n.m.
Change incash and cash equivalents	4   925		4   076		(17,20%)
Cash and cash equivalents, beginning of year	8   851		22   132		150,10%
Cash and cash equivalents, end of year	13   776		26   208		90,20%
Change incash and cash equivalents	4   925		4   076		(17,20%)

Summary of key operating statistics

	March 31, 2003		March 31, 2004		% change
EBITDA margin	46,00%		43,20%		n.a.
Operating margin	25,10%		18,20%		n.a.
Net income margin	13,10%		9,60%		n.a.
ROA	7,10%		5,40%		n.a.
Netdebt to total capital	36,60%		30,40%		n.a.
Number of closing lines
Residential	2   041   149		2   017   336		(1,20%)
Business	269   721		259   898		(3,60%)
Payphone	32   910		28   600		(13,10%)
ISDN channels	515   960		527   082		2,20%
Total lines	2   859   740		2   832   916		(0,90%)
Digitalizationof exchanges with ISDN	87,20%		89,90%		n.a.
Penetration	38,10%		37,80%		n.a.
Fixed line employees (closing full equivalent, Matáv Rt.)	8   421		8   043		(4,50%)
Total no ofemployees (closing full equivalent)	15   277		14   838		(2,90%)
Linesper fixed line employees	339,6		352,2		3,70%
Lines per fixed line employees at Matáv Rt. + Emitel	336,6		348,9		3,70%
Traffic in minutes (thousands) at Matáv Rt.
Domestic	2   110   376		2   085   729		(1,20%)
International outgoing	34   122		33   876		(0,70%)
Managed leased lines (FLEX-Com connections)	11   550		10   765		(6,80%)
ADSL lines	44   486		125   000		181,00%
Internet subscribers	160   280		228   526		42,60%
Cable television customers	342   840		364   886		6,40%
Emitel fixed line numbers incl. ISDN channels	78   810		78   518		(0,40%)
Emiteldomestic traffic (thousand minutes)	42   295		38   399		(9,20%)
Emitel internationaloutgoing traffic (thousand minutes)	551		539		(2,20%)
MakTel fixed lines	604   482		621   509		2,80%
Traffic in minutes (thousands) at MakTel
Domestic	n.a.		640   577		n.a.
International outgoing	n.a.		9   682		n.a.
MakTel mobileRPCs (Revenue Producing Customers)	386   133		565   170		46,40%
MakTel mobile ARPU (Average Traffic Rev./RPC/Month)	5   110		4   086		(20,00%)
MakTel mobile MOU (Monthly av.minutes of Use/subsc.)	82		67		(18,30%)
MakTel Internet subscribers (inc. prepaid from Jan 1, 2004)	37   425		52   888		41,30%
Westel 0660 RPCs	17   551		0		(100,00%)
Westel RPCs	3   401   770		3   837   945		12,80%
Total cellular RPCs	3   419   321		3   837   945		12,20%
Westel's MOU	103		107		3,90%
Westel's ARPU	5   059		4   800		(5,10%)
Westel's postpaid ARPU	12   663		11   871		(6,30%)
Westel's prepaid ARPU	2   534		2   292		(9,60%)
Westel's overall churn	26,00%		9,30%		n.a.

Analysis of the Financial Statements for 1Q04 (three months ended March 31, 2004)

EXCHANGE RATE INFORMATION

The Euro strengthened by 0.8% against the Hungarian Forint year on year (from 246.84 HUF/EUR on March 31, 2003 to 248.92 HUF/EUR on March 31, 2004). From the year-end 2003, the Euro weakened by 5.1% against the Hungarian Forint (from 262.23 HUF/EUR on December 31, 2003 to 248.92 HUF/EUR on March 31, 2004). The average HUF/EUR rate increased from 243.56 in 1Q2003 to 260.09 in 1Q2004.

The U.S. Dollar depreciated by 10.3% against the Hungarian Forint year on year (from 227.02 HUF/USD on March 31, 2003 to 203.65 HUF/USD on March 31, 2004). From the year-end 2003 to March 31, 2004, the U.S. Dollar depreciated by 2.1% against the Hungarian Forint (from 207.92 HUF/USD to 203.65 HUF/USD).

ANALYSIS OF GROUP INCOME STATEMENTS

Revenues

Revenues from subscriptions, connections and other charges decreased by 1.9% in the first quarter of 2004 compared to the same period in 2003. Revenues from connection fees declined, which resulted from the promotions given to new customers as well as lower ISDN gross additions. As a result of successful campaigns gross additions of analog lines more than doubled in 1Q2004 compared to 1Q2003. 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 analog subscription fee increases from February 1, 2003 and from January 1, 2004. The ISDN subscription fee revenue also increased in 1Q2004 compared to 1Q2003 due to the higher number of average ISDN connections.

Domestic traffic revenue in 1Q2004 amounted to HUF 26.1 bn compared to HUF 29.5 bn in 1Q2003. This decrease mainly resulted from the 10.4% general price decreases. While Matáv increased its tariffs on February 1, 2003 and on January 1, 2004, it offered several discounts to customers choosing different tariff packages.

Revenues from other usage for the first quarter of 2004 decreased by 63.0% 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 rate decreases and to a lesser extent to a change in mix of calls in LTO relation (Matáv terminated less international and more domestic traffic, which has a lower per minute interconnection rate).

International traffic revenues decreased to HUF 4.6 bn for the three months ended March 31, 2004 compared to HUF 5.8 bn for the same period in 2003. Both outgoing and incoming international traffic revenue declined. Outgoing international traffic revenue mainly decreased due to price discounts given to subscribers of optional tariff packages (Rhythm, Says a Lot, Chat, Halving). Incoming international traffic revenues declined mainly due to lower traffic: incoming international minutes decreased by 24.5%. 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 50.4 bn for the first quarter of 2004 compared to HUF 45.9 bn for the three months ended March 31, 2003 (a 9.6% increase). The growth mainly resulted from the 11.3% higher Westel average customer base. Prepaid customers accounted for approximately 70.6% of gross additions in the first quarter of 2004 and represent 73.6% of total Westel customers as of March 31, 2004.

Increases in the mobile traffic revenues were also attributable to increased usage per subscriber. Westel's average usage per customer per month measured in MOU increased by 3.9% from 103 minutes in 1Q2003 to 107 minutes in 1Q2004. The increasing MOU is due to the increasing proportion of the postpaid customer base, which has higher minutes of usage than prepaid subscribers.

Westel's average revenue per user ("ARPU") decreased by 5.1% from HUF 5   059 in 1Q2003 to HUF 4   800 in 1Q2004 as the proportion of calls within the Westel 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 approximately 25% growth year over year, which represents 12.5% of the ARPU in the first quarter 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 revenues of MakTel, our subsidiary acquired in 2001. Revenues from international activities increased and reached HUF 16.9 bn in the first quarter of 2004. Subscriptions, connections and other charges increased due to analog subscription price increases and in the case of ISDN subscriptions as a result of higher gross additions. 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 46.4% higher 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 leased line revenues from the second mobile telecommunications operator, Cosmofon. Other revenues also increased as a result of higher equipment sales revenues at MobiMak due to increased gross additions and higher average sales price of phonesets. These increases were partially offset by lower outgoing international traffic revenues resulting from decreased usage as well as lower prices and lower incoming international revenues due to strengthening of the MKD against the SDR.

Revenues from leased lines and data transmission grew to HUF 11.4 bn for 1Q2004 compared to HUF 9.1 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 125   000 (from 44   486 at the end of the first quarter of 2003) and the number of Internet connections grew by 42.6% to 228   526 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 5.4 bn for the three months ended March 31, 2004 compared to HUF 4.2 bn for the same period in 2003. Equipment sales revenue increase is due to higher phoneset upgrades and higher average price of phonesets at Westel.

Other revenues amounted to HUF 6.2 bn for the first three months of 2004 compared to HUF 6.9 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.

Operating Expenses

Employee-related expenses for the first quarter of 2004 amounted to HUF 22.4 bn compared to HUF 21.0 bn for the same period in 2003 (an increase of 6.7%). The main driver of the increase is the 7.0% average wage rate increase at Matáv Rt. from April 1, 2003. In addition, employee-related expenses increased strongly at Westel mainly due to wage rate increases.

These increases were partly offset by a decrease in the group headcount figure, which fell from 15   277 on March 31, 2003 to 14   838 on March 31, 2004. The number of lines per fixed line employee increased to 348.9 at the end of March 2004 compared to 336.6 a year earlier.

Depreciation and amortization increased by 20.9% reaching HUF 36.6 bn in 1Q2004 compared to HUF 30.3 bn for the same period in 2003. This increase is 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 4.4 bn additional amortization charge. The increase is also due to the acceleration of depreciation of certain fixed assets following the revision of useful lives at MakTel in May 2003.

Payments to other network operators for 1Q2004 reached HUF 20.8 bn compared to HUF 19.8 bn for the same period in 2003. The increase was mainly due to the 4.6% increase in domestic network access charges, mainly driven by Westel'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 6.0% increase driven by higher roaming outpayments at Westel as well as increased international outpayments at MakTel. This increase was partly compensated by lower average settlement rates with foreign service providers as well as lower outgoing traffic at Matáv Rt.

The cost of telecommunications equipment sales for the first quarter of 2004 was HUF 8.3 bn compared to HUF 6.9 bn for the same period in 2003. This increase is mainly due to higher average cost of phonesets and higher level of upgrade costs, partly offset by lower gross additions to subscribers at Westel. The increased equipment sales at Matáv Rt. and MakTel as a result of more equipments sold in promotions also contributed to the increase.

Other operating expenses increased by 3.0% year over year. Other operating expenses include materials, maintenance, marketing, service fees, outsourcing expenses, energy and consultancy. Marketing expenses showed the highest increase 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. These increases were partly offset by decrease in bad debt write-offs as well as decreased contribution to the Universal Electronic Communications Support Fund in 1Q2004 compared to 1Q2003.

Operating Profit

Operating margin for the three months ended March 31, 2004 was 18.2%, while operating margin for the same period in 2003 was 25.1%. The decrease is due to the significant increases in depreciation charges and cost of equipment sales.

Net Interest and Other Charges

Net interest and other charges were HUF 8.1 bn for 1Q2004 compared to HUF 10.2 bn for 1Q2003. Net interest and other charges decreased significantly due to the HUF 3.2 bn decrease in net foreign exchange loss. This change in net foreign exchange loss resulted mainly from the strengthening of the HUF and the significant decrease of the average foreign exchange loan balance. 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 0.9 bn net FX gain, HUF 8.4 bn interest expense, HUF 0.8 bn commissions and other charges and HUF 0.2 bn interest and financial income.

Share of associates' results before income tax

Share of associates' results amounted to HUF 1   184 million for the first quarter of 2004 compared to minus HUF 47 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 3.8 bn for 1Q2003 to HUF 3.2 bn for 1Q2004 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 three months of 2004 was HUF 2.4 bn compared to HUF 3.3 bn for the same period in 2003. This 27.6% 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 March 31, 2003 were HUF 1   074 bn. Total assets and total shareholders' equity and liabilities amounted to HUF 1   038 bn as of March 31, 2004.

Loans and other borrowings

The current portion of loans and other borrowings decreased by 16.7% from March 31, 2003 to HUF 183.3 bn at March 31, 2004, and also the non-current loans and other borrowings decreased by 15.3% during the same period. These changes were due to 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 billion Matáv 2003/B MTN (Medium Term Note) and to prepay the loans drawn under the EIB Telecommunications Project II with value date December 15, 2003.

At March 31, 2004, almost 100% of the loan portfolio was HUF denominated. At the end of the first quarter of 2004, 45.8 % of the loans bore floating interest rates. The gearing ratio defined as net debt divided by net debt plus equity plus minority interest was 30.4% at March 31, 2004 compared to 36.6% a year earlier.

ANALYSIS OF GROUP CASHFLOW

Net cashflows from operating activities decreased by 8.7% compared to the first three months of 2003 and amounted to HUF 40.9 bn in the first quarter of 2004. The decrease was mainly due to higher decrease in trade creditor balance in the first quarter of 2004 compared to the same period in 2003.

Net cashflows from investing activities increased by HUF 1   397 million because of 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 19   443 million in the first quarter of 2003 compared to minus HUF 13   454 million in the same period in 2004. While in the first three months of 2004, Matáv repaid a net HUF 10   314 million loan, in the same period of 2003 it repaid a net HUF 19   507 million. Dividends paid to shareholders increased by 3   132 million mainly as a result of increase in dividends to minority shareholders of MakTel and Stonebridge.

ANALYSIS OF SEGMENT RESULT

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, Westel and Westel 0660.

HUF millions	1Q2003		1Q2004		Change (%)
Revenues	82   169		76   356		(7,1)
EBITDA	33   120		28   800		(13,0)
Operating profit	15   338		11   922		(22,3)
Property, plant and equipment	440   015		409   327		(7,0)
Intangible assets	34   190		32   567		(4,7)
Gross additions to tangibleand intangible fixed assets	3   626		6   001		65,5
Headcount (closing full equivalent)	9   841		9   509		(3,4)

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

Revenues from the fixed line segment showed a 7.1% decrease year over year. Matáv's domestic fixed voice business experienced a 11.0% decline due to price and usage decreases. International revenues declined by 20.4% 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 21.6% in the first quarter of 2004 compared to the first three 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 22.3%. 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 Westel and Westel 0660 and the goodwill amortization arising from their consolidation.

HUF millions	1Q2003		1Q2004		Change (%)
Revenues	57   734		61   080		5,8
EBITDA	24   837		25   505		2,7
Operating profit	15   332		10   296		(32,8)
Property, plant and equipment	115   469		117   052		1,4
Intangible assets	204   196		192   885		(5,5)
Gross additions to tangibleand intangible fixed assets	8   401		8   989		7
Headcount (closing full equivalent)	1   784		1   777		(0,4)

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

Mobile penetration reached 79.6% in Hungary and Westel accounts for 47.7% market share in the very competitive mobile market.

Revenues in the mobile segment increased by 5.8% in the first quarter of 2004 compared to the same period in 2003 due to strong increases in the number of mobile customers. Westel's customer base surged 12.8% to 3   837   945 subscribers, including 2   825   755 prepaid customers by March 31, 2004. Average monthly usage per Westel subscriber increased by 3.9% from 103 minutes in 1Q2003 to 107 minutes in 1Q2004. Westel's ARPU decreased by 5.1% from HUF 5   059 in 1Q2003 to HUF 4   800 in 1Q2004.

Operating profit shows a 32.8% decrease. While revenues grew only by HUF 3.3 bn, operating expenses increased by HUF 8.4 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.

International segment

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

HUF millions	1Q2003		1Q2004		Change (%)
Revenues	15   623		16   934		8,4
EBITDA	8   726		8   885		1,8
Operating profit	5   736		4   371		(23,8)
Property, plant and equipment	81   249		77   677		(4,4)
Intangible assets	51   988		55   895		7,5
Gross additions to tangibleand intangible fixed assets	1   454		844		(42)
Headcount (closing full equivalent)	3   652		3   552		(2,7)

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

MakTel's fixed line subscribers increased by 2.8%, reaching 621   509 at March 31, 2004. Mobile subscribers increased by a significant 46.4% to 565   170, and its Internet subscribers reached 52   888 (including 565 prepaid) by March 31, 2004 from 37   425 a year earlier.

Revenues from the international segment increased and reached HUF 16.9 bn at March 31, 2004. Domestic traffic revenues and revenues from subscription fees increased, mainly due to analog 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 46.4% higher mobile customer base. 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 27.1%, mainly because of increases in depreciation and amortization, other operating expenses 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 27.2% to HUF 2.4 bn in the first quarter 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
Westel Mobil 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		48,50%		48,50%		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
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
Telemacedónia Rt.	0,01 mEUR		88,00%		88,00%		L

PK6. Significant off-balance sheet items

Description	Value (HUF million)
Future finance lease obligations	1   105
Future obligations from rentaland operating lease contracts	9   402
Futureobligation from capex contracts	10   946
Other future obligations	35

TSZ2/1. Changes in the headcount (number of persons) employed

	End of reference period		Current period opening		Current period closing
Company	8   421		8   071		8   043
Group	15   277		14   710		14   838

RS1. Ownership Structure, Ratio of Holdings and Votes

Description of owners	Total equity
	Year Opening(January 1st , 2004)						Closing(March 31st , 2004)
	Ownership ratio%		Voting right%		No. of shares		Ownership ratio%		Voting right%		No. of shares
Domestic institution/company	14,01		14,07		146   060   542		14,11		14,18		147   150   495
Foreign institution/company	84,04		84,44		876   416   274		83,95		84,34		875   462   887
Domestic individual	0,02		0,02		204   057		0,02		0,02		191   837
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		1,29		1,30		13   495   276
Not registered	0,02		0,02		164   666		0,02		0,02		145   020
"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

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
Subsidiaries	0		0
TOTAL	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   518   590	11,75		11,8		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-CEO Board Member	July 17, 1995 May 24, 1995	-	76   338
BM	Dr. Mihály Patai	Board MemberRemuneration Committee Member	April 28, 1998	-	58   190
BM	Dr. István Földesi	Board Member	April 25, 2003	-	0
BM	Michael Günther	Board Member	April 26, 2002	-	0
BM	Horst Hermann	Board Member Remuneration Committee Member	April 25, 2003	-	400
BM	Jan Geldmacher	Board Member	April 26, 2002	-	0
BM	Dr. Ralph Rentschler	Board Member Remuneration Committee Member	April 25, 2003	-	0
SE BM	Dr. Klaus Hartmann	Chief Financial Officer Board Member	December 5, 2000 April 27, 2000	-	8   000
SBM	Dr. László Pap	Supervisory Board - Chairman Audit Committee -Chairman	May 26, 1997	-	0
SBM	Attila Csizmadia	Supervisory Board Member	April 25, 2003.	-	6   272
SBM	Gellért Kadlót	Supervisory Board Member	April 26, 2002	-	700
SBM	Péter Vermes	Supervisory Board Member	June 27, 1995	-	8   800
SBM	Géza Böhm	Supervisory Board Member	April 26, 2002	-	0
SBM	Dr. Klaus Nitschke	Supervisory Board Member	April 26, 2002	-	0
SBM	Wolfgang Hauptmann	Supervisory Board MemberAudit Committee Member	April 25, 2003	-	0
SBM	Arne Freund	Supervisory Board Member	April 25, 2003	-	0
SBM	Joachim Kregel	Supervisory Board Member Audit Committee Member	April 27, 2001	-	0
SP	Dr. Tamás Pásztory	Chief Human Resources and Legal Officer	February 1, 1996	-	0
SP	Manfred Ohl	Chief Technical Officer and Chief Officer, Network Systems	January 1, 1999	April 30, 2004	0
SP	< Bodnár>	ChiefServices and Logistics Officer	March 16, 1999	-	881
SP	Zoltán Tankó	BusinessServices LOB Chief Officer	January 1, 2002	-	1   100
SP	Christopher Mattheisen	ResidentialServices LOB Chief Officer	September 1, 2002	-	0
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. The one-step rebranding will commence on1st of May 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.

Matáv Rt. publishes its announcements in Magyar Tőkepiac.
There was no significant change in the organizational structure.