Press Releases

Budapest, November 14, 2000

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

Highlights:

• Revenues grew by 16.8% (13.6% in euro terms) to 327.3 billion forints (1.3 billion euros) compared to 280.3 billion forints in the first nine months of 1999. Growth was underpinned by the continuing success of Matáv's mobile, leased line and data businesses, as well as increases in monthly fixed voice tariffs:
  • The mobile business continued to be Matáv's most dynamic revenue driver, delivering an outstanding growth of 32.6% year-on-year to 79.1 billion forints in a fiercely competitive market.
  • The strong expansion in mobile also contributed to a significant jump in telecommunications equipment sales, which resulted in a 71.1% increase in revenues from other services to 24.8 billion forints.
  • Revenues from leased lines and data transmission achieved a strong increase of 34.4% to 19.2 billion forints, underscoring the promise of this area.
  • Revenues from fixed voice monthly fees increased by 50.3% to 44.9 billion forints as a result of the nearly 50% increase in the monthly charge at the beginning of February, in line with our tariff rebalancing efforts.
• EBITDA increased by 14.0 % (11.0% in euro terms), amounting to 152.6 billion forints (589.6 million euros) versus 133.8 billion forints in the same period of 1999. Our EBITDA margin was 46.6% for the first nine months of 2000.
• Net income increased by 11.6% (8.6% in euro terms) to 62.3 billion forints (240.7 million euros), which represents a net income margin of 19.0%.

Elek Straub, MATÁV Chairman and CEO commented: " On one hand, the slowdown in our fixed voice business reflects the maturity of this segment as the penetration rate nears our 40% target, and reductions in per-minute tariffs have so far produced only non-satisfactory increases in call volumes. Therefore, to provide our fixed voice business with renewed momentum heading into full liberalization of the market, MATÁV will undertake a vigorous restructuring program that will impact our 2000 results, details of which will be announced in the coming weeks. Matáv's mobile and data businesses, on the other hand, have once again delivered an excellent performance, and we continue to invest in these high growth areas to secure a strong platform for the company's future success. We think that the upcoming period will be a challenging but exciting time. We will focus on ensuring the strength and vitality of our operations, while continuing to position MATÁV to capitalize on the fundamental shift of Hungarian business and residential customers towards mobile and IP-based products and services."

Horst Hermann, director of strategy added: "At the same time, we will continue to work closely with our strategic partner, Deutsche Telekom in evaluating expansion opportunities with a clear risk/reward profile both inside Hungary and within the region. Our recently announced consortium bid for Macedonian Telecom is an example of our conservative approach of seeking exposure to growing telecommunications markets where we can leverage Matáv's core competencies, where we can enhance our regional network services position and strenghten the customer offering, and where we can create value for our shareholders."

Mobile revenues increased by 32.6% to 79.1 billion forints, which represents 24.2% of our total revenues. Westel managed to capture 53.9% of the market's net subscriber additions in the first nine months of 2000, demonstrating its resilience against two aggressive GSM competitors. At the end of the period Westel had 1.35 million subscribers, a year-on-year increase of over 80%. Prepaid customers contributed 82% of the net additions, amounting to nearly 45% of our overall subscriber base at the end of September. Average monthly usage per Westel subscriber remained high at 185 minutes, which is only 7.5% less than a year ago. The average monthly revenue per user decreased by 18.3% year-on-year to 9,431 forints. This reflects the rapid growth of prepaid customers in our subscriber mix as well as the steps we have taken to maintain our competitive edge, including the one-time effect of the introduction of per-second billing at the end of last year, and the reduction in monthly fees earlier this year.

In the first three quarters of the year we increased our data revenues by 34.4% to 19.2 billion forints, underpinned by two very positive trends. First, business customers are making the shift from traditional data transmission solutions towards IP-based products. Second, customers' bandwidth needs are increasing giving a strong boost to this business line. In response, MATÁV launched commercial ADSL service in September, and we expect to have a customer base in the range of 10,000 by the end of 2001.

Our internet subsidiary, MATÁVnet has more than doubled year-on-year its subscribers to over 80,000. MATÁVNet posted another first in the Hungarian market with the recent launch of its ADSL based internet packages, while introducing EDI based e-commerce solutions and a competitive, flat rate, leased line pricing plan. In September we launched Marketline, a joint-venture, with SAP, Compaq and Arthur Andersen that aims to capture a share of the Hungarian B2B e-commerce services marketplace. We are also active in the B2C segment through a number of joint-ventures specializing in popular e-retailing segments (electrical articles, books and entertainment etc.).

Matáv's fixed voice business experienced only a moderate growth. Line penetration (including ISDN channels) reached 39.1% at the end of the quarter, which can be considered near the saturation point given the stage of development of the Hungarian economy and telecommunications market. While the total number of lines increased only 1.2% year-to-date, we see a shift in composition towards higher quality and more valuable digital lines. As a result of the recent marketing campaigns the number of ISDN channels has grown by almost 140% year-on-year and surged to more than 240,000 at the end of September. Over 8% of our lines are now ISDN channels as compared to less than 4% a year ago. In addition to the shift to ISDN, Matáv's stricter termination policy for non-payment and customer substitution for mobile contributed to a decrease in analog fixed-lines of over 91,000 since the beginning of the year.

Domestic minutes of use rose 12.9% year-on-year, however, the increased traffic was not enough to offset the effect of the double-digit reduction in usage per-minute tariffs at the beginning of the year and the off-peak long-distance promotion that ran from May to August. Consequently, there was a slight 1.4% decrease in domestic voice traffic revenues to 97.3 billion forints. International outgoing minutes decreased by 4.9% despite a 12% average decrease in tariffs, due to the rising share of international traffic through mobile phones, international corporate networks and the IP networks of competitors.

Employee-related expenses increased by only 1.5% year-on-year to 43.3 billion forints. Wage increases effective April 1, 2000 were, for the most part, offset by an 8.7% reduction in the average headcount in addition to a decrease in pension provisions as a result of the favourable revised terms negotiated with the trade unions on post-retirement benefits. At September, 30, the number of lines per fixed employee was 259, exceeding our published target for the end of 2000 of 250.

MATÁV is the principal provider of telecom services in Hungary and holds the national concession for national and international long distance telephony. MATÁV provides a broad range of services including telephony, data transmission, value-added services, and through its subsidiaries is Hungary's largest mobile telecom provider. Key shareholders as of September 30, 2000 include the Hungarian State (holder of the Golden Share), MagyarCom, owned by Deutsche Telekom AG (59.49%), while 40.51% is publicly traded.