Magyar Telekom Plc. (MTA)

Leased Lines and Data Transmission Services

In the continuously expanding Hungarian leased line and data transmission market, we retained our leading position in 2005 in terms of market share. The key competitors in this market included Invitel, Pantel, GTS-Datanet and Antenna Hungária, all of which offer products and services primarily based on fixed line and microwave leased line technologies. Intense competition led to a significant decrease in market prices, as pricing is the only competitive strategy of the alternative service providers. We compensated falling prices with increasing bandwidth due to proactive sales campaigns and our leased line revenues increased. We also started to migrate our leased line customers and a part of our voice traffic into IP-VPNs. We were a market leader in 2005 in IP-VPN services.

In the broadband access market, our key competitor is UPC, which offers broadband access through cables used for cable television. In addition, several alternative service providers (GTS, Datanet, PanTel, TVNet) offer unbundled ADSL services. In our service area, we successfully kept our leading position in the retail ADSL market with an estimated 68 percent market share in terms of the number of subscribers as of December 31, 2005. The remaining 32 percent is shared by 18 ISPs of which the largest providers had a five percent market share as of December 31, 2005.

In 2005, two alternative service providers (PanTel and TVNet) introduced services based on a new technology, ADSL2, which enables larger bandwidth than ADSL. The introduction of higher bandwidth DSL technology indicated the increasing competition on the broadband market and allowed competitors to introduce new services, like IPTV.

The Internet market in Hungary is dominated by a few large ISPs, although there are several dozen other Internet providers. T-Online Hungary, our fully owned subsidiary, is the market leader with an estimated 42 percent market share based on the number of dial-up subscribers. In 2005, the main trend in the Internet market was the rapid growth of broadband services. About 75 percent of Internet access provided by T-Online Hungary is through broadband (ADSL, cable television, W-LAN and leased line). Its key competitors are Invitel and UPC. In content services, T-Online’s portal, [origo] held its leading position. The daily average number of visitors reached 666,000 in December 2005, which represented a 42 percent increase from December 2004. T-Online’s key competitors in content services are Sanoma and Index.

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Leased Lines and Data Transmission Services

        With respect to the Macedonian leased line and data transmission market, Maktel had the exclusive rights to provide these services until the end of 2004. The only exception was the internet market, which has been liberalized since 1998. In addition to Maktel, there are three major ISPs: Onnet, MOL and UNet. Maktel is the market leader with an approximately 75 percent market share based on the number of Internet dial-up minutes and is the sole provider of ADSL.

Hungarian Mobile Operations

        In 2004, the Hungarian mobile telecommunications market was characterized by intense competition, driven by new services, lower prices and aggressive marketing. Competition was stronger than ever in the mobile segment and the focus on acquisition was replaced by focus on retention. As the market began to saturate, new services and lower tariffs were offered and aggressive marketing campaigns were conducted. The mobile penetration rate further increased in 2004, reaching 86.4 percent by the end of the year. Despite the intense competition, TMH retained its market leading position with a 46.2 percent market share based on the number of subscribers.

        The competitors of TMH are Pannon GSM and Vodafone. Vodafone continued its intensive and aggressive marketing campaigns and reached a 19.9 percent market share in terms of the number of subscribers by the end of 2004. Vodafone was able to leverage its global brand and added a large number of customers. Pannon GSM on the other hand was not able to halt its declining market share. As a result, it had the smallest net customer additions, lost approximately 2 percent of subscriber market share and ended the year with a 33.9 percent subscriber market share.

        Non-voice and content services are playing an increasingly important role in mobile offerings. All providers strengthened their non-voice services in 2004.

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Macedonian Mobile Operations

        Competition in mobile communications is generally intense and conducted on the basis of price, subscription options, subsidized handsets, coverage, range of services offered, innovation and quality of service. The second largest mobile provider in the country, Cosmofon, began commercial operation in June 2003. Its marketing and advertising efforts are aggressive with low and competitive handset prices, attractive price plans, broad array of advertising and indirect channels of sales with three main dealers.

        According to Mobimak's estimates, Cosmofon had approximately 85,000 customers at the end of 2003 and reached approximately 243,000 customers by the end of 2004, representing a 24 percent market share. Cosmofon's subscriber base is mainly prepaid. Cosmofon has been increasingly targeting Mobimak's residential and business contract customers.

        In this intensive competitive environment, Mobimak plans to maintain and expand its market share through improved productivity, efficiency measures and maintenance of existing customer relations to avoid the escalation of competition on prices.

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