MTA » Topics » DEPENDENCE ON PATENTS, LICENSES, CUSTOMERS, INDUSTRIAL, COMMERCIAL AND FINANCIAL CONTRACTS

This excerpt taken from the MTA 20-F filed Jun 27, 2007.

DEPENDENCE ON PATENTS, LICENSES, CUSTOMERS, INDUSTRIAL, COMMERCIAL AND FINANCIAL CONTRACTS

We do not believe that we are dependent on any patent or other intellectual property right, on any individual third party customer or on any industrial, commercial or financial contract. Similar to other fixed line and mobile operators, we require telecommunications licenses from the governments of Hungary, Macedonia, Montenegro, Romania and Bulgaria, the countries in which we provide telecommunications services.

This excerpt taken from the MTA 20-F filed Feb 22, 2007.

DEPENDENCE ON PATENTS, LICENSES, CUSTOMERS, INDUSTRIAL, COMMERCIAL AND FINANCIAL CONTRACTS

We do not believe that we are dependent on any patent or other intellectual property right, on any individual third party customer or on any industrial, commercial or financial contract. Similar to other fixed line and mobile operators, we require telecommunications licenses from the governments of Hungary, Macedonia, Montenegro, Romania and Bulgaria, the countries in which we provide telecommunications services.

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This excerpt taken from the MTA 20-F filed May 11, 2005.

Dependence on Patents, Licenses, Customers, Industrial, Commercial and Financial Contracts

        We do not believe that we are dependent on any patent or other intellectual property right, on any individual third party customer or on any industrial, commercial or financial contract. Similar to other fixed line and mobile operators, we require telecommunications licenses from the governments of Hungary and Macedonia, the two countries in which we operate.

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MARKETING AND DISTRIBUTION

Hungarian Fixed Line Operations

        While the Hungarian telecommunications market became fully liberalized on December 23, 2001, the liberalization process started years earlier in data communications, international voice and Internet services. The advent of new competitors coupled and with the mass proliferation of mobile devices led to the saturation in the traditional voice business and strong competition in the business communication market. The high mobile penetration rate is due to the fact that the mobile phone is viewed as a substitute, rather than a complement to fixed telephones because of the relatively low level of disposable income in Hungary.

        Having the largest market share makes us vulnerable to losing a large number of customers to other fixed line operators and, particularly, to mobile operators. To avoid a downward spiral of falling prices and decreasing market share, we changed our strategy to counter competitive price plans of our fixed line competitors as well as the increasing mobile plan offerings of the mobile vendors.

        In 2004, there were significant positive changes in our market position. We managed to achieve a decrease in the rate of customer churn despite the increasing price based competition in the mobile market. Thanks to our new customized price plans, usage per line remained at the same level in 2004 as compared to 2003 in the residential segment. Internet usage increased dramatically due to the launch of the free dial-up Internet service and the strong ADSL campaign — by the end of 2004, the number of ADSL lines exceeded 200,000 as compared to approximately 100,000 at the end of 2003.

        Our fixed line marketing strategy is based on four key objectives:

    Strengthening the role of the fixed line service;

    Reducing churn;

    Boosting broadband penetration; and

    Developing a new image of fixed line telephony by offering customized solutions for each segment and identifying business development alternatives.

Strengthening the role of the fixed line service

        In 2004, competition from our fixed line competitors became more intense due to certain regulatory changes, the increased usage of call-by-call service and the decrease in interconnection fees. Customers have access to services of other service providers either by signing a separate service contract with them for a predefined call-direction (pre-selection) or by dialing a pre-fix number before each call (call-by-call). With the launch of several optional calling plans ("OCPs"), we are paying increasing attention to market-based product enhancement that requires less capital investment and leads to more customer satisfaction than technology-focused product innovation. Based on our analytical marketing tools, we have redesigned our price plans to match the calling patterns of various customer segments to reinforce the concept that the mobile telephone is not a substitute, but a complement to the fixed line.

Reducing churn

        PSTN churn is generated by a) customers' requests, b) lines terminated due to non-payment and c) ISDN service orders. As broadband access services (e.g., ADSL) have become increasingly available in recent years and customers become more aware of its availability, migration to ISDN slowed down from the level observed in 2000.

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        The number of service terminations due to customer requests decreased by 23 percent in 2004 compared to 2003 thanks to our customer retention efforts. To minimize the cancellation of lines, we continued customer acquisition and retention programs started in 2003.

        We developed a churn barometer, which indicates whether a customer is likely to terminate the fixed line service in the near future. We started using the churn barometer in April 2004. We proactively contact customers showing signs of churn and offer them the best price plan for their calling patterns.

        We also conduct a survey on customer satisfaction. In addition, a new CRM system was put into operation in 2004 to improve our customer service.

Boosting broadband penetration

        We consider the promotion of Internet usage in Hungary one of our priorities now and in the near future. Our main objectives are to establish and spread a more developed Internet culture, to foster communication, to promote the opportunities offered by the Internet and to reach and support customer segments with a lower level of disposable income.

        Magyar Telekom Open Internet is our free dial-up Internet service, which gives additional value to the fixed line and has successfully stimulated fixed line usage. After its launch in July 2003, the service quickly became popular. By the end of 2004, over 90,000 customers had used Magyar Telekom Open Internet.

        Magyar Telekom Rt. and T-Online Hungary are organizing a free Internet Training Program as part of the "Mindentudás Egyeteme" (Omniscience University) which is sponsored by us and is the most popular scientific forum in Hungary.

        The broadband access market is growing dynamically in Hungary. We are the largest service provider in this market. Within our service area, the dominant technology is ADSL, while the use of cable modem is growing rapidly as well. We sell ADSL products mainly on a wholesale basis. In the broadband market other types of broadband access are not very significant at the moment, although cable modem service offered by cable television service providers is becoming increasingly competitive.

        We had more than 200,000 ADSL lines at the end of 2004 as compared to approximately 100,000 lines at the end of 2003.

Developing a new image of fixed line telephony by offering customized solutions for each segment and identifying business development alternatives

        Segmentation at Residential Lines of Business ("T-LoB").    In addition to the residential segment, T-LoB also serves micro-, small and medium size corporate customer segments. For these segments, targeted, cost effective product developments and communication methods have been implemented. In 2004, several segment specific programs were launched or continued from 2003:

    We started pre-installing telephone lines in selected new residential developments;

    We introduced services for customers having access to other telephony operators. Pre-selection services "Csevegö Partner" and "Ritmus Partner" were introduced for residential and business customers, respectively. In addition, call-by-call services, "1515 Elöhívó" for residential and "Ritmus 100 Elöhívó" for business customers, were introduced;

    XL and XXL supplementary price plans were the main drivers of usage changes in 2004; and

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    For business customers, "Üzleti felezö" price plan was introduced.

        Segmentation at Business Lines of Business ("B-LoB").    The business customer base served by B-LoB comprises large and medium size corporate customers.

        In 2004, the corporate telephony market served by B-LoB experienced significant challenges due to the stronger competition from mobile telecommunications service providers and the development of the IP technology. Corporate customers are seeking ways to minimize their telecommunications spending. Intensified demand for integrated offers has developed and we plan to leverage our position as the sole integrated provider to benefit from this trend.

        B-LoB also intends to exploit LAN business opportunities that can preserve both voice and data traffic revenues. To better handle and integrate market information, the business development, marketing and strategy functions were harmonized. We believe that providing a high quality solution with knowledgeable sales people, who can communicate the value of our products and services to our customers, is critical to attracting and retaining customers. Therefore, in addition to simplifying its sales channels, B-LoB has re-segmented them based on annual revenue and public sector criteria. In addition, a product development department was established to handle specific business customer's needs for products and related consulting services.

        B-LoB sells its products and resells certain third-party products directly to customers through dedicated account managers. We also invested in various programs to enhance the selling skills of account managers. By strengthening the customer service department, B-LoB has also significantly and effectively expanded its points of sales.

        With simplified and extended sales channels B-LoB can more effectively exploit new business opportunities and retain its customer base.

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