Use these links to rapidly review the documentTABLE OF CONTENTS INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS



As filed with the Securities and Exchange Commission on March 24, 2010



UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



Form 20-F

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2009

Commission file number 1-14720



MAGYAR TELEKOM TÁVKÖZLÉSI NYILVÁNOSAN MÜKÖDÖ
RÉSZVÉNYTÁRSASÁG(Exact Name of Registrant as Specified in Its Charter)

MAGYAR TELEKOM TELECOMMUNICATIONS PUBLIC LIMITED COMPANY(Translation of Registrant's Name into English)

Hungary

(Jurisdiction of Incorporation or Organization)

Budapest, 1013, Krisztina krt. 55, Hungary

(Address of Principal Executive Offices)

Thomas
Stumpf
Chief Accounting Officer
Magyar Telekom
Budapest, 1013, Krisztina krt. 55, Hungary
+36-1-457-4211
tom.stumpf@telekom.hu
(Name, Telephone, Email and/or Facsimile number and Address of the Company Contact Person)

Securities
registered or to be registered pursuant to Section 12(b) of the Act

Title of each class

Name of each exchange on which registeredAmerican Depositary Shares, each representing
five Ordinary Shares

New York Stock ExchangeOrdinary Shares

New York Stock Exchange*
Budapest Stock Exchange


Securities registered or to be registered pursuant to Section 12(g) of the Act:N/A

Securities
for which there is a reporting obligation pursuant to Section 15(d) of the Act:N/A

Indicate
the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the annual report:

Ordinary Shares......1,042,742,543 nominal value HUF 100 per share (as of December 31, 2009)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act.    Yes  ý    No  o

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934.    Yes  o    No  ý

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.    Yes  ý  No  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of
"accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act.

Large accelerated filer ý

Accelerated filer o

Non-accelerated filer o


Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing

U.S. GAAP o

International Financial Reporting Standards as issued by the International Accounting Standards Board ý

Other o


If
"Other" has been checked in response to the previous question indicate by check mark which financial statement item the registrant has elected to
follow.    Item 17  o    Item 18  o

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act).    Yes  o    No  ý

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Table of Contents



TABLE OF CONTENTS



PageCertain Defined Terms and Conventions


iiiForward-looking Statements


iiiExplanation of abbreviations used throughout the report


ivPART IItem 1

Identity of Directors, Senior Management and Advisers


1Item 2

Offer Statistics and Expected Timetable


1Item 3

Key Information


1Selected Financial Data


1Exchange Rate Information


2Risk Factors


4Item 4

Information on the Company


15Organization


15History and Development


15Description of Business and its Segments


15Strategy


17Overview of Magyar Telekom's Revenues and Principal
Activities


19CBU


19BBU


27Headquarters


33Technology


38Macedonia


39Montenegro


41Distribution and Sales


44Competition


46Dependence on patents,
licenses, customers, industrial, commercial and financial contracts


50Regulation


51Pricing


62Organizational Structure


65Property, Plants and Equipment


65Infrastructure and Technology


66Environment Protection


70Item 4A

Unresolved Staff Comments


70Item 5

Operating and Financial Review and Prospects


70Management overview


71Operations reviewGroup


78Operations reviewBy segment


91Liquidity and Capital Resources


99Research and Development


103Risk Management Policies


106Item 6

Directors, Senior Management and Employees


108Board of Directors


108Management Committee


111Supervisory Board


113Indemnification of the Board of Directors and the
Supervisory Board


116Compensation of Directors and Officers


116Board Practices


119


i

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Table of Contents

PageEmployees


120Share Ownership of Management


122Item 7

Major Shareholders and Related Party Transactions


122Major Shareholders


122Related Party Transactions


123Item 8

Financial Information


123Consolidated Financial Statements


123Other Financial Information


123Legal proceedings


123Dividend Policy


127Significant Changes


128Item 9

The Offer and Listing


128Item 10

Additional Information


130Share Capital


130Prospective Share Repurchase Program


130Option to Purchase Securities from Registrant or
Subsidiaries


131Memorandum and Articles of Association


131Deposit Agreement


131Corporate Governance


131Capital Increases and Preemptive Rights


134Voting Rights and Voting


134Transfer of Shares


135Significant Differences in Corporate Governance Practices for
Purposes of Section 303A.11 of the New York Stock Exchange Listed Company Manual


135Material Contracts


138Exchange Control


138Taxation


138Documents on Display


141Item 11

Quantitative and Qualitative Disclosures About Market Risk


141Item 12

Description of Securities Other than Equity Securities


141PART IIItem 13

Defaults, Dividend Arrearages and Delinquencies


144Item 14

Material Modifications to the Rights of Security Holders and Use of Proceeds


144Item 15

Controls and Procedures


144Item 16A

Audit Committee Financial Expert


147Item 16B

Code of Ethics


147Item 16C

Principal Accountant Fees and Services


148Item 16D

Exemptions from the Listing Standards for Audit Committees


148Item 16E

Purchases of Equity Securities by the Issuer and Affiliated Purchasers


148Item 16F

Change in Registrant's Certifying Accountant


149Item 16G

Corporate Governance


149PART IIIItem 17

Financial Statements


150Item 18

Financial Statements


150Item 19

Exhibits


150


ii

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Table of Contents

Certain Defined Terms and Conventions

In this annual report the terms "Magyar Telekom", the "Group", the "Company", "we", "us" and "our" refer to Magyar Telekom Plc.
and, if applicable, its direct and indirect subsidiaries as a group; the term "Magyar Telekom Plc." refers to Magyar Telekom Plc. without its subsidiaries; the term "DT" refers to
Deutsche Telekom AG; the term "DT Group" refers to DT and its subsidiaries as a group.

In
this annual report, the term "Minister" refers to the Minister of the applicable government ministry then responsible for regulation of the activities of the Company as described
below.

Prior
to June 1, 2000, the Minister of Transport, Telecommunications and Water Management was in charge of regulating the telecommunications industry. The responsibility was
transferred to the Minister heading the Prime Minister Office on June 1, 2000 and to the Minister heading the Ministry of Informatics and Communications on May 27, 2002. On
June 1, 2006 the Ministry of Informatics and Communications merged into the Ministry of Economy and Transport. The Ministry of Economy and Transport was divided into two ministries on
May 15, 2008, and responsibility for regulating the telecommunications industry was transferred to the Ministry of Transport, Telecommunications and Energy. On December 1, 2008 the
Minister heading the Prime Minister Office took over the responsibility for the telecommunications industry in Hungary.

Totals
in tables may be affected by rounding. Segment revenue figures included in this annual report do not give effect to intersegment eliminations.

Forward-looking Statements

The Company may from time to time make written or oral forward-looking statements. Written forward-looking statements appear in
documents the Company files with the Securities and Exchange Commission, including this annual report, reports to shareholders and other communications. The U.S. Private Securities Litigation Reform
Act of 1995 contains a safe harbor for forward-looking statements. Actual results may differ materially from a forward-looking statement made by Magyar Telekom or on its behalf. Readers should also
consider the information contained in Item 3, "Key InformationRisk Factors" and Item 5, "Operating and Financial Review and
Prospects", as well as the information contained in the Company's periodic filings with the Securities and Exchange Commission for further discussion of the risks and uncertainties that may cause such
differences to occur. The Company's forward-looking statements speak only as of the date they are made, and the Company does not have an obligation to update or revise them, whether as a result of new
information, future events or otherwise.

iii

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Table of Contents

Explanation of abbreviations used throughout the report

Abbreviation

Term2G, 3G, 4G

Second/Third/Fourth-generation mobile technology2Play, 3Play, 4Play

double-play, triple-play, quadruple-play3Screen

Three Screen (TV, PC and wireless phone)ADS

Austrian Digital SystemADSL

Asymmetrical Digital Subscriber LineARPA

Average monthly Revenue per AccessARPU

Average monthly Revenue per UserASP

Application Service ProviderATM

Asynchronous Transfer ModeATMs

Automatic Teller MachinesAVL

Automatic Vehicle LocationCRM

Customer Relationship ManagementCUG

Closed User GroupDOCSIS

Data Over Cable Service Interface SpecificationDSLAM

Digital Subscriber Line Access MultiplexerDVB-C

Digital Video Broadcasting CableDVB-S

Digital Video Broadcasting SatelliteDVB-T

Digital Video Broadcasting TerrestrialDWDM

Dense Wavelength-Division MultiplexingED3

EuroDOCSIS 3.0 technologyEDGE

Enhanced Data rates for GSM EvolutionEDR

Hungarian Unified Digital Radio Network/Egységes Digitális Rádiótávközlö RendszerEFM

Ethernet in the First MileEPG

Electronic Program GuideERP

Enterprise Resource PlanningF2M

Fixed to MobileFDC

Fully Distributed CostsFDD

Frequency Division DuplexFL-LRIC

Forward-Looking Long Run Incremental CostsFMC

Fixed Mobile ConvergenceFTTH

Fiber to the Home


iv

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Table of Contents

Abbreviation

TermFTTx

Fiber to the xGE

Gigabit EthernetGIA

Global Internet AccessGPON

Gigabit Passive Optical NetworkGPRS

General Packet Radio ServiceGPS

Global Positioning SystemGSM

Global System for Mobile communicationsHAG

Home Access GatewaysHD

High DefinitionHFC

Hybrid Fiber CoaxHIS

High Speed InternetHSDPA

High Speed Downlink Packet AccessHSLL

High Speed Leased LinesHSUPA

High Speed Uplink Packet AccessHYTAS

Hybrid Telecommunications Access SystemIC

InterconnectionICT

Information and Communications TechnologyILL

Internet Leased LineIMS

IP Multimedia SubsystemIMSI

International Mobile Subscriber IdentityIMT

International Mobile Telecommunications2000 (global standard for 3G)IPSec

Internet Protocol SecurityIPTV

Internet Protocol-based TVIP-VPN

Internet Protocol-based Virtual Private NetworkISDN

Integrated Services Digital NetworkISP

Internet Service ProviderIT

Information TechnologyIVR

Interactive Voice ResponseLRIC

Long Run Incremental CostsLTE

Long Term EvolutionLTO

Local Telecommunications OperatorMLLNI

Managed Leased Line Network InternetMMDS

Multichannel Multipoint Distribution Service


v

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Table of Contents

Abbreviation

TermMMS

Multimedia Message ServiceMNO

Mobile Network OperatorMOU

Average monthly Minutes of Use per subscriberMPLS

Multi Protocol Label SwitchingMSAN

Multi Service Access NodeMVNO

Mobile Virtual Network OperatorNAS

Network Attached StorageNGA

Next Generation AccessNGMN

Next Generation Mobile NetworksNGN

Next Generation NetworkNGOSS

Next Generation Operation Support SystemNT

Network TechnologyPABX

Private Automated Branch ExchangePATS

Publicly Available Telephone ServicePBX

Private Branch ExchangePC

Personal ComputerPDH

Plesiochronous Digital HierarchyPoP

Point of PresencePOTS

Plain Old Telephone ServicePSTN

Public Switched Telephone NetworkQoS

Quality of ServiceR4 3GPP

Release 4 Third Generation Partnership ProjectRIO

Reference Interconnection OfferRUO

Reference Unbundling OfferSaaS

Software as a ServiceSAC

Subscriber Acquisition CostSat TV

Satellite TVSDH

Synchronous Digital HierarchySDR

Special Drawing RightsSHDSL

Single-Pair High-Speed Digital Subscriber LineSI

System IntegrationSIM

Subscriber Identity ModuleSLA

Service Level Agreement


vi

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Table of Contents

Abbreviation

TermSMB

Small and Medium BusinessesSMS

Short Message ServiceSOHO

Small Office/Home OfficeSPA

Service Provisioning and ActivationTDD

Time Division DuplexTDM

Time Division MultiplexTETRA

Terrestrial Trunked RadioULL

Unbundled Local LoopUMTS

Universal Mobile Telecommunications SystemVDSL

Very High Bitrate DSLVoCable

Voice over Cable televisionVoIP

Voice over Internet ProtocolVPN

Virtual Private NetworkWACC

Weighted Average Cost of CapitalWAP

Wireless Application ProtocolWiFi

Wireless FidelityWiMAX

World Interoperability for Microwave AccessWLAN

Wireless Local Area NetworkWLR

Wholesale Line Rental


vii

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Table of Contents

PART I

ITEM 1IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.

ITEM 2OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

ITEM 3KEY INFORMATION

SELECTED FINANCIAL DATA

This selected consolidated financial and statistical information should be read together with the consolidated financial statements,
including the accompanying notes, included in this annual report. We derived these financial data from our consolidated financial statements as of and for the years ended December 31, 2005,
2006, 2007, 2008 and 2009 and the accompanying notes, which have been audited by PricewaterhouseCoopers Könyvvizsgáló és
Gazdasági Tanácsadó Kft. ("PwC"). These consolidated financial data are qualified by reference to our consolidated financial statements and accompanying
notes, which we have prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB").

Year ended December 31,2005

2006

2007

2008

2009

2009HUF

HUF

HUF

HUF

HUF

U.S.$(1)(in millions, except per share amounts)Consolidated Comprehensive Income Data:Amounts in accordance with IFRSRevenues


615,054


671,196


676,661


673,056


643,989


3,424Operating profit


140,874


135,408


128,312


162,258


147,133


782Profit attributable to the owners of the parent


77,752


74,700


60,155


93,008


77,618


413Operating profit per share


135.61


130.16


123.25


155.83


141.31


0.75Basic earnings per share


74.85


71.80


57.78


89.32


74.54


0.40Diluted earnings per share


74.82


71.78


57.78


89.32


74.54


0.40Consolidated Financial Position Data:Amounts in accordance with IFRSTotal assets


1,081,086


1,129,282


1,133,265


1,166,543


1,166,377


6,202Net assets


594,881


589,372


577,898


596,547


605,420


3,220Common stock


104,281


104,277


104,275


104,275


104,275


554Total Equity of the owners of the parent


525,002


522,722


511,681


533,946


538,480


2,864


As a result of the internal investigation (as described under Item 8 "Financial InformationOther Financial
InformationLegal proceedings"), the Company has restated its Statements of Financial

1

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Table of Contents

Position
for the years ended December 31, 2005, 2006, 2007 and 2008 to reflect the findings of the investigation. See also Note 1.2.2. to the Consolidated Financial Statements included
in this annual report.

Year ended December 31,2005

2006

2007

2008

2009(in millions)Other data:Weighted average number of sharesBasic


1,039


1,040


1,041


1,041


1,041Diluted


1,039


1,041


1,041


1,041


1,041


---

Dividends

The following table sets forth the dividend per Magyar Telekom ordinary share for the years 2005, 2006, 2007, 2008 and 2009. The table
shows the dividend amounts in Hungarian forints, together with U.S. dollar equivalents, for each of the years indicated.

Dividend Paid
Per Ordinary
ShareHUF

U.S.$(1)Year2005


73


0.34182006


70


0.36532007


74


0.42872008


74


0.39382009 (proposal)


74


0.3935


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EXCHANGE RATE INFORMATION

As used in this document, "Hungarian forint" or "HUF" mean the lawful currency of Hungary. "EUR", "euro" or "€" mean
the single unified currency of the European Union ("EU"). "U.S. dollar," "USD" or "$" mean the lawful currency of the United States.

The
National Bank of Hungary ("NBH") quotes and publishes official exchange rates of the Hungarian forint for all major currencies based on prevailing market rates. Unless otherwise
stated, conversion of Hungarian forint into U.S. dollars have been made at the rate of USD 1.00 to HUF 188.07, which was the official rate quoted and published on December 31,
2009.

On
any given day, the market exchange rate of the Hungarian forint against the euro may vary from the official rate of the NBH. Prior to May 4, 2001, the NBH had a policy of
intervening in the foreign exchange market, if the market exchange rate of the Hungarian forint against the euro deviated more than 2.25 percent above or below the official rate. On
May 4, 2001, the NBH announced that it had widened this intervention band to 15 percent above and below the official rate. The central parity was set at 282.36 HUF/EUR rate. As of
February 26, 2008, the NBH terminated the intervention band. The floating exchange rate allows the NBH to focus more effectively on the inflation targets.

2

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Table of Contents

The
following tables set forth, for the periods and dates indicated, the period-end, average, high and low official rates quoted and published by the NBH for Hungarian forint
per U.S. $1.00 and EUR 1.00.

Exchange Rates
(amounts in HUF/U.S.$)Period-End

Average(1)

High

LowYear2005


213.58


199.66


217.54


180.582006


191.62


210.51


225.01


191.022007


172.61


183.83


199.52


171.132008


187.91


171.80


218.76


144.112009


188.07


202.26


249.29


176.672009September


184.79


186.84


194.26


183.18October


183.71


181.41


185.91


176.67November


181.00


181.60


190.05


177.17December


188.07


186.76


193.72


178.002010January


193.98


188.56


193.98


184.00February


198.74


198.08


201.19


192.40March (through March 23, 2010)


195.23


194.98


198.70


190.74


---

Exchange Rates
(amounts in HUF/EUR)Period-End

Average(1)

High

LowYear2005


252.73


248.05


255.93


241.422006


252.30


264.27


282.69


249.552007


253.35


251.31


261.17


244.962008


264.78


251.25


275.79


229.112009


270.84


280.58


316.00


264.172009September


270.36


272.02


276.32


269.48October


272.50


268.65


273.83


264.17November


272.29


270.98


279.13


265.03December


270.84


273.08


278.35


269.082010January


270.90


269.33


273.43


266.51February


270.19


271.19


274.13


269.24March (through March 23, 2010)


264.01


265.68


269.33


261.60


---

We will pay any cash dividends in Hungarian forints, and if you are a holder of American Depository Shares ("ADSs") exchange rate fluctuations
will affect the U.S. dollar amounts you will receive upon conversion of cash dividends on the shares represented by ADSs. Fluctuations in the exchange rate between the Hungarian forint and the U.S.
dollar will also affect the prices of shares and ADSs.

3

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Table of Contents

RISK FACTORS

Prior to making any investment decision, you should carefully consider the risks set forth below in addition to other information
contained in this annual report. The risks described below are not the only risks we face. Additional risks not currently known to us or risks that we currently regard as immaterial also could have a
material adverse effect on our financial condition or results of operations or the trading prices of our securities.

The
following discussion contains a number of forward-looking statements. Please refer to the "Forward-Looking Statements" discussion at the front of this Annual Report for cautionary
information.

Our operations are subject to substantial government regulation, which can result in adverse consequences for our business and results of operations.

The Electronic Communications Act of 2003 ("Electronic Communications Act"), which came into force in January 2004, was enacted by the
Hungarian Parliament to achieve harmonization of the telecommunications regulatory regime in Hungary with the New Regulatory Framework ("NRF") of the EU for electronic communications adopted in 2002,
and to encourage further competition in the market. The NRF has been subject to review by the EU since 2007. The agreed reforms to the NRF accepted in November 2009 are the result of three years of
discussions with stakeholders, national regulators and users. See "Item 4RegulationLegislative Developments in the EU" for a description of the reforms adopted in
2009. Changes to the NRF are required to be implemented by national legislation by May 25, 2011.

Under
the Electronic Communications Act, the National Communications Authority ("NCA") was established to regulate the Hungarian telecommunications industry. The primary responsibility
of the NCA is to perform market analysis procedures under which it defines "relevant markets," or markets subject to the regulatory framework. The NCA analyzes such markets for the level of
competition and, if it finds a lack of sufficient competition in such markets, identifies service providers with significant market power ("SMP"), and imposes appropriate regulatory obligations on
such providers to encourage competition.

The
NCA carried out a market analysis procedure and reached its final findings on 17 out of 18 relevant markets identified in an applicable decree in 2004. Under these findings, Magyar
Telekom was found to have SMP in 13 of the 16 markets (i.e., markets 1-9, 11-13 and 16). By the end of March 2008, the NCA had published new SMP resolutions concerning
17 markets out of the 18 in the second round of market analyses. Out of these 17 markets, Magyar Telekom was identified as an operator with SMP in all but four markets. As a result, the NCA imposed
various obligations on Magyar Telekom with respect to these markets. See "Item 4Regulation and Pricing".

The
Recommendation of the European Commission on relevant product and service markets within the electronic communications sector susceptible toex
anteregulation in accordance with Directive 2002/21/EC of the European Parliament and of the Council on a common regulatory framework for electronic communication networks and
services (2003/311/EC) ("Recommendation"), the regulation on which the market analysis procedure of the NCA is based, was also reviewed by the EU during 2006 and 2007. This new Recommendation entered
into force on December 17, 2007. As a result of the EU review, the number of relevant markets decreased from 18 to 7. Magyar Telekom is currently identified as having SMP in all of the 7
remaining markets as well as in all retail markets cancelled from the list of relevant markets. The new Recommendation will become effective in the current round of market analyses by the NCA, which
is expected to be completed in 2010. Until now only one resolution with respect to market 7/2007 (voice call termination on individual mobile networks), has been published. The extension of the
definition of market 11 (unbundling of the local loops) from copper to optical networks by the NCA makes the extension of the unbundling obligation to Magyar Telekom's new
technology (optical) networks easier for the NCA. This is expected to have an adverse impact on our business results.

4

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Table of Contents

In
2008, Magyar Telekom launched a widespread optical network deployment program. In the event the NCA decides to impose regulations on optical networks, it would affect both the
wholesale and the retail market. This decision is expected in the first half of 2010.

On
February 26, 2010, the Hungarian government published a resolution on the "National Digital Public Utility". This is a homogeneous and integrated optical backbone and regional
transmission network to be created by the government to secure access to areas where there is no competition for high speed broadband access. Its financing is planned through the reallocation of EU
resources. The network would operate in a self-sustaining, non-profit way based on the principle of open access, generating revenues from the provision of wholesale services.
The full or partial implementation of the concept may have direct impact on Magyar Telekom's network solutions and could indirectly affect the Company's operation.

In
addition, our businesses in Macedonia and Montenegro are also subject to various regulatory developments. In Montenegro, the market analysis by the Agency for Electronic
Communications and Postal Services ("EKIP") will likely result in certain obligations (e.g., reference interconnection offer, carrier selection, accounting separation and cost based pricing)
that may have an impact on the profitability of the company. In Macedonia, in particular, the current and possible future SMP status of T-Mobile Macedonia in various markets may lead to
lower mobile termination rates and additional obligations in the origination and access market, including regulated national roaming. The activities of the Agency for Electronic Communications
("Agency") related to retail price control will be enhanced. The Agency will open a public consultation on FTTH thus implementation of LRIC bottom-up and new calculation of WACC are
expected.

The
European Commission has issued a recommendation on mobile termination rates by prescribing detailed cost accounting methodology to be applied over a set timeframe by the national
regulatory authorities ("NRAs"). As a result, it is possible that TMH's mobile termination rates will be reduced to a lower level than intended by the NCA by 2012. The regulation of mobile termination
rates at the EU level may lead to interventions by the Macedonian and Montenegrin regulator as well.

We
cannot fully anticipate the combined impact of these and other regulatory developments on our business and results of operations. Our business and results of operations may be
adversely affected by these changes or similar regulatory developments or changes by our regulators.

We are subject to more intense competition due to the liberalization of the telecommunications sector.

The scope of competition and any adverse effect on our results depend on a variety of factors that we cannot assess with precision and
are for the most part not within our control. Among such factors are business strategies and capabilities of new competitors, prevailing market conditions, as well as the effectiveness of our efforts
to prepare for new market conditions. Specific risks in the fixed line market include continuous downward pressure on tariff levels, loss of customers as a result of unbundled access to the local
loop, loss of fixed line customers as a result of introducing "naked" ADSL, competition from alternative operators using new technologies (e.g., VoIP, VoCable) and migration to lower priced
Internet price plans as a result of speed upgrades. In addition, the declining prices of mobile telecommunications services also lead to the migration of fixed line customers.

The
most significant trend in the fixed line market is the increasing share of 2Play or 3Play offers (bundling voice, Internet and television services into one package) which may result
in discounts on purchased services for customers. In Hungary, cable penetration is above the European average. From a competition point of view, the unregulated cable television operators may be able
to offer more flexible price structures to customers than the regulated market players, such as Magyar Telekom. In case of increasing price competition, this may narrow our ability to give adequate
market responses against the competitors' actions.

5

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Table of Contents

In
the mobile communications business, we already face intense competition. As all telecommunications markets have become increasingly saturated, the focus of competition has shifted
from customer acquisition to retention. Significant customer defections could have an adverse effect on our results of operations, and customer acquisition and retention expenses are substantial. Due
to the increased level of competition and new price plans, prices for mobile telephone services have been declining over the past several years and may continue to decline.

New
market models using Internet-based messaging and communication services may adversely affect both of our fixed line and mobile voice and messaging services. Entry by MVNOs into the
mobile telecommunications market may intensify the competition in Hungary. MVNOs are mobile operators that do not own their own spectrum or network infrastructure, and instead buy the use of the
spectrum and network infrastructure from traditional mobile operators and provide mobile telecommunications services to consumers based on the purchased capacity. MVNOs are likely to target the lower
segment of the market and such development will likely increase price-based competition. Currently there is no
regulation in Hungary where incumbents would be obliged to provide regulation based access prices for MVNOs. We do not expect changes in this field.

On
November 20, 2009, Vodafone, in cooperation with Magyar Posta, launched a branded reseller mobile service, "Postafon", which is offered by Magyar Posta in several post offices.
The entry pressure from other interested parties to a 3-player mobile market may increase in the future. If MVNO is hosted by one of our competitors, Magyar Telekom will lose revenue as
customers are lost to the MVNO and the tariff level in the Hungarian mobile market may significantly decrease.

The
modified GSM Directive UMTS technology to be deployed in the 900 MHz bands was published in the Official Journal of the EU on October 20, 2009, along with the Decision of the
European Commission on the technical implementation requirements. The modified Directive entered into force on November 9, 2009 and the Directive is required to be implemented by national
legislation by May 9, 2010. There is a possibility for an E-GSM900 spectrum tender in the third quarter of 2010 at the earliest. The tender may further increase the competition in
the Hungarian mobile market.

We
also face intense competition in the market for Internet services, as well as in the data communications markets from other fixed line, mobile and cable television service providers.
The share of Magyar Telekom DSL net additions has declined against competitors' cable Internet offerings. This could adversely affect our further broadband growth prospects and may lead to further
tariff erosion.

Competition
posed by new entrants in Macedonia and Montenegro may result in a downward pressure on pricing, sales volume and profitability, which would have an adverse effect on our
financial condition and results of operations.

Our ability to meet our revenue targets will depend in part on our ability to offset the declining fixed line voice revenues with data, TV, Internet and SI/IT revenues and
our ability to acquire telecommunications companies.

We expect the number of our fixed access lines and rates for fixed telephone services to decrease. In addition, the growth rate of the
Hungarian broadband market is expected to slow down. To mitigate this decrease in fixed line voice revenues, we are now moving from pure fixed line voice offers to integrated 2Play and 3Play packages,
which will allow us to partially substitute declining voice traffic revenues with content, entertainment and bundled access revenues. In mobile operations in Hungary, market penetration is now
saturated, and we expect flat development in the following year. We may not be able to sustain our revenue targets, if we are unsuccessful in offsetting the effect of our declining voice and messaging
revenues with new services.

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We may be unable to adapt to technological changes in the telecommunications market.

The telecommunications industry is characterized by rapidly changing technology with related changes in customer demands for new
products and services at competitive prices. Technological developments are also shortening product life cycles and facilitating convergence of various segments of the increasingly global industry.
Our future success will largely depend on our ability to anticipate, invest in and implement new technologies with the levels of service and prices that customers demand. Technological advances may
also affect our level of earnings and financial condition by shortening the useful life of some of our assets.

NGN
(IP Multimedia Subsystem based network) is the main stream of technical development that gives the general framework for reaching most of our business strategic goals and for
transforming the company. Our NGN strategy focuses on overlay NGN. This approach means that the new technology is built in parallel to the existing network, not in substitution or replacement of
existing technology, and we build and use the new technology for introducing new services. In addition, we use the NGN for network transformation by migrating our legacy networks to NGN to change the
technology and platform to further provide legacy services and features at a lower operational cost level.

We
have planned migration to NGN on the basis of recent trends in the telecommunications industry: as vendors allocate resources to develop NGN, they significantly increase legacy system
support fees and development costs, we face increasing risk of failures due to aging technology, which may result in revenue loss and stimulate higher churn. The risk of failing to overlay NGN
development is that we
miss gaining new revenues from broadband-based services and applications as well as integrated, convergent service offerings (3Play, 4Play), while we lose traditional business.

Our
Next Generation Fixed Access strategy is to widely deploy FTTH (optical network) and EuroDocsis3.0 technology for upgrading cable network. Many of our competitors have started to
invest in deploying a Next Generation Access network, which might decrease our market share in High Speed Internet (above 20 Mbit/s) market as well as in other markets (voice, TV) through xPlay
offers, and therefore be a threat to the value of our existing network.

Further,
the economic crisis in 2009 has affected our ability to invest in and deploy new technology. In 2009, we could not fulfill the original FTTH roll-out plan due to
combined effect of lower funds available for capital expenditures and the weakening of the Hungarian currency as a result of the economic crisis. In addition, the current economic crisis also affects
us from the demand side as customers may not use new products and services developed on our FTTH network to the extent anticipated, which may lead to decline in revenues and have an adverse impact on
our results. Management continually assesses and reviews our plans and related capital expenditures with respect to the roll-out of new technology and accordingly, our plans may change as
market conditions develop, including amending targets in relation to the FTTH roll-out plan such as the target to connect approximately 780,000 households via optical network solution by
the end of 2013.

After
merging the mobile and fixed line technology areas of the Company, in order to improve the efficiency of the customer service function, we intend to unify the IT and CRM systems
that support daily business, the sale of new products and the management of customers. If these development processes are drawn out over time and if the various systems continue to operate
concurrently for a longer period, this could contribute to more significant churn and a faster decline in our revenues.

Due
to the accelerated network development of our competitors in the last few years, our services face competition from broadband products of other service providers. The development of
this parallel infrastructure affects the price level and the available penetration of our services as well as the return of our investments.

The
operation of our mobile businesses depends in part upon the successful deployment of continually evolving mobile communications technologies, which requires significant capital
expenditures. There can be no assurance that such technologies will be developed according to anticipated schedules, that they will

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perform
according to expectations, or that they will achieve commercial acceptance. We may be required to make more capital expenditures than we currently expect if suppliers fail to meet
anticipated schedules, performance of such technologies fall short of expectations, or commercial success is not achieved.

TMH
launched 3G-based services in Hungary in 2005 before any of its competitors. TMH is currently upgrading the network infrastructure to better provide the new generation of services.
However, new alternative technologies and standards, e.g., WiFi, WiMAX, or VoIP, may keep consumers from choosing 3G-based services. These new technologies, especially VoIP, also endanger our
voice business. We are not able to predict at the moment which of these competing technologies will be the most widely accepted platform, however we think that HSDPA and HSUPA enabled 3G network, and
later the LTE (4G) standard are the most likely candidates. There is a frequency spectrum allocation risk for LTE, because currently there is no frequency spectrum available, on which the LTE service
could be launched without making compromise.

Our
subsidiary, Pro-M Professzionális Mobilrádió Zrt. ("Pro-M"), also faces risks resulting from technological
changes, since the TETRA technology on which its network is based is evolving according to customer demands. To neutralize this risk, Pro-M needs to keep pace with new developments and
apply these to its network, while considering capital expenditure requirements.

The
effects of technological changes on our businesses cannot be predicted. In addition, it is impossible to predict with any certainty whether the technology selected by us will be the
most economic, efficient or capable of attracting customer usage. There can be no assurance that we will be able to develop new products and services that will enable us to compete effectively.

The future of our current operational model is subject to currently unforeseeable changes in the future business environment.

The telecommunications industry is undergoing a major change globally with an effect on the Hungarian market as well. We have
considered these market trends including changes in technology, customer requirements, competition and regulation, and accordingly, we have planned our operational restructuring to be in line with
these market trends. Our new operational model effective from 2008 is based on customer segments and also provides a solid basis to capture long-term growth. We have designed our new
operational model according to our most current knowledge of market trends and our business needs; however, the future business environment might evolve into currently unforeseen directions that will
require us to adjust our operational model.

Developments in the technology and telecommunications sectors have resulted and may result in impairments in the carrying value of certain of our assets.

Developments in the technology and telecommunications sectors, including significant declines in stock prices, market capitalization
and credit ratings of market participants may result in impairments of our tangible, intangible and financial assets. Future changes in these areas could lead to further impairments at any time.
Recognition of impairment of tangible, intangible and financial assets could adversely affect our financial condition and results of operations and might lead to a drop in the trading price of our
shares. We review on a regular basis the value of each of our subsidiaries and their assets. The value of goodwill is reviewed annually. In addition to our regular impairment tests, whenever we
identify any indication (including changes in the economic, regulatory, business or political environments) that goodwill, intangible assets or fixed assets may have been impaired, we consider the
necessity of performing certain valuation tests which may result in an impairment charge.

We depend on a limited number of suppliers for equipment and maintenance services.

In each of our operating divisions, there are a limited number of suppliers for necessary equipment and maintenance services. The
failure of these suppliers to meet our equipment and maintenance needs in

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a
timely manner could have a significant effect on our revenues and market position. The construction and operation of our networks and the provision of our services and network infrastructure,
especially mobile telecommunications services, are dependent on our ability to obtain adequate supplies of a number of key items on a timely and cost-efficient basis. These include
handsets and transmission, switching and other network equipment. Significant delays in obtaining such equipment and maintenance services could have a material adverse effect on our business and
results of operations.

Our business may be adversely affected by actual or perceived health risks associated with mobile communications technologies.

Media reports have suggested that radio frequency emissions from mobile telephones are linked to medical conditions such as cancer. In
addition, a number of consumer interest groups have requested investigations into claims that digital transmissions from handsets used in connection with digital mobile technologies pose health risks
and cause interference with hearing aids
and other medical devices. There can be no assurance that the findings of such studies will not have a material effect on our mobile business or will not lead to additional government regulations. Our
ability to install new mobile telecommunications base stations and other infrastructure may also be adversely affected, and related costs may increase, due to regulations or consumer action in
response to concerns over health risks and adverse effect on the value of properties adjacent to such facilities. The actual or perceived health risks of mobile communications devices could adversely
affect mobile communications service providers, including us, through increased barriers to network development, reduced subscriber growth, reduced network usage per subscriber, threat of product
liability lawsuits or reduced availability of external financing to the mobile communications industry.

System failures could result in reduced user traffic and revenue and could harm our reputation.

Our technology infrastructure (including our network infrastructure for fixed network services and mobile telecommunications services)
is vulnerable to damage and interruption from information technology failures, power loss, floods, windstorms, fires, intentional wrongdoing and similar events. Unanticipated problems at our
facilities, system failures, hardware or software failures or computer viruses could affect the quality of our services and cause service interruptions. Any of these occurrences could result in
reduced user traffic and revenue and could harm our reputation.

Loss of key personnel could weaken our business.

Our operations are managed by a small number of directors and key executive officers. The loss of directors or key executive officers
could significantly impede our financial, marketing and other plans. We believe that the growth and future success of our business will depend in large part on our continuing ability to attract and
retain highly skilled and qualified personnel at all levels; however, the competition for qualified personnel in the telecommunications industry is intense. We can give no assurances that we will be
able to hire or retain necessary personnel.

Ongoing internal and government investigations into contracts and activities in Montenegro and Macedonia may result in fines, sanctions and changes to our business practices
and compliance programs.

In the course of conducting their audit of the Company's 2005 financial statements, PricewaterhouseCoopers, the Company's auditors,
identified two contracts the nature and business purposes of which were not readily apparent to them. In February 2006, the Company's Audit Committee retained White & Case, as its independent
legal counsel, to conduct an internal investigation into whether the Company had made payments under those, or other contracts, potentially prohibited by U.S. laws or regulations, including the U.S.
Foreign Corrupt Practices Act ("FCPA") or internal Company policy. The Company's Audit Committee also informed the United States Department of Justice ("DOJ"), the United

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States
Securities and Exchange Commission ("SEC") and the Hungarian Financial Supervisory Authority of the internal investigation.

Based
on the documentation and other evidence obtained by it, White & Case preliminarily concluded that there was reason to believe that four consulting contracts entered into in
2005 were entered into to serve improper objectives, and further found that during 2006 certain employees had destroyed evidence that was relevant to the investigation. White & Case also
identified several contracts at our Macedonian subsidiary that warranted further review. In February 2007, our Board of Directors determined that those contracts should be reviewed and expanded the
scope of the internal investigation to cover these additional contracts and any related or similarly questionable contracts or payments.

For
further information about the internal and governmental investigations, please refer to the Company's quarterly reports for the first, second and third quarters of 2009 furnished
under cover of Form 6-K and the Company's annual reports on Form 20-F for the year ended December 31, 2008.

On
December 2, 2009, the Audit Committee provided the Company's Board of Directors with a "Report of Investigation to the Audit Committee of Magyar Telekom Plc." dated
November 30, 2009 (the "Final Report"). The Audit Committee indicated that it considers that, with the preparation of the Final Report based on currently available facts, White & Case
has completed its independent internal investigation.

The
Final Report includes the following findings and conclusions, based upon the evidence available to the Audit Committee and its counsel:



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The
Final Report states that "the Investigation did not uncover evidence showing receipt of payments by any Macedonian government officials or political party officials." However, the
Audit Committee's counsel did not have access to evidence that would allow it to identify the ultimate beneficiaries of these expenditures.

Nothing
in the Final Report implicates any current senior executive or Board member of the Company in connection with any wrongdoing.

As
previously disclosed, the Company has taken remedial measures to address issues previously identified by the independent investigation. These measures included steps designed to
revise and enhance the Company's internal controls as well as the establishment of the Corporate Compliance Program.

Due
to these measures, no modifications to the Corporate Compliance Program were viewed as necessary in response to the Final Report. This conclusion has been discussed with the Audit
Committee and the Audit Committee has not made recommendations either relating to the Company's compliance program or internal controls.

The
Company is continuing to assess the nature and scope of potential legal remedies available to the Company against individuals or entities that may have caused harm to the Company.

As
previously announced, the DOJ, the SEC and the Ministry of Interior of the Republic of Macedonia have commenced investigations into certain of the Company's activities that were the
subject of the internal investigation. Also, as previously announced, the Hungarian National Bureau of Investigation ("NBI") has begun a criminal investigation into alleged misappropriation of funds
relating to payments made in connection with the Company's ongoing internal investigation and the possible misuse of personal data of employees in the context of the internal investigation. These
governmental investigations are continuing, and the Company continues to cooperate with those investigations. The Company cannot predict what the final outcome of those investigations may be or the
impact, if any, they may have on its financial statements or results of operations. Furthermore, government authorities could seek criminal or civil sanctions, including monetary penalties, against
the Company or its affiliates as well as additional changes to its business practices and compliance programs.

The lawsuits by our minority shareholders may require us to take other time-consuming and/or expensive corrective actions.

Annual General Meeting ("AGM"), April 2008

As previously disclosed, on May 23, 2008, two of our minority shareholders filed suit against Magyar Telekom Plc.,
requesting that the resolutions passed by our AGM on April 25, 2008, including the resolution on the payment of dividends, be rendered ineffective. We paid dividends to our shareholders as

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approved
by the AGM on April 25, 2008. The Court of Registry entered the changes required by the resolutions passed by the AGM into the company register.

On
May 13, 2009, the court of first instance rendered the resolutions (except for one procedural resolution) passed by the AGM on April 25, 2008 ineffective (the "Ruling").
We believed that the Ruling was unfounded and instructed the law firm representing Magyar Telekom to file an appeal. The law firm representing us submitted an appeal against the Ruling, but the appeal
was filed after the deadline. The court of second instance refused the law firm's request for acceptance of the late filing in its order dated November 2, 2009, which was received by Magyar
Telekom on December 8, 2009. This order was approved by the Supreme Court in its order dated February 16, 2010, which was received by Magyar Telekom on March 22, 2010. No further
appeal is allowed in connection with the order of the Supreme Court. We will address the Ruling by proposing that confirmatory shareholders' resolutions be passed by our shareholders at the next
annual general meeting, which is April 7, 2010, with respect to the resolutions rendered ineffective.

As
the Ruling rendered the shareholders' resolutions in question (including the resolution on the payment of dividends) ineffective from July 7, 2009 (the date as of which the
Ruling became final and enforceable as a result of the order of the Supreme Court received by the Company on March 22, 2010), dividend payments for year 2007, which were made to shareholders by
July 6, 2009 will continue to qualify as dividends. The Ruling will not result in any obligation of, nor require any action by, the shareholders.

Extraordinary General Meeting ("EGM"), June 2009

As previously disclosed, on July 29, 2009 two minority shareholders filed a law suit against the Company, requesting that the
resolutions passed by the EGM on June 29, 2009 be rendered ineffective, and the suspension, as an interlocutory measure, of the implementation of resolutions on the approval of the sum due to
the shareholders who did not wish to remain shareholders following the merger of two subsidiaries into the Company decided at the EGM and the resulting opening draft balance sheet and draft merger
inventory. On August 31, 2009, the Court of Registry registered the merger of T-Kábel Magyarország Kft. and Dél-Vonal
Kft. into Magyar Telekom Nyrt. (with the effective date of September 30, 2009), and all the other changes required by the resolutions passed by the EGM.

Magyar
Telekom disagrees with the claim and has been vigorously defending against it. The claimants' request for the interlocutory measure was refused by the court in an order dated
September 1, 2009. The lawsuit remains before the court of first instance.

We
cannot fully exclude that the Company will be required to take other corporate actions in connection with the shareholders' suits described above. Also, we cannot provide any
assurance that these matters would not have other adverse effects on the Company that are not currently foreseen.

Our share price may be volatile, and your ability to sell our shares may be adversely affected due to the relatively illiquid market for our shares and ADSs.

The Hungarian equity market is relatively small and illiquid compared to major global markets. As a result of the limitations of the
Hungarian equity market and the volatility of the telecommunications sector in general, the price of our shares and ADSs may be relatively volatile and you may have difficulty selling your shares in
the event of unfavorable market conditions.

The value of our investments, results of operations and financial condition could be adversely affected by economic developments in Hungary and other countries.

Our business depends on general economic conditions in Hungary and abroad. There are many factors, which are outside of our control
that influence global and regional economies. A cautious or negative business outlook may cause our customers to delay or cancel investment in information

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technology
and telecommunications systems and services, which would adversely affect our revenues directly and, in turn, slow down the development of new services and applications that could become
future revenue sources.

We
are closely monitoring the impact of the financial market crisis on our financial position and business performance. In line with analysts' forecasts we expect economic activity in
Hungary to stabilize in 2010, however a weak labor market and restricted wage developments may limit spending
on telecommunications, and therefore have an adverse impact on our results of operations and financial conditions.

In
2009, the financial crisis led to declining demand, which resulted in declining prices and higher churn rates, both in our consumer and business segments. The negative trends
experienced in 2009 are expected to continue in 2010 as well. We therefore expect further pressure on the demand for telecommunications services both in the fixed and mobile sectors due to lower
household disposable income in Hungary as well as fewer orders from business customers and the public sector. An increase in the price level generated by the increase of Value-Added Tax ("VAT") (by
5 percentage points from July 1, 2009) has led to a further decrease in household disposable income, increasing pressure on demand for our products. A long term weakness of the Hungarian
currency may also negatively affect our customers' disposable income because of the high rate of indebtedness denominated in foreign currencies. In addition, our businesses in Macedonia and Montenegro
are also affected by similar factors. See "Item 5Management OverviewGeneral" for further explanations of effects of the financial crisis on our 2009 performance and
"Item 5Management OverviewOutlook" for our expectations for 2010.

A
significant amount of cash of the Group's Macedonian and Montenegrin subsidiaries is held in local banks and in connection with these deposits the counterparty risk may be higher, due
to the small number of internationally substantial financial institutions in these countries, however, all of our deposits are covered with bank guarantees issued by banks from the European Union.
These amounts are deposited primarily on fixed interest rate terms in order to minimize exposure to market changes that would potentially adversely change the cashflows from these instruments.

Despite
a decreasing trend in the HUF interest rates, we may also experience higher financing costs in the future as higher fluctuations of interest rates seems to be more likely due to
the increased volatility in the international capital and money markets after the financial crisis.

At
this stage it is quite uncertain for how long the consequences of the financial crisis will last and what its overall effects will be on our results of operations and financial
conditions. For additional information about our financial risk management, see Note 3 to the consolidated financial statements.

Fluctuations in the currency exchange rate could have an adverse effect on our results of operations.

We are subject to currency translation risks, mainly relating to the results of our Macedonian and Montenegrin operations. Devaluation
of the Macedonian denar or appreciation of the Hungarian forint may have a negative impact on Makedonski Telekom's results when converted into HUF. The conversion of Crnogorski Telekom's results into
HUF depends on the value of the HUF against the EUR. This is mainly a reporting risk, but through the dividend payments it has direct financial (cashflow) effects on us as well. The recent financial
crisis increased the volatility of exchange rate fluctuations, which affect our purchasing costs of goods and services. While the vast majority of our revenues are denominated in the functional
currency of the pertinent Group company, part of our operating expenses and capital expenditures are denominated in EUR and USD.

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We are continuously involved in disputes and litigation with regulators, competitors and other parties. The ultimate outcome of such legal proceedings is generally
uncertain. The results of those procedures may have a material adverse effect on our results of operations and financial condition.

We are subject to numerous risks relating to legal and regulatory proceedings, in which we are currently a party, or which could
develop in the future. Litigation and regulatory proceedings are inherently unpredictable. Legal or regulatory proceedings in which we are or could be involved (or settlements thereof), may have a
material adverse effect on our results of operations or financial condition. For information concerning material litigation in which we currently are involved, see "Item 8. Financial
InformationLegal Proceedings." For information concerning our regulatory environment, see "Item 4. Information on the CompanyRegulation."

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ITEM 4INFORMATION ON THE COMPANY

ORGANIZATION

Magyar Telekom Távközlési Nyilvánosan
Müködö Részvénytársaság (in English, Magyar Telekom Telecommunications Public Limited Company)
is a limited liability stock corporation incorporated and operating under the laws of Hungary. We operate under a commercial name, Magyar Telekom Nyrt. or Magyar Telekom Plc. Our shares are
listed on the Budapest Stock Exchange, and our ADSs are listed on the New York Stock Exchange. Our headquarters are located at 55 Krisztina krt.,
1013 Budapest, Hungary. Our telephone numbers are +36-1-458-0000 and +36-1-458-7000. Our agent for service of process in the
United States is CT Corporation, 111 Eighth Avenue, New York, New York 10011, USA.

HISTORY AND DEVELOPMENT

Prior to 1990, the Hungarian national postal, telephone and telegraph authority, Magyar Posta, provided all public telephone services
in Hungary. On January 1, 1990, the Hungarian government split Magyar Posta into three distinct entities based on the nature of their operations: postal services, telecommunications and
broadcasting. The Hungarian government made Magyar Távközlési Vállalat responsible for telecommunications operations. This entity was
transformed on December 31, 1991 into a stock corporation, Magyar Távközlési Rt. ("Matáv") then wholly owned by the predecessor of
Állami Privatizációs és Vagyonkezelö Rt. ("State Privatization and Holding Company" or " ÁPV").

MagyarCom GmbH
("MagyarCom"), a holding company in which Deutsche Telekom and Ameritech Corporation ("Ameritech") each held a 50 percent interest, was selected by the
Minister in an international tender and subsequently purchased a 30.1 percent stake in Matáv for approximately U.S.$ 875 million on December 22, 1993.
ÁPV contributed U.S.$ 400 million of the purchase price paid by MagyarCom to Matáv to provide it with capital to expand the telephone network.

MagyarCom
entered into a concession agreement with the Hungarian government on December 19, 1993. MagyarCom then assigned certain of its rights under the concession agreement to
Matáv. On December 22, 1993, Matáv entered into a concession contract (the "Concession Contract") with the Hungarian government, which gave us the exclusive right
to provide domestic long distance and international public telephone services throughout Hungary and local public fixed line voice telephone services in 31 of 54 Local Primary Areas for a term of
eight years ending on December 22, 2001. On May 24, 1994, we obtained the right to provide telephone services in an additional five Local Primary Areas for a term of eight years ending
in May 2002.

On
December 22, 1995, MagyarCom acquired from ÁPV an additional 37.2 percent interest for approximately U.S.$ 852 million, raising its stake to
67.3 percent.

In
connection with the Company's initial public offering in November 1997, both MagyarCom and ÁPV collectively sold 272,861,367 shares or 26.31 percent of then
outstanding shares. In June 1999, ÁPV sold its remaining 5.75 percent stake in Matáv in a secondary offering.

On
October 8, 1999, SBC Communications Inc. ("SBC") completed its acquisition of Ameritech and thus gained control over Ameritech's 50 percent interest in MagyarCom.

On
July 3, 2000, SBC sold its 50 percent ownership in MagyarCom to Deutsche Telekom, making Deutsche Telekom a 100 percent owner of MagyarCom.

DESCRIPTION OF BUSINESS AND ITS SEGMENTS

We are the principal provider of fixed line telecommunications services in Hungary, with approximately 2.1 million fixed access
lines as of December 31, 2009. We are also Hungary's largest mobile telecommunications services provider, with more than 5.1 million mobile subscribers (including users of prepaid cards)
as of December 31, 2009.

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Magyar
Telekom established its current management structure in Hungary based on customer segments that require different technology and marketing strategies, and support functions. The
Group's key operating segments in Hungary are: Consumer Services Business Unit, Business Services Business Unit, Group Headquarters and Technology Business Unit. In addition, the Group also has
operations in Macedonia and Montenegro, which represent two additional reporting segments.

The
Consumer Services Business Unit ("CBU") operates in Hungary, providing mobile, fixed line telecommunications and TV distribution services (including marketing, sales and customer
relations activities) to residential and small business telecommunications customers in Hungary, with several million customers mainly under the T-Mobile and T-Home brands.

The
Business Services Business Unit ("BBU") operates in Hungary, providing mobile and fixed line telecommunications, info-communications and system integration services
(including marketing, sales and customer relations activities) mainly under the T-Systems and T-Mobile brands to key business partners (large corporate and public sector
customers), as well as SMBs.

The
Group Headquarters ("Headquarters") is responsible for providing wholesale mobile and fixed line services in Hungary, and also performs strategic and cross-divisional management and
support functions including Procurement, Treasury, Real estate, Accounting, Tax, Legal, Internal Audit and similar shared services and other central functions of the Group's management. Headquarters
is also responsible for the Group's points of presence in Bulgaria, Romania and Ukraine, providing wholesale services to local companies and operators.

The
Technology Business Unit ("Technology") is responsible for the operations and development of the mobile, fixed line and cable TV network, as well as IT management in Hungary.

The
Group also has full-scale mobile and fixed line telecommunications operations in Macedonia and Montenegro, which represent two additional reporting segments of the Group.
We hold a 100 percent interest in Stonebridge Communications AD, which controls Makedonski Telekom, the leading fixed line telecommunications services provider and, through its subsidiary
T-Mobile Macedonia, the leading mobile telecommunications operator in Macedonia. We also hold a 76.53 percent ownership in Crnogorski Telekom, the principal fixed line
telecommunications services provider and, through its subsidiary T-Mobile Crna Gora, the second largest mobile telecommunications operator in Montenegro.

In
addition to the operating segments described above, we have a Media Business Unit and a few other business operations for internal management purposes that do not qualify as business
segments for financial reporting purposes. The results of these operations are reflected in "All other" in our Consolidated Financial Statements.

On
June 29, 2009, Magyar Telekom's EGM approved the merger of Magyar Telekom Plc., T-Kábel Magyarország Kft. and
Dél-Vonal Kft., two 100 percent subsidiaries of Magyar Telekom Plc. As the merger occurred between the parent company and its 100 percent owned
subsidiaries, the transaction did not have any impact on the financial results of the Group.

We
have not made any significant acquisitions between 2007 and 2009. For the investments in capital expenditures between 2007 and 2009 by our reportable segments, see Note 31.1.1
to the Consolidated Financial Statements. For the discussion of our major infrastructure developments, see "Item 4. Information on the CompanyInfrastructure and Technology."

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STRATEGY

Since becoming a listed company in 1997, we have maintained our leading positions in the domestic fixed line, mobile, Internet and data
businesses. We have successfully expanded into international operations through selective acquisitions, and continuously produced solid results.

The
telecommunications industry is undergoing a major change globally. We have observed several long-term trends which are changing the structure of the Hungarian
telecommunications market. Key drivers of the long-term trends include changes in technology (i.e., IP-based broadband products and solutions, emerging wireless
broadband technologies), customer requirements (i.e., increase in mobile usability of content services and terminal devices, 4Play solutions, growing need for customized content), competition
and regulation (i.e., low entry barriers, new business models) as well as convergence in the telecommunications and media broadcast industry.

These
worldwide trends are driving towards the concept of an integrated telecommunications, information, media and entertainment market, where market segments are overlapping and market
barriers are dissolving.

A
traditional telecommunications market will not deliver sizeable revenue growth and all players will feel pressure on revenue and profitability. Overall, the fixed voice market as a
major source of revenue and profits is declining; mobile and the growing segments (especially broadband) are no longer able to fully offset the decline in revenue and profits in the fixed line market.
The worldwide economic crisis has further accelerated negative market trends primarily affecting fixed, mobile voice and IT services as customers tend to rationalize their telecommunications spending
when household incomes are lower. We, like other operators, are experiencing strong price pressure with fierce technology platform-based competition, and also changing dynamics of broadband market
growth and structure (DSL vs. Cable / Fixed vs. Mobile). The fixed market is characterized by 3Play bundles, with TV services becoming a driver and core element of service offerings, while the mobile
market is driven by fierce competition in broadband. Services beyond core connectivity are needed to improve access base and usage. Continuous cost controls are required to manage profitability.

Several
factors drive the competitive landscape locally, while real innovations are coming from global industry players. Factors shaping the competitive environment include customer
demand for bundling with discounts; simple administration; regulatory developments opening up market entry opportunities; technology platform based competition; economies of scale through regional
business models; market consolidation and anticipated impacts of the economic crises. Also, we see many other changes locally with aggressive own access infrastructure build-out and
upgrade, and strong consolidation in the ISP and cable markets.

On
a global scale, we see a strong pressure on access providers from device manufacturers (Apple, Nokia, Sony Ericsson) and content service providers (Google, Yahoo, MSN). They attract
customers with new services over a commoditized access.

Accordingly,
we have redefined the focus areas of our corporate strategies to better exploit our position as an integrated telecommunications operator with a full range of services, as
well as to ensure our long-term competitiveness. Our strategies are designed to enable us to exploit and develop our extended customer base, significantly improve efficiency and capture
growth opportunities.

Magyar Telekom's strategic value proposition

We need to follow clear strategic guidelines delivering the highest value to our customers (i.e., value for money) with full
attention to excellence in customer service, while bringing innovations first to the market with efficient operation and processes behind. Accordingly, we need to have a consciously managed focus on
both core and non-core (mainly IT, media) businesses and products, however with consideration of the differing financial characteristics and business models to effectively manage the
transition.

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The
strategic objective in the short-/mid-term is to fix critical factors within the core business (simplification of core processes, implement access strategy, simplify IT
landscape, optimize resource allocation and cost structure, improve customer experience) and to further strengthen our positions in core connectivity segments (mobile, broadband, TV) that will enable
us to shift resources and priorities towards further diversification through service/product innovation and expansion.

In
order to continue our transformation to become a cost efficient integrated service company in an extended market of telecommunications and connected industries, we have set our
strategic priorities as follows:

1.     3Screen Company approach



2.     ICT leader



3.     Service Innovation



4.     Regional Presence



5.     One Company



Our
corporate strategy in placefixing the core business and capturing sustainable growthis still valid; execution will be further strengthened through focused
corporate initiatives.

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OVERVIEW OF MAGYAR TELEKOM'S REVENUES AND PRINCIPAL ACTIVITIES

For the years ended December 31, 2007, 2008 and 2009, our total revenues by business segment were as follows:

Year ended December 31,

Year ended
December 31,2007

2008

2009

2009/2008(in HUF millions)RevenuesTotal CBU revenues


346,495


341,563


322,336


(5.6
)Less: CBU revenues from other segments


(42,219
)

(38,655
)

(33,849
)

(12.4
)CBU revenues from external customers


304,276


302,908


288,487


(4.8
)Total BBU revenues


172,346


179,174


170,989


(4.6
)Less: BBU revenues from other segments


(14,308
)

(16,833
)

(18,835
)

11.9BBU revenues from external customers


158,038


162,341


152,154


(6.3
)Total Headquarters revenues


164,428


153,544


135,456


(11.8
)Less: Headquarters revenues from other segments


(75,403
)

(69,384
)

(59,889
)

(13.7
)Headquarters revenues from external customers


89,025


84,160


75,567


(10.2
)Total Technology revenues


9,166


11,370


10,556


(7.2
)Less: Technology revenues from other segments


(7,771
)

(7,877
)

(7,599
)

(3.5
)Technology revenues from external customers


1,395


3,493


2,957


(15.3
)Total Macedonia revenues


74,332


76,097


82,312


8.2Less: Macedonia revenues from other segments


(111
)

(285
)

(214
)

(24.9
)Macedonia revenues from external customers


74,221


75,812


82,098


8.3Total Montenegro revenues


35,747


33,148


34,442


3.9Less: Montenegro revenues from other segments


(241
)

(105
)

(51
)

(51.4
)Montenegro revenues from external customers


35,506


33,043


34,391


4.1All other (net)


14,200


11,216


8,351


(25.5
)Total consolidated revenue of the segments


676,661


672,973


644,005


(4.3
)Measurement differences to Group revenue





83


(16
)

n.m.Total revenues of the Group


676,661


673,056


643,989


(4.3
)


In
addition to the segments described above, there are a few small foreign subsidiaries not belonging to any segment for financial reporting purposes and are not reported separately due
to their small size. These operations (including the Media Business Unit) are included in "All other" in the reconciliation of the reportable segments' totals to the Group totals.

Our
business is not materially affected by seasonal variations.

CONSUMER SERVICES BUSINESS UNIT (CBU)

The operations of CBU consist of fixed line and mobile voice retail services, fixed line and mobile Internet services, data
transmission, pay TV, telecommunications equipment sales, as well as other services. CBU provides services for residential and SOHO customers. CBU offers home-related telecommunications
services under the T-Home brand and mobile communications services under the T-Mobile brand.

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On
September 30, 2009, T-Kábel Magyarország Kft. ("T-Kábel") and Dél-Vonal Kft.
("Dél-Vonal") were merged into Magyar Telekom Plc. Former T-Kábel and Dél-Vonal products became integral parts
of a harmonized T-Home portfolio.

Fixed Line Services

Voice Retail Services

Subscribers

The following table sets forth information regarding the key voice operating statistical figures of CBU:

At December 31,2008

2009Voice servicesTotal voice access(1)


1,921,486


1,740,619Payphone


16,274


14,788Total outgoing traffic (thousand minutes)(1)


3,550,076


3,135,892Blended MOU (outgoing)


151


159Blended ARPA (HUF)


3,650


3,630


---

Products and Services

Local, Domestic and International Long Distance Telephone Services.We provide local, domestic and international long distance telephone
services for
our fixed line subscribers. We send and receive all our international voice and switched transit traffic to and from Deutsche Telekom. The agreement with Deutsche Telekom guarantees us international
telephone services revenues and profits and allows for cost reductions due to this synergy with the parent company.

Directory Assistance.We offer directory inquiry services. The domestic directory assistance database includes all fixed line and
postpaid mobile
subscribers' data in Hungary. We offer a call completion option to subscribers, whereby calls may be connected automatically.

Fees and Charges

We charge fixed line subscribers a one-time connection fee, monthly subscription charges and call charges based on usage. A
call charge contains two elements: a call set-up charge and a traffic charge. Traffic charge is either measured in seconds based on the call's duration, or in minutes, depending on price
plans.

Our
one-time connection fee and monthly subscription charges are different for residential and business customers. There are different price plans for residential and
business customers as well.

Residential price plans

Our new T-Home brand (introduced in September 2008) offers fixed line voice, Internet and pay television services
independently of underlying technology. 3Play (when the three services, such as fixed line voice, Internet and TV, are bundled and offered in a single package) is the focus of the portfolio and of the
communication, but the elements can also be purchased separately or in any combination with certain limitations. The more services to which a customer subscribes, the more T-Home discounts
are available. If two or three basic services are used, the customer is granted the "T-Home Double Discount" or the "T-Home Triple Discount," respectively.

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In
April 2009, we modified our voice portfolio to offer the same plans at the same price on all platforms (PSTN, VoIP and VoCable). T-Home Double Discount or
T-Home Triple Discount is offered to customers in all of our residential price plans. We continue to offer flat rate price plans. Flat rate price plans are transparent and easy to budget,
and are designed to reduce the erosion of our fixed line business. Customers of flat rate price plans can use our network for local calls in off-peak periods for a fixed monthly fee. For
customers with flat rate price plans, we also offer complementary packages for flat peak-time calls as well as for domestic long distance, fixed to mobile and international calls.

Small business price plans

The T-Home discount structure, introduced in 2008, is also available for SOHO customers. The T-Home SOHO
discount includes flat rate voice price plans designed for business customers, aiming to further increase our flat price plan penetration.

Internet Services

The following table sets forth information regarding Internet products of CBU:

At December 31,2008

2009Internet productsRetail DSL market share (estimated) (%)(1)


54


58Cable broadband market share (estimated) (%)(1)


18


19Number of retail DSL customers


404,878


435,558Number of cable broadband customers


127,683


152,878Number of fiber optic connections


0


7,247Total retail broadband customers


532,561


595,683Blended broadband ARPU (HUF)


5,103


4,427


---

T-Home provides broadband Internet services for residential and SOHO customers through three different technologies such as copper
(ADSL, VDSL), cable (Cable Internet) and GPON (Optical Internet). The prices and bandwidths of these services are harmonized as far as possible.

The
prices of Internet services depend on the bandwidth (and traffic limit) and the number of other T-Home services (telephone and TV) subscribed (T-Home Double
or Triple Discount). There are different Internet packages for residential and SOHO customers.

ADSL.ADSL is a continuous, high-speed Internet access service based on the Asymmetric DSL technology. The service offers
cost-efficient broadband Internet access over existing copper wires. In addition, we offer Naked ADSL, an ADSL service over existing copper wires without a telephony service. To enhance
the competitiveness of our ADSL portfolio and to improve the sales of new ADSL connections, in September 2009 we introduced new download bandwidths of up to 5 and 15 Mbit/s, replacing the former 2 and
8 Mbit/s bandwidth, without increasing prices.

VDSL.In October 2008, we introduced VDSL service by developing copper network in four districts of Budapest and in six other cities.
We have
enhanced the VDSL coverage in 2009 and we can reach 84,000 households with this network. We offer two special services on this technology besides normal ADSL services: up to 25 Mbit/s Internet access
and HD channels on IPTV.

Cable Internet.We also provide cable Internet by using cable television infrastructure. After the development of our cable network, we
introduced
ED3 technology in April 2009. We offer a cable Internet

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package
with 25 Mbit/s maximum download speed and since September 2009, we also offer 50 and 80 Mbit/s maximum download speeds. At the end of 2009, ED3 services were available in approximately 370,000
households. Similar to our ADSL portfolio, in September 2009 we introduced new bandwidths of up to 5 and 15 Mbit/s, replacing the former 2 and 8 Mbit/s, without any price increases.

Optical Internet.In April 2009, we introduced our new optical Internet portfolio on GPON network and offer optical Internet
packages with
5/15/25/50 Mbit/s maximum download speeds. In September 2009, we introduced 80 Mbit/s maximum download speeds aligned with our ED3 portfolio. GPON services are available in approximately
170,000 households.

T-Home HSI portfolio.Through VDSL, ED3 and GPON technologies, we were able to provide HSI packages with 25/50/80 Mbit/s maximum
download bandwidth in about 624,000 households by the end of 2009.

TV

The following table sets forth information regarding the key TV operational statistical figures of CBU:

At December 31,2008

2009TV servicesNumber of cable TV customers


422,936


406,841Number of satellite TV customers


5,338


156,142Number of IPTV customers


28,496


67,430Total TV customers


456,770


630,413Blended TV ARPU (HUF)


3,537


3,280


T-Home offers pay TV services on three different TV platforms: on cable (T-Home analogue and digital cable TV), on IP
(IPTV) and on satellite (Sat TV). The prices of cable TV and IPTV have been harmonized, while Sat TV is available for a lower monthly fee. The prices of TV services depend on the number of channels
(package type) and the number of T-Home services subscribed by the customer (T-Home Double or Triple Discount).

IPTV.IPTV service was introduced in 2006. Since the launch of the T-Home brand in September 2008, the sale of IPTV services has been
dynamically increasing and the number of IPTV connections reached more than 67,000 by end of 2009. IPTV allows broadcasts to be seen on a television set with a set-top-box over
copper or fiber network. The product line offers various interactive contents, such as time-shift function, EPG on screen, recording onto the hard disc built in the
set-top-box, web EPG service, video on demand service and picture-in-picture. In 2009, we
continued to increase the coverage of this service by developing a fiber network. T-Home IPTV is now available in more than 700 settlements in Hungary.

Cable TV.With the integration of T-Kábel, analogue and digital cable TV products have become an integral part of a
harmonized T-Home TV portfolio. The growth in the number of cable TV subscribers slowed down in 2008 and the number of customers began to decrease in 2009, as a result of growing
competition and also due to the saturation and development of the market.

Sat TV.We launched satellite TV service (T-Home Sat TV) on November 24, 2008. By entering the Sat TV market we became a
nation-wide TV service provider. The sale of our Sat TV service increased rapidly. With the introduction of the DVB-S service, we are able to provide 3Play bundled services
(TV, Internet, voice) in 78 percent of the country.

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Our
main strategic objective is to become the number one 3Play service provider in Hungary under the T-Home brand, which strengthens and broadens our customer base (less
churn sensitivity). We also target to increase our market share through acquisitions.

Fixed Line Telecommunications Equipment Sales

We distribute an extensive range of telecommunications equipment, from individual telephone sets to modems, HAGs,
set-top-boxes and complete network systems, through a network of customer service centers and CBU's technical unit. In addition to stand-alone telephone-set sales,
we offer various packages combining voice, Internet and TV services together with a wide range of device portfolio supporting service packages. We also continually research new device solutions
(e.g., NAS, media center) in order to offer and to build a high-level Digital Home for our customers.

We
do not manufacture telecommunications equipment but resell and lease equipment manufactured by other companies.

The
telecommunications equipment sector is highly competitive and characterized by rapid technological innovation. We believe that the supply and service of telecommunications equipment
are integral elements of a full service telecommunications provider and are necessary for the expansion of our customer base. In addition, these activities allow us to ensure that technologically
advanced equipment required for new services is available in Hungary.

Other Revenues

Other fixed line revenues include construction, maintenance, rental, customer care services and other miscellaneous revenues.

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Table of Contents

Mobile Services



The table below sets forth information concerning the key mobile operating statistical figures of CBU at the dates indicated:

At December 31,2008

2009Mobile penetration (%)(1)


121.8


117.7Mobile SIM market share (%)(2)


43.9


43.4Number of customers


4,648,323


4,343,672Postpaid share in the customer base (%)


29.1


35.2MOU


127


126ARPU (HUF)


3,397


3,164Postpaid


7,265


6,454Prepaid


1,862


1,670Overall churn rate (%)


16.9


27.5Postpaid (%)


12.1


15.1Prepaid (%)


18.8


33.1Ratio of non-voice revenues in ARPU (%)


15.2


16.7Average SAC per gross add (HUF)


6,813


7,680Number of mobile broadband subscriptions


182,687


326,384Mobile broadband market share (%)(2)


53.4


45.9Population-based indoor 3G coverage(2)


n.a.


65.4


---

As of December 31, 2009, we accounted for an estimated 43.4 percent of the total Hungarian mobile market in terms of subscribers
based on the number of active SIM cards and 44.4 percent in terms of total number of active SIM cards generating traffic in the previous three months as published by NCA.

We
were the first mobile operator to launch HSDPA service in Hungary in 2006. The outdoor mobile broadband coverage based on population reached about 74.0 percent by the end of
2009. We have managed to maintain our market leader position in the mobile Internet market. At the end of 2009, we had a market share of 45.9 percent based on the number of subscriptions and
48.6 percent based on the number of subscriptions with data transfers according to information published by NCA.

The
decrease in the number of our mobile subscribers is attributable to two main factors: the impact of the economic crisis and the decline in the number of our inactive SIM cards.
Despite the difficult economic circumstances in 2009, we were able to increase the number of our postpaid subscribers by 13.0 percent. The number of mobile broadband subscriptions increased and
at the end of December 2009, we had 326,384 subscribers representing a 78.7 percent increase in comparison with the previous year.

Churn policy.Generally, a contract customer is churned either after voluntary termination upon the lapse of his contracted loyalty
period or after
forced contract termination due to the customer's failure to fulfill payment obligations. In the absence of re-charging, a prepay customer is churned after a period of 12 to
16 months depending on the amount charged on the prepaid card.

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Traffic.The average monthly traffic per CBU mobile subscriber was 126 minutes in 2009. Notwithstanding the decreasing average tariff
in 2009, usage
decreased as a consequence of the economic crisis.

Mobile voice services

Voice postpaid services

Since January 1998, mobile subscriber rates have been deregulated, and carriers have had the freedom to set the level of fee components
(i.e., connection fee, subscription fee and traffic charges).

We
charge subscribers a one-time connection fee, monthly subscription charges, event charges and time-based traffic charges. We do not charge subscribers for
incoming calls, other than calls received while roaming. We receive payments from other telecommunications service providers for terminating calls on our network. We maintained a wide range of price
plans and successfully introduced additional plans in 2009 to acquire new subscribers and develop loyalty.

In
May 2009, new MediaMania postpaid price plans were launched with bundled SMS, data and mobile TV in one monthly fee. The plans offer competitive prices from mid to high volume
segments. There are special smart phone offers to the MediaMania plans with tariff loyalty contracts.

For
the small enterprise segment (SOHO customers), CBU offers several price plans providing favorable calls within the user group and other specific services. Customers can manage their
user groups and connecting services via web-based application called Telematrix.

Customized
employee discounts are gaining considerable market share in the Hungarian mobile market, concentrating mainly on large multinational companies and the government segment.
Since the bills of these subscriptions are paid by individuals (and not their employers), this group of customers belongs to the CBU customer base.

Voice prepaid services

Customers using prepaid cards do not pay monthly subscription charges, but certain price plans do include monthly recurring fees.

Electronic
top-up services are available at many ATMs, petrol stations, Internet banks, Telebanks, Mobilbanks, on public Internet sites, in post offices, newsagent network,
T-Mobile franchise and wholesale partners. The estimated share of electronic top-up in our total top-up remained stable at 90 percent by the end of 2009.

Roaming services

International roaming services are available both for our prepaid and postpaid subscribers. The number of networks and countries where
they can make and receive voice calls, send and receive data or SMS is increasing continuously. Since 2007, EU roaming regulations have been in place for roaming voice tariffs for retail customers.
The regulation was extended for further three years to retail voice and SMS tariffs as well in 2009.

Mobile non-voice services

In 2009, we continued to enhance our non-voice services portfolio, introduced several new products, increased the
penetration and usage of existing products and extended access to some of our domestic products abroad:



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Mobile equipment and activation

We distribute an extensive range of mobile device products, such as terminals, accessories, notebooks, netbooks, data products, SIM
cards and vouchers.

We
focus on both acquisition and retention, offering several favorable packages to our customers, such as the interest-free installment option for almost all mobile handsets
and notebooks, or in case of our existing customers, the popular loyalty offers with more favorable prices and conditions.

We
offer combined mobile service (voice, Internet and TV) and device offers to our customers, finely-tuning the eventualities of existing mobile services, together with supportive
devices.

The
best example of this is the successful introduction of iPhone 3G in 2008 and iPhone 3GS in 2009 for the Hungarian market exclusively by T-Mobile. iPhone can also be
bought bundled with iPhone-specific price plans (ikon 200, ikon 400 and ikon 600), which help to fully exploit iPhone's multimedia capabilities.

We
sell mobile equipment manufactured by other companies.

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T-Home and T-Mobile integrated offers

Since we are the only integrated (fixed-mobile) telecommunications service provider in the Hungarian market we continue to leverage the
opportunity of FMC.



BUSINESS SERVICES BUSINESS UNIT (BBU)

The operations of BBU consist of fixed line and mobile voice retail services, Internet services, data transmission, SI/IT services, TV,
telecommunications equipment sales, as well as other services.

Fixed line services

Voice Retail Services

Subscribers

The following table sets forth information regarding the key voice operating statistical figures of BBU:

At December 31,2008

2009Voice servicesBusiness


110,389


100,172Managed leased lines (Flex-Com connections)


6,037


4,745ISDN channels


288,338


270,466Total lines


404,764


375,383Total outgoing traffic (thousand minutes)


798,157


656,372MOU (outgoing)


191


178ARPU (HUF)


5,457


5,162


The Hungarian government, through its various institutions and departments, constitutes our largest customer group. We develop separate service
packages for each of these institutions and departments, as each of them generally has its own annual budget, particular telecommunications needs and responsibilities. From a strategic perspective,
however, we consider the Hungarian government a single customer. We offer most of our largest customers, including the government, discounts for services we provide.

Fees and Charges

We charge fixed line subscribers a one-time connection fee, monthly subscription charges and call charges based on usage. A
call charge contains two elements: a call set-up charge and a traffic charge. Traffic charge is either measured in seconds based on the call's duration, or in minutes, depending on call
plans.

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Business price plans

We target business customers with flat rate price plans, which are transparent and easy to budget. These are designed to reduce the
erosion of our fixed line business, and to provide an opportunity for the reacquisition of traffic that we have lost due to pre-selection. Customers of flat rate price plans can use our
network for local and domestic long distance calls for a fixed monthly fee. We also offer flat rate price plans with options for mobile and international calls.

Beginning
2009, we also offer flat rate price plans to our largest key customers. To prevent customer churn, we intend to use these price plans as a retention tool for our fixed line and
mobile voice services customers.

For
SMBs, we extended the existing business flat rate portfolio and launched a fixed-mobile CUG bundled product to retain fixed line traffic in the business segment.

Services

Local, Domestic and International Long Distance Telephone Services.We provide local, domestic and international long distance
telephone services to
our fixed line subscribers.

IP-based Voice Services.We provide integrated voice, Internet and corporate data packages at very attractive prices for our SMB segment
within fixed line portfolio.

Shared Cost/Toll Free Numbers.The reverse charged numbers ("blue" and "green") are primarily used by business customers leveraging the
service
benefits in the course of their business operations. The customer base and the usage volume of this service are stable. In line with international regulations, we ensure the international availability
of reverse charged numbers both from fixed line and mobile networks.

PBX Services.We offer virtual PBX services via VoIP providing internal voice and data integrated business networks for the small and
medium business
segment.

Internet Services

The following table sets forth information regarding the Internet customers of BBU:

At December 31,2008

2009Internet servicesNumber of leased line Internet subscribers


617


558Number of retail DSL customers


31,805


32,358Retail DSL ARPU (HUF)


13,743


12,712


We offer our business customers Internet services based on ADSL technology as well as access through cable, WLAN and leased lines. BBU provides
ADSL service on PSTN lines named BDSL. Packages without traffic limits are available with four different download speeds: 5, 10, 15 and 25 Mbit/s.

Bundled ADSL ("T-DSL").BBU also offers voice and Internet bundles (T-DSL) targeting primarily small and
medium business customers. In 2009, we have reshaped our T-DSL portfolio with new bandwidth packages (5, 10, 15 and 25 Mbit/s download speeds) and more value added services.
T-DSL price plans contain telephone line services with voice and Internet access and value added services such as virus protection, and domain name.

T-HotSpot.HotSpot is a WiFi technology-based wireless broadband Internet solution for public site Internet services
(i.e., hotels, conference centers, restaurants). By the end of 2008, former T-Com and

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T-Mobile
HotSpots have been consolidated; therefore the whole T-HotSpot network can be now used under the same terms and conditions.

MLLN Internet Access.MLLNI provides transport and access facilities to IP traffic and it is offered mainly to our largest business
customers. The
product includes domestic and international peering and leased line access, by which the domestic end-point of the customer is connected to our IP network with symmetrical upload and
download link. With the growing penetration of xDSL based broadband access technology and the aggressive pricing in the customer segment, we will derive less revenue from our MLLNI services.

Data Transmission and Related Services

Leased line service establishes a permanent connection for transmission of voice and data traffic between two geographically separate
points (point-to-point connection) or between a point and several other points (point-to-multipoint connection). These points can be either all within
Hungary or some in Hungary and others abroad.

We
offer a broad variety of standard analogue and digital lines for lease, including two-wire and four-wire analogue lines and digital lines with capacities from
64 Kbit/s to 10 Gbit/s. We also offer high capacity customized digital lines to other telecommunications providers.

Our
leased line customers pay a one-time connection fee based on the type of line leased. Monthly subscription charges vary with the type and length of lines leased and, in
some cases, with the term of the lease. With the exception of leased lines required for connection with other networks, leased line charges are not subject to regulation, although the difference
between the retail and wholesale prices is set by the regulators. As part of the overall rebalancing of our rates, we have reduced our leased line charges in real terms over the last few years in
response to competition, which
partly offset the revenue increase generated by volume and bandwidth increases of the leased line services.

Flex-Com.We offer Flex-Com, domestic and international digital leased lines with managed back-up systems that
are dedicated to data transmission. The number of Flex-Com connections has been decreasing as customers choose leased line services based on the high speed FTTx technologies within 100
Mbit/s and 10 Gbit/s speed ranges (e.g., Gigalink) or choose network facilities with higher values from our product portfolio (e.g., IP Complex Plus, MultiFlex).

Magyar Telekom DataLink.In 2004, we launched a data transmission product that offers technology-independent data transmission between
business
customers' locations. The customer only needs to define three main parameters: bandwidth, SLA and interface. This service provides data connection below 2 Mbit/s, with X.21 or Ethernet interfaces.
With the introduction of this service, we can better utilize our spare data transmission capacity and also offer other high-value network facilities to our customers (e.g., IP
Complex Plus, MultiFlex).

MultiFlex.In 2007, Magyar Telekom launched a new MultiFlex service. It is an Ethernet-level virtual private network service on
the Magyar
Telekom Ethernet-aggregation and MPLS-backbone network, where access may be provided through multiplicating copper pairs, optical fiber, or, micro, which enables connections to our
customers with a speed up to 1 Gbit/s. Magyar Telekom provides proactive fault repair and SLA report, and our partners can access the report via our VIP portal website. In 2009, Magyar Telekom
launched a few new service options, such as Redundancy and Measurement-based SLA options. By the end of 2009, Magyar Telekom had more than 190 contracted customers.

Datex-P.We offer Datex-P, a packet-switched data transmission service based on the X.25 (e.g., X.1, X.28, X.32)
protocol. The service provides low speed (up to 128 Kbit/s) domestic switched data communications services with international connectivity to business customers. As a result of the proliferation of
new technologies, growth in the number of subscribers has stopped. Between 2003 and

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2005,
our major objectives were to extend the lifecycle of the product, maintain profitability, optimize the network and reduce costs. In 2005, we assessed and commenced migration of customers to
other
data transmission services, which is still ongoing. The churned customers can choose up-to-date and high-value network facilities from our product portfolio
(e.g., IP Complex Plus, MultiFlex).

IP Complex Plus.IP Complex Plus is an IP-VPN service. IP Complex Plus service is offered to retail and wholesale customers having
multiple remote sites. This service enables them to establish secure data traffic between sites without the need of setting up "point-to-point" connections between two sites.
The development of supplementary services, such as ISDN back-up, integrated voice/data, ADSL/SHDSL access and dial-up access to IP-VPNs make this product more
attractive to a growing number of business customers. In addition to the current function of integrated voice/data service, we provide number portability for our IP Complex Plus customers. Using this
new service, customers can use their existing phone numbers within their private network as well. In 2007, we extended our portfolio with new access technologies based on Ethernet network, which
enable our customers to connect to the IP network with a speed up to 1 Gbit/s. In 2009, Magyar Telekom launched the HSDPA mobile backup option to improve the reliability of data transmission.
Furthermore, Magyar Telekom allows wired connections to the domestic customer VPN from Romania and Bulgaria.

Telepresence.Telepresence is an entirely new generation of video conferencing services that is offered by Magyar Telekom to its
corporate customers.
It creates a unique live, face-to-face communication experience over the network. Telepresence uses powerful integrations to the IP Complex Plus network of Magyar Telekom
enabling highest quality (1080p, low latency, spatial audio) video and audio connections, which provide users with simplicity in call scheduling and launching, as well as reliability. It manages real
time applications such as voice and video at the lowest possible bandwidth. This allows customers to keep costs down, and use their network investments to maximum advantage. We also use Telepresence
for our own company purposes with several sites in Hungary, which are connected by IP-VPN with other Deutsche Telekom subsidiaries in Skopje, Podgorica and Frankfurt.

Távszámla.In 2005, we launched our electronic bill presentment and payment product
(Távszámla). Távszámla provides certified invoices in PDF format with electronic signatures and time stamps complying with relevant legal
regulations. This service is perfectly suitable for public utilities to reduce paper based bills and significantly reduce their billing costs. In addition to our own services, the bills of various
public utilities (e.g., gas, electricity) are also available through Távszámla. At the end of 2009, the registered users of Távszámla
exceeded 92 thousand.

System Integration and Information Technology

BBU has a prominent competitive advantage in providing complex ICT services in the Hungarian market, since it also owns the necessary
telecommunications infrastructure. As a result of our clear strategy to dominate the Hungarian ICT services market and the acquisitions completed between 2006 and 2009, our company became the market
leader providing combined IT and telecommunications services. In spring 2009, we acquired ISH, an IT services vendor with a significant client base in the healthcare sector.

Outsourcing services



Our ICT Outsourcing services offer transfer of assets, customized hardware configuration, customized SLA and processes for mainly large
enterprise companies and public institutions. We select the billing and settlement solutions that best suit the goals of our partners (e.g. solutions based on users, infrastructure elements,
service tickets and combinations of these factors).

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Our managed services represent complex IT infrastructure services including both the necessary network equipment and the related
services for a monthly service charge. As a managed infrastructure service, we provide Managed LAN, Managed Voice, Managed Desktop, Managed Security, and Managed Printer services for our
mid-market business customers.

Managed LAN.With the Managed LAN Service, we offer construction, continuous operation and management of companies' computer networks
(LAN). The
service includes continuous monitoring of active devices in local networks and proactive fault repair. With this service we offer our customers a one-stop service provision for a
foreseeable transparent monthly service charge.

Managed Voice.Our Managed Voice Service offers the construction and operation of a complete integrated voice and data communication
system. In
addition to all functions of conventional telephone systems the Managed Voice Service includes an IP-based voice transmission (telephone) system with numerous comfort features. The system
is fully based on and is integrated into the data network of the company's headquarters and its sites so there is no need for an additional internal telephone network neither at the headquarters, nor
at the sites.

Managed Desktop.Our Managed Desktop Service is a solution for companies to outsource their IT infrastructure operations. With this
service, we
assume the overall management (including continuous monitoring) of client workstations (computers) and connected devices, i.e., printers and other peripherals. The service also includes
professional consulting, procurement of the necessary PC and notebook configurations, installation of the necessary software environment and, when requested, its modification.

Managed Security.Our Managed Security Service offers protection of the IT infrastructure through local or centralized monitoring,
construction and
operation of an IT protection system.

Managed Printer.Our Managed Printer Service includes design, installation and operation of companies' entire printer pool, the devices
needed for
printer operations, their replacement and continuous monitoring.



BBU offers to SMBs office communications infrastructure services in one package, containing modern IT and telecommunications tools.
Components of the T-Systems Compleo service package include:



This
service package can be tailored to the very needs of the SMBs' business.

Infrastructure-hosting & co-location services

We provide hosting and co-location services, which offer full-scale solutions for data storage and at the same
time allow clients to monitor servers
during any period of the day, and take immediate action if necessary. Our hosting and co-location services include all the functions associated with servers, starting from locality- or
server-based co-location through server leases to the provision of replacement computers, and provision of value added services.

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ASP, SaaS services

We provide ASP/SaaS services to local governments, middle sized companies and SMBs. These services enable us to bundle
telecommunications and IT services. We developed the Virtualoso product to enter the SMB market with standardized ASP Services, while we plan to provide from 2010 customized ASP solutions for local
governments and ERP/CRM applications in SaaS model for mid-market customers. We provide the following types of Virtualoso services:



Application Development and Operation

Our subsidiary, IQSYS provides IT application development, management and system integration services mainly for large enterprises and
public institutions. In addition to these traditional markets, IQSYS has an increasing focus on the SMB sector as well. We deliver complex, custom-tailored solutions covering the full application
lifecycle. Our services range from business and IT consulting, through the implementation of application packages (ERP, CRM, other sector specific applications, business intelligence solutions),
custom application development and system integration to the delivery of the required tools and the operation of the applications. Our offering is complete with application services as well as
outsourced IT and business workflow services.

Infrastructure

Our subsidiary, KFKI provides large enterprises and public institutions with various infrastructure solutions and IT operation
services. Beside these large business partners, KFKI also handles customers from the SMB sector. KFKI implements, supports and operates unified communication solutions, intelligent building solutions,
network integration solutions, IT security infrastructure, IT service management and system administration solutions as well as computer systems. KFKI also provides consulting services in the areas of
IT security, IT operation and IT investments. We outsource not only IT equipment, but human resources ("HR") as well. Our IT operation services range from operation by our expert delegated to the
client on a long-term basis to installation, repair, maintenance, planning, consulting, operation and upgrading in any part of the country.

Mobile operations

Subscribers

The table below sets forth information concerning the key mobile operating statistical figures of BBU at the dates indicated:

At December 31,2008

2009Mobile operationsNumber of customers


713,469


775,912Overall churn rate (%)


5.8


8.0MOU


325


336ARPU (HUF)


7,655


6,458Number of mobile broadband subscriptions


81,339


102,161Ratio of non-voice revenues in ARPU (%)


20.2


23.6Average SAC per gross add (HUF)


9,092


8,280


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Mobile voice services

We provide the same voice retail services to our corporate customers that we offer to our residential market.

Mobile non-voice services

In addition to the services we offer to our residential customers, we developed the following products for our corporate clients:

Telematrix.Telematrix is a web-based tool available for our customers to manage their entire mobile fleet (cost and asset management,
service activation and deactivation) on their own. We continuously develop the Telematrix platform, which we consider a major competitive advantage enabling us to maintain our market leader position
in the corporate mobile market.

Corporate Internet and Intranet Service (APNCA).APNCA is a Virtual Private Network service with optional Internet access based on
mobile network.
APNCA service is offered to corporate customers having multiple mobile endpoints. This service enables them to establish secure data traffic between the mobile end point and the customer's main
office.

Bulk SMS.Bulk SMS service enables corporate customers to contact a large number of customers, employees or business partners in a
simple way. The
service provides easy and fast sending, receiving and management of SMSs in bulk and is a new way to acquire or retain customers and send advertisements.

BlackBerry Enterprise services.Using a special mobile device, the BlackBerry Enterprise Service enables users to access their
corporate
mailing systems. The service provides comprehensive
on-line access to various functions, including incoming electronic mails, calendar, corporate address book and tasks.

Fleet management.Fleet management is a position tracking service based on GSM/GPS systems.

Our
subsidiary, Pro-M provides TETRA services for public safety and security agencies in Hungary.

Due
to continuous network developments, the outdoor mobile radio coverage of EDR is more than 99 percent, based on a countrywide average. New EDR services have been made available
for public safety and security agencies, like e-learning with 5,000 users planned in 2010, an AVL system that serves police action control, or new mobile units extending TETRA services.

Providing
EDR services for a new range of users is a new possibility for Pro-M after negotiating the related processes with the Minister.

Pro-M
realizes service revenues from providing EDR telecommunications services for various public safety (emergency) and law enforcement bodies based on the EDR contract. The
agreement is valid until 2015.

HEADQUARTERS

Headquarters is responsible for:



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Wholesale services

Our wholesale unit represents a separate line of business operating independently from our retail businesses. The wholesale activities
focus on three strategic objectives:



To
enable our retail businesses, we have bilateral interconnection and roaming agreements with national and international network operators. Furthermore, we purchase services from other
telecommunications operators ensuring nationwide coverage for our retail services.

In
the domestic telecommunications market, we face strong competition in both the retail and wholesale levels. In most service markets, the parallel use of wholesale and retail sales
channels in a complementary way can ensure reaching the optimum financial results. In addition, our wholesale business increases utilization of the existing network capacities.

In
order to offset the decreasing revenue potential of the traditional domestic wholesale markets, we are looking for opportunities to expand our regional presence especially in
South-Eastern Europe. We intend to strengthen our market position in this region through our regional subsidiaries (PoPs).

Customers

Alternative domestic fixed network and service providers

ISPs, ASPs and cable TV operators belong to this wholesale partner group, consisting of approximately 200 partners in 2009. Most ISP
and cable TV service providers are expanding their traditional service portfolios with other service elements like broadband Internet, VoIP and IPTV. In response to this demand, we provide commercial
based and regulated wholesale solutions to these partners enabling them to sell 2Play or 3Play packages. We offer to this segment end-user access (xDSL, unbundled local loop and leased
lines), backbone capacity (low and high speed leased lines on several technologies), infrastructure-based services (duct rental), interconnection and network access services (transit) as well as
complex network and service platform solutions (IPTV and VoIP). The market demands are shifting to all IP-based technologies regarding both the backbone capacity and the
end-user access. Due to the increase in the infrastructure-based competition the market is undergoing significant market consolidation.

MNOs

We have two partners belonging to this wholesale segment. Typical services sold to these partners include interconnection-based
services, network access-based services (e.g., international and domestic transit, value-added services) and capacity sales (TDM and IP-based leased lines). Their demands
particularly focus on interconnection services, however we make efforts to increase the portion of commercial agreements. Through acquisitions, the MNOs are entering into the market for fixed line
networks and services.

International telecommunications providers

We sell international low and high speed leased lines, transit circuits, IP/Internet connections, other managed data communication
services and backbone capacity to approximately 50 international wholesale partners and purchase such services from approximately 40 international partners for our retail activities. We also terminate
international incoming traffic on our network. Our international partners, which are typically simultaneous buyers and suppliers, are significant wholesalers in Europe, including Deutsche Telekom,
Telekom Austria, Interoute and T-Systems International. We expect that the dynamic growth of

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the
IP-based services will be able to offset the decline of the low-speed data communications services in the future.

Premium rate segment (Third party wholesale market)

In the third party wholesale market, we have 76 contracted content provider partners, the largest of which also act as aggregators.
Dominant partners have leading roles in media and mobile marketing market support (e.g., suppliers of commercial TV channels, mobile marketing campaign organizers). Due to the characteristics
of the market we offer premium and normal rate interactive services and solutions, allowing content providers to access mobile and fixed line customers.

Roaming partners

International roaming service was available for our subscribers on 426 networks in 187 countries as of December 31, 2009, of
which 236 networks in 123 countries were available for prepaid customers. As of December 31, 2009, customers could use 242 GPRS networks in 116 countries. Since January 1, 2008,
Magyar Telekom sends and receives all its international voice traffic to and from Deutsche Telekom as Deutsche Telekom offers more favorable prices and better quality than other international carrier
service providers.

Wholesale product lines

Regulated services

Regulated, domestic traffic services primarily consist of call origination and termination services. In the call origination and
termination market, we are an SMP service provider and therefore obliged to submit RIO. We have 18 bilateral interconnection agreements for providing regulated services. We are also obliged to provide
number portability for fixed line numbers based on RIO as well as local loop unbundling based on RUO.

Broadband services

We sell wholesale ADSL service to ISPs, which enable them to offer integrated broadband Internet services combining access and IP
transport to their retail customers under their own brands. At the end of 2009, we had contractual relationships with 24 ISPs. Due to the strong competition caused by alternative broadband
technologies (mobile broadband and cablenet), the number of wholesale ADSL connections decreased to 161,270 at the end of 2009 from 196,776 at the end of 2008. We expect further decreases in the
number of wholesale ADSL connections in 2010.

TV services

As one of the first providers in Europe, we launched a wholesale IPTV product in the middle of 2009 enabling ISPs to provide own
branded IPTV service to their ADSL customers. We had six wholesale IPTV partners at the end of 2009. The number of wholesale IPTV subscribers reached 296 at the end of 2009. The Hungarian TV market is
highly competitive driven by different technologies such as analogue broadcasting, analogue cable TV, DVB-T, DVB-S, DVB-C.

Data and IP service

We offer an extended data and IP service portfolio to wholesale partners. It consists of managed leased lines on different technologies
(TDM, Ethernet, ATM, SDH). These connections are available on access and backbone network levels as well. BBU is responsible for product management of most of these products and our Headquarters unit
sells them to wholesale partners. We are responsible for the development and life-cycle management of two services within the wholesale data and IP service portfolio.

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Our
Symmetrical Internet, which combines IP transport, Internet peering and leased line access, was designed especially for ISPs. This product was introduced in 2003 to maintain our
competitive position in the Internet leased line market. In 2009, we extended the domestic Symmetrical Internet portfolio to the international market involving Magyar Telekom's, Deutsche Telekom's and
Telekom Austria's IP MPLS platforms. We expect steady growth in sales in this market in 2010.

Our
HSLL service also plays a significant role in wholesale sales providing high speed (from 2 Mbit/s to 2.5 Gbit/s), high reliability leased line connections between service access
points.

Infrastructure service

We share our physical infrastructure (ducts, poles, equipment housing) on a commercial basis. Our partners are mostly cable TV
companies. We had 31 partners at the end of 2009. We have to face competition in this market particularly within major cities and regarding backbone relations.

Interactive mobile service

There are two major lines of interactive services: premium and normal rate. Both service groups are available on the following service
channels: voice, SMS, MMS and video. Due to the evolution of business models and technologies, the premium rate services are operated in a harmonized market among the mobile operators (except premium
voice), contrary to the normal rate competitive market. Harmonization in premium rate services is necessary to ensure countrywide access required by the characteristics of the market. In case of
normal rate services and premium rate voice there is a heavy competition among mobile operators for increasing market share (especially from mobile marketing revenues). Appearance of new alternative
solutions (e.g., mobile payment, IPTV) and the direction of media and mobile marketing development strongly influence the opportunities in this market. We expect the demand for such services to
increase in the future.

Headquarters functions

General

Headquarters performs strategic and cross-divisional management functions for the Group. Headquarters functions include those performed
by many of our central departments, such as legal, regulatory, strategy, HR, communication, investor relations, treasury, security, internal audit and compliance.

Principal Activities

Our strategy area is responsible for determination of new lines of business, to scout new products, technologies and services, to
acquire access to them on our behalf and to handle the portfolio of our international subsidiaries.

Our
treasury team is primarily responsible for cash management, investments in securities, leasing arrangements and the refinancing of indebtedness through a variety of financial
arrangements, including, among other things, bank loans and other credit arrangements. Furthermore, this unit is responsible for the issuance of debt in the international capital markets, the handling
of payments and clearing transactions, foreign exchange and hedging, as well as merge and acquisition ("M&A") activities.

Our
legal department represents us in legal disputes, creates and approves our contracts and regulations and performs due diligence activities with our treasury team on potential
acquisition targets.

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Shared services

General

Operating functions not directly related to the core businesses of our operating segments are considered shared services functions.
Shared services include, among others, the management and servicing of our real estate portfolio, fleet management, procurement, HR administration and accounting.

Principal Activities

The real estate unit, based on revenues, is the largest shared service within Headquarters. The real estate unit is responsible for
managing our real estate portfolio, renting commercial real estate and providing facility management services for the Group, primarily in Hungary. In addition, this unit is also responsible for the
operation, management and servicing of our radio transmission sites, such as our radio towers and transmitter masts in Hungary (primarily used in mobile, radio and satellite communications, as well as
for television broadcasting).

Our
real estate operations are conducted partly through STRABAG Property and Facility Services Zrt. and partly by our own property organization.

Our
fleet management is conducted through MKB Eurolízing Zrt., which provides fleet management and mobility services, with approximately 2,800 vehicles provided to the
Group companies and affiliates within Hungary.

Central
procurement handles purchasing activities, calls for tenders, signs and controls contracts and it is responsible for all related procurement procedures.

Our Points of Presence in South-Eastern Europe

The Headquarters segment also includes the activities of Magyar Telekom in certain countries in South-Eastern Europe. Magyar Telekom
provides international network and carrier services in South-Eastern Europe through PoPs. We entered the Romanian market in July 2004, the Bulgarian market in September 2004, and the Ukrainian market
in August 2005 to offer various wholesale services. Capitalizing on our experience in these markets, we have entered the retail market segment in Romania with a full service portfolio.

Media unit and new business developments

The Headquarters segment also comprises content, media and other non-access services; it is also responsible for new
business developments and the coordination of innovative activities.

In
line with our strategy of capturing new revenue sources in business areas in which we can build on our existing capabilities, we have decided to enter the retail energy market, via
the resale of natural gas and electricity, leveraging off the extensive sales networks that we already have in place. It is anticipated that participation in the retail electricity and gas market will
enable us to retain existing, and win new, telecommunications customers with attractive energy offers. We expect that such electricity and gas offers will help support additional sales and services
provided to existing customers, as well as possible upgrades to existing services.

The
liberalization of the Hungarian electricity and gas market was completed in July 2009, enabling us to enter into agreements with a wholesale provider for the supply of sufficient
electricity and gas volumes. We intend to start reselling electricity and gas to our existing customer base as a bundled product supplementing the telecommunication services offered.

Initially,
we plan to launch electricity and gas retail offers for a targeted segment of residential and business customers from among our existing customers from April 2010 to test
customer perception and

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acceptance.
After this initial phase, we will assess the potential for further penetration of the energy market in the second half of 2010.

TECHNOLOGY

Technology is a central supporting unit for the business units of the Company. It is responsible for the development and operations of
the mobile and fixed networks as well as IT.

Technology
derives its revenues mainly from:



Technology
in its current form was established on January 1, 2008 with approximately 2,200 employees. It became a central technology unit serving the Company's business units as
internal clients. On the IT side, two directorates (IT Architecture and Development, and IT Operations) were established after a merger of the IT organizational units of former T-Mobile,
T-Com and T-Online. On the network technology side, mobile and fixed network areas were initially kept separate because processes differed significantly.

In
2009, two main organizational changes took place in Technology. First, the technology units of T-Kábel were merged into Technology. Second, preparation has
been made to merge the mobile and fixed network technology areas. This merger, referred to as "TU 2.0", provides opportunities for exploiting synergy effects:



The
first phase of the TU 2.0 project ended at January 1, 2010, when the new organizational structure was established. During the second phase in the first half 2010, we will
start the harmonization and merger of fixed line and mobile processes, make minor modifications to adjust operations to the new organizational structure and develop the detailed rules of operations.

According
to the new organizational structure, in effect as of January 1, 2010, all network development-related functions are consolidated in the NT Plan and Build unit. Also, all
operations related tasks, both fixed and mobile, are consolidated in the NT Operations unit. A substantial change is that all technology-related service development tasks are centralized in one
Service Development unit. These three NT areas work under the leadership of the NT Chief Technical Officer.

Besides
the NT and IT directorates, a separate unit is responsible for setting strategic goals and objectives for Technology and ensuring the strategic harmonization with the rest of the
Company. In addition, it also manages centrally all financial activities for Technology, covering financial planning, financial controlling, capital expenditures management and asset management tasks.
This organization is also responsible for operational management of Technology as a whole, including reporting, process and risk management.

Technology
maintains direct relationships with the respective technology units of DT. DT maintains supervision of major strategic activities. DT's impact on Technology has intensified
since the summer 2009 when DT established its Southern and Eastern Europe ("SEE") region and defined common regional strategic goals for both NT and IT areas. Regional collaborations focus on
standardization to exploit

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volume
effect of technology procurements and cost savings derived from maintenance. As an example, procurement and testing of new GPON releases will be coordinated among the SEE Group
affiliates.

Technology
also performs extensive Research and Development ("R&D") activities. Particularly in co-operation with Hungarian universities, 37 research projects have been
completed in 2009 to identify future opportunities of telecommunications services and technology innovations.

In
2009, the most important NT developments included the following:



As
for the IT strategy, we successfully completed many substantial developments in 2009, including:



MACEDONIA

Fixed line services

We fully own a Macedonian holding company, Stonebridge, which owns a 51 percent interest in Makedonski Telekom. Magyar Telekom
has commenced a liquidation procedure of Stonebridge in accordance with the relevant Macedonian laws. Once the process is complete, Magyar Telekom will directly own its shares in Makedonski Telekom,
thus simplifying the ownership structure.

Makedonski
Telekom is the primary fixed line service provider in Macedonia. Makedonski Telekom provides traditional fixed line telecommunications services and content services within the
scope of the fixed line network, broadband services and integrated solutions, including IPTV. In addition, the product

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portfolio
of Makedonski Telekom includes IP based services, data transmission, sale and lease of equipment and system integration services.

In
May 2008, Makedonski Telekom introduced the T-Home brand.

The
following table sets forth information regarding the fixed line operation of Makedonski Telekom:

At December 31,2007

2008

2009Number of revenue generating fixed linesResidential lines


386,369


356,082


305,806Business lines


35,143


34,864


31,443Payphone


2,015


1,692


1,218Total


423,527


392,638


338,467ISDN channels


37,602


38,598


34,766Total


461,129


431,236


373,233Number of retail DSL customers


40,221


81,858


109,617Number of wholesale DSL access


7,993


17,008


18,751Total DSL access


48,214


98,866


128,368Retail DSL market share (estimated) (%)


83


81


83Number of dial-up customers


18,459


5,910


1,813Number of leased line customers


149


129


228Number of IPTV customers


0


1,952


14,150


Beginning in June 2008, Makedonski Telekom also offers VoIP based services (Call Comfort, Office Comfort and Office Comfort+ packages). VoIP
product portfolio was extended in September 2008 when Call & Surf packages were launched on the market for the residential segment.

Makedonski
Telekom launched IPTV in November 2008 and offers TV sets as well in its sales network. In March 2009, the 'Call & Surf Start' 2Play package, and in April 2009, the '3
Max Start' 3Play package were introduced in the Macedonian fixed line market.

Makedonski
Telekom offers end-to-end solutions for its business customers, including a complete portfolio of fixed line products and services, as well as SI
solutions.

Mobile services

T-Mobile Macedonia is the leading provider of mobile telecommunications services in Macedonia. The principal activities of
T-Mobile Macedonia's operations are digital mobile telephone services and non-voice services such as SMS, MMS and GPRS based on GSM and UMTS technology.

T-Mobile
Macedonia expanded its customer base from 1,379,191 at the end of 2008 to 1,381,094 by the end of 2009, which represents an estimated market share of
56.4 percent in the Macedonian mobile telecommunications market as opposed to 59.4 percent at December 31, 2008 (based on the number of total SIM cards). The mobile market
penetration in Macedonia is over 116 percent, which shows the trend of individuals owning multiple SIM cards. As a result of the market saturation, we especially focus on retaining customers to
protect our market share. The Agency has published a new market share calculation method based on the total number of active SIM cards which were used in the previous three months.

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The
table below sets forth information concerning the key operational statistical figures of T-Mobile Macedonia at the dates indicated:

At December 31,2007

2008

2009Number of subscribersPostpaid subscribers


280,707


360,706


419,148Prepaid subscribers


931,832


1,018,485


961,946Total subscribers


1,212,539


1,379,191


1,381,094MOU


90


96


104ARPU (HUF)


3,054


2,586


2,678Mobile penetration in Macedonia (%)


93.3


110.5


116.1T-Mobile Macedonia's market share (estimated) (%)


62.3


59.4


56.4


The increase in the number of T-Mobile Macedonia subscribers in 2008 and 2009 is attributable to a number of factors, including the
success of community offers and campaigns with attractive handset prices. The churn rates of customers are quite high in Macedonia, but they were not significantly affected by the introduction of
mobile number portability from September 1, 2008.

The
Macedonian mobile market was characterized by highly competitive and aggressive pricing in 2009. This was especially the case for the business segment, while different types of
promotions were available for the consumer segment as well. Due to the increased competitiveness and in order to prevent churn and encourage usage, T-Mobile Macedonia launched various
campaigns and price plans specially designed to meet subscribers' needs. A new top-up concept was introduced to increase revenue in the prepaid segment, whereby customers would receive
free traffic or price discounts upon recharge. Customer segment based pricing was introduced via community offers addressing particular social groups (e.g. pensioners, students).

T-Mobile
Macedonia was awarded a 3G license on December 17, 2008 and started its 3G commercial operations in June 2009. T-Mobile Macedonia is continuously
working on creating market demand for mobile Internet and stimulating mobile data usage via device/data price plans.

T-Mobile
Macedonia introduced its first bundled product, Family+, which is a joint offer containing fixed line and mobile telephony as well as high speed ADSL Internet for
one monthly subscription.

MONTENEGRO

Fixed line services

We have a 76.53 percent interest in Crnogorski Telekom. Crnogorski Telekom is the principal fixed line service provider in
Montenegro. Its exclusive rights in fixed line telecommunications services expired in December 2003. Crnogorski Telekom provides a wide range of retail and wholesale telecommunications services at
domestic and international level (e.g., voice services, broadband access, IPTV services, leased line circuits, data transmission).

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The
following table sets forth information regarding the fixed line operation of Crnogorski Telekom:

At December 31,2007

2008

2009Number of revenue generating fixed linesResidential lines


148,111


144,897


140,591Business lines


19,193


18,532


18,241Total


167,304


163,429


158,832ISDN channels


18,896


18,806


18,058Total


186,200


182,235


176,890Number of retail DSL customers


16,106


38,956


54,983Number of dial-up customers


28,401


17,455


5,184Number of leased line customers


146


188


191Number of IPTV customers


2,397


17,531


29,612


Crnogorski Telekom is the sole provider of ADSL in Montenegro, although competitors started to offer broadband access through WiMAX access.
Internet access is provided via the public switched telephone network, leased lines and ADSL. We experienced strong dial-up to ADSL substitution during the last three years.

Similarly
to other fixed line service providers before privatization, Crnogorski Telekom maintained relatively low domestic charges and high charges for international calls. In September
2007, Crnogorski Telekom rebalanced the fixed line voice tariffs adopted by EKIP. International charges have decreased both in residential and in business segment, while local charges and subscription
fees have increased in residential segment.

Crnogorski
Telekom introduced its IPTV service, called Extra TV on November 30, 2007. In 2008, the IPTV system was upgraded to support an increased number of customers and to
improve service quality.

In
2009, the main focus of our sales activities in Montenegro was to increase Extra TV (IPTV) and ADSL sales. In May 2009, several Extra TV and ADSL promotions have been implemented and
significant sales results were achieved. In September 2009, Crnogorski Telekom introduced its 3Play offer with a great success.

Mobile services

T-Mobile Crna Gora is the second largest mobile operator in Montenegro with 36.7 percent mobile market share
according to the data published by EKIP. Since its inception in 2000, it offers innovative and advanced services to the Montenegrin market and has been experiencing dynamic growth.

The
main activities of T-Mobile Crna Gora's operations are digital mobile telephone services and non-voice services, such as SMS, MMS based on the GSM,
UMTS, GPRS, EDGE and HSDPA technologies. T-Mobile Crna Gora actively employs various promotions and incentives to encourage use of its services. In addition to a variety of service
packages, T-Mobile Crna Gora offers WAP, MMS, content SMS and premium-rate SMS services. In 2007, T-Mobile Crna Gora started the development of a new 3G network,
and extended its service portfolio with web'n'walk and mobile Internet, in order to meet the growing needs of mobile customers in an increasingly demanding and competitive Montenegrin mobile market.

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The
table below summarizes the key operational statistical figures of T-Mobile Crna Gora:

At December 31,2007

2008

2009Number of subscribersPostpaid subscribers


73,675


89,070


104,095Prepaid subscribers(1)


335,266


417,449


427,362Total subscribers


408,941


506,519


531,457MOU


120


105


96ARPU (HUF)


3,252


2,886


2,459Mobile penetration in Montenegro (%)(2)


168.7


185.6


208.7T-Mobile Crna Gora's market share (%)(2)


33.8


36.1


36.7


(1)In
October 2006, the prepaid voucher lifecycle was extended from 3 to 11 months in Montenegro, resulting in an increase in the number of prepaid
subscribers.(2)Data
published by EKIP based on the total number of active subscribers in the previous three months.


T-Mobile Crna Gora's operations, customer base and revenues are significantly affected by seasonal factors. In 2007, the entrance of a
third mobile operator, Mtel, significantly increased the competition in the Montenegrin mobile market.

In
May 2009, new prepaid mobile offers were introduced for the youth segment which significantly contributed to the increase in the number of prepaid customers. On the other hand, the
increase was also attributable to higher prepaid and postpaid sales due to special offers during the tourist season.

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DISTRIBUTION AND SALES

CBU

Magyar Telekom had 47 direct shops (T-Points) at the end of 2009. All shops provide full scale of sales and customer care
related services in the entire T-Home and T-Mobile consumer product portfolio. Besides sales activity,
cross-selling, up-selling and customer retention are the main activities in focus at T-Points. In 2010, the major challenge is to further enhance the service level within our
sales channel in order to better meet customer expectations and to dedicate more time to the customer.

In
Magyar Telekom's distribution, the exclusive indirect partner network plays an important role with its 205 shops. In 2009, one of the most important goals was to further increase
sales efficiency, therefore nine shops were closed during the year. In 2009, 12 shops were integrated resulting in a total of 122 shops selling the T-Mobile and T-Home product
portfolio.

We
have a strong focus on mobile and fixed line broadband sales thus we further developed cooperation with Internet and IT equipment retailers. With two new retail partners, the number
of outlets selling our broadband services increased to 34 in 2009.

We
also sell our prepaid products (e.g., prepaid SIM packages, plastic top-up cards, on-line top-up) through major Hungarian retail channels.

We
have reorganized our door to door agent network to fully align it with our strategic goals in order to leverage the potential of high speed Internet technologies. The number of agents
has been continuously increasing with focus on quality and sales capabilities. Telesales channels are also transformed to fully support both acquisition and retention objectives primarily regarding
T-Home services.

BBU

Enterprise

We deliver high service level to our Enterprise customers with full dedication to not only client management, but also technical
support and service desk level. In 2009, approximately 70 key account managers handled approximately 2,800 large enterprises in governmental accounts, industrial accounts, commercial accounts, utility
and media accounts and financial accounts split. The largest multinational companies are being served at the DT Group level by a separate team in order to assure utmost attention to their
trans-border needs.

In
2008, we launched the "Top30" project, in the framework of which we handle top customers of BBU and our subsidiaries KFKI and IQSYS in an integrated way. As BBU offers traditional
telecommunications (fixed and mobile data and voice) services as well as IT services to its customers, a special team is dedicated to handle companywide info-communications, managed
services and outsourcing projects both in the sales and implementation phases.

SMB

In 2008, we established dedicated customer services within the SMB segment, i.e., all of the approximately 46,000 SMB customers
are managed by dedicated T-Systems sales managers. Our SMB account managers are responsible for 25 percent of our customer base in terms of account and sales targets, while the
other part is being managed through our indirect partners. Our own account managers and our indirect partners offer the whole T-Systems and T-Mobile portfolio, which includes
IT, voice, data and complex services as well. In our sales activity, both our own account managers and our indirect network play an important role, where the indirect network has exclusivity with
Magyar Telekom.

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In
2008, the main focus was on integrated offers, selling at least two different types of services to customers at the same time. In 2009, we focused to grow further in IT and
application services within our SMB customer base.

Changes in the sales structure from January 1, 2010

In line with Magyar Telekom's long term ICT strategy and based on our 18 months experience of the new operational model
introduced in January 1, 2008, we decided to take further steps to change our service and sales culture and to achieve an even more simplified operation in order to further improve our
customers' experience. The basis for the new sales model was the re-segmentation of our customer group. We have segmented our customers based on their joint IT and telecommunications
potential and their service expectations. At the same time, we harmonized and re-consolidated our front- and back office service structure, our
supporting IT and other processes. As a consequence of all these arrangements, we serve our business customers according to the following structure as of January 1, 2010.

Enterprise.We have established a joint ICT sales force in KFKI and will move all enterprise sales and presales tasks there. 60 account
managers will
serve 400 groups of customers, which include approximately 2,000 very large and large enterprises invariably in governmental accounts, industrial accounts, commercial accounts, utility and media
accounts and financial accounts. There will be no change compared to previous years' practice for large multinational companies who are being served at the DT Group level by a separate team.

Mid Market.Approximately 3,350 medium size business entities (including public institutions and governmental sector) will be handled
by
approximately 50 account managers within BBU.

SMB/Indirect channel.Approximately 25,600 small businesses will be served by our approximately 90 contracted indirect partners
countrywide.

Furthermore
we handed approximately 12,000 very small and micro businesses to CBU where SOHO companies have been handled both in terms of service and customer care.

Macedonia

Makedonski Telekom and T-Mobile Macedonia have developed different sales channels in order to serve customers from
different segments. These channels include direct sales channels, such as their own retail network, direct agents and key account managers, indirect sales channel based on indirect master dealers with
their network of own shops, partner shops and free lancers, on-line sales channel and call centre which performs telesales.

The
main sales channel is the Makedonski Telekom and T-Mobile Macedonia shop network. There are seven T-Home shops, 13 T-Mobile shops and 22 joint
shops. The T-Home and T-Mobile shops offer the complete product portfolio of their respective brand and a limited range of products of the other brand, while the joint shops
offer the complete T-Home and T-Mobile product portfolio. A
new joint shop introducing a new concept (café and shop) was opened on January 23, 2009. By the end of November 2009, one of the shops had been transformed according to the new
DT shop design.

Another
channel of the distribution network of Makedonski Telekom and T-Mobile Macedonia is the dealers' cooperation. Currently the network consists of 13 master dealers
(including one direct contractor) with 115 shops as T-Mobile Macedonia partners and 12 master dealers with 116 shops as Makedonski Telekom partners. The majority of the master dealers'
shops are joint shops, offering the full portfolio of sales activities, except for cash collection. Prepaid packages of T-Mobile Macedonia (with or without handsets) are also available in
the dealers' shops and in more than 6,500 kiosks, which sell prepaid vouchers.

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A
part of the Makedonski Telekom product portfolio (e.g., telephone sets, photo equipment, computers, printers, network equipment) is available to the customers using installments
payment through their telephone bill.

Direct
agents serving the SMB segment put strong emphasis on sale of customized ICT solutions and data services in 2009.

Montenegro

Crnogorski Telekom has developed different sales channels in order to provide the best services for residential and business customers.
Business customers are served by key account managers taking care of the top 400 clients and SMB coordinators who are in charge of the SMB and SOHO segments. Top clients are divided by branches
(e.g., banks, hotels, large manufacturers, government) and small companies are divided by regions.

There
are 14 own T-Centers accompanied by a network of 14 exclusive partner shops which use a similar design to the own shops. Both types of outlets provide a permanent
portfolio of handsets and the full range of services for new and existing customers.

Other
sales channels include web sales, 'door-to- door' sales and telesales. In Extra TV and ADSL campaigns, 'door to door' and telesales channels represented
over 30 percent within total sales in 2009.

COMPETITION

CBU

Fixed line services

We face strong competition in all areas of our fixed line operations including voice, Internet and broadcasting services. Competitors
include other LTOs, mobile telecommunications providers, Internet service providers, alternative service providers and broadcasting service providers.

There
is a continuous concentration in the telecommunications market in Hungary. Externet and Enternet (two significant companies in the ISP market) signed an agreement about a merger.
This merger has not been completed, but Externet is continuously seeking partnerships. Digi bought 30 percent of TvNetwork's shares (TvNetwork is also a DSL and cable TV service provider). Many
small cable companies were also acquired or merged.

Voice

In 2009, the main reasons for fixed line churn were mobile substitution and cable competition.

In
our service areas, a number of carriers (Invitel, GTS Datanet, Interware and UPC) offer pre-selection and call-by-call services and were able to
attract some of our customers. However, we respond to this challenge with attractive price plans, and successfully retain our customers. We also offer similar price plans in order to attract new
customers from LTO areas, however with only moderate success so far.

The
value of fixed voice service continued to decrease in the eyes of customers as cable competitors started to offer VoIP services at a very low price level. Cable operators are
providing voice services as an add-on to their pay TV offers especially if they are bundled with fixed Internet and/or pay TV service. There is a clear trend of customer demand for 3Play
bundles for discounted prices. Our largest competitors are UPC and Digi but we also have to face fierce local competition by mid-sized and small cable operators.

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Internet

Cable operators (e.g., UPC, Fibernet, Digi), alternative service providers based on ULL (e.g., GTS Datanet, EnterNet),
mobile service providers and other ISPs are our competitors in the fixed Internet market. In 2009, we kept our leading position with the continuous increase in the number of Internet subscribers.

Technology
shift from ADSL to cable Internet and mobile broadband may be experienced in the broadband market because, in the case of cable Internet, higher bandwidth is available at
lower prices. Mobile Internet plays an increasingly important role, representing approximately 35 percent of total Internet subscriptions in 2009, however the majority of customers use mobile
Internet as a complimentary service along with fixed line technologies.

ULL
services have only marginal shares in the broadband market.

TV

In 2009, the growth of pay TV penetration and the trend of digitalization continued in the television market.

The
number of DVB-S subscribers has been growing due to offerings by T-Home and Digi, but UPC plays an important role as well. Cable operators are migrating their
customers from analogue to digital cable platforms (DVB-C). In addition, smaller operators also launched digital cable services. In the pay TV market, several ISPs and alternative
telecommunications service providers (e.g., Invitel, EnterNet) started to offer IPTV services. DVB-T television service offered by Antenna Hungária Zrt. is available
from December 2008. Its network coverage based on population exceeded 80 percent by the end of 2009. Antenna Hungária Zrt. offers a few channels for a very low subscription fee
under the brand MindigTV.

Mobile Services

In 2009, the Hungarian mobile telecommunications market was characterized by intense competition, driven by new broadband services and
decreasing prices. Mobile penetration has decreased from 121.8 percent at December 31, 2008 to 117.7 percent by the end of 2009. The decrease in mobile penetration was mainly
caused by the decrease in the total number of inactive SIM cards.

We
continued to focus on customer retention and the development of mobile broadband services and increased our emphasis on fixed-mobile integrated services. Despite the intense
competition, as of December 31, 2009, we accounted for 43.4 percent share of the total Hungarian mobile market in terms of subscribers based on the number of active SIM cards and
44.4 percent in terms of total number of active SIM cards generating traffic in the previous three months according to data published by NCA.

The
direct competitors of TMH are Pannon and Vodafone. Vodafone, the third mobile network operator in Hungary, continued to focus on customer acquisitions (especially in the field of
mobile broadband) supported by aggressive flat tariff offers and marketing campaigns. Vodafone's SIM market share slightly increased to 22.1 percent by the end of 2009 based on the data
published by NCA. In November 2009, Vodafone together with Hungarian Post Office ("Magyar Posta Zrt.") launched a branded reseller mobile service, "Postafone", which is offered by Magyar Posta Zrt. in
approximately 720 post offices. Pannon kept a clear retention and community focus, and maintained its second position in the market. By the end of 2009, its SIM market share slightly decreased to
34.5 percent based on the data published by NCA driven mainly by the considerable decrease of its inactive subscriber base.

Mobile
Internet penetration grew by 4.4 percentage points and reached 9.3 percent at the end of December 2009. The number of active mobile Internet users has been growing
constantly. Despite intense mobile Internet competition driven mainly by unlimited offers, we are market leaders considering both

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total
and active customer numbers with 45.9 percent and 48.6 percent market share, respectively, according to data published by NCA.

BBU

In 2009, our main competitors in the telecommunications market were Invitel, GTS Datanet, Pannon and Vodafone. In order to minimize the
effect of the economical downturn in 2009, BBU focused on cross selling activities by providing integrated, managed network services, systems integration and outsourcing services. Focusing on complex
customers' needs, BBU provided consulting surveys for its large projects. With its wide range of telecommunications and IT services, BBU positioned itself as general ICT solution provider for the
corporate segment.

We
divide the IT market into two segments according to the type of services: IT Infrastructure and IT Applications. Nevertheless, due to the economic crisis, IT Outsourcing services (as
a new business model for the customers to improve the efficiency in their IT spending) became the most required service type both in the infrastructure and the application solutions. Hosting services
became more and more popular among SMBs in 2009.

Our
main competitors in the IT Infrastructure services segment are Getronics, Synergon, HP-EDS, S&T Unitis and IBM. Our main competitors in the IT Application Development
services segment are SAP, NESS, IDOM2000, Oracle and Alerant, while in the IT Application Integration services Synergon, IBM, HP-EDS and Accenture. In case of infrastructure hosting
services, our main competitors are Invitel, Interware and HP-EDS; while in the application hosting, our main competitors are Hostlogic, Unisys and Nexon. Our goal in this highly
competitive market is to keep our leading position in the IT services market by achieving a larger growth rate than the average, to win significant projects and to use a new business model in the
small and medium business sector: standardized products via economies of scale.

Headquarters

We face increasing competition regarding most of our non- or semi-regulated wholesale services. Our main
competitors already have their own backbone telecommunications infrastructures with spare capacities, which enable them to provide services in the market of long-distance
data-transmission connections at favorable prices, causing a continuous migration towards the more cost-effective IP based solutions.

The
dynamically improving alternative mobile and cable broadband networks and services challenge Magyar Telekom's fixed broadband market position (infrastructure based competition),
especially our copper network based wholesale solutions (wholesale ADSL, IPTV, voice). Furthermore, our competitors are driving the roll-out of NGA networks, which provide them a
technological advantage in offering 2Play and 3Play retail services against the ISPs' retail services based on Magyar Telekom's wholesale products.

Our
main competitors in the domestic wholesale markets are UPC, Digi, Invitel and Fibernet.

There
is also intense competition in the market for international wholesale services. The world-wide development of alternative, cost-efficient technologies is
also characteristic in our region. As a consequence, the leased line market share of the less than 2 Mbit/s bandwidth MLLN product is continuously decreasing, while that of high-speed
leased lines is increasing. The preference for integrated solutions and new technologies generate IP and Ethernet network demand.

Those
providers that possess a global network have a competitive edge in the market of international connections because they can keep the prices relatively low.

Our
main competitors in the international wholesale markets are Interroute, Invitel, Telekom Austria, GTS, TeliaSonera and British Telecom.

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Macedonia

Fixed line services

Voice

Makedonski Telekom faces competition from other fixed line and mobile service providers.

The
nature of fixed line competition has shifted from offering cheap outgoing calls (through carrier selection and VoIP) towards offering complete fixed line services.

The
major fixed line competitors of Makedonski Telekom are ONE and the cable operators.

Cosmofon
launched fixed line voice services in June 2008 over its GSM network, and in August 2008 it started to offer services based on 3G technology. In March 2009, Telekom Slovenije
purchased 100 percent shares of Cosmofon and became owner of two major competitors, Cosmofon and OnNet. They launched their first joint offer in July 2009, consisting of fixed line voice and
Internet broadband service. In November 2009, they were re-branded as ONE.

Both
major cable TV operators, CableTel and Telekabel, as well as several smaller cable TV operators offer fixed line voice services since the last quarter of 2008.

Internet

In the Internet broadband market, there are three major service providers in addition to Makedonski Telekom: ONE, CableTel and
Telekabel. Makedonski Telekom had an estimated 48 percent market share based on the number of retail subscribers as of December 31, 2009. It faces competition mainly from cable TV
operators' cable broadband Internet, offered to the cable TV customers through their own networks and from broadband services through Makedonski Telekom's wholesale ADSL offer. Cosmofon (now ONE) also
started to offer mobile broadband Internet access, through its 3G network, from September 2008.

TV

In November 2008, Makedonski Telekom entered the TV market by offering 3Play services: TV, Internet and voice bundles. Cable providers
also offer similar services. On April 25, 2009, the Agency granted radiofrequencies for digital TV services through DVB-T to Telekom Slovenije, and its commercial operations started
in November 2009, under the new brand ONE.

In
December 2009, ONE has introduced a new bundled offer in the market for 3Play packages containing fixed line, fixed broadband Internet and digital TV.

Mobile Services

The Macedonian mobile communications market currently has two GSM operators with UMTS licenses (T-Mobile Macedonia and ONE)
and one only GSM operator (VIP).

According
to our estimates, as at December 31, 2009, T-Mobile Macedonia had a customer market share of approximately 56.4 percent, ONE 28.2 percent, and
VIP 15.4 percent. The mobile penetration rate increased to 116.1 percent by the end of 2009 due to strong and intense competition on the basis of prices, subscription options, subsidized
handsets, range of services offered, innovation and quality of service.

Montenegro

Crnogorski Telekom faces competition mainly from mobile service providers, and, to a lesser extent, from other fixed line services
providers.

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In
2007, a new mobile and fixed line operator entered the Montenegrin telecommunications market: Mtel, the third mobile operator and one of the licensed operators for development and
exploitation of WiMAX-based network.

Until
end of 2009, ten licenses for VoIP operators were issued as well. They are able to offer outgoing call services to our customers through carrier selection and freephone service.

Nine
MMDS and cable TV licenses were awarded at the beginning of 2007. Some of the cable operators have declared their intention to provide Internet and telephony services. MMDS and
satellite operators, who were able to start first with service provisioning and who are not dependant on our infrastructure, are currently market leaders in cable TV segment.

Strong
competition is developing in the wholesale segment as well. It is expected that significant players like Telekom Serbia, National Broadcasting Company and Electricity Company will
enter the Internet and data wholesale business after significant investments in their communications infrastructure have been realized during 2008 and 2009.

In
the Montenegrin mobile market, T-Mobile Crna Gora had a market share of 36.7 percent, Promonte had a market share of 37.1 percent, while Mtel a market share
of had 26.2 percent in terms of number of active subscribers at the end of 2009 according to the data published by EKIP. T-Mobile Crna Gora is the market leader in the postpaid
segment.

In
November 2006, EKIP issued a tender for two 3G licenses as well as a tender for a mixed 2G-3G license for a third mobile operator. In the first quarter of 2007,
T-Mobile Crna Gora and Promonte were awarded with one 3G license each and Mtel
won the combined 2G-3G license. T-Mobile Crna Gora launched 3G services in June 2007. Promonte and Mtel offer 3G services as well.

As
in other countries, competition in mobile services is intense and driven by pricing, subscription options, subsidized handsets, coverage, as well as quality and portfolio of services
offered. Our competitors' marketing and advertising activities are aggressive.

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, and/or register our services at the governments of
Hungary, Macedonia, Montenegro, Romania, Bulgaria and the Ukraine, the countries in which we provide telecommunications services.

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REGULATION

Overview

Our operations, as well as those of our subsidiaries and affiliates, are subject to sector-specific telecommunications regulations and
general competition law, as well as a variety of other regulations. The extent to which telecommunications regulations apply to us depends
largely on the nature of our activities in a particular country, with the conduct of traditional fixed-line telephony services usually being subject to the most extensive regulation.
Regulations can have a very direct and material effect on our overall business, particularly in jurisdictions that favor regulatory intervention.

The EU Regulatory Framework

In 2002, the European Union adopted several legislative measures, which included a general framework directive and four specific
directives regarding the following topics (collectively constituting the "EU Framework"):



The
NRF, in particular:



Since
Hungary joined the European Union on May 1, 2004, our operations have been subject to the EU Framework on telecommunications regulation. EU Member States are required to
enact EU legislation in their domestic law and to take EU legislation into account when applying domestic law. Hungary fully implemented the NRF with the enactment of the Electronic Communications Act
and fully implemented decrees in 2004.

In
each EU Member State, an NRA is responsible for enforcing the national telecommunications laws that are based on the EU Framework. NRAs generally have significant powers under their
relevant telecommunications acts, including the authority to impose network access and interconnection obligations, and to approve or review the charges and general business terms and conditions of
providers with SMP. In general, a company can be considered to have SMP if its share of a particular market exceeds 40 percent. Market share is determined based on revenue, number of
subscribers, usage volume figures or a combination of these depending on the particular market. NRAs also have the authority to assign wireless spectrum and supervise frequencies.

The
European Commission supervises the NRAs and formally and informally influences their decisions in order to ensure the harmonized application of the EU Framework throughout the
European Union. Companies can challenge decisions of the relevant NRA before national courts. Such legal

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proceedings
can lead to a decision by the European Court of Justice, which is the ultimate authority on the correct application of EU legislation.

Special Requirements Applicable to Providers with SMP

The most significant impact on our business stems from the EU Framework's special requirements applicable to providers with SMP.
Obligations in relation to network access, price setting, separate accounting for interconnection services, publication, and non-discrimination, can be imposed on those operators that are
designated by the relevant NRA as having SMP in an electronic communications market. Such determinations are based on EU guidelines and EU competition case law.

In
particular, the NRA may subject providers with SMP, and their affiliates, to the following rules and obligations:



In
addition, providers with SMP can be obliged to maintain separated accounting systems with regard to access services. This obligation is intended to allow for transparency with respect
to various telecommunications services in order to prevent, among other things, the cross-subsidization of services. In this regard, the NRA may specify the structure of a provider's internal
accounting for particular telecommunications services, which can increase costs of compliance.

Under
the EU Framework, the European Commission periodically issues a market recommendation, which is a list of telecommunications markets that it considers susceptible to
sector-specific regulation. NRAs must take this list of markets into account when defining the markets that are to be analyzed for the existence of competitive restraints. If an NRA finds that a
market is not competitive, it establishes which providers have SMP in this market and may impose certain measures prescribed by statute.

In
February 2003, the European Commission issued its first recommendation, which related to the retail markets for fixed line public telephone service and leased lines, as well as the
wholesale markets for the ULL, fixed network interconnection, leased lines, broadband access, mobile voice call termination, mobile access and call origination, international roaming, and broadcasting
transmission services. Current and future market analyses by NRAs have to consider a new recommendation of the European Commission effective as of December 17, 2007. This new version reduced
the number of markets to be reviewed from 18 to 7. In particular, most retail markets have been removed from the list of markets that are susceptible to telecommunications regulation. However, the
most important retail market relating to the retail access of the fixed telephone network remains subject to such regulation. Further, some wholesale markets are now described in a broader manner
(e.g., market for local loop unbundling is no longer restricted to metallic loops). At the moment it is difficult to predict whether these broader definitions lead to an expansion or a
reduction of regulation. The new market recommendation also relates to wholesale markets for call origination of fixed telephone networks, call termination of individual fixed networks, broadband
access, terminating segments of leased lines and voice call termination on individual mobile networks. However, it will be possible for NRAs to analyze and regulate further markets, if (a) high
and non-transitory entry barriers are present in this market, (b) a market structure does not tend towards effective competition within the relevant time horizon taking into account
the state of competition behind the barriers of entry, or (c) competition law alone is insufficient to adequately address the market failures concerned. All NRA market analyses are subject to
the supervision of the European Commission and can be challenged if the European Commission does not agree with the NRA's findings.

In
addition to the European Commission's recommendation, there is a separate EU regulation on unbundled access to the local loop, which became effective in January 2001. It contains the
obligations to

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provide
full unbundled access to copper-paired wire lines, as well as unbundled access to the high-frequency spectrum of those lines (line-sharing). Since each member state has
specifically addressed local loop unbundling by individual regulatory measures under the framework, the new EU proposals to amend the regulatory framework as described below provide for the
termination of the separate EU regulation on local loop unbundling.

On
May 7, 2009 the European Commission introduced a recommendation on fixed and mobile termination rates by prescribing detailed cost accounting methodology to be applied over a
set timeframe by the NRAs. EU members are required to implement the recommendation and develop mobile and fixed termination rate cost models by December 31, 2012, as described in the
recommendation in details. As a result of the costing methodology that imposes the use of a pure FL-LRIC model, the EU hopes to reduce termination rates by 70 percent within three
years. The recommendation shall be reviewed after four years, i.e. in May 2013.

Roaming

On February 20, 2006, the European Commission announced that, in light of the inability of NRAs to impose regulatory remedies,
it had begun to work on a regulation on international voice roaming charges. On June 30, 2007, an EU regulation entered into force which regulates international roaming tariffs for wholesale
and retail customers on the basis of a capped pricing system. After a review of roaming prices development, the European Commission published the stricter Roaming Regulation II on
June 29, 2009. See "Item 4PricingRoaming Agreements and Tariffs".

Legislative Developments in the EU

New Regulatory Framework.The entire NRF has been subject to a review since 2007 by the EU. The European Commission issued proposals to
amend the
current framework, which had to be accepted by the European Parliament and the Council of Ministers before becoming legislation. These proposals did not include any deregulation efforts.

The
amendments to the NRF were adopted on November 24, 2009; changes to the framework have to be implemented by national law by May 25, 2011.

The
main changes introduced by the amendments to the NRF are the following:



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NGA Recommendation.On June 12, 2009 the European Commission published for public consultation its revised draft recommendation on
regulated
access to NGA networks to achieve a common regulatory framework for NGA in order to foster timely investment in very high speed networks while ensuring that the competitive structure of the market is
maintained. The approach proposed by the European Commission aims at driving infrastructure-based competition where it is possible and efficient, while ensuring a seamless migration from copper to
fiber-based networks.

The
EU proposes extended regulation on NGA which means that full set of passive (e.g., facility and infrastructure sharing or access like duct sharing) and active
(e.g., wholesale broadband access) remedies can be introduced at the same time to provide the possibility for alternative operators to choose and to enter at any level of the SMP's network.
Possible obligationsto be imposed only on SMP operatorsinclude bitstream access, dark fiber, duct sharing, cost-based prices and reference offers. Introduction of
risk premium for unbundling and in-house wiring services is possible in case of FTTH networks. Geographic segmentation is also possible but introduction is not obligatory for NRAs.

The
recommendation focuses on FTTx technologies including cable TV's ED3, however, ED3 is not mentioned with respect to remedies (e.g., access obligations, infrastructure sharing
and transparency with cost orientation in wholesale pricing). Wireless and mobile technologies are not included in the scope.

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The
consultation was closed on July 24, 2009, however adoption of the final version has been postponed to spring 2010.

Amendment of the GSM Directive.On October 20, 2009 the Council Directive 2009/114/EC amending the Council Directive 87/372/EEC
("GSM
Directive") and removing the restriction on use of the 900 MHz spectrum exclusively for GSM services; and the complementary Commission Decision setting out the technical parameters that enable the
co-existence of GSM and UMTS systems in the 900 MHz and 1800 MHz bands were published in the Official Journal of the European Union. The new rules will enable the use of the 900/1800 MHz
frequencies for UMTS and more advanced wireless technologies alongside today's GSM services.

Member
States are required to implement the amended GSM directive through national law by May 9, 2010. The same implementation deadline is set for opening up the 900 MHz and the
1800 MHz bands for UMTS services. Member States are also required to review the existing spectrum assignments in these bands in order to avoid competition distortions.

Consultation on universal service principles in e-communications.The second revision of the universal service principles is to be held
in 2010, on which the Commission will run a public consultation until May 7, 2010. Current EU rules on universal service obligations for telecommunication service providers date from 2002 and
guarantee that Europeans have access to public telephone networks and to services like basic Internet access. The consultation aims to review if these rules and definitions on universal services need
to be updated for the digital age, and in particular if they should be extended to cover broadband access.

Competition Law

The European Union's competition rules have the force of law in all EU Member States. The main principles of the EU competition rules
are set forth in Articles 101 and 102 of the Treaty on the Functioning of the European Union ("TFEU") and in the EU Merger Regulation (the "Merger Regulation"). In general, the TFEU prohibits
"concerted practices" and all agreements
that may affect trade between Member States and which restrict, or are intended to restrict, competition within the EU, and prohibits any abuse of a dominant position within the common market of the
EU, or any substantial part of it, that may affect trade between Member States. The European Commission enforces these rules in cooperation with the national competition authorities, which may also
directly enforce the competition rules of the TFEU. In addition, the national courts have jurisdiction over alleged violations of EU competition law.

The
Merger Regulation requires that all mergers, acquisitions and joint ventures involving participants meeting certain turnover thresholds are to be submitted to the European Commission
for review, rather than to the national competition authorities. Under the amended Merger Regulation, concentrations will be prohibited if they significantly impede effective competition in the common
European market, or a substantial part of it, in particular as a result of the creation or strengthening of a dominant position.

In
addition, all EU Member States (and other jurisdictions in which we operate) have legislation in place, which is substantially similar to the EU competition rules. Thus, in markets
where we are dominant, our ability to practice business freely and to establish our own prices can be restricted. Moreover, our opportunities to cooperate with other companies, or to enhance our
business by fully or partially acquiring other businesses, can also be limited.

The Telecommunications Regulatory Regime in Hungary

The telecommunications industry has been governed by:



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The Electronic Communications Act and the Contract on Universal Service Provision

The Electronic Communications Act came into effect on January 1, 2004. Under the Act, the NCA, the supreme supervisory body, and
the Permanent Court of Arbitration for Communications ("CAC") were established.

Set
forth below is a brief summary of certain provisions of the Electronic Communications Act.

Universal Service.The Electronic Communications Act provides that universal services are basic communications services that should be
available to
all at an affordable price. Universal services include access to fixed line voice telephone services of certain quality enabling access to Internet services, a regulated density of public payphones, a
public directory of telephone users, national domestic inquiry service as well as free call-blocks and emergency calls. Access to voice services at an affordable price is affected by
designation of universal service providers (the Minister shall appoint the most efficient service provider).

We
were designated as a universal service provider and entered into a universal service contract with the Minister. The contract was valid until December 31, 2008 and could have
been extended for an additional four years. However, the negotiations started with the Minister on the future terms of the contract have not led to an agreement. Therefore the Minister issued a decree
on December 31, 2008 imposing an obligation on Magyar Telekom (and the other two operators) to provide universal services in 2009 without being designated as a universal service provider and
without having concluded a universal services contract. Our interpretation of the legal status is that the Act on Electronic Communication provides that (i) the obligation to provide universal
services may only be imposed on operators designated as universal service providers and (ii) the terms of such obligations need to be agreed in a contract between the designated operator and
the Minister. In the absence of such a designation and without having concluded such a contract, we have no obligation to provide universal services from January 1, 2009. However, discussions
are ongoing between the responsible Minister and the earlier universal service providers on a future possible universal service contract and on the modifications of the underlying regulation in line
with the changed market situation. The necessary modifications of the telecommunications law already entered into force as of January 1, 2010 and the modification of the concerning government
and ministerial decrees is ongoing as well. The new
legislation is expected to provide much more favorable conditionsin line with market changesthan the earlier regime. Based on these discussions, Magyar Telekom signed a
"pre-contract" with the Ministry on December 30, 2009, which includes future conditions for providing universal services and an agreement to sign a final contract with the same
conditions.

Subscriber Contracts.Service providers must establish General Terms of Contracts for providing publicly available electronic
communication services.
The subscriber contract consists of the General Terms of Contracts and the individual subscriber contract. The Electronic Communications Act provides general rules of agreements between subscribers
and telecommunications services providers for telecommunications services. The ministerial Decree 16/2003 (XII.27.) on "Telecommunications Subscriber Contract" contains other important rules relating
to subscriber contracts. In subscriber contracts, parties can deviate from the provisions of the Electronic Communications Act and the General Terms of Contracts only if they are more favorable to the
subscribers.

The
general terms and conditions of subscriber contracts must contain, among other things, the procedure for terminating and amending subscriber contracts, the quality of the
telecommunications

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service,
conditions for restriction of the service, the fault-repair service and the method for handling subscriber complaints. The individual subscriber contract must contain personal data of the
subscriber.

Local Loop and Bit-stream Unbundling.According to the Electronic Communications Act and Government Decree 277/2003, (XII.24.) on "The
detailed rules of procedures related to the reference offers and networking contracts", operators with SMP providing unbundled access or broadband access are obliged to unbundle local loops and
prepare reference offers for unbundled local loops (whether fully or partially unbundled) and bit-stream access and to provide these services when there is a request for them by other
telecommunications service providers. Currently these rules apply only for copper pair local loops; optical fiber access networks are not included.

Providers
with SMP may refuse the request for unbundling only if:



Unbundling
has not become significant in the Hungarian market so farmostly due to the already existing infrastructure-based competition. As a result, unbundling has only led
to a moderate loss of our market share to date.

Interconnection.According to the Electronic Communications Act and Government Decree 277/2003 (XII. 24.), providers with SMP are
obliged to prepare
reference offers for interconnection and to provide these services upon the reference offer when there is a request for them by other telecommunications service providers.

According
to the Government Decree 277/2003 (XII. 24.), providers with SMP are obliged to enter into agreements for access to their networks when requested by another service provider.
If the provider is obliged to prepare a reference interconnection offer, this offer must be in line with the legal regulations about the reference offer. The NCA has authority to arbitrate in disputed
cases and may establish provisional arrangements. The reference offer of the providers with SMP must be approved by the NCA.

Carrier Selection.According to the Electronic Communications Act, our fixed voice telephone customers have the right to select
different service
providers for each call directions. The implementing regulation was released in Government Decree 73/2004 (IV.15.) in April 2004. Consecutive market analysis decisions have confirmed this obligation.

Number Portability.Fixed line telecommunications service providers are required to provide number portability on their networks, and to
allow
subscribers to change service providers without changing their telephone numbers in the same geographic location. In May 2004, non-geographic and mobile number portability were also
implemented.

Licensing and Allocation of Frequencies.With the exception of radio receiver device, radio equipment, radio stations and radio
communication
networks may be operated on the basis of a general or exclusive radio license. A radio license may be issued exclusively on the basis of a valid frequency assignment license, with certain exceptions.
Radio equipment, radio stations, radio networks and radio
communications systems may be installed with a frequency assignment license, with certain exceptions. Payment of fees is required for reservation and usage of frequencies assigned for civil purposes,
reservation of identifiers and use of the assigned identifiers. In the case of terrestrial public mobile communications there is no frequency reservation fee, only frequency usage fee.

Frequency
assignments must conform to the National Table of Frequency Allocations, which lays out the entire spectrum and the purpose and availability of frequency bands.

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Rights of Way.According to the Electronic Communications Act, communications service providers are entitled with prior notice to enter
private
property where communications facilities (equipment, cables, antennas) are located for maintenance and repair. The public telecommunications service provider must enter into a contract with the
property owner setting forth conditions for the common use of the property. The property owners are also obliged to remove obstructions to public telecommunications networks.

Data Retention.The Data Retention Directive of the European Union was implemented in Hungary by an amendment to the Electronic
Communications Act
that entered into force on March 15, 2008. According to the law, Magyar Telekom has to retain data on the following:



Data
retention period was reduced from three years to one year (in case of criminal data requests) and to six months (in case of unsuccessful calls).

SMP Regulation

On April 24, 2004 the Minister issued Decree No. 16/2004 (IV.24.) on the basic principles of market definition, market
analysis and identification of service providers having significant market power. The Decree implemented the recommendation of the European Commission (2003/311/EC) and accordingly listed the
following 18 relevant product and service markets within the electronic telecommunications sector susceptible to ex ante regulation:

Retail
level:



Wholesale
level:



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The
NCA has accomplished two rounds of market analysis. In the second round, obligations were only slightly modified as compared to those imposed in the first round, by having more
detailed rules apply to our provision of services. The results of the analysis on fixed line retail markets identified Magyar Telekom as having SMP and imposed a price cap on retail access market
services (market 1 and 2) for residential and non-residential customers. In addition, it required Magyar Telekom to allow fixed line residential and non-residential
customers to select other service providers for local and/or national and international calls (markets 3-6) and obliged Magyar Telekom to provide the minimum set of leased lines (market
7). On the wholesale markets, the
NCA imposed the obligations of transparency (markets 8-9, 11-13), accounting separation (markets 8-9, 11-13), access and interconnection obligations
(markets 8-9, 11-13), various obligations regarding cost-based prices and price control (markets 8-9, 11-13) and
non-discrimination (markets 12-13). It also imposed an obligation to offer wholesale naked ADSL at regulated prices. The market analysis procedure identified TMH as having SMP
in the mobile termination market (market 16) and imposed the obligations of transparency, accounting separation, access/interconnection and cost-based prices and price control.

The
third round of analysis of the 18 relevant product and service markets started in 2008. So far, only the decision on the mobile termination market (market 7 in accordance with the
new EU Recommendation on relevant markets) has been adopted. The NCA maintained the obligations of transparency, accounting separation, access/interconnection, cost-based prices and price
control, as well as extended the so-called 'Glide Path' regulation (i.e., gradual decreases in termination rates) until the end of 2010.

The
aforementioned Minister Decree No. 16/2004 (IV.24.) was amended in October 2009 and implemented the revised recommendation of the EU that entered into force on
December 17, 2007. As a result, retail call markets (market 3-6) and the minimum set of leased lines became deregulated as well as wholesale markets for transit services in the
fixed telephone network, wholesale trunk segments of leased lines, access and call origination on public mobile telephone networks and broadcasting transmission services to deliver broadcast content
to end users. The new Decree (8/2009 MeHVM) has become effective already in the current (third) round of market analysis by the NCA. Current relevant product and service markets
are:



In
the course of the third round market analysis of the relevant markets, new SMP resolutions are expected in 2010.

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Mobile Concession Contracts

Under the 900 MHz Concession Contract, dated November 4, 1993, between the Minister and TMH, TMH was granted the right to
provide public GSM 900 mobile telephone services for 15 years, with a possibility of 7.5 years license duration prolongation without a tender.

On
October 7, 1999, an amended and integrated GSM 900/DCS 1800 MHz Concession Contract was signed, allowing TMH to start public mobile telephone service in the 1800 MHz band for
15 years beginning November 26, 2000. By virtue of the integrated Concession Contract in 1999, by the end of 2003, the three digital mobile telecommunications service providers had the
same spectrum resources assigned to them both on the 900 and the 1800 MHz bands. The DCS 1800 license of TMH will expire in 2014, but may be prolonged without a tender for a 7.5 year period.
TMH pays an annual concession fee of USD 1 million.

On
November 8, 2007, TMH signed the renewed 900/1800 MHz Concession Contract along with the Cooperation Agreement with the Minister. The new Concession Contract prolonged the
duration of the TMH's 900 MHz frequency usage right until May 4, 2016. TMH paid HUF 10 billion for the 900 MHz license prolongation and committed to a HUF 20 billion
additional mobile broadband investment obligation in the underdeveloped regions of the country in the timeframe of 2008-2009. By the end of 2009, TMH met his investment obligation set in
the Cooperation Agreement.

Licenses for exclusive frequency usage rights

On December 7, 2004, the NCA awarded TMH the exclusive right to use the frequency blocks of
1920-1935/2110-2125 MHz FDD and 1915-1920 MHz TDD for deployment and operation of IMT 2000/UMTS mobile telecommunications system (3G system). The duration of
the frequency usage right is 15 years (until 2019) with an option to extend for another seven and a half years. The right to use the frequencies vested upon payment of the first installment of
the license fee on December 27, 2004.

TMH
was obliged by the term of the license decree to start commercial IMT-2000/UMTS service in the inner city of Budapest within 12 months after the license had
entered into force. This obligation was met. TMH was also obliged to expand the coverage to 30 percent of the Hungarian population within 36 months after the license came into effect. In
December 2006, Magyar Telekom fulfilled the population coverage target of the IMT-2000/UMTS license.

The
license fee for IMT-2000/UMTS was HUF 17,000 million plus reclaimable VAT, payable by the end of 2005. In addition to the license fee, TMH capitalized
expenses incurred in connection with the acquisition process of the license. The total amount capitalized was HUF 17,073 million. The IMT-2000/UMTS license right is amortized
on a straight-line basis over 15 years from the time of the commencement of the commercial service on August 26, 2005 to the end of the initial license period.

On
April 30, 2009, Magyar Telekom won the spectrum tender for the 26 GHz "D" spectrum block. On May 18, 2009, Magyar Telekom asked for the frequency assignment decision
from the NCA, which was received on July 10, 2009.

The
Company is also subject to various regulatory requirements with respect to the fees it may charge for its services, as well as fees it is required to pay to the applicable regulators
in relation to the services it provides. See "Item 5Tabular disclosure of contractual obligations".

Legislative developments in Hungary

Implementation of the revised NRF.EU Member States are required to implement the new telecommunications framework within
18 months upon its
publication in the Official Journal of the European Union. The new telecommunications framework was published in December 18, 2009 in the Official Journal of the EU. The Regulation establishing
BEREC need not be implemented; it will enter into force throughout the EU upon its publication. Whether the regulatory framework will increase or

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decrease
the regulatory burden on us will depend on the manner in which revised directives are implemented in the EU Member States and the way the revised regulatory framework will be applied by the
respective NRA.

Universal Service Contract.Discussions are ongoing between the Minister and the earlier universal service providers on the future
provision of
universal services, including necessary modifications of the regulation due to changes in market conditions and a possible agreement on the provision of universal services. As a result, universal
services are expected to be provided on much more favorable conditions, in particular in respect of access and public payphone obligations.

Electronic Communications Act.On December 14, 2009 the Hungarian Parliament voted for the modification of the communication law.
According to
the accepted modifications, the universal service includes a so-called 'last resort' access to fixed line voice telephone services of certain quality enabling access to Internet services
and slighter obligation on the density of public payphones.

Spectrum.In conjunction with the implementation of the modified GSM Directive, a "public consultation-like" process started on
November 24, 2009, organized by the Minister. Although, official decisions have not been made yet, a new competitive bidding for the E-GSM900 spectrum blocks is expected to take
place in 2010.

It
is likely that in the process of implementing 2008/477/EC Decision, a comparative or competitive bidding process for the 2.6 GHz spectrum blocks will take place next year. The 2.6 GHz
band is the core frequency band in Europe for LTE, which meets the NGMN.

NGA.The Hungarian NRA has started the analysis of market 4 (infrastructure access) and market 5 (wholesale broadband access). Draft
decision is
expected in the first half of 2010. The details are not known yet, but probably emphasis will be put on passive infrastructure access and wholesale broadband access to fiber.

Implementation of EU Recommendation on termination rates.We assume that the NCA will implement the Commission Recommendation on the
Regulatory
Treatment of Fixed and Mobile Termination Rates in Hungary in 2010. As Magyar Telekom's fixed and mobile IC models calculate with a much higher cost base than it is allowed in the
Recommendation, the implementation would result in a strong decrease in fixed and mobile termination rates over a three-year glide path. However, since MT Group has nearly symmetric
IC traffic, the effect of the Recommendation on our (fixed and mobile) net IC balance (IC outpayments and IC revenues) is expected to be near to neutral.

Competition Law Restrictions

The Electronic Communications Act and the Competition Act prohibit us from the abuse of our dominant position in the markets where we
are in a dominant position.

Under
the Competition Act, a market participant is considered to be in a dominant position if, among other things, it is able to pursue economic activities substantially independent of
other market participants, i.e., without the need to consider the market behavior of its competitors, suppliers, customers and other business partners.

Under
the Electronic Communications Act and the Competition Act, service providers with SMP are required to provide services to other telecommunications service providers on the same
commercial terms, and these terms may not be less favorable than those offered to other service providers controlled by it or controlling it.

Broadcasting and Transmission

Radio and television broadcasting in Hungary are governed by Act I of 1996 on Radio and Television Broadcasting ("Media Act"),
according to which national television and radio frequencies are awarded to

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winners
of the tenders issued by the National Radio and Television Board ("NRTB"). Other broadcasters, whose programs are distributed only by way of a program distribution system, are only required to
notify NRTB at least 30 days before the commencement of their broadcasting activity, which notification is registered or refused by the NRTB. Several drafts of amendment to the Media Act were
published in 2009, but none of them were submitted to the Parliament as a bill. In 2010, an amendment to the Media Act or a new Media Act is expected to be submitted to the Parliament in order to
fulfill Hungary's obligation to implement the Audiovisual Media Services Directive of the EU.

Program
distribution activities are governed by the rules of Act LXXIV of 2007 on Program Distribution and Digital Switchover ("Program Distribution Act") and Electronic Communications
Act. The NCA accepts and reviews the notifications received for the provision of services, including program distribution and transmission services, in compliance with legal requirements, registers
the services and service providers under its supervisory authority, and determines the obligatory technical and operational conditions in order to preserve integrity of the communications network.
Entities registered as program distributors are permitted to transmit broadcasts by third parties to subscribers through a cable transmission network or via any other means (e.g., satellite,
IPTV).

The Telecommunications Regulatory Regime in Macedonia

For a description of the telecommunications regulatory regime in Macedonia, see Notes 1.3.2. and 1.3.5. to the Consolidated
Financial Statements.

The Telecommunications Regulatory Regime in Montenegro

For a description of the telecommunications regulatory regime in Montenegro, see Notes 1.3.3. and 1.3.6. to the Consolidated
Financial Statements.

PRICING

Fixed Line Subscription Fees and Usage Charges

Under the Pricing Act, as modified by the Electronic Communications Act, the Minister is responsible for establishing the maximum rates
for universal services. Tariff regulation in Hungary is based on a price cap method for universal services. Since February 1, 2002, fixed line rates and connection fees have been regulated by
Decree 3/2002 (I.21.) MeHVM on "Charges for Voice Telephone Services Provided by Companies with SMP and Price Plans Related to Universal Services" ("the 2002 Fixed Line Tariff Decree"). This decree
has been modified to limit its scope of price regulation to universal services. The 2002 Fixed Line Tariff Decree established the price cap formula, under which our annual price increase cap was set
as the forward-looking Consumer Price Index ("CPI") less a three percent productivity factor. Since our universal service contract expired on December 31, 2008 (See "Regulation,
The Electronic Communications Act and the Contract on Universal Service Provision, Universal Service") we believe that the above price regulations do not apply to us from January 1, 2009.
However, negotiations are ongoing between the Minister and the former universal service providers on a possible future universal service contract. As a result, less strict price regulations for
universal services expected in the future.

According
to the SMP resolutions concerning residential and business access markets, a price cap should apply to subscription fees of various price plans. The SMP resolutions concerning
residential and business access markets extend the applicability of price caps to all subscription fees and not just those of universal services. The resolutions provide that the maximum aggregate
price increase of the subscription feesbusiness and residential separatelycannot be higher than the CPI for the current year. This implies that a price check can only be
carried out after the year the price cap relates to has ended.

We
have not significantly increased our subscription or traffic fees in 2008 or 2009, either in the residential or in the corporate market.

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Leased Line Fees

In 2005, we were identified as the only operator with SMP in Hungary on the retail market of a minimum set of leased lines (defined as
analogue lines in standard and special quality and digital lines between 64 Kbit/s and 2,048 Kbit/s) and were obliged to provide the minimum set of leased lines. The new resolution published on
January 31, 2008 did not change our obligation.

"Price Squeeze" (Predatory Pricing) Issues

Under the Electronic Communications Act, service providers with SMP are prohibited from pricing retail network services below their
wholesale prices. When service providers reduce their end user prices and it causes a "price squeeze", they are obliged to proportionally reduce their wholesale prices in their reference offers. This
provision only applies if the price reduction affects more than ten percent of subscribers for the service, or the impact of the price reduction exceeds five percent of net sales of the service.

If
the regulatory authority identifies a price squeeze, the NCA examines whether the price of the network service is in line with the incurred costs. If the network prices are
cost-based, the NCA refers the case to the Competition Authority. If the network prices are not cost-based, the NCA determines the minimum mandatory margin between the price of
the network service and the end user service and/or orders the service provider to modify the reference offer. In practice, however, only the National Competition Authority has carried out price
squeeze tests so far.

Fixed Line Regulated Wholesale Prices

In the first round of market analysis, we have been identified as an operator with SMP in the voice termination and origination market
and the wholesale market on unbundling of copper loops, along with all other LTOs. These SMP resolutions included obligations to submit RIO and RUO to the NCA. The NCA also adopted
cost-based pricing rules, based on LRIC for the RIO and FDC for the RUO. Revised SMP resolutions for the voice termination and origination markets, as well as the wholesale market
of unbundling of copper loops were published at the end of 2007. The major change in the revised resolution on the wholesale market of unbundling of copper loops is that the tariffs for RUO should be
determined by LRIC method as opposed to the FDC method used before. As ordered by the new SMP resolutions, new RIO and RUO were submitted in February 2008. They were approved in July and
September 2008, respectively, with a retroactive effect from April 26, 2008. On July 2, 2008, we submitted the joint RIO and RUO with Emitel as a consequence of the merger of Emitel and
Magyar Telekom Plc. in October 2007. These recent reference offers were approved on March 26, 2009.

Similar
to all other LTOs, in the first round of market analysis we were also identified as an operator with SMP in the wholesale broadband market. The SMP resolution adopted a
"retail-minus" pricing rule for the wholesale broadband market of nationwide bit-stream access service. Pricing for the local bit-stream access service is currently regulated
on a cost-based rule under the RUO. A new SMP resolution dealing with the broadband market was published in January 2008. It introduced a new obligation according to which SMP operators
have to offer wholesale naked ADSL at regulated prices. The expected retail margin is determined in a fixed amount instead of a percentage commonly used internationally.

The
wholesale leased line termination market consists of (i) the wholesale leased line access market and (ii) the wholesale market of terminating segment of the leased
lines. In 2005, we were identified as the only operator with SMP in Hungary in the wholesale market of terminating segments of leased lines. For the wholesale leased line termination market, the SMP
resolution has adopted the "retail minus" pricing rule, requiring us to provide all wholesale leased line access services at prices approximately 33 percent lower than the listed retail prices.
We are also required to provide all services identified in the resolution on a national basis. We have complied with this new regulation by reducing our wholesale leased line

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access
prices by the set amount. A regulation published on January 31, 2008 provides for regulation of leased lines up to and including the bandwidth of 2 Mbit/s, as opposed to only those below
2 Mbit/s, and that the "retail minus" pricing rule set at 33 percent in the prior resolution is now 29 percent up to 128 Kbit/s and 28 percent thereafter. The "retail
minus" pricing rule is not set in the SMP resolution, but is determined after the NCA examined the data submitted by us as a result of the obligation in the SMP resolution.

New
SMP resolutions are expected to be published in the first half of 2010 for several markets. As a result of the EU review, the number of relevant markets decreased from 18 to 7.
Magyar Telekom is currently identified as having SMP in all of the 7 remaining markets.

Fixed Line Other Wholesale Prices

The Electronic Communications Act provides that network access fees are to be set based on a number of objective criteria, with
transparency and without discrimination.

Network Access and Interconnection Agreements between Magyar Telekom and ISPs

We enter into network access agreements with ISPs to secure access to services provided by ISPs for our subscribers. In addition to the
network access agreements, we may enter into interconnection agreements with ISPs. The terms and conditions for the network access agreements must be in line with the terms and conditions of the
existing subscriber contracts.

Mobile Market Assessment, SMP Designation Process and Interconnection

Upon request for interconnection (to provide either network access or network interconnection) from another telecommunications
operator, TMH is required under the Electronic Communications Act and a related decree to provide such services, if such request is reasonable on both technical and economic grounds and provision of
such services is not impossible due to the limitation of resources.

Mobile Retail fees

Fees and Charges.TMH's subscriber charges are not subject to regulation under the Pricing Act or any other regulation.

Mobile Wholesale fees

Termination fees.In the first round of market analysis, the NCA identified all three mobile operators as having SMP on the voice call
termination of
individual mobile networks and set asymmetrical termination rates for them. TMH, being the operator with the highest market share, was obliged to apply the lowest rate. In the second round of market
analysis, the NCA set a glide-path for the following three years that envisaged gradual reductions in termination rates as a result of which asymmetrical termination rates became
symmetrical on January 1, 2009. The revised resolution published in December 2008 confirmed the charging of symmetrical termination rates by the three mobile network operators and set a new
glide-path envisaging further reductions until December 2010. The harmonization of termination ratesintroduced on January 1, 2009 in accordance with the NCA's
decisionhas had and continues to have a positive effect on our company even though, as a result of the new EU recommendation of May 7, 2009 on termination rates, it is possible
that TMH termination rates will be reduced to a lower level than intended by the NRA by 2012.

Roaming Agreements and Tariffs.TMH may sign roaming agreements with other public mobile telecommunications service operators outside
Hungary in
accordance with the rules of the GSM Association, an association of GSM operators and associated members. The Roaming Regulation (of the European Parliament and of the Council No. 717/2007/EC)
applied specific caps on wholesale and retail international roaming voice charges and set transparency requirements for the provision of roaming tariffs

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to
end users. Text messaging and data communications were not covered immediately but are subject to regulatory monitoring. The regulation came into effect on June 30, 2007 but new retail
charges (Eurotariff) were applicable from September 30, 2007. As a consequence, our mobile operations in the European Union had to lower their wholesale and retail roaming tariffs, which
negatively affected our revenues. On the basis of a price schedule mandated by this EU regulation, further reductions of wholesale and retail roaming prices took place in mid-2008 and in
mid-2009. Furthermore, the EU regulation mandated the introduction of additional transparency measures requiring us to make additional investments.

In
2008 and 2009, the European Commission reviewed the development of roaming prices. As a result, voice telephony roaming price caps have been extended for a further two years until the
end of June 2012. Roaming Regulation II mandates per second billing after the first 30 seconds of a call, regulates SMS wholesale and retail prices as well as wholesale data roaming prices and
has prescribed further transparency rules including a cut-off limit system to be introduced on March 1, 2010. This system requires us to limit data roaming traffic (unless further
usage is explicitly allowed by the customer) in order to avoid unexpectedly high invoices. The amended Regulation was published on June 29, 2009. As a consequence, our mobile operations in the
European Union had to lower their wholesale and retail roaming SMS tariffs, which have negatively affected our revenues. However, since roaming data services constitute an emerging market, revenues
from this segment continue to increase despite regulation.

ORGANIZATIONAL STRUCTURE

MagyarCom, which is fully owned by Deutsche Telekom, owns 59.21 percent of the outstanding ordinary shares of Magyar Telekom.

For
a list of principal operating subsidiaries and associates of the Company as of December 31, 2009, see Note 2.2 to the consolidated financial statements.

PROPERTY, PLANTS AND EQUIPMENT

The real estate portfolio of the Company had a book value of HUF 105,197 million at December 31, 2009.
Approximately 80 percent of this amount relates to properties of Magyar Telekom Plc.

We
have one of the largest real estate holdings in Hungary. We use substantially all of these properties for telecommunications installations, offices, warehouses, garages and shops. Our
equipment and machinery primarily consist of switches, communication towers and other telecommunications equipment.

The
number of sites used by Magyar Telekom Plc. is approximately 2,500, out of which approximately 21 percent are owned by the Company, 40 percent jointly owned and
39 percent leased. These figures include the sites used for telecommunications towers and antennas, but do not include the number of base stations. We have 3,415 base stations, of which five
percent is owned by Magyar Telekom Plc. and 95 percent is leased from other telecommunications operators or other third parties.

The
total area of properties used by Magyar Telekom Plc. as of December 31, 2009 was approximately 634,000 m2. The majority of sites used in our
operations are smaller than 100 m2. Approximately 38 percent of the total area is used to house telecommunications equipment and other technical devices. The largest site
is our headquarters building located at Krisztina krt. 55 in Budapest, with floor space of over 30,000 m2.

In
order to increase the utilization of real estates and increase efficiency, we sell or rent our surplus properties. For more details on property, plant and equipment, see
Note 12 to the consolidated financial statements.

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INFRASTRUCTURE AND TECHNOLOGY

Hungary

The following table provides information on the length of the copper and fiber optic cables contained in Magyar Telekom Plc.'s
access, backbone and rural area networks in
Hungary at December 31, 2009, and each of the two prior years in kilometers (not including the network of T-Kábel):

At December 31,2007

2008

2009(in kilometers)Copper cable


161,457


162,737


166,408Fiber optic cable


15,454


16,547
*

16,092Fiber optic cable (broadband access)


0


0


2,095


*Including GPON
pilot (fiber optic cable for broadband access).


The number of households with access to cable TV in the T-Kábel network increased from 619,754 at the end of 2008 to
655,294 by December 31, 2009, as a result of own development and acquisition.

Expansion of Access Networks.We offer broadband Internet access services, based on ADSL with ATM technologies since 2000. In 2004, we
selected
Ethernet-based DSLAMs to provide a more cost effective ADSL solution together with the ATM technology already in use. The ADSL transmission system provides high-speed digital access
to any data network over existing copper wires without interruption of POTS and ISDN2 services with the data speed of 1, 4, 5, 8 10, 15 and 18 Mbit/s. In 2009, we continued the roll-out of
the ADSL technology nationwide. At the end of 2009, more than 629,000 customers were using ADSL lines for connection to the Internet. By the end of 2009, our infrastructure allowed up to two million
of our analogue and ISDN2 subscribers to have access to the ADSL service. This represents coverage of over 1,300 towns and cities (potentially approximately 2,870,000 households) in our service area.
In 2008, we introduced the VDSL2 technology to provide high-speed data access with data speed of 25 Mbit/s.

We
used fiber optic cables (HYTAS access and direct business access network) for our fixed line local loop networks for approximately 125,300 customers at the end of 2009. We installed a
substantial amount of local network fiber optic cable in Budapest, where segments of the old cable network were in poor condition and where we believe the demand for high capacity and high quality
transmission will be the greatest (e.g., shopping malls, industrial parks).

In
accordance with our Next Generation Fix Access Strategy, in 2009 we started to implement a country-wide FTTH (GPON) optical network to cover new business demands in
existing areas. As a result, we can fulfill the current and expected customer needs practically without limitation. In Budapest and the surrounding areas, we have started to carry out the DOCSIS 3.0
upgrade of our HFC networks as well.

By
the end of 2009, we reached approximately 170,000 households covered by optical network and 370,000 households covered by HFC network with the capability of high speed Internet and
IPTV.

We
introduced new, attractive services, independent from the two underlying technologies (e.g., HD IPTV). These steps allow us to enter the competition in a very effective
way, obtain new customers and increase the market share in the area of broadband services.

We
plan to extend our local fiber optic network both inside and outside Budapest to cover new business demands in existing areas, mainly to provide broadband services through optical
access as well. In 2010, we plan to increase the coverage of our FTTH access network to more than 240,000 households. We plan to cover 1.2 million households with Next Generation Access Network
by the end of 2013, more than 700,000 households of them will be covered by FTTH network.

In
2010, we intend to increase our cable TV coverage through further acquisitions.

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In
addition to fixed cable television developments, on November 24, 2008, Magyar Telekom launched its DVB-S service with a high number of channels, covering the whole
country, by using the AMOS 3 satellite. On the current platform, in addition to the 80 small-definition television programs, 4 HD TV channels and 3 public radio stations are broadcasting. The
T-Home Sat TV became a very popular service in 2009.

Backbone Network.We have a digital fiber optic national long distance network that connects local primary area networks. We have
implemented the
DWDM technology and SDH systems in both the national long distance and Budapest networks. The countrywide DWDM backbone network provides 24 times 10 Gbit/s capacity in the most important areas of
Hungary, as well as in international directions. Between 2001 and 2007, we carried out capacity and geographical extensions of the DWDM network. In the first half of 2008, we established a nationwide
Next Generation DWDM express layer network. It provides high capacity (80 times 10 Gbit/s), and a very flexible usability and cost effectiveness solutions (e.g., optical switching, Optical
Transport Network functions, L2 (Layer 2) Ethernet functions, 40 Gbit/s channels). Optical cables were installed in TMH's main transmission networks to serve 3G and the core network. In
addition to cost advantages, SDH systems provide a flexible transmission infrastructure with automatic transmission paths. We use a new generation of the SDH system that, besides increasing network
availability and transmission capacity, enables new services, such as data transmission (e.g., Ethernet). Since we currently have a robust optical backbone network, we have no immediate plans
for expansion.

IP/MPLS.Since 2000, we have been providing Internet access and IP-VPN services on the same IP/MPLS platform. The network is
built-up of GE and 10 GE connections. The network has several access options (dial-up, leased line, broadband DSL, cable TV, Ethernet) with PoPs in each primary area in
Hungary. Available services include L2 VPN, IP-VPN (scalable interconnection for corporate sites with integrated voice and data option), IPSec and xDSL to VPNs, Virtual Private
Dial-up Network and wholesale
Internet services for ISPs. The connectivity network that concentrates xDSL traffic towards the IP core is based mainly on Ethernet technology, and to a lesser extent, on ATM. In 2007, we developed a
carrier-grade IP core network to be able to ensure high availability, demanded quality of service, scalability and security for 3Play, VoIP and broadband data communication services, and also for the
common T-Home and T-Mobile IP platform.

In
2008, significant capacity, quality and functional upgrades have been performed, including the development of the countrywide 10 Gbit/s core network, installation of new GE and 10 GE
connections, duplications of devices to increase redundancies, and changes of old devices. In addition, QoS was introduced into the IP network in order to efficiently serve the IPTV offerings. Other
high-availability features were also installed in order to increase network capacity according to traffic demand, to install new network functions and to develop connectivity and integrity
with different communication networks to become an appropriate transport platform for NGN and 3Play services. In 2009, further network capacity upgrades have been performed including new connections
and new equipments for PoP redundancy developments and for serving the increasing traffic demands. At the end of 2009, a half-year public testing of the IPv6 protocol has been started
involving residential and corporate customers of Magyar Telekom.

The
IP core and access network was developed to provide broadband digital video transmission to utilize multicast technology alongside QoS as a wholesale product.

Development
of our traditional (such as PSTN/ISDN) networks has been limited to maintenance and legal compliance purposes. The key focus has instead been on development of technologies
and networks compatible with or forming a part of NGN, such as VoIP. Voice-over cable TV, Integrated Voice and Data service ("IP Complex Plus") and Voice-over Internet ("KLIP")
have been introduced in recent years. An IMS was also installed, which is considered to be the base for future multimedia services to be provided on broadband. The first service on the platform was
the geographical number-based PATS. In 2009, we continued to deploy a carrier-grade multi-service NGN, upgraded the IMS, and implemented PSTN

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Emulation
on it. The ADS type PSTN switches are replaced by this IMS-based solution. We launched the commercial IPTV service at the end of 2006 and in 2009 it represented coverage of 716
towns with over 67,000 customers. The PSTN replacement with MSAN and IMS has been started in 2009.

Information Technology.We have dedicated a significant amount of resources to improve our information technology systems. We believe
that the
continuing development of these systems is essential to improving customer service and the efficiency and productivity of our employees.

Our
nationwide operational support system integrates the following elements:



This
operational support system environment permits us to focus on our customers' needs, to offer more personalized services, itemized billing, to bundle products and services in price
plans and to generate a single bill for customers with multiple locations. We have created the basics of the centralized alarm supervision and the support systems for IPTV, VoIP and XPlay services
have been developed and initiated using the legacy systems. We also introduced an automatic trouble shooting support system along the NGOSS conception. We have been operating an automatic
establishment support system of NGN services.

2G Network.At December 31, 2009, our GSM network consisted of 2,470 base station sites providing 99.9 percent population
coverage. Our
EDGE Packet Switched Data Service population coverage reached 87 percent.

UMTS and HS(D/U)PA.The 3G network enablesbesides rapid data transmission and video-telephonemore comprehensive and
interesting content than before, including, in addition to image and text, fast transmission of high quality multimedia materials. In August 2005, TMH launched commercial UMTS service, first in
Hungary. On May 17, 2006, commercial HSDPA service was launched in the internal districts of Budapest, also as a first operator in Hungary. For the time being, each 3G cell is capable of HSDPA,
therefore the UMTS/HSDPA population coverage reached 74 percent by the end of 2009, serving 435 settlements in Hungary. The network allows 7.2 Mbit/s nominal downlink speed and HSUPA is
provided with 1.44 Mbit/s as well.

ARCchart
prepared a study about Worldwide Mobile Broadband Performance. They found T-Mobile Hungary the best performing mobile broadband network with the highest average
download throughput. The study is based on over two million individual test readings, from 268 wireless networks in 103 different countries worldwide. The measurements were performed from August 2008
until June 2009 by iPhone, Android and Blackberry user equipment. The study confirms Magyar Telekom's innovations and efforts spent to 3G/HSDPA network development.

Macedonia

Makedonski Telekom endeavors to maintain its network at a high technological level in order to support strong growth of broadband
services.

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The
PSTN/ISDN network in the Republic of Macedonia has been fully digitalized since the end of 2003. The liberalization of the telecommunications market required Makedonski Telekom to
perform a substantial upgrade of the PSTN/ISDN platform. With the upgrade, switching systems are able to support carrier selection and pre-selection functions. Implementation of the new
IMS platform is planned for 2010.

Makedonski
Telekom's primary area networks are connected to the fiber optic national long distance network. The SDH technology has been implemented in the backbone network, in the
transmission networks in Skopje and other cities in the country. For connection of Remote Subscriber Units, PDH equipment is used as well. DWDM backbone and metropolitan network in Skopje was
implemented in 2008. In 2009, extension of interfaces was made in order to support increased traffic demands.

The
existing copper-wire network is used as the basis for providing broadband services based on DSL technologies. Starting from 2008, in order to support higher speed of
Internet packages and introduction of IPTV, ADSL2+ technology is used. In 2009, the ADSL Central Office equipment was extended in terms of capacities and coverage according to the forecasted number of
customers. In addition, capacities of aggregation links that are considered as a bottleneck in the network are upgraded.

For
connection of business customers, Metro Ethernet equipment is used. Key business customers are connected to the network with optical cables. In 2009, a new project was established to
start migrating TDM-based ILLs and VPNs towards IP based solutions. The migration is done using existing copper infrastructure with implementation of EFM modems as well as using optical
infrastructure via Ethernet aggregation switches and Ethernet optical demarcation devices.

In
2008, IP/MPLS backbone network was redesigned and in 2009, it was extended.

Makedonski
Telekom launched 3Play offers in November 2008. In order to achieve this, during 2008, new equipment (e.g., Head-end, IPTV platform) was installed and
necessary configuration of the existing access and transport network was made. During 2009, Head end equipment was extended for additional number of channels and new applications were developed.

In
order to prepare the network for prospective high bandwidth services, and to provide a solid basis against competition, Makedonski Telekom started the implementation of FTTH in 2009.
We installed GPON equipment and built fiber optic infrastructure in few areas in Skopje.

T-Mobile
Macedonia has built a high quality and high capacity network that meets the requirements and needs of its growing subscriber base. In 2009, 3G access technology was
introduced in the network.

At
the end of 2009, the 2G radio access network consisted of 710 base stations providing 99.9 percent population coverage.

In
2009, we performed a technological and functional upgrade on our rating and billing platforms as well as on our customer service systems to provide a solid basis for implementing
tailor made services and integrated fixed and mobile offers.

T-Mobile
Macedonia has the capability to host the third mobile entrant in the local market, with the national roaming arrangement, and is offering convergent fixed and mobile
services through the whole process from providing services to invoicing for these services, while simultaneously enforcing its capabilities for even more business processes automation, as well as data
security and availability.

In
addition, T-Mobile Macedonia has developed infrastructure to enable number portability in the local market complying with the local regulation.

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ENVIRONMENT PROTECTION

The management committee of Magyar Telekom adopted the Sustainability Strategy of the Company in January 2005 to strengthen our
commitment to sustainable development.

As
a part of our commitment to sustainability, we developed a sustainability section for Magyar Telekom's website (http://www.telekom.hu/society_and_environment/sustainability_reports).
This section includes our reports and news relating to sustainability and discusses our philosophy and approach to sustainability.

ITEM 4AUNRESOLVED STAFF COMMENTS

Not applicable.

ITEM 5OPERATING AND FINANCIAL REVIEW AND PROSPECTS

The following discussion should be read together with the consolidated financial statements, including the accompanying notes, included
in this annual report. The consolidated financial statements, the accompanying notes as well as the discussion of results presented below have been prepared in accordance with IFRS. Revenues and
operating expenses discussed under "Results of OperationsBy Segment" do not reflect intersegment eliminations.

The
strategies and expectations referred to in the following discussions are considered forward-looking statements and may be strongly influenced or changed by shifts in market
conditions, new initiatives we implement and other factors. We cannot provide assurance that the strategies and expectations referred to in these discussions will come to fruition. Forward-looking
statements are based on current plans, estimates and projections, and therefore, you should not place too much reliance on them. Forward-looking statements speak only as of the date they are made, and
we undertake no obligation to update any forward-looking statements in light of new information or future events. Forward-looking statements involve inherent risks and uncertainties, most of which are
difficult to predict and are generally beyond our control. We caution you that a number of important factors could cause actual results or outcomes to differ materially from those expressed in, or
implied by, the forward-looking statements. Please refer to "Forward-Looking Statements" and "Item 3. Key InformationRisk Factors" for descriptions of some of the factors relevant
to these discussions and other forward-looking statements in this annual report.

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MANAGEMENT OVERVIEW

General

In 2009, our business operations suffered significant adverse effects throughout the year due to the continued economic and financial
crisis which led to a decline in the demand for telecommunications services. This trend was reflected in declining prices and higher churn rates, both in our consumer and business segments. In
addition, competition in our core markets remained very strong. Nevertheless, due to strategic initiatives introduced in 2008 and over the course of 2009, we were able to mitigate some of these
adverse effects.

Our
efforts to position Magyar Telekom as a truly integrated 3Play service provider both on the fixed line and mobile networks have allowed us maintain, and in some cases, increase our
core market positions in 2009. In line with our 'One Company' approach, we have also made further significant steps to streamline our organization and increase efficiency and have implemented several
cost control measures in order to preserve our profitability during the crisis. However, we remain committed to our strategic investments, such as the new generation access network and the 3G mobile
network rollout,
given the importance of these initiatives to ensuring long-term competitiveness of our business.

Despite
our efforts, however, we were not able to completely counterbalance the general decline in economic activity. The difficult macroeconomic environment and intense competition in
our markets led to a 3.1 percent decline in our revenues in 2009 compared to 2008 (excluding the reversal of a HUF 8.5 billion provision booked on F2M termination fees in 2008 as
described under "Operations ReviewGroup RevenuesFixed Line RevenuesVoice-retail revenues" below), which was somewhat greater than targeted. However, due to cost
control measures implemented during 2009, both Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA") excluding special influences (i.e., investigation-related costs and
severance expenses) and the one-off item related to the F2M provision reversal and our capital expenditure ("capex") figure were slightly better than targeted.

In
2009, we introduced a new reporting structure to reflect the shift in our organizational structure towards customer-focused segments. Our Consumer Services Business Unit (CBU) offers
both fixed line and mobile voice and data and broadcasting services to residential customers. The business unit reported a six percent revenue decline in 2009 as customers continued to rationalize
their telecommunications spending. In addition, the crisis accelerated the fixed line business transformation from a standalone service providing fixed line voice to one focused on broadcasting,
content and bundled offerings.

Following
the 2008 rebranding of our fixed line business to T-Home and the launch of our nationwide satellite TV service, we strengthened our focus on the bundled products,
which were well received by customers. As a result, we have significantly improved our position in the TV market, becoming the number two Hungarian pay TV provider by the end of 2009. Meanwhile, we
maintained our leading position in the broadband Internet market and migrated a considerable number of voice-only customers to 2Play and 3Play packages, mitigating the revenue and profit
loss from traditional voice services. We will maintain this strategy going forward and are confident that Magyar Telekom is well placed to maintain its position as Hungary's leading 3Play
telecommunications service provider. This strategy will also be supported by our intention to remain a strong competitor in the TV market, which we believe is achievable through continuous fiber
network rollout, cable network upgrades and new content provided via our own TV channels.

Our
CBU mobile business has also faced a challenging 2009. The economic crisis caused customer churn rates to increase significantly while market penetration and usage declined. As a
result, the voice business came under pressure, though dynamic growth in the mobile Internet business continued. Our high quality 3G network ensured that the number of mobile Internet subscribers
increased significantly in 2009, bringing Magyar Telekom's market share at the end of the year to 46 percent. The SIM based market penetration declined to 117.7 percent.
T-Mobile was able to maintain its position as market leader. 2009

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also
saw an increased focus on bundled services in the mobile business. We introduced several new bundled voice, SMS, mobile broadband Internet and mobile TV packages, which were well received by our
customers despite the negative external environment.

Our
Business Services Business Unit provides integrated information and telecommunications services, voice, data, Internet, system integration and information technology to business
customers. This business unit was also negatively affected by lower demand caused by the economic recession. As a result, revenues declined by five percent, driven by significant erosion of
traditional voice service revenues, while mobile voice service revenues also came under pressure. In response to the negative economic environment, BBU continued to execute its strategy of simplifying
its organizational structure in order to support the convergence process between SI/IT and traditional telecommunications services. We also introduced a new virtual service portfolio which enables
customers to use IT services (such as hosted mail, voice conference, desktop sharing or remote server) on a monthly rental fee basis, without having to commit any investment. As a measure aimed at
strengthening our market leading SI/IT presence, we completed two acquisitions in 2009. These acquisitions will enable us to capitalize further on up- and cross-selling opportunities and
enter new markets, such as integrated healthcare IT services.

Our
organizational changes also extended to our media business in 2009. Our aim here is to focus our attention on media, content and new businesses by merging our strategy and corporate
development functions. In line with our strategy to provide broadband access at home and on the move, we intend to provide attractive content to support telecommunications access services.
Consequently, we launched two new thematic TV channels in 2009 and intend to build on our market leading webpage, [origo], and the largest Hungarian social network, iWiW. In
addition, we are striving to improve and develop new content for mobile subscribers to enhance customer experience.

In
terms of technology, we are continuously improving our existing networks and rolling out state of the art, new networks, both in the fixed line and mobile segments. As a result of our
efforts, T-Mobile Hungary now has the best global 3G mobile network, according to independent research in 2009. We are progressing with our 5-year new generation access network
rollout program in the fixed line business. By the end of 2009, we had already covered 170,000 households with our fiber-to-the-home network and completed the
hybrid-fiber-coax network upgrade covering close to 370,000 households.

2009
was not an easy year for our international subsidiaries either. Not only did the macroeconomic environment deteriorate significantly, but competition remained strong and in some
cases intensified. In Macedonia, fixed line market liberalization created stronger competition which directly affected our business performance. The effect of alternative operators and one of the
mobile operators' fixed line offers are pronounced in Macedonia and have resulted in significant pressure on our revenues. In Montenegro, mobile substitution was the primary driver behind the decline
in usage and revenue pressure in the fixed line segment. However, broadband sales registered impressive growth rates in both countries and our subsidiaries started to focus on bundling fixed line
voice services with IPTV and broadband Internet to mitigate to negative economic impacts on traditional voice revenues. In response to the negative external environment, both subsidiaries launched
several cost cutting initiatives to improve profitability.

Our
international mobile revenues showed some increase despite the recession; however, the rate of increase slowed down and effective per minute prices dropped significantly. Our
financial performance came under pressure, especially in Montenegro, where tourism suffered due to the economic crisis. Nevertheless, in Macedonia T-Mobile preserved its market leading
position, whilst in Montenegro total market share and postpaid leadership were maintained despite the very intense competition in this segment. In addition to voice services, in both countries
T-Mobile now offers a 3G mobile broadband Internet service. As network rollout progresses, we expect the number of customers to grow considerably.

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Dividend

The Board of Directors proposed a HUF 74 per ordinary share dividend distribution to be approved by the Annual General Meeting
of the Company on April 7, 2010.

Basis of presentation

The Consolidated Financial Statements of Magyar Telekom have been prepared in accordance with IFRS as issued by IASB.

The
preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the
process of applying the Group's accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated
financial statements are disclosed in Note 4 to the consolidated financial statements.

As
a result of the findings of the Investigation (See Item 3Risk Factors), we identified three consultancy contracts, the payments of which were erroneously
capitalized as part of the goodwill arising on the original acquisition of Makedonski Telekom in 2001 and the goodwill arising on Makedonski Telekom's repurchase of ten percent of its shares in 2006.
These amounts are now corrected and accounted for as though these payments had been expensed in 2001 and 2006 rather than capitalized as part of goodwill as originally reported.

In
addition to the above, the other contracts that were identified by the Final Report, for which the available evidence does not establish that the contracts under which these
expenditures were made were legitimate, were expensed in 2001-2006, which require no restatements on their own. However, depending on further analysis, these contracts will probably
qualify as non-deductible expenses for tax purposes. As the timing and the amount of the potential tax impacts and any penalties related to these taxes are uncertain, these were provided
for retrospectively as at December 31, 2006, which also had an impact on the balance of Non-controlling interests.

The
Group adopted IFRS 8 in 2009, which resulted in a significant restructuring of the Group's segment disclosure. In 2008, the Group restructured the way the chief operating
decision makers decide on the allocation of resources, which is different from the primary segments of the Group reported as per IAS 14 in previous years. See further descriptions of our
segment policies in Notes 2.1.1, Note 2.20 and Note 31 to the Consolidated Financial Statements.

We
established our current management structure in Hungary based on customer segments that require different technology and marketing strategies, and support functions. The Group's
operating segments in Hungary are: Consumer Services Business Unit, Business Services Business Unit, Media Business Unit, Group Headquarters and Technology Business Unit. In addition, the Group also
has operations in Macedonia and Montenegro, which represent two additional reporting segments. Of these segments, Media Business Unit has not qualified as a reportable segment, therefore, it is
included in "All other" in the reconciliations of the reportable segments' totals.

The
movement of HUF against the Macedonian Denar ("MKD") and EUR can significantly affect all revenue and expense lines at our Macedonian and Montenegrin subsidiaries.

Critical Accounting Estimates

The discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements,
which have been prepared in accordance with IFRS. Reported financial conditions and results of our operations are sensitive to accounting methods, assumptions and estimates that underlie the
preparation of the financial statements.

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Critical
accounting estimates are defined as accounting estimates and assumptions where:



We
base our estimates on historical experience and on various other assumptions, the results of which form the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources.

The
selection of critical accounting policies, the judgments and other uncertainties affecting application of those policies and the sensitivity of reported results to changes in
conditions and assumptions are factors to be considered when reviewing our financial statements.

For
a list of our critical accounting estimates and judgments, see Note 4 to the consolidated financial statements.

Recent Accounting Pronouncements

We have reviewed the new standards, amendments and interpretations to existing standards that have been published but which are not yet
effective and have not been adopted by the Group prior to their effectiveness. For a list of recent IFRS accounting pronouncements, see Note 2.1.3 to the consolidated financial statements.

Outlook

The telecommunications industry is undergoing a major change globally. We have observed several long-term trends which are
changing the structure of the Hungarian telecommunications market. Key drivers of the long-term trends include changes in technology (i.e., IP-based broadband products
and solutions, emerging wireless broadband technologies), customer requirements (i.e., increase in mobile usability of content services and terminal devices, 4Play solutions, growing need for
customized content), competition and regulation (i.e., low entry barriers, new business models, telecommunications and media broadcast industry convergence).

To
adapt to these changes in the market, we have redefined the focus areas of our corporate strategies to better exploit our position as an integrated telecommunications operator with a
full range of services, as well as to ensure our long-term competitiveness. Our strategies are designed to enable us to exploit and develop our extended customer base, significantly
improve efficiency and capture growth opportunities.

Magyar
Telekom's current plans and outlook are based on our best knowledge and expected circumstances. Nevertheless the behavior of our competitors cannot completely be predicted.
Therefore a stronger than assumed impact of alternative operators, new market entrants and new solutions in any country where we are present could result in a negative impact on our business
performance.

We
should emphasize that each of our business segments is affected by its unique business environment, and we are subject to circumstances and events that are yet unforeseen or beyond
our control. The peak of the global economic crisis has passed, but the recovery is expected to be slow, particularly in Hungary. After the 7 percent GDP decline in 2009, analyst and government
forecasts do not show growth for 2010. The unemployment rate remains very high, above 10 percent.

In
order to secure the balance of the budget, the government implemented several measures and planning to decrease the deficit to 3.8 percent to the GDP in 2010. The most negative
effect of these measures on our business was the 5 percentage point increase of VAT, effective from July 2009. The

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business
sector was also hit by the heavy spending cuts in every governmental sector. Regarding the generation of cash flows, despite the restrictive government measures and negative business
environment, we expect that our core business units will be able to offset the EBITDA decline by savings in capex and other cash flow elements, e.g., working capital, and generate cash flows
close to 2009 levels.

We
have identified several risk factors which may affect our business in the future including changes in the regulatory environment, in competition, and in foreign exchange rates. See
the detailed description of these and other risk factors in "Item 3Risk Factors".

Revenues

The following reflects our current expectations with respect to our plans and initiatives:

In
fixed line operations, we expect continued decline in fixed line voice revenues due to continued line reduction and fixed line unit price erosion driven by mobile substitution. The
weakening demand as a result of restrictive government measures (especially the VAT increase) is expected to increase churn rates, as more customers currently holding both fixed and mobile
subscriptions give up their fixed lines entirely. As indicated in our strategy, to mitigate the decrease in fixed line voice revenues we are now moving from pure voice offers to integrated 2Play and
3Play plans, which will allow us to substitute declining traffic revenues with content, entertainment and bundled access revenues. Fixed line interconnection tariffs are expected to be further reduced
in 2010 and in the years after, which will have an additional negative impact on our fixed line revenue stream.

As
the leading broadband provider in Hungary, we are committed to accelerating growth in country-wide broadband penetration by applying a multi-access
cost-efficient approach.

We
aim to move further toward content and media services to support traditional access services, build new revenue streams and exploit new revenue sources. We are combining our product
portfolio in
order to provide all services for every customer demand on every platform (3Screen approach), where all customer screens (computer, mobile, TV) are provided by Magyar Telekom.

From
the above mentioned three platforms, TV remains the key driver of the fixed market. We have the technical capabilities (cable, IP, DVB-S) to reach every potential
customer. In 2009, we significantly increased Revenue Producing Customers ("RPC") above the market, as a result, we gained additional market share. We are targeting further growth in 2010; however
margins are under pressure due to heavy competition. To strengthen our position in the TV market, we launched two channels ("green" channel and lifestyle) in 2009, and are planning to add more
channels in 2010 depending on market conditions.

In
mobile operations in Hungary, market penetration is now saturated, and we expect flat development in the following year. We expect further growth in mobile broadband and the future
growth potential of value-added and data services, which is supported by the continuing roll-out of UMTS and HSDPA services.

In
December 2008, the NCA required a decrease in mobile termination fees for the networks of all three Hungarian mobile operators in three steps, starting from January 2009 until
December 2010, by approximately 40 percent compared to rates applied in 2008.

To
maintain sustainable competitiveness in the corporate sector, we have committed to further developing our IT competencies by focusing on complex service offerings through managed
services, system integration and outsourcing through consultant services to corporate customers. Expanding our business operation to these new areas with lower profitability has a dilutive effect on
the company's profitability both on fixed line segment and Magyar Telekom Group level.

In
Macedonia, competition is increasing both in the fixed line and mobile segment. Main competitors in the fixed line segment, Telekom Slovenia and two major cable TV operators
(Telekabel and CableTel), are targeting the retail voice market with 3Play offers, aggressive pricing and marketing communication.

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Our
fast growth in fixed broadband, the roll-out of new platforms (FTTx) and combined fixed-mobile products can only partially offset the decline in fixed voice revenues.

We
also expect more intensive regulatory measures in Macedonia in the future. Beside currently existing obligations (RIO, RUO, Naked DSL, Number portability, Cost-based
pricing, Accounting separation, Access to specific network elements, WLR, Wholesale digital leased line, Minimal set of leased lines, Bitstream access), new regulations will take effect in the
following areas:
asymmetric termination, control of retail price. Further decline in wholesale fees (e.g., IC, leased lines, WLR) are also expected.

In
the mobile segment the competition is also very strong with three players in the Macedonian market. Mobile voice revenues are also expected to be under pressure due to this
competition. Fast growth of mobile broadband is expected based on the new 3G technology. The government is still trying to increase further competition, although the tender for a third 3G license in
2009 failed due to lack of interest.

In
Crnogorski Telekom, we are also expecting difficulties due to competition and regulation in the near future. The fixed wholesale revenues have been the most impacted by regulatory
actions (reducing international termination rates to national level), while mobile revenue is also expected to decline due to gradual termination fee cuts. Growth in fixed and mobile broadband cannot
entirely compensate the losses in the voice market. Competitors are also putting pressure on prices with 2Play and 3Play offers.

In
the Montenegrin market, the new cost-based wholesale pricing model will be introduced in 2010. As a result, fixed, mobile and international termination fees are expected
to decline.

Expenses

We are entirely committed to improving internal operational efficiency in all business segments. To accomplish our goals despite the
intensifying competitive environment, the decreasing revenue potential will be compensated with strict cost control. In 2009, a new group-wide efficiency project was launched: Save for
Service ("S4S"). This multi-year project yielded substantial savings already in 2009, and will be continued in the coming years.

We
also would like to exploit the synergies coming from integrated fixed and mobile operation. In 2010, we are planning synergy projects in several areas with the main goal to further
unify the activities and increase efficiency.

We
have reached an agreement with trade unions on wage development, headcount reduction and decreases in additional employee allowances at the parent company level for 2010. The key
elements of the agreement are the following: reduction of headcount by 400 in addition to executive termination and retirement, no wage increase but 1.5 percent bonus budget set (significantly
below inflation) and gradual reduction of surplus severance payments in the Collective Agreement. These measures will reduce our Total Workforce Management ("TWM") related costs.

In
line with world market developments and the liberalization of the Hungarian energy market, we have experienced rapid growth in energy prices, above the inflation level. We expect
energy prices to remain high in 2010, impacting us negatively.

Total investments in tangible and intangible assets

Compared to 2009, the key priorities of capex spending have not changed for 2010. Investments in new products and platforms
(DVB-S, FTTx) remain our key strategic goals although the overall investment level is decreasing. We will also continue the roll-out of the UMTS and HSDPA infrastructure by
building new base stations, but the total investment will decrease in that area.

We
will increase investments in the IT area to reach our goals to become ICT leader in Hungary, while expansion into new segments will also demand additional investments.

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Striving
for further improvement in customer orientation, the strategic priority for 2010 and beyond is the successful implementation of new CRM system. We are targeting the complete
overhaul of the current customer management of the Company. The goals of the project include not just the replacement of the outdated billing systems but to bring a new approach to the entire customer
management process by integrating fixed and mobile portfolios.

According
to our strategic directions, we are committed to further strengthening and leveraging our presence in the South-East European region. Therefore, we are continuously
seeking further value-creating acquisition and investment targets.

Revenue and EBITDA targets

Our revenues, excluding the F2M provision reversal in 2008, declined by 3 percent in 2009, somewhat greater than what was
originally targeted. At the same time, however, thanks to cost control measures which we implemented during 2009, both EBITDA excluding special influences and one-off items, with a
decrease of 4 percent, and capex of HUF 102 billion were slightly better than targeted.

Looking
ahead to 2010, we expect continued pressure on consumer spending due to high unemployment and restricted wage growth. At the same time, unfavorable trends in the corporate
segment are likely to continue this year, putting pressure on our top-line performance. In addition, a stronger forint compared to average 2009 exchange rates may have an adverse impact on
our results by negatively affecting contributions from our international subsidiaries. As a consequence, we are targeting a revenue and an underlying EBITDA decline of 5-7 percent
for 2010, with the latter reflecting our changing revenue structure. Whilst in 2010 we are aiming to achieve further efficiency improvements across the Group, the positive impacts on EBITDA might be
offset by the accelerated decline of the high margin voice revenues and parallel increase of revenues with lower EBITDA margin content. However, the higher portion of SI/IT revenues in the overall mix
should allow us to reduce our capex, with 2010 levels expected to be approximately 5 percent lower compared to 2009 spending. We are continuously monitoring the economic environment and its
impact on our business and we will communicate to the market any changes to our previously announced targets if and when our assessment of our outlook changes due to developments in the economic
environment.

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OPERATIONS REVIEWGROUP

Revenues

The following table sets forth information regarding our revenues:

Year ended December 31,

Year ended
December 31,2007

2008

2009

2008/2007

2009/2008(in HUF millions)

(% change)Fixed line revenues


309,333


299,895


274,080


(3.1
)

(8.6
)Mobile revenues


325,767


331,765


325,996


1.8


(1.7
)SI/IT revenues


41,561


41,396


43,913


(0.4
)

6.1Total revenues


676,661


673,056


643,989


(0.5
)

(4.3
)


Fixed Line Revenues

The following table sets forth information regarding our fixed line revenues:

Year ended December 31,

Year ended
December 31,2007

2008

2009

2008/2007

2009/2008(in HUF millions)

(% change)Voice-retail


159,772


151,033


128,133


(5.5
)

(15.2
)Voice-wholesale


30,319


21,494


21,322


(29.1
)

(0.8
)Internet


57,796


59,823


55,089


3.5


(7.9
)Data


27,440


28,839


30,762


5.1


6.7TV


18,102


18,830


23,753


4.0


26.1Equipment


5,395


7,058


4,745


30.8


(32.8
)Other fixed line revenues


10,509


12,818


10,276


22.0


(19.8
)Total fixed line revenues


309,333


299,895


274,080


(3.1
)

(8.6
)


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The table below sets forth information regarding total revenue generating fixed access lines in Hungary, Macedonia and Montenegro:

Year ended December 31,

Year ended
December 31,2007

2008

2009

2008/2007

2009/2008(% change)Number of fixed lines at Magyar Telekom Plc. (including Emitel)Residential


1,779,039


1,595,517


1,387,609


(10.3
)

(13.0
)Business


217,030


204,839


190,248


(5.6
)

(7.1
)Payphone


19,466


16,284


14,801


(16.3
)

(9.1
)Total


2,015,535


1,816,640


1,592,658


(9.9
)

(12.3
)ISDN channels


436,442


419,754


383,952


(3.8
)

(8.5
)Total


2,451,977


2,236,394


1,976,610


(8.8
)

(11.6
)Number of fixed lines at Makedonski TelekomResidential


386,369


356,082


305,806


(7.8
)

(14.1
)Business


35,143


34,864


31,443


(0.8
)

(9.8
)Payphone


2,015


1,692


1,218


(16.0
)

(28.0
)Total


423,527


392,638


338,467


(7.3
)

(13.8
)ISDN channels


37,602


38,598


34,766


2.6


(9.9
)Total


461,129


431,236


373,233


(6.5
)

(13.5
)Number of fixed lines at Crnogorski TelekomResidential


148,111


144,897


140,591


(2.2
)

(3.0
)Business


19,193


18,532


18,241


(3.4
)

(1.6
)Total


167,304


163,429


158,832


(2.3
)

(2.8
)ISDN channels


18,896


18,806


18,058


(0.5
)

(4.0
)Total


186,200


182,235


176,890


(2.1
)

(2.9
)




Voice-retail revenues consist of revenues from subscriptions, domestic and international outgoing traffic revenues as well as
value-added and other services revenues.

Fixed
line voice-retail revenues decreased both in 2008 and 2009, mainly driven by lower subscription fees and outgoing traffic revenues at Magyar Telekom Plc. due to a decreased
customer base and lower usage resulting mainly from mobile substitution and wider use of flat-rate price plans.

Subscriptions.Revenues from subscriptions consist of revenues from monthly subscription fees for price plans. Revenues from
subscriptions are
principally a function of the number and mix of residential, business and ISDN access lines and corresponding charges. The decrease in subscription revenues in 2008 and in 2009 was mainly due to lower
revenues in the Hungarian fixed line operations driven by lower average number of fixed line subscribers. Lower subscription revenues at Makedonski Telekom were also driven by declining average PSTN
customer base.

Domestic outgoing traffic revenues.Domestic outgoing traffic revenues consist of traffic charges for local, domestic long distance and
fixed line to
mobile calls placed by our subscribers. Domestic outgoing traffic revenues are a function of rates, the total number of telephone calls, the distribution of call duration, the time of day and the mix
between more costly domestic long distance or fixed line to mobile calls and less expensive local calls.

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The
following table sets forth the total minutes of domestic telephone traffic that our fixed line subscribers generated, including calls from the fixed line network to mobile
subscribers:

Year ended December 31,

December 31,2007

2008

2009

2008/2007

2009/2008(in thousands of minutes)

(% change)Magyar Telekom Plc. (including Emitel)


4,518,428


4,020,941


3,520,251


(11.0
)

(12.5
)Makedonski Telekom


1,377,659


1,194,717


876,761


(13.3
)

(26.6
)Crnogorski Telekom


379,341


324,603


300,902


(14.4
)

(7.3
)


Domestic outgoing fixed line traffic revenues remained at the same level in 2008 as compared to 2007 since the increase in F2M outgoing traffic
revenues due to the reversal of HUF 8.5 billion provision booked on F2M termination fees in June 2008 (described below) was offset by lower local and long distance outgoing traffic
revenues.

Pursuant
to a decree, we had the obligation to decrease the F2M tariffs of the universal services subscribers by the amount of the decrease in the F2M termination rates. We did not
fulfill this obligation because the mobile operatorsreferring to their lawsuits against the NCA resolutionsdid not, from a legal point of view, decrease the F2M termination
rates, in their interconnection agreements with us.

The
NCA called upon us to repay the difference to our universal customers regardless of the status of the above legal cases. In August 2008, the negotiations with NCA resulted in a
positive conclusion, whereby the NCA accepted our arguments that albeit other forms of compensation, we had already passed on the required discounts to the customers. Even though the NCA conclusion
was limited to the year 2005, based on the NCA's reasoning for the relief, we believe that we passed on the required discounts to our customers in the subsequent years of 2006-2008 as
well. As a result of the above, we believed that the recognition of the provision was no longer necessary, and released to revenues the total amount of the HUF 8.5 billion provision
recorded in prior years.

This
increase in the F2M outgoing traffic revenues was offset by lower average per minute fees, lower usage and loss of fixed line customers mainly due to mobile substitution.

The
decrease in domestic outgoing fixed line traffic revenues in 2009 reflects primarily the previously mentioned reversal of the provision booked on F2M termination fees in June 2008.
In addition, further declines in the number of revenue producing PSTN lines and decreasing traffic led to lower domestic outgoing traffic revenues in Hungary. We offered several price discounts to
customers choosing different price plans. The proportion of flat-rate price plans was 27.9 percent within the total PSTN customer base of Magyar Telekom Plc. at
December 31, 2009.

Domestic
outgoing traffic revenues decreased also at Makedonski Telekom and Crnogorski Telekom throughout the period primarily due to lower usage and price discounts as a consequence of
increasing mobile substitution. In 2009, the significant weakening of the HUF against the MKD and the EUR on average partly mitigated these decreases.

International outgoing traffic revenues.International outgoing traffic revenues are a function of rates and the number, duration and
mix of calls
placed by our fixed line subscribers to destinations outside Hungary in the case of Magyar Telekom Plc., outside Macedonia in the case of Makedonski Telekom and outside Montenegro in the case
of Crnogorski Telekom.

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The
following table sets forth information concerning outgoing international traffic(1):

Year ended December 31,

Year ended
December 31,2007

2008

2009

2008/2007

2009/2008(in thousands of minutes)

(% change)Magyar Telekom Plc. (including Emitel)


85,270


73,746


64,946


(13.5
)

(11.9
)Makedonski Telekom


24,726


22,481


18,527


(9.1
)

(17.6
)Crnogorski Telekom


66,759


53,202


47,386


(20.3
)

(10.9
)


(1)Excludes
minutes from calls placed by subscribers of other local telephone operators and mobile service providers. Our revenues relating to these calls are
included in revenues from domestic incoming traffic.


International outgoing fixed line traffic revenues decreased both in 2008 and 2009 at Magyar Telekom Plc. and also at our foreign
subsidiaries resulting from lower volume of minutes and loss of lines.

Value-added and other services.Revenues from value-added and other services consist of fees for digifon services and directory
assistance.

Value-added
and other services revenues declined both in 2008 and 2009 primarily driven by lower revenues at Magyar Telekom Plc. due to lower usage of value-added services
(e.g., directory assistance, premium rate numbers).



Voice-wholesale revenues consist of domestic and international incoming traffic revenues.

Fixed
line voice-wholesale revenues decreased by 29.1 percent in 2008 compared to 2007 driven by significant decreases both in domestic and international incoming traffic
revenues. Domestic incoming traffic revenues declined mainly at Crnogorski Telekom, due to lower revenues from Promonte (the largest mobile service provider in the Montenegrin mobile market) as from
the end of January 2008 Promonte has had its own direct network connected to Telekom Serbia. Traffic revenues from mobile and fixed line operators decreased also at Magyar Telekom Plc. mainly
due to lower traffic and lower tariffs. International incoming revenues decreased in 2008 compared to 2007 primarily at Magyar Telekom Plc. driven by the change in how wholesale transit traffic
is settled. From January 1, 2008 Deutsche Telekom became the sole international voice partner of Magyar Telekom and consequently, Magyar Telekom does not have international wholesale transit
revenues from other foreign carriers any more. Lower international incoming traffic revenues at Makedonski Telekom resulted mainly from decreased incoming international traffic. The decrease in
international incoming traffic revenues at Crnogorski Telekom was driven by the ceasing of transit traffic from Serbia as from the end of January 2008 Promonte has had a direct link with Telekom
Serbia.

Fixed
line voice-wholesale revenues remained almost at the same level in 2009 compared to 2008.



Internet revenues of the fixed line operations grew in 2008 as compared to 2007 mainly due to the strong increase in the number of ADSL
connections at our Macedonian and Montenegrin subsidiaries.

In
2009, Internet revenues declined primarily in Hungary as the broadband volume increase could not fully compensate the effect of lower prices as a result of fierce competition. Since
the rebranding in September 2008, as a result of increased competition, there has been a strong trend towards consolidation of services into 2Play and 3Play plans at lower price levels. Lower
narrowband Internet revenues were driven by a decreased narrowband subscriber base and the decline in dial-up traffic. Lower advertisement revenues as a result of the economic crisis also
contributed to the decrease in Internet revenues in 2009.

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These
decreases were slightly offset by an increase in the number of ADSL connections at our foreign subsidiaries.

The
following table sets forth information concerning broadband customer figures in Hungary, Macedonia and Montenegro:

Year ended December 31,

Year ended
December 31,2007

2008

2009

2008/2007

2009/2008(% change)HungaryRetail DSL customers


421,245


436,683


467,916


3.7


7.2Wholesale DSL access


191,806


196,776


161,270


2.6


(18.0
)Total DSL access


613,051


633,459


629,186


3.3


(0.7
)Cable broadband customers


102,413


127,683


152,878


24.7


19.7Fiber optic connections


0


0


7,247


n.a.


n.a.Leased line Internet subscribers


652


617


558


(5.4
)

(9.6
)MacedoniaRetail DSL customers


40,221


81,858


109,617


103.5


33.9Wholesale DSL access


7,993


17,008


18,751


112.8


10.2Total DSL access


48,214


98,866


128,368


105.1


29.8Leased line Internet subscribers


149


129


228


(13.4
)

76.7MontenegroRetail DSL customers


16,106


38,956


54,983


141.9


41.1Leased line Internet subscribers


146


188


191


28.8


1.6




Data revenues increased both in 2008 and in 2009. The continuous migration of narrowband to broadband data products resulted in lower
narrowband revenues and higher broadband retail revenues mainly at Magyar Telekom Plc.

The
increase in 2008 at Magyar Telekom Plc. was due to new IP-VPN contracts. The increase in Makedonski Telekom's broadband data revenues was attributable to the
increased number of IP subscribers and new contracts for leased lines. Higher revenues at Combridge (Romania) also positively affected broadband data revenues in 2008.

In
2009, higher data revenues were partly driven by the increase at Crnogorski Telekom due to higher number of leased line customers and increased GIA wholesale broadband revenues. This
increase was largely intensified by the significant weakening of the HUF against the euro. The increase in Makedonski Telekom's broadband data revenues was primarily attributable to the favorable
currency translation effect as a result of a weaker HUF and, to a lesser extent, to higher number of leased line customers. These retail volume increases were partly offset by the decline in the
number of wholesale broadband leased lines with VIP (the third largest operator in the Macedonian mobile market).



TV revenues showed an increase both in 2008 and 2009. In 2008, the increase was mainly due to the growth in cable TV revenues resulting
from price increases and the increase in average number of our cable TV subscribers in Hungary. In 2009, the significant increase in TV revenues resulted predominantly from the introduction of
satellite TV service in Hungary in November 2008. The number of satellite TV customers has been increasing and reached 156,142 customers at December 31, 2009. The growth in IPTV

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revenues
driven by a larger IPTV subscriber base both in Hungary and at our foreign subsidiaries also contributed to the increase in TV revenues. These increases were partly offset by lower cable TV
revenues driven by decreased average revenue per user and lower subscriber base in Hungary.

The
following table sets forth information concerning TV customer figures in Hungary, Macedonia and Montenegro:

Year ended December 31,

Year ended
December 31,2007

2008

2009

2008/2007

2009/2008(% change)HungaryCable TV customers


418,517


422,936


406,841


1.1


(3.8
)Satellite TV customers


0


5,338


156,142


n.a.


2,825.1IPTV customers


9,225


28,496


67,430


208.9


136.6Total TV customers


427,742


456,770


630,413


6.8


38.0Number of IPTV customersMakedonski Telekom


0


1,952


14,150


n.a.


624.9Crnogorski Telekom


2,397


17,531


29,612


631.4


68.9




Revenues from fixed line equipment increased by 30.8 percent in 2008 compared to 2007. The increase was mainly driven by higher
revenues at Makedonski Telekom due to more ADSL modems, personal computers and TV sets sold. Higher equipment revenues in connection with sale of network in April 2008 at Combridge also positively
affected fixed line equipment revenues. These increases were somewhat offset by the decrease at Magyar Telekom Plc. in line with less phones and ADSL modems sold.

The
considerable decrease in the revenues from fixed line equipment in 2009 compared to 2008 relates primarily to lower revenues at Combridge. Lower telecommunications equipment rental
revenue at Magyar Telekom Plc. reflects the strong decrease in the number of rented telephone sets. At Makedonski Telekom, the decrease was due to the combined effect of lower sales volume of
personal computers, ADSL modems and higher sales volume of TV sets. ADSL modem wholesale decreased also in Hungary.



Other fixed line revenues include construction, maintenance, rental and miscellaneous revenues.

Other
fixed line revenues increased by 22.0 percent in 2008 as compared to 2007 mainly resulting from increased revenues related to customer care service at Magyar
Telekom Plc. and higher revenues at Combridge. Other fixed line revenues decreased by 19.8 percent in 2009 compared to 2008. The decrease partly resulted from lower other revenues at EPT
due to decreased number of contact centre contracts in the financial sector. Lower revenues related to telephone book publishing at Magyar Telekom Plc. and the decline in other fixed line
revenues of Combridge also contributed to the decrease.

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Mobile Revenues

The following table sets forth information regarding our mobile revenues:

Year ended December 31,

Year ended December 31,2007

2008

2009

2008/2007

2009/2008(in HUF millions)

(% change)Voice-retail


195,718


196,983


192,704


0.6


(2.2
)Voice-wholesale


46,244


46,241


41,563


0.0


(10.1
)Voice-visitor


6,632


5,995


4,959


(9.6
)

(17.3
)Voice


248,594


249,219


239,226


0.3


(4.0
)Non-voice


45,068


50,936


56,188


13.0


10.3Equipment


23,121


21,169


21,320


(8.4
)

0.7Other mobile revenues


8,984


10,441


9,262


16.2


(11.3
)Total mobile revenues


325,767


331,765


325,996


1.8


(1.7
)


The following table provides information concerning TMH, T-Mobile Macedonia and T-Mobile Crna Gora:

Year ended December 31,

Year ended December 31,2007

2008

2009

2008/2007

2009/2008(% change)T-Mobile HungaryTotal number of subscribers


4,853,492


5,361,792


5,119,584


10.5


(4.5
)MOU subscriber (minutes)


149


152


155


2.0


2.0ARPU (HUF)Total subscriber


4,542


4,087


3,764


(10.0
)

(7.9
)Postpaid subscriber


8,635


7,720


6,736


(10.6
)

(12.7
)Prepaid subscriber


2,205


1,890


1,699


(14.3
)

(10.1
)Ratio of non-voice revenues in ARPU (%)


14.9


17.2


19.4


n.a.


n.a.Average SAC per gross addition in HUF


6,554


7,376


7,851


12.5


6.4Number of mobile broadband subscriptions


n.a.


264,026


428,545


n.a.


62.3T-Mobile MacedoniaTotal number of subscribers


1,212,539


1,379,191


1,381,094


13.7


0.1MOU


90


96


104


6.7


8.3ARPU (HUF)


3,054


2,586


2,678


(15.3
)

3.6T-Mobile Crna GoraTotal number of subscribers


408,941


506,519


531,457


23.9


4.9MOU


120


105


96


(12.5
)

(8.6
)ARPU (HUF)


3,252


2,886


2,459


(11.3
)

(14.8
)


Revenues from mobile telecommunications services amounted to HUF 331,765 million for the year ended December 31, 2008
compared to HUF 325,767 million in 2007. The small increase in mobile revenues resulted from higher non-voice revenues mainly at TMH, higher voice revenues at our foreign
mobile subsidiaries and higher TETRA-related revenues at Pro-M, largely offset by decreased voice revenues and lower equipment revenues at TMH.

In
2009, mobile revenues slightly decreased to HUF 325,996 million driven mainly by significantly lower voice revenues in Hungary, mostly offset by higher
non-voice revenues at TMH and higher voice revenues at T-Mobile Macedonia strongly affected by favorable currency translation.

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Voice-retail revenues consist of revenues from subscriptions, voice-retail traffic and roaming voice revenues.

Within
mobile telecommunications services, voice traffic revenues represent the largest portion of revenues. In 2008, higher voice-retail revenues at T-Mobile Macedonia were
mainly driven by the strong increase in subscription fee revenues reflecting the significant increase in the postpaid customer base, partly offset by lower subscription fees. The positive effect of
higher average number of mobile customers and higher MOU was partly offset by lower per minute rates. The small increase in voice-retail revenues at T-Mobile Crna Gora was due to the
higher customer base, somewhat compensated by lower MOU and lower per minute fees. At TMH, the enlarged customer base and higher MOU could not fully compensate the decline in revenues resulting from
lower per minute fees forced by strong competition.

In
2009, the small decrease in voice-retail revenues reflects further retail tariff erosion due to strong competition despite a higher average customer base at TMH. Roaming tariff
decreases within EU also contributed to the decline. These decreases were partly compensated by the increase at T-Mobile Macedonia where besides favorable foreign exchange movements, the
increase was also due to higher average customer base and higher MOU, partly offset by decrease in average per minute fees and lower subscription fees.

Mobile
penetration at December 31, 2009 reached 117.7 percent in Hungary and TMH preserved its market leader position with a 43.4 percent market share on the basis
of total number of SIM cards as published by NCA. Within total customer base of TMH, the proportion of postpaid customers increased to 45.0 percent at December 31, 2009 from
37.0 percent at the end of 2007. This increase shows that we stimulate the acquisition of contract customers and the migration of prepaid customers to contract ones by all means, including
price plans, sales commission schemes and loyalty programs.



Voice-wholesale revenues consist of domestic and international incoming traffic revenues.

Voice-wholesale
traffic revenues reached the same level both in 2007 and 2008. Higher interconnection revenues at T-Mobile Macedonia derived from increased incoming
international traffic as well as higher interconnection traffic with Cosmofon and VIP. In addition, higher MVNO wholesale revenues from national roaming based on the agreement with VIP also
contributed to the increase. These increases were partially offset by decreased interconnection prices applied from August 2008. At T-Mobile Crna Gora, the growth resulted mainly from the
increased interconnection fees with Promonte. These increases were offset by lower interconnection revenues at TMH due to lower termination rates from January 2008.

Voice-wholesale
traffic revenues declined by 10.1 percent in 2009 over 2008. In Hungary, mobile termination fee was reduced by the NCA from January 1, 2009 and this impact
together with incoming MOU decrease caused significant revenue loss. This decrease was only partially compensated by the increase in TMH's average customer base. The NCA decreased the mobile
termination rates by a further 16 percent from January 2010. At T-Mobile Macedonia, higher voice-wholesale revenues mainly resulted from the significant weakening of the HUF against
the MKD. Besides this, higher MVNO revenues from VIP due to higher incoming traffic also positively affected wholesale revenues. Higher interconnection revenues from mobile operators reflected the
enlarged subscriber base of all the three Macedonian operators. The lower interconnection fees applied from August 2008 somewhat offset these increases.



Voice-visitor revenues declined both in 2008 and 2009, mainly due to the decreased traffic at T-Mobile Crna Gora.

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Within the mobile telecommunications services, non-voice revenues grew by 13.0 percent in 2008 and by
10.3 percent in 2009. Non-voice revenues consist of Internet, content and data revenues and represented 17.2 percent of our mobile revenues in 2009 as compared to
13.8 percent in 2007. Higher non-voice revenues in 2008 and in 2009 reflect the increase primarily at TMH due to higher access revenues boosted by the expansion of mobile Internet
usage. By the end of December 2009, TMH had 428,545 mobile broadband customers. The increase in mobile Internet usage favorably affected non-voice revenues also at our foreign mobile
operators.



Mobile equipment revenues decreased in 2008 compared to 2007 due to lower revenue from handset upgrades and also because the higher
number of gross additions to customers could not fully offset the decrease in average handset prices at TMH. Mobile equipment revenues declined also at our foreign mobile operators.

Mobile
equipment revenues showed a slight increase in 2009 over 2008 mainly due to the increase at T-Mobile Macedonia driven by higher number of handsets sold in retention
campaigns despite lower equipment sales ratio and lower average price of handsets. Declining equipment revenues at TMH mostly offset this increase due to decreased number of handsets sold affected by
both the economic crisis and high mobile penetration in Hungary. Average sales price per handset increased due to high-end offers (iPhone and multimedia plans), but it did not fully
compensate the loss on transaction number.



The increase in other mobile revenues in 2008 and the decrease in 2009 reflect the different level of TETRA-related revenues at
Pro-M.

SI/IT Revenues

The following table sets forth information regarding our SI/IT revenues:

Year ended December 31,

Year ended December 31,2007

2008

2009

2008/2007

2009/2008(in HUF millions)

(% change)SI and IT revenues


41,561


41,396


43,913


(0.4
)

6.1


SI and IT revenues remained stable and amounted to HUF 41,396 million in 2008 as lower performance of IQSYS was offset by the
increase at Magyar Telekom Plc. The increase at Magyar Telekom Plc. resulted from more projects realized compared to 2007 including also new managed service and operating projects.

SI
and IT revenues increased by 6.1 percent in 2009 as a result of higher outsourcing revenues and also driven by increased application revenues, partly offset by lower
infrastructure and prime contracting revenues.

Operating Expenses

Our total operating expenses as a percentage of total revenues decreased from 81.6 percent in 2007 to 77.6 percent in
2009.

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The
following table sets forth information regarding our operating expenses:

Year ended December 31,

Year ended December 31,2007

2008

2009

2008/2007

2009/2008(in HUF millions)

(% change)Voice-, data- and Internet-related payments


86,244


79,076


71,583


(8.3
)

(9.5
)Material cost of telecommunications equipment sold


41,957


45,061


44,011


7.4


(2.3
)Payments to agents and other subcontractors


49,064


43,421


44,982


(11.5
)

3.6Expenses directly related to revenues


177,265


167,558


160,576


(5.5
)

(4.2
)Employee-related expenses


120,176


100,320


101,918


(16.5
)

1.6Depreciation and amortization


115,595


106,120


101,920


(8.2
)

(4.0
)Other operating expenses


139,314


141,049


135,305


1.2


(4.1
)Total operating expenses


552,350


515,047


499,719


(6.8
)

(3.0
)




Voice-, data- and Internet-related payments decreased by 8.3 percent in 2008 compared to 2007. Lower mobile
outpayments at Magyar Telekom Plc. were driven by lower mobile termination fees applied from January 2008 and by lower wholesale roaming fees, only partly offset by increased traffic. Lower
payments to international operators in Hungary resulted mainly from the change in how wholesale transit traffic is settled. As from January 1, 2008, Deutsche Telekom became our sole
international voice partner, and accordingly, we do not have outpayments for international wholesale transit traffic to other foreign carriers. Voice-related payments dropped also at Crnogorski
Telekom as Promonte and Telekom Serbia established their own direct link. These decreases were somewhat offset by the increase in mobile outpayments at T-Mobile Crna Gora due to increased
interconnection fees and higher traffic volume.

Voice-,
data- and Internet-related payments decreased from HUF 79,076 million in 2008 to HUF 71,583 million in 2009. Lower voice-related payments
to domestic mobile operators in Hungary were driven by lower mobile termination fees applied from January 1, 2009. Declining roaming payments were in line with the EU roaming tariff decrease as
well as lower usage. At Makedonski Telekom, the payments to domestic mobile operators decreased due to lower interconnection fees and decreased traffic, while lower payments to international operators
resulted from lower volume of minutes and lower average SDR settlement rate, partly compensated by higher MKD/SDR exchange rate. Lower traffic together with decreased termination fees resulted in
declining international outpayments in case of Crnogorski Telekom.



The material cost of telecommunications equipment sold reached HUF 45,061 million in 2008 increasing by
7.4 percent compared to 2007. The increase is partly due to higher cost at TMH resulting from higher gross addition to customers with higher equipment sales ratio, somewhat offset by lower
average cost of handsets. The increase at Pro-M is in line with the significantly higher TETRA-related revenues in 2008. The material cost of telecommunications equipment increased also at
Makedonski Telekom due to increased sales volume of personal computers, ADSL modems, TV sets and other equipment.

The
material cost of equipment sold declined by 2.3 percent in 2009 over 2008. The small decrease is mainly due to declining cost at Pro-M in line with lower
TETRA-related revenues in 2009. Lower number of handsets sold in the mobile prepaid segment at TMH, cost of sale of network at Combridge in 2008 and lower number of ADSL modems sold on wholesale basis
also contributed to the decrease. These decreases

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were
largely counterbalanced by higher material cost of equipment at T-Mobile Macedonia resulting from higher number of handsets sold in retention campaigns.



Payments to agents and other subcontractors decreased by 11.5 percent in 2008 compared to 2007 mainly as a result of lower
SI/IT-related payments at IQSYS parallel with lower SI/IT revenues in 2008.

Payments
to agents and other subcontractors increased by 3.6 percent in 2009 compared to 2008. The increase mainly refers to higher SI/IT-related payments at
IQSYS in line with higher outsourcing revenues as well as increased application revenues. Higher content- and TV-related payments due to broadcast and royalty fee paid by Magyar
Telekom Plc. in connection with satellite TV and IPTV services also contributed to the increase in 2009.



Employee-related expenses decreased to HUF 100,320 million in 2008 from HUF 120,176 million in 2007. The
decrease in employee-related expenses was mainly attributable to lower severance-related provisions and payments in relation to the headcount reduction at Magyar Telekom Plc. in 2008.
Employee-related expenses included headcount reduction related expenses of HUF 8.5 billion in 2008. Lower group headcount number, which further declined to 10,439 by December 31,
2008, also contributed to the decrease. These decreases were partly offset by higher severance-related provisions and payments at Makedonski Telekom, Crnogorski Telekom and KFKI in 2008.

Employee-related
expenses in 2009 amounted to HUF 101,918 million increasing by 1.6 percent compared to 2008. The slight increase in employee-related expenses was
predominantly attributable to higher severance expenses at Magyar Telekom Plc. in 2009. Higher average employee number (due to the insourcing of temporary workforce) and a 5.6 percent
average wage increase from April 1, 2009 also contributed to the increase. These increases were partially offset by decreased severance expenses at Makedonski Telekom and at Crnogorski Telekom,
where significant amount of expenses were recorded in 2008. The group headcount number increased from 10,439 on December 31, 2008 to 10,828 on December 31, 2009.



Depreciation and amortization decreased by 8.2 percent to HUF 106,120 million in 2008 and by 4.0 percent to
HUF 101,920 million in 2009 mainly as a result of the decrease at Magyar Telekom Plc. due to change in the useful life of certain group of assets both in 2008 and 2009. The
reviews of the useful lives of intangible assets during the period affected the lives of a large number of assets including primarily the IT, billing and other operation support systems and software.



Other operating expenses include materials, maintenance, marketing, service fees, fees and levies, rental fees, outsourcing expenses,
provisions, energy and consultancy.

Other
operating expenses in 2007 also included a HUF 1.5 billion bad debt expense reflecting the likely loss to be incurred as a result of the early termination of a
long-term IT outsourcing contract by a large BBU customer which was entered into with a subsidiary which the Company acquired control of in 2007.

Other
operating expenses increased by 1.2 percent in 2008 compared to 2007. The slight increase was mainly driven by higher price of energy and higher rental fees at Magyar
Telekom Plc. deriving from higher rented area of major offices. Higher fees and levies show the provision made for litigation at Makedonski Telekom in 2008. See
"Item 15Financial InformationOther Financial InformationLegal

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proceedings"
for description of litigation cases at Makedonski Telekom. The increase in marketing expenses at T-Mobile Macedonia related to intensive advertising activities responding to
strong competition after the entrance of VIP in the Macedonian mobile market in September 2007. The provision made for the legal cases in relation to leaving employees in 2007 at Crnogorski Telekom
and lower consultancy fees primarily at Magyar Telekom Plc. mostly offset these increases.

Other
operating expenses decreased by 4.1 percent in 2009 as compared to 2008. Lower other operating expenses reflect mainly the significant decrease in marketing expenses at
Magyar Telekom Plc. driven by less intensive advertising activity in 2009 due to cost-cutting measures and the expenses related to T-Home brand campaign in 2008. In
addition, Crnogorski Telekom reversed approximately HUF 1 billion provision made in 2007 for litigation in connection with the voluntary leave program in the third quarter of 2009.
Higher consultancy fees accounted in relation to the ongoing investigation at Magyar Telekom Plc. partially offset these decreases in 2009.

Magyar
Telekom incurred HUF 5.7 billion in expenses relating to the internal investigation of certain contracts in 2007, HUF 5.4 billion in 2008 and
HUF 6.4 billion in 2009, which are included in other operating expenses of Group Headquarters. See "Item 3Risk Factors" and "Item 15Controls and
Procedures" for description of the investigation.

Other Operating Income

The following table sets forth information concerning other operating income:

Year ended December 31,

Year ended December 31,2007

2008

2009

2008/2007

2009/2008(in HUF millions)

(% change)Compensation for renaming


229


676





195.2


n.a.Gain on sale of PP&E, Intangible assets and assets held for sale


3,203


2,126


326


(33.6
)

(84.7
)Gain on sale of subsidiaries and associates





1,233


1,371


n.a.


11.2Other operating income


569


214


1,166


(62.4
)

444.9Total other operating income


4,001


4,249


2,863


6.2


(32.6
)


Other operating income increased by 6.2 percent in 2008 as compared to 2007 resulting mainly from higher other operating income at
Makedonski Telekom due to the sale of its fully owned subsidiary, Montmak, somewhat offset by the gain on sale of office building at T-Mobile Crna Gora in 2007.
The 32.6 percent decrease in 2009 over 2008 relates mainly to much lower gain on sale of buildings at Magyar Telekom Plc. in 2009 as well as higher other operating income in 2008
due to compensation received from DT in 2008 for rebranding at Makedonski Telekom.

Operating Profit

Our total operating profit increased significantly from HUF 128,312 million in 2007 to HUF 162,258 million
in 2008 since revenues remained stable and operating expenses decreased. In 2009, operating profit decreased to HUF 147,133 million since the decrease in total revenues exceeded the
decline in operating expenses.

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Finance Expenses

The following table sets forth information concerning finance expenses:

Year ended December 31,

Year ended December 31,2007

2008

2009

2008/2007

2009/2008(in HUF millions)

(% change)Interest expense


31,147


32,798


33,479


5.3


2.1Other finance expenses (Fee expense)


4,039


4,659


4,780


15.4


2.6less: interest capitalized





(258
)

(726
)

n.a.


181.4Total finance expenses


35,186


37,199


37,533


5.7


0.9


Finance expenses increased by 5.7 percent in 2008 and by 0.9 percent in 2009 mainly due to higher interest paid at Magyar
Telekom Plc. resulting from increased borrowings during these periods to finance the Group's operations as a result of lower cash from operations.

Finance Income

The following table sets forth information concerning finance income:

Year ended December 31,

Year ended December 31,2007

2008

2009

2008/2007

2009/2008(in HUF millions)

(% change)Gains/(losses) on the subsequent measurement of financial instruments at fair value through profit and loss (derivatives) contracted with related
parties








(2,387
)

n.a.


n.a.Gains/(losses) on the subsequent measurement of financial instruments at fair value through profit and loss (derivatives) contracted with third
parties


(139
)

789


(568
)

n.m.


n.m.Gains/(losses) on the derecognition of financial instruments at fair value through profit and loss contracted with related parties








(141
)

n.a.


n.a.Gains/(losses) on the derecognition of financial instruments at fair value through profit and loss contracted with third parties


828


(477
)

(441
)

n.m.


(7.5
)Net foreign exchange losses


(1,481
)

(648
)

(269
)

56.2


58.5Finance lease interest income


1,675


1,340


1,390


(20.0
)

3.7Interest and other finance income


4,334


5,887


7,136


35.8


21.2Total finance income


5,217


6,891


4,720


32.1


(31.5
)


Finance income increased by 32.1 percent in 2008 as compared to 2007 primarily due to higher interest income at our Macedonian subsidiaries
on bank deposits. In 2009, the decrease in finance income mainly reflects significant losses related to interest rate derivative transactions the Group entered into to hedge interest rate risk.

The
losses reflected differences between HUF and EUR interest rates during the period due to the weakening of HUF against EUR. This decline was partly compensated by higher interest
income on bank deposits at Magyar Telekom Plc.

See
Notes 3, 16 and 17 to the consolidated financial statements for certain quantitative and qualitative information about financial instruments.

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Income TaxTotal

The following table sets forth information concerning our income tax expense:

Year ended December 31,

Year ended December 31,2007

2008

2009

2008/2007

2009/2008(in HUF millions)

(% change)Income tax expense


26,221


27,698


20,958


5.6


(24.3
)


For more details on tax rates, tax credits and deferred taxes see Note 9 to the consolidated financial statements.

Income
tax expense increased in 2008 compared to 2007 mainly due to the higher profit before income tax. The proportional increase of the tax expense, however, is lower than the increase
of the profit before income tax. The main reason for this is that dividends received are not subject to income tax.

Income
tax expense decreased in 2009 over 2008 mainly as a result of lower profit before tax. In addition, further decrease is due to the significant decrease in tax expenses of
our Macedonian subsidiaries for 2009 as a result of the change in tax law (corporate tax must be recorded only at time of dividend payment). These decreases were partly offset by change in the
Hungarian tax regime from 2010, which necessitated the recalculation of our deferred tax balances.

OPERATIONS REVIEWBY SEGMENT

Magyar Telekom established its current management structure in Hungary based on customer segmentation which requires different
technology and marketing strategies, and support functions. The Group's operating segments in Hungary are: Consumer Services Business Unit, Business Services Business Unit, Media Business Unit,
Group Headquarters and Technology Business Unit. In addition, the Group also has operations in Macedonia and Montenegro, which represent two additional reporting segments. Of these segments,
MBU has not qualified as a reportable segment, therefore, it is included in "All other" in the reconciliations of the reportable segments' totals.

For
the discussion of our segments, see "Item 4. Information on the CompanyDescription of business and its segments."

The
revenues and expenses of the segments include both primary and secondary results. The primary revenues are derived from external parties, while the secondary ones are allocated from
the other segments. Similarly, the primary expenses are paid to external parties, while the secondary ones are charged by the other segments. All secondary revenues and expenses are eliminated in the
group's financial statements.

The
segments' results are monitored to EBITDA. Depreciation, operating profit, financial results, the share of associates' and joint ventures' profits and tax expenses as well as the
non-controlling interests are not allocated to the segments, as these items are managed at Group level. EBITDA is used by Magyar Telekom to measure the profitability of its business
segments both for internal management reporting purposes and in external reporting to analysts and investors.

EBITDA
for each segment, in principle, could be reconciled to the segment's operating profit, the most directly comparable financial measure according to IFRS, by adding depreciation.
However, depreciation is not allocated to the segments; therefore the reconciliation cannot be prepared and presented on a segment basis. As all fixed and mobile network elements of Magyar
Telekom Plc. belong to our Technology Business Unit, the vast majority of depreciation would be allocated to that segment. Accordingly, we provide a reconciliation of the total segment EBITDA
to consolidated operating profit of the Group.

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The
following table sets forth revenues and EBITDA by segment, as monitored by the Company:

Year ended December 31,2007

2008

2009(in HUF millions)RevenuesTotal CBU revenues


346,495


341,563


322,336Less: CBU revenues from other segments


(42,219
)

(38,655
)

(33,849
)CBU revenues from external customers


304,276


302,908


288,487Total BBU revenues


172,346


179,174


170,989Less: BBU revenues from other segments


(14,308
)

(16,833
)

(18,835
)BBU revenues from external customers


158,038


162,341


152,154Total Headquarters revenues


164,428


153,544


135,456Less: Headquarters revenues from other segments


(75,403
)

(69,384
)

(59,889
)Headquarters revenues from external customers


89,025


84,160


75,567Total Technology revenues


9,166


11,370


10,556Less: Technology revenues from other segments


(7,771
)

(7,877
)

(7,599
)Technology revenues from external customers


1,395


3,493


2,957Total Macedonia revenues


74,332


76,097


82,312Less: Macedonia revenues from other segments


(111
)

(285
)

(214
)Macedonia revenues from external customers


74,221


75,812


82,098Total Montenegro revenues


35,747


33,148


34,442Less: Montenegro revenues from other segments


(241
)

(105
)

(51
)Montenegro revenues from external customers


35,506


33,043


34,391All other (net)


14,200


11,216


8,351Total consolidated revenue of the segments


676,661


672,973


644,005Measurement differences to Group revenues





83


(16
)Total revenue of the Group


676,661


673,056


643,989


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Year ended December 31,2007

2008

2009(in HUF millions)Segment results (EBITDA)CBU


188,304


193,314


181,920BBU


82,694


90,816


80,307Headquarters


(26,507
)

(15,899
)

(22,209
)Technology


(56,839
)

(49,059
)

(47,485
)Macedonia


42,018


39,132


42,861Montenegro


13,732


10,815


13,736All other


505


(191
)

(414
)Total EBITDA of the segments


243,907


268,928


248,716Measurement differences to Group EBITDA





(550
)

337Total EBITDA of the Group


243,907


268,378


249,053Total depreciation and amortization of the Group


(115,595
)

(106,120
)

(101,920
)Total operating profit of the Group


128,312


162,258


147,133


Consumer Services Business Unit

The CBU comprises comprehensive marketing, sales and customer relations activities of both mobile and fixed consumer products and
brands (T-Mobile and T-Home).

The
following table sets forth information regarding the CBU segment:

Year ended December 31,

Year ended December 31,2007

2008

2009

2008/2007

2009/2008(in HUF millions)

(% change)Voice revenues


95,610


89,115


77,709


(6.8
)

(12.8
)Internet revenues


32,610


32,582


30,042


(0.1
)

(7.8
)TV revenues


17,534


18,412


21,990


5.0


19.4Other fixed line and SI/IT revenues


4,306


3,520


3,301


(18.3
)

(6.2
)Total fixed line and SI/IT revenues


150,060


143,629


133,042


(4.3
)

(7.4
)Voice revenues


154,819


152,472


142,907


(1.5
)

(6.3
)Non-voice revenues


22,276


27,404


28,555


23.0


4.2Other mobile revenues


19,340


18,058


17,832


(6.6
)

(1.3
)Total mobile revenues


196,435


197,934


189,294


0.8


(4.4
)Total revenues


346,495


341,563


322,336


(1.4
)

(5.6
)EBITDA


188,304


193,314


181,920


2.7


(5.9
)


Revenues

Revenues in CBU decreased over the period driven by lower fixed line and mobile voice revenues, somewhat compensated by higher TV and
mobile non-voice revenues.

Fixed
line voice-retail revenues experienced a decline both in 2008 and 2009 partly due to lower subscription revenues resulting from the decrease in the average number of fixed lines.
In addition, outgoing domestic and international traffic revenues also declined due to price discounts, lower usage and

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loss
of lines reflecting the effect of mobile substitution. In 2008, these decreases were partly compensated by the reversal of the HUF 3.1 billion provision booked on F2M termination
fees in June 2008. Consequently, this one-off reversal of provision contributed to the decrease in voice-retail revenues in 2009.

While
Internet revenues remained stable in 2008 compared to 2007, the 7.8 percent decline in 2009 was mainly driven by lower broadband revenues as the increase in subscriber base
could only partly counterbalance the effect of lower prices forced by fierce competition mainly from cable and mobile operators.

The
decreases in fixed line voice revenues were slightly compensated by higher TV revenues which resulted in higher cable TV revenues in line with a larger customer base and higher
tariffs in 2008. The successful introduction of satellite TV service in November 2008 led to higher TV revenues in 2009. In addition, higher IPTV revenues driven by the increase in the
number of subscribers also contributed to the increase. The satellite TV customer base increased to 156,142 subscribers by the end of December 2009 and the number of IPTV customers increased to 67,430
by December 31, 2009. These increases were partly offset by lower cable TV revenues influenced by lower ARPU and decreased customer numbers in 2009.

Other
fixed line and SI/IT revenues dropped predominantly due to lower equipment revenues in 2008 driven by lower sales volume of telecommunications equipment.

Other
fixed line and SI/IT revenues remained stable in 2009 compared to 2008 levels.

Mobile
voice revenues decreased both in 2008 and 2009 mainly due to lower voice-wholesale revenues driven by the decrease in termination fees from January 1, 2008 and also from
January 1, 2009. In 2008, this decrease was mostly offset by higher voice-retail revenues as a result of increased average customer base. In 2009, the small increase in average customer base
could not compensate the decrease in outgoing tariff levels resulting in lower voice-retail revenues. Lower roaming revenues reflect decreased traffic and also the impact of roaming fee regulation in
the European Union. Other mobile revenues decreased as a result of lower revenue from handset upgrades and lower average handset prices, partly offset by higher sales volumes in 2008. These decreases
were slightly compensated by the increase in non-voice revenues over the period driven by higher access revenues in line with wider usage of mobile Internet.

EBITDA

In 2008, EBITDA of the CBU segment increased mainly driven by lower employee-related expenses and voice-related payments, partly offset
by higher other net operating expenses and lower total revenues.

EBITDA
of the CBU decreased by 5.6 percent in 2009 compared to 2008 due to lower total revenues, partly offset by declining voice-related payments and lower other net operating
expenses.

Business Services Business Unit

The BBU provides mobile and fixed line telecommunications, infocommunications and system integration services (including marketing,
sales and customer relations activities) under the T-Systems and T-Mobile brands to key business partners (large corporate customers and public sector) as well as small and
medium enterprises.

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The
following table sets forth information regarding the BBU segment:

Year ended December 31,

Year ended December 31,2007

2008

2009

2008/2007

2009/2008(in HUF millions)

(% change)Voice revenues


30,195


32,277


23,492


6.9


(27.2
)Other fixed line revenues


26,525


26,725


25,850


0.8


(3.3
)Total fixed line revenues


56,720


59,002


49,342


4.0


(16.4
)Voice revenues


49,728


48,035


44,055


(3.4
)

(8.3
)Non-voice revenues


10,412


12,463


13,608


19.7


9.2Other mobile revenues


11,040


11,885


10,662


7.7


(10.3
)Total mobile revenues


71,180


72,383


68,325


1.7


(5.6
)SI/IT revenues


44,446


47,789


53,322


7.5


11.6Total revenues


172,346


179,174


170,989


4.0


(4.6
)EBITDA


82,694


90,816


80,307


9.8


(11.6
)


Revenues

Total revenues of BBU increased by 4.0 percent in 2008 compared to 2007 primarily driven by higher fixed line voice, mobile
non-voice and SI/IT revenues, slightly offset by lower mobile voice revenues. In 2009, total revenues showed a decrease since higher SI/IT and mobile non-voice revenues
could not fully compensate declining fixed line and mobile voice revenues.

In
2009, fixed line voice-retail revenues decreased due to the reversal of the HUF 5.4 billion F2M provision in June 2008. As a consequence, this one-off item
negatively affected F2M outgoing traffic revenues in 2009. Declining outgoing domestic and international traffic revenues reflect the erosion both in the customer base and traffic over the period.
Lower subscription fee revenues were in line with decreased average number of fixed lines.

Mobile
voice revenues decreased by 3.4 percent in 2008 and 8.3 percent in 2009, on the one hand, due to lower voice-retail revenues as a result of lower average per minute
fee, partly compensated by higher average customer base. On the other hand, lower voice-wholesale revenues reflect mainly the regulation impact on wholesale interconnection fees effective from
January 1, 2008 and 2009. These decreases were partly offset by higher non-voice revenues driven by the expansion of mobile Internet. The change in other mobile revenues over the
period shows the different level of TETRA-related revenues at Pro-M.

The
increase in SI/IT revenues resulted primarily from higher outsourcing revenues both in 2008 and 2009.

EBITDA

In 2008, EBITDA for the BBU segment increased by 9.8 percent mainly due to higher total revenues and declining voice-related
payments.

While
total revenues of BBU decreased only by 4.6 percent in 2009, higher SI/IT-related payments and higher employee-related expenses led to further decrease in EBITDA
which was only partly mitigated by declining voice-related payments and lower material cost of equipment sold.

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Group Headquarters

The Group Headquarters is responsible for:



The
following table sets forth information regarding the Headquarters segment:

Year ended December 31,

Year ended December 31,2007

2008

2009

2008/2007

2009/2008(in HUF millions)

(% change)Voice-wholesale revenues


26,854


21,445


18,760


(20.1
)

(12.5
)Other fixed line and SI/IT revenues


36,704


39,675


35,695


8.1


(10.0
)Total fixed line and SI/IT revenues


63,558


61,120


54,455


(3.8
)

(10.9
)Voice-wholesale revenues


84,955


78,098


65,668


(8.1
)

(15.9
)Other mobile revenues


15,915


14,326


15,333


(10.0
)

7.0Total mobile revenues


100,870


92,424


81,001


(8.4
)

(12.4
)Total revenues


164,428


153,544


135,456


(6.6
)

(11.8
)EBITDA


(26,507
)

(15,899
)

(22,209
)

40.0


(39.7
)


Wholesale revenues (both fixed line and mobile) at Headquarters include the wholesale revenues received from other fixed line, mobile and
international telecommunications service providers (primary revenues) as well as the secondary revenues charged to CBU and BBU for their interconnection expenses. Similarly, voice-, data-
and Internet-related payments of the Headquarters include primary expenses (paid to external parties), as well as secondary expenses transferred to CBU and BBU related to their wholesale revenues.

Revenues

Total revenues of Headquarters decreased both in 2008 and 2009 primarily due to lower fixed line and mobile voice-wholesale revenues as
a result of lower mobile termination fees from January 1, 2008 and 2009 as well as lower interconnection fees from April 26, 2008. In 2008, the decline in fixed line incoming
international traffic revenues was driven by the change in the settlement of wholesale transit traffic.

Other
fixed line revenues include mainly wholesale Internet, data and other revenues. In 2008, other fixed line revenues increased mainly at Combridge while lower other mobile revenues
reflect the decrease in mobile Internet and data revenues. In 2009, wholesale Internet revenues declined due to price decreases of xDSL lines and lower average wholesale DSL customers. Other fixed
line revenues declined also at Combridge in 2009. The increase in other mobile revenues in 2009 as compared to 2008 relates mainly to higher content revenues.

EBITDA

EBITDA of the Headquarters significantly improved in 2008 over 2007 mainly driven by lower voice-related payments and decreased
employee-related expenses, somewhat offset by lower total revenues.

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In 2009,
the considerable decline in EBITDA was mainly due to lower total revenues, higher material and maintenance expenses as well as higher investigation-related consultancy fees, partly
mitigated by lower voice-related payments.

Technology Business Unit

The Technology Business Unit performs the mobile and fixed network management and development activities as well as IT management.

The
following table sets forth information regarding the Technology segment:

Year ended December 31,

Year ended December 31,2007

2008

2009

2008/2007

2009/2008(in HUF millions)

(% change)Total revenues


9,166


11,370


10,556


24.0


(7.2
)EBITDA


(56,839
)

(49,059
)

(47,485
)

13.7


3.2


The Technology Business Unit derives its revenues mainly from



Technology
is responsible for the operations and development of both the mobile and fixed network, the costs of which are not transferred to other business units leading to a significant
operating loss for this segment.

Significant
operating expense for the Technology segment include employee-related expenses, maintenance costs of telecommunications equipments, IT support expenses (including license
costs) and concession fees.

Operating
expenses of the Technology significantly exceeded its revenues and this led to negative EBITDA in every period. In 2008, improved EBITDA mainly resulted from lower
employee-related expenses and higher total revenues. In 2009, lower material and maintenance expenses as well as lower other service fees favorably affected EBITDA level which was partly offset by
higher employee-related expenses.

Macedonia

The following table sets forth information regarding the Macedonian operations:

Year ended December 31,

Year ended December 31,2007

2008

2009

2008/2007

2009/2008(in HUF millions)

(% change)Total fixed line and SI/IT revenues


38,270


36,604


36,802


(4.4
)

0.5Total mobile revenues


36,062


39,493


45,510


9.5


15.2Total revenues


74,332


76,097


82,312


2.4


8.2EBITDA


42,018


39,132


42,861


(6.9
)

9.5


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While the currency translation effect from the MKD to the HUF was insignificant on the results of our Macedonian operations in 2008, the result of our Macedonian
operations in HUF terms was strongly affected by the weakening of HUF against MKD by an average of 11.7 percent in 2009.

Revenues

Fixed line voice revenues decreased over the period mainly as a result of lower voice-retail revenues. The decline in outgoing traffic
revenues reflected the loss of fixed lines and lower traffic affected by mobile substitution. In 2008, lower voice-wholesale revenues were mainly due to lower volumes of incoming traffic. These
decreases were partly mitigated by higher Internet revenues boosted by a higher number of DSL connections, which were 128,368 at December 31, 2009 as compared to 48,214 at the end of December
2007. The increase in data revenues was due to higher number of domestic leased line contracts and new digital leased lines. In 2009, the considerable increase in TV revenues was due to a larger IPTV
subscriber base.

Total
revenues of T-Mobile Macedonia increased over the period mainly due to higher voice revenues. Higher voice-retail revenues were driven by an increased average customer
base and increased MOU, partly offset by lower per minute fees. Voice-wholesale revenues increased partly as a result of higher international traffic in line with higher subscriber base of the
Macedonian mobile operators. On the other hand, higher MVNO revenues from VIP also positively affected wholesale voice revenues. Higher non-voice revenues primarily reflect the growing
number of mobile Internet subscriptions.

EBITDA

In 2008, EBITDA of the Macedonian operations decreased as the 2.4 percent increase in total revenues could not offset the
increase in employee-related expenses, other net operating expenses and cost of equipment. In 2009, the 9.5 percent increase derived mainly from higher total revenues and the decrease in
employee-related expenses, partly offset by higher material cost of equipment sold and higher other net operating expenses.

Montenegro

The following table sets forth information regarding the Montenegrin operations:

Year ended December 31,

Year ended December 31,2007

2008

2009

2008/2007

2009/2008(in HUF millions)

(% change)Total fixed line and SI/IT revenues


20,085


16,907


18,214


(15.8
)

7.7Total mobile revenues


15,662


16,241


16,228


3.7


(0.1
)Total revenues


35,747


33,148


34,442


(7.3
)

3.9EBITDA


13,732


10,815


13,736


(21.2
)

27.0


Total results of the Montenegrin operations were positively affected by a weaker HUF against the EUR in 2009. There was no significant foreign
exchange translation effect in 2008.

Revenues

In 2008, total fixed line and SI/IT revenues decreased mainly due to lower voice-wholesale revenues related to the ceasing of transit
traffic from Promonte and lower voice-retail revenues due to significantly lower outgoing traffic. The increase in fixed line subscription tariffs partially offset these decreases in 2008. Excluding
the favorable currency translation effect, the loss of fixed line customers as a consequence of mobile substitution resulted in lower voice-retail revenues in 2009. Higher TV revenues (enlarged IPTV
subscriber base), higher Internet revenues (increased number of DSL connections) as well as an increase in

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data
revenues (higher number of leased line customers) had favorable effects on total fixed line and SI/IT revenues both in 2008 and 2009.

The
increase in the total revenues of T-Mobile Crna Gora in 2008 over 2007 was primarily attributable to higher voice-wholesale revenues driven by the change in
interconnection fees with Promonte in the second quarter of 2007. Higher voice-retail revenues were due to higher average customer base, somewhat offset by retail tariff erosion due to strong
competition and decreased MOU. These increases were mitigated by declined visitor revenues driven by lower visitor traffic and a decrease also in equipment revenues due to the lower sales of handsets
and lower prices.

In
2009, T-Mobile Crna Gora's revenues in EUR decreased, however, the previously mentioned weakening of HUF against EUR had a positive effect on the revenues when translated
into HUF. Visitor revenues dropped as a consequence of significant decrease in visitor minutes. Lower voice-retail revenues were due to decreases in average per minute fees and in MOU, partially
offset by higher average customer base. These decreases were mitigated by higher non-voice revenues boosted by higher mobile Internet usage.

EBITDA

EBITDA of our Montenegrin operations dropped by 21.2 percent in 2008 as compared to 2007 deriving from lower total revenues and
higher employee-related expenses. In 2009, EBITDA improved by 27.0 percent mainly due to higher total revenues, lower net other operating expenses and lower employee-related expenses.

LIQUIDITY AND CAPITAL RESOURCES

Cash flow analysis

The following table sets forth information concerning our cashflows:

Year ended December 31,2007

2008

2009(in HUF millions)Net cashflows:From operating activities


231,340


210,289


193,795Used in investing activities


(134,881
)

(113,449
)

(130,299
)Used in financing activities


(109,221
)

(79,230
)

(96,560
)Exchange gains on cash and cash equivalents


221


1,404


654Change in cash and cash equivalents


(12,541
)

19,014


(32,410
)Cash and cash equivalents, beginning of year


60,207


47,666


66,680Cash and cash equivalents, end of year


47,666


66,680


34,270


Net Cashflows from Operating Activities.Our primary source of liquidity is cashflows from operating activities.

Net
cashflows from operating activities decreased by HUF 21,051 million in 2008 as compared to 2007. The strong increase in working capital requirements influenced mainly
by higher severance payments at Magyar Telekom Plc. was only partly mitigated by higher EBITDA.

Net
cashflows from operating activities in 2009 decreased by HUF 16,494 million in 2009 as compared to 2008 mainly due to lower EBITDA.

Net Cashflows from Investing Activities.Net cashflows from investing activities are primarily driven by capital expenditures and
acquisitions of
businesses.

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In
2008, the HUF 21,432 million decrease in cash outflow was mainly due to the change in other financial assets.

Net
cash used in investing activities amounted to HUF 130,299 million in 2009, while it was HUF 113,449 million in 2008. This considerable increase in cash
outflow was mainly due to the change in other financial assets (short term deposits). Purchase of property, plant and equipment and intangible assets totaled HUF 103,097 million in 2007,
HUF 116,039 million in 2008 and HUF 110,228 million in 2009.

Net Cashflows from Financing Activities.Net cashflows from financing activities primarily relate to our borrowing activities and
dividend payments.

In
2008, the dividends paid to shareholders decreased by HUF 67,215 million as Magyar Telekom Plc. paid dividends after the 2005 results in January 2007.
Consequently, the significant decrease in the amount of loans received refers to the different financing need of dividend payments. While during 2008, we took a net HUF 16,113 million
loan, in 2009, we repaid a net HUF 2,920 million loan resulting in lower net cashflows from financing activities in 2009.

We
carry indebtedness at a level we consider appropriate based on a number of factors, including cash flow expectations (i.e., cash requirements for ongoing operations, investment
plans), expectations of investors, analysts, rating agencies considerations and the overall cost of capital. We announced a definite dividend policy in 2003, according to which the net debt ratio is
to be kept between 30 to 40 percent. Under the dividend policy, based on the results of 2008, we paid dividends in the amount of HUF 74 per share in May 2009 and based on the results of
2009, the Board of Directors has proposed to the AGM for approval a HUF 74 per share dividend to be paid in May 2010. Our net debt ratio was 30.8 percent at December 31, 2009.
Future dividend payments will be determined by the dividend policy and will depend on our profitability, cashflow generation and potential acquisition opportunities.

For
a discussion of our financial instruments, loans and other borrowings, see Notes 3, 16 and 17 to our consolidated financial statements.

In
our Hungarian fixed line and mobile operations, our operating revenues and expenses are denominated almost entirely in Hungarian forints. Amounts payable to and receivable from other
international carriers are netted against one another and settled primarily in U.S. dollars and euros. Capital expenditures are denominated partly in foreign currencies, principally U.S. dollars and
euros.

The
NBH increased its base rate by three percentage point to 11.5 percent in October 2008 to avoid the speculative easing of the Hungarian currency among international
turbulences. After the improvement of the international financial market conditions, the NBH decreased its base rate to 5.75 percent in several steps between November 2008 and February 2010. At
December 31, 2009, 76 percent of our loan portfolio was denominated in HUF while the remaining 24 percent (denominated in EUR) was almost fully swapped to HUF, thus the foreign
exchange risk of the loan portfolio is naturally hedged by the HUF-denominated revenues.

At
December 31, 2009, 56 percent of the loan portfolio bore fixed interest rates (including loans swapped to fixed interest and excluding loans swapped to floating
interest)these are mainly the medium and long-term loans included in the portfoliowhile 44 percent of the loan portfolio was subject to variable interest
rates (including loans swapped to floating interest and excluding loans swapped from fixed to floating interest). Short-term loans are partially taken to manage our short term cash
obligations and their variable rates are based on Budapest Interbank Offered Rate ("BUBOR"). Taking into consideration HUF interest rate volatility, we follow the approach of balancing the fixed and
variable interest rate elements in our loan portfolio.

We
do not have any legal or economic restrictions on the ability of our subsidiaries to transfer funds to the Company in forms of cash dividends, loans or advances.

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Our
liquidity needs are primarily covered by our free cash flows. Liquidity requirements are financed from current account overdrafts, short term bank deposits and bilateral shelf
facilities. The total available current account overdrafts at the end of 2009 amounted to HUF 12,034 million. The total committed shelf facilities from the Hungarian market including
current account overdrafts amount to HUF 92,363 million, out of which HUF 36,937 million was available at the end of 2009. We also have an EUR 50 million shelf
facility with Deutsche Telekom, which functions as a reserve for potential liquidity requirements and has not been drawn since it was established on April 16, 2004.

Amount of
the facility

Drawn at the
end of 2009

Available at the
end of 2009(in HUF millions)Current account overdrafts


14,300


2,266


12,034Bilateral loans


78,063


53,160


24,903DT shelf facility


13,542





13,542Total credit lines


105,905


55,426


50,479


The current amount and structure of the shelf facilities described above is sufficient, and for the purposes of liquidity management, we believe
that there is no need to establish new facilities. We believe that, taking into account the substantial amount of undrawn borrowing facilities available, the Group has sufficient working capital for
its foreseeable requirements.

Maturity structure2010

2011

2012(in HUF millions)Current account overdrafts


14,300





Bilateral loans


55,058


17,005


6,000DT shelf facility


13,542





Total credit lines


82,900


17,005


6,000


Our parent company, Deutsche Telekom provides us with funding to meet our major financing needs (such as refinancing or financing acquisitions)
through the international capital markets and extends the proceeds through loans on arm's length terms to Magyar Telekom. Should this financing source cease to become available in the future, we plan
to raise funds from the Hungarian syndicated loan market and from the Hungarian capital markets. Our financial position is quite strong in the Hungarian markets therefore we expect to be able to
obtain financing at favorable terms from these markets. In addition, we have access to the international bank and capital markets.

For
additional information about market risk sensitive instruments, see Notes 3, 16 and 17 to the consolidated financial statements.

Off-balance sheet arrangements

We do not have any off-balance sheet arrangements (including contingent liabilities, guarantees) that have or are
reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures
or capital resources. We do not participate in, nor secure, financings for any unconsolidated, limited purpose entities.

Tabular disclosure of contractual obligations

Our contractual obligations, including commitments for future payments under non-cancelable lease arrangements and short-
and long-term debt arrangements, are summarized below and are disclosed in more detail in Notes 16, 17 and 32 to our consolidated financial statements. Accrued interests related to
loans are included in Financial liabilities to related parties and Other financial liabilities. Amounts

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disclosed
as purchase obligations represent long-term commitments under outsourcing contracts, commitments to purchase interconnection services, rented workforce, commitments for IT and
telecommunications systems support and other purchase commitments. Payment obligations for certain purchase contracts depend on a number of factors, such as the quantitative and qualitative conditions
of service, exchange rates and annual inflation rates, therefore the amounts included in the table below are estimates.

This
table excludes other obligations we may have, such as payroll and related human resource services (including bonuses and payments under our mid-term incentive plan).
Payments under these contracts are based on the level of service required and are excluded from this table due to the uncertainty of the amounts to be paid, if any, as well as the timing of such
amounts.

Payments Due by PeriodTotal

Less than
1 year

13 years

45 years

More than
5 years(in HUF millions)Financial liabilities to related parties


337,571


70,573


118,204


55,357


93,437Other financial liabilities


62,553


36,332


24,354


746


1,121Trade payables


85,874


85,874Current income tax payable


624


624Other current liabilities


32,228


32,228Other non current liabilities


1,100





869


101


130Total financial liabilities


519,950


225,631


143,427


56,204


94,688Interest on loans and borrowings


75,415


23,374


30,389


15,686


5,966Finance leases


5,686


1,360


1,798


1,049


1,479Operating leases


44,569


7,541


12,187


8,710


16,131Contractual commitments for capital expenditures


6,195


4,961


1,234Purchase obligations


73,959


25,839


29,083


15,790


3,247Total financial obligations


205,824


63,075


74,691


41,235


26,823Total contractual obligations


725,774


288,706


218,118


97,439


121,511


Regulatory fee payment obligations

We are obliged to pay various regulatory fees. The exact amount of these fees for future periods cannot be determined; therefore we
describe the basis of their calculation and disclose the amounts paid in 2009 for such fees as an indication of their magnitude.

1.     Supervisory fees

Magyar
Telekom Plc. pays a quarterly market surveillance fee on the basis of Decree 15/2004. (IV.24.) IHM on the "Rates of the Supervisory Fee and the Disclosure of Data and
Responsibilities of the Authority in Connection with the Supervisory Fee". The rate of the market surveillance fee is annually set by the Ministry. The rate of the market surveillance fee was
0.212 percent in 2009 (the maximum rate is 0.35 percent) of net sales revenues derived from electronic telecommunications services in the previous year. Magyar Telekom Plc. paid
HUF 900 million as supervisory fee in 2009.

2.     Number usage fees

Magyar
Telekom Plc. pays a number usage fee for call numbers used by the Company, according to Decree 11/2005 (IX. 28.) IHM on "Fees of Engaging the Identification Numbers
Necessary for the

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Provision
of Public Telephone Services". We paid HUF 1,166 million in 2009 for the right to use call numbers.

3.     Frequency fees

Magyar
Telekom Plc. pays frequency usage fees on the basis of Decree 6/1997 (IV.22.) KHVM on "Frequency Reservation and Usage Fee" and Government Decree 120/1998 (VI.17.) on
"Rules of Payment of Frequency Reservation and Usage Fee".

TMH
has frequency usage fee payment obligations for channels assigned by the NCA in the 900 MHz and in the 1800 MHz band. The fee consists of a fixed amount and a variable part depending
on the number of channels used. The Ministry determines the amount of fees payable each quarter and issues invoices. In 2009, TMH paid HUF 3,879 million frequency usage fee for the right
to use radio channels in the 2x8 MHz wide Primary 900 MHz band and HUF 279 million for the right to use the radio channels in the 2x15 MHz wide DCS 1800 MHz band.

TMH
also pays frequency fees for the International Mobile Telecommunications ("IMT") 2000/UMTS band. The fee consists of a monthly fixed element and a variable part based on the number
of UMTS channels. The Ministry determines the amount of fee payable each months and issues invoices. In 2009,
TMH paid HUF 1,389 million frequency fee for the right to use radio channels in the 2x15 MHz wide IMT-2000/UMTS frequency band.

In
addition, TMH paid HUF 1,130 million in 2009 for the right to use microwave frequencies.

In
addition to the above, Magyar Telekom assumes the legal expenses of its current and former employees involved in the internal investigation (see "Item 3Risk
Factors" and "Item 15Controls and Procedures"); in connection with this we incurred HUF 930 million expenses in 2009. We are not able to estimate the expenses we will
incur in 2010 and future years for legal counsel advising these individuals.

Capital expenditures

Our capital expenditures on property, plant and equipment and intangible assets totaled HUF 103,097 million in 2007,
HUF 116,039 million in 2008 and HUF 110,228 million in 2009, including in each year changes in the balance of capital expenditure trade creditors and the recognition of
investment tax credit. Capital expenditures include expenditures for (1) the fixed line network, including network operations systems, (2) mobile telecommunications and (3) new
products, corporate infrastructure and other assets.

For
information about total capital expenditure on property, plant and equipment and intangible assets by reportable segment, see Note 31.1.1 to the consolidated financial
statements.

We
expect to be able to finance capital expenditures over the next several years from net cashflows from operations and from borrowings. Our actual future capital expenditures will
depend on a variety of factors, such as development of our business and of the Hungarian economy and whether we enter into any new line of business. As a result, our actual future capital expenditures
may be significantly different.

RESEARCH AND DEVELOPMENT

For better operation of innovation processes, Magyar Telekom set up a new business unit in 2008 called Alternative Businesses and
Corporate Development ("ABCD"). One of the main tasks of this business unit was to manage all R&D-related activities within the whole company. The research and development process is
managed by the R&D Committee ("the Committee"), which has the possibility and the exclusive right to coordinate every innovation research project originated from the business units. Each business unit
is represented on the Committee by relevant decision-makers. Furthermore, the Committee ensures that all R&D activities are performed in accordance with the strategic goals of Magyar

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Telekom
and avoid overlapping of scopes. After our operational reorganization from September 1, 2009, the leadership of the Committee has been transferred to the Strategic and Corporate
Development ("SCD") unit.

The
Committee convenes regularly in order to discuss and decide on the approval of individual R&D proposals, initiated and executed within a project framework by the respective business
units. During 2009, the Committee reviewed 98 proposals, out of which 65 have been approved, accounting for a total investment of HUF 721 million (including HUF 664 million
operating expenses and HUF 57 million employee-related expenses).

Magyar
Telekom has worked on several R&D projects in collaboration with the Mobile Innovation Centre ("MIK") which started to operate from 2005 as a result of the call for proposal "The
Establishment of R&D and Innovation Centre for Mobile Communication" supported by the National Office for Research and Technology. MIK was established to solve scientific and technologic questions
revealed in future mobile and fixed line networks. This partnership finished its fourth year with great success and has applied for further subsidies.

We
are also a founder member of the Mobility & Multimedia Cluster which is a group of local SMBs, subsidiaries of well-known multinational companies and Hungarian
universities. The aim of this cluster was to integrate the fragmented R&D capabilities of Hungarian companies into a more synergistic structure ultimately aiming at enhancing the global
competitiveness of the Hungarian economy. The cluster also hosts several technology research projects.

We
have been supporting for a number of years the Mobile Communications and Computing Laboratory ("MCL"), located at the Department of Telecommunications of Budapest
University of Technology and Economics. Currently six staff members, 20 PhD students and around 50
undergraduates work on a number of projects concerning IP mobility support, development environments for mobile multimedia systems, fixed line ad-hoc networks, software radio and security
considerations of mobile systems.

Some
relevant research topics from business units:

HeadquartersSCD



Business Services Business Unit



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Consumer Services Business Unit



Technology



Macedonia

Makedonski Telekom continues to maintain its network at a high technological level in order to provide solid base for a wide range of
products and services that will satisfy customers' demands. In the next development period, the main focus will be on network upgrade in all segments: Access, Transport and Service Platforms.

FTTH
is foreseen as the main direction for development of fixed access network. Beside Skopje, FTTH is planned to be implemented in other regions in the country with priority in the
urban areas, where demand for broadband services is higher and where the existing copper network could be a limit for service provision.

The
increasing demand for video and data services requires increasing the capacity of transport network. IP/MPLS Network, as a base for transport of IP services, will continue to be
developed and extended in accordance with the expected traffic growth.

DWDM
network will continue to be the main transport for IP/MPLS and Ethernet traffic. Further upgrade of the DWDM network is expected considering highly increased bandwidth demands from
Makedonski Telekom, domestic and foreign ISPs, T-Mobile Macedonia as well as growing customer demands for international leased lines.

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In
terms of Service Platforms, the main focus will be on development of IPTV and IMS Platform. New IMS Platform to be implemented during 2010 will be used for:



In
the next development period, the migration towards the NGN IP-based network will continue with increased broadband penetration. After the network migration, we will
implement NGOSS.

Research
and development projects at T-Mobile Macedonia are performed in close cooperation with suppliers and state educational institutions.

In
cooperation with the local partners, T-Mobile Macedonia has developed solutions for mobile payment ('m-payment') of parking in Skopje, electronic recharging of
vouchers on ATMs, implemented a Fleet Management Service and is in a process to implement a new web shop for purchase of products and services and also for payment of invoices.

In
cooperation with other T-Mobile operators, T-Mobile Macedonia has implemented Blackberry E-mail Push solution to target the business market segment
and also has built and deployed a system for Automated Device Management that enables remote device configuration for easier value added service adoption in the local market.

T-Mobile
Macedonia is working on implementing 3G-based services for their subscribers. One of the first services that are planned to be installed in the second half of 2010
is mobile TV.

The
upgraded billing platform will be used to host the first penta-play mobile and fixed convergent product in the Deutsche Telekom group. The penta-play product
comprises mobile voice and data (3G Internet), fixed line voice and data (ADSL Internet) and IPTV services on a single invoice.

RISK MANAGEMENT POLICIES

It is our policy that all disclosures made by us to our security holders and the investment community be accurate and complete, and
fairly present our financial condition and results of operations in all material respects. Such disclosures should be made on a timely basis as required by applicable laws, rules and regulations,
including by-laws of the BSE and rules adopted by the SEC. To achieve these objectives, we formed the Disclosure Committee and developed and have continuously enhanced our risk management
policies.

Risk Management Policies

Our risk management policies include identification, assessment and evaluation of risks, development of necessary action plans, and
monitoring of performance and results. For risk management to be effective, we must ensure that management make business decisions with a full understanding of all relevant risks.

In
1999, we established a formal risk management system. This system was integrated into the risk management system of DT in 2002.

All
risks related to material internal and external operations, financial and legal compliance and certain other risks are evaluated and managed by a well-defined internal
mechanism. A risk management handbook and internal regulation on risk management were published in 2003. A risk management course was developed for employees responsible for risk management in all
organizational areas. Risk items affecting our operations are reviewed quarterly throughout the Group. All of our subsidiaries, business units, divisions and entities are obliged to identify and
report their strategic, operational, financial and

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regulatory
risks on a quarterly basis. After evaluation of these risks, results are reported to our management, to the Board of Directors, to the Audit Committee, to the Disclosure Committee and to
DT.

Following
the enactment of the Sarbanes-Oxley Act in the United States in 2002, we decided to enhance our risk management procedures. As this law requires prompt disclosure of all risk
items
influencing investors' decisions, we complemented our quarterly risk reporting system with a continuous reporting procedure which requires all of our departments and subsidiaries to report on a
real-time basis any new material fact, information or risk that comes to their knowledge. Information thus submitted is monitored by the risk management area, and the Chief Financial
Officer ("CFO") is notified when a new material risk or information is identified.

An
internal directive has been issued to define responsibilities of each employee in risk monitoring and management. In addition, an e-learning course was introduced to train
our employees on requirements of the Sarbanes-Oxley Act, our enhanced reporting and corporate governance obligations and the enhanced risk reporting procedures. Completion of this course has been made
compulsory for all of our employees.

Disclosure Committee

We established the Disclosure Committee on July 31, 2003. The Disclosure Committee acts both in plenary meetings and through its
members acting individually. It supports the Chief Executive Officer ("CEO") and CFO in fulfilling their responsibility to oversee processes designed to ensure accuracy and timeliness of our
disclosures.

The
Disclosure Committee consists of individuals knowledgeable in significant and diverse aspects of our business, finances and risks. The members of the Disclosure Committee
are:



Internal
Audit Director and Group Communications Director are permanent invitees.

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Principal
responsibilities of the Disclosure Committee are as follows:



ITEM 6DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES



Board of Directors

Under Hungarian laws, the Board of Directors is responsible for all matters relating to the Company's management and course of business
not otherwise reserved to the General Meeting or to other corporate bodies by the Articles of Association or by the Hungarian laws. The Board of Directors is required to report annually to the
shareholders at the General Meeting and quarterly to the Supervisory Board on our business administration, state of assets and business policy.

Pursuant
to our Articles of Association, the Board of Directors consists of a minimum of six and a maximum of eleven members elected by the General Meeting of the shareholders for a term
of three years. On December 31, 2009, there were ten members of the Board of Directors. Seven of the directors were nominated by MagyarCom and three of the directors were elected upon proposal
by other shareholders of the Company.

Meetings
of the Board of Directors are held at least four times a year. Meetings of the Board of Directors require the presence of six members for a quorum. Each member has one vote. The
Board of Directors passes resolutions by a simple majority vote.

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On
December 31, 2009, members of the Board of Directors, their principal occupations and the years of their original election were as follows:

Name

Principal Occupation

Member
sinceChristopher Mattheisen

Chairman and Chief Executive Officer of Magyar Telekom Plc.


2006Dr. István Földesi

International business consultant


2003Dr. Mihály Gálik

Professor and Head of the Media, Marketing communication and Telecommunications Department at the Faculty of Business Administration of the Corvinus University of Budapest


2006Wolfgang Hetlinger

T-Systems Austria GesmbH, International Operations & Services, Central Eastern Europe Ing.


2009Guido Kerkhoff

Member of the Board of Management of Deutsche Telekom AG to manage the subsidiaries in South Eastern Europe


2009Thilo Kusch

Chief Financial Officer of Magyar Telekom Plc.


2006Mechthilde Maier

Senior Vice President Corporate Diversity Management at Deutsche Telekom


2009Frank Odzuck

Chief Executive Officer of Zwack Unicum Plc.


2006Dr. Ralph Rentschler

Member of the Board of Management, Financial Director SEE


2003Dr. Steffen Roehn

Member of the Deutsche Telekom Group's CIO Board and responsible for the IT of the integrated German mass market approach of Deutsche Telekom


2009


Other Principal Directorships of Members of the Board of Directors:

Name

Position held

CompanyChristopher Mattheisen

Member of the Board of
Directors

Makedonski
TelekomDr. István Földesi

President

Inter-Access, Inc., USADr. Mihály Gálik

NoneWolfgang Hetlinger

Member of the Management Board

T-Systems CISManagement Director

T-Systems d.o.o.Guido Kerkhoff

Member of the Board of Directors

OTE, GreeceThilo Kusch

NoneMechthilde Maier

NoneFrank Odzuck

NoneDr. Ralph Rentschler

Member of the Board of Directors

Slovak TelekomMember of the Supervisory Board

Hrvatski Telekom, CroatiaMember of the Supervisory Board

DeTe Fleet Services GmbHMember of the Supervisory Board

ActiveBilling Beteiligungs-GmbHDr. Steffen Roehn

Member of the Supervisory Board

Hrvatski Telekom, CroatiaChairman of the Supervisory Board

Deutsche Telekom Netzproduction GmbHMember of the Supervisory Board

T-Systems International GmbHMember of the Supervisory Board

T-Mobile Deutschland GmbH


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Biographies of Members of the Board of Directors

Christopher Mattheisen.Mr. Mattheisen studied economics at Indiana University of Bloomington and at Columbia University. He first
came to
Hungary in 1990 to start a strategic planning and business consulting company. In 1993, in his capacity as a marketing manager of U.S. West International, Mr. Mattheisen helped launch various
Hungarian, Polish and Czech mobile service operators. He worked as the marketing and sales director of TMH between 1993 and 1996. Between 1997 and 1999, he ran sales and marketing activities of
MediaOne in London and later worked in Britain as a business, sales and marketing director of BT's Cellnet. In September 2002, Mr. Mattheisen became Chief Officer of Residential Services of
Magyar Telekom and in January 2005 Chief Officer of the Wireline Lines of Business ("T-Com", including Residential Services, Internet and Network divisions).
From December 6, 2006, Mr. Mattheisen has been the Chief Executive Officer of Magyar Telekom, from December 21, 2006 he has been the Chairman of the Company's Board of Directors.

Dr. István Földesi.Dr. Földesi received a degree in economics in 1972 and graduated with
a Ph.D. in 1974. He spent twenty years as a diplomat in London, Madrid and Washington D.C. At the end of the 1980s, he served as an advisor to the Prime Minister and participated in round table
negotiations resulting in political and economic changes. In 1991, he became an advisor to the Organization for Economic Co-operation and Development ("OECD"). He has been working as an
international business advisor since 1992. From 1994 to 1999, Mr. Földesi was a member of the Board of Directors of Magyar Telekom and until 1996 he acted as Chairman of the
Board. In 2003, he was reappointed as a member of the Board of Directors of Magyar Telekom.

Dr. Mihály Gálik.Dr. Gálik is a senior university lecturer with a Ph.D in economics. He
spent nearly two decades in the media, working for Hungarian Radio, where he held several positions involving high responsibility, including that of Managing Director. Afterwards, his professional
career has been linked to the Budapest University of Economics (currently called Corvinus University of Budapest). For three years, he was a senior lecturer, while in the last twelve years he headed
several departments at the university. He is author of some 90 scientific publications including four textbooks. He was also a recipient of the Széchenyi Professor Scholarship. Since
January 1, 2008, he has been a Professor and Head of the Media, Marketing-communication and Telecommunications Department of the Corvinus University of Budapest.

Wolfgang Hetlinger.Mr. Hetlinger joined T-Systems in 2003 as Executive Vice President, Worldwide Telecommunications Sales, in
Germany, where he leads the International Telco Team. In 2009, he joined International Operations and Services as Vice President Central Eastern Europe, where he successfully established the regional
team. He has more than 20 years of professional experience in the ICT industry and a proven record in similar functions as Managing Director at multinational companies. Before he joined
T-Systems in 2003, he worked for several years in the United Kingdom and Switzerland serving in positions as Area Manager (CEE/Middle East Olivetti Communication), General Manager (3COM)
and Area Manager (CEE/Middle East EMC).

Guido Kerkhoff.Mr. Kerkhoff holds a degree in Business Administration from Bielefeld/Saarbrücken, Germany. He started his
career in 1995 as a corporate balance sheet and taxation specialist with VEW AG, Dortmund, Germany. In 1996, he moved to Bertelsmann AG, Gütersloh, heading the Group Accounting and
Controlling department from 1998. In 2002, he joined Deutsche Telekom's Finance area at the Headquarters in Bonn. His positions developed over several leading positions to the head of Group Accounting
and Controlling. Since March 1, 2009, he has served as a member of the Board of Management of Deutsche Telekom AG to manage the subsidiaries in South Eastern Europe.

Thilo Kusch.Mr. Kusch studied communication engineering and business administration at Technische Universität Berlin. From
1989 to 1992, he successfully established and ran his own company selling PCs and PC networks to residential and small business customers. From 1992 to 1998, he worked in a leading position in Arthur
D. Little's Telecoms, IT, media and entertainment practice as a management consultant and from 1998 to 2001 he was telecommunications equity analyst with Dresdner Kleinwort

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Wasserstein.
He joined Deutsche Telekom Group in 2001 as Senior Director in charge of IPO preparations and investor relations for T-Mobile International. Since April 2002 he was a Senior
Executive Vice president of Deutsche Telekom, in charge of investor relations. He was appointed Chief Financial Officer of Magyar Telekom in September 2006.

Mechthilde Maier.Ms. Maier holds degrees in Business Management and Administrative Management from the University for Applied
Sciences,
Rosenheim and from the Government University for Applied Sciences, Dieburg. She started her career as Official in charge of Labour Law, Compensation and Benefits at Deutsche Telekom, Freiburg in 1989
and she filled various positions there until 1998. Between 1999 and 2001 she became Vice Director and member of the Management Board for Regional Office Business Customers at Deutsche Telekom,
München. She worked also as Managing Director and was member of the Board of Directors at T-Systems International. In 2001, she became Personnel Director at
T-Systems CDS and worked as Senior Vice President of Human Resources ITO, Enterprise Services from 2004 to 2008. Since August 2008, she has been Senior Vice President Corporate Diversity
Management at Deutsche Telekom, Bonn.

Frank Odzuck.Mr. Odzuck obtained an economics degree in 1983 in Budapest. He was the managing director of the Hungarian operations
of Eduscho
and Eduscho-Tchibo for 8 years and later the managing director of Nestlé-Schöller Hungary Ltd. Since 2003, he has been the CEO of Zwack Unicum Plc.,
listed on the Budapest Stock Exchange. The company, producing and marketing a genuine "Hungaricum", is one of the best-known international companies in Hungary (Underberg, Diageo).

Dr. Ralph Rentschler.After receiving a doctorate degree in economics, Dr. Rentschler worked for four years for Robert
Bosch GmbH as an expert advisor on business principles and methods. His areas of responsibility included investment analysis and cost accounting. He was Head of Group Controlling and Planning
and Reporting Departments at Carl Zeiss from 1992 to 1997. His areas of responsibility
included production and investment controlling, controlling of affiliated companies, M&A and strategic planning. Later he became Commercial Manager of the Brand Optics Division at Carl Zeiss, where he
managed Accounting, Controlling, Data Processing and Purchasing. Dr. Rentschler joined Deutsche Telekom in 2001 and became CFO of the group-wide Fixed Net division. From July 2009,
Dr. Rentschler has taken over the position as the Financial Director of the Board Division Southern and Eastern Europe in addition to his position as the CFO of the Fixed Net business.

Dr. Steffen Roehn.Dr. Roehn graduated with a degree in Physics from the Universities of Kaiserslautern, Karlsruhe and Mainz.
In 1991,
he obtained a PhD degree at the European research facility CERN (Geneva) and the Imperial College (London). After his graduation, Dr. Roehn acted as consultant for Gemini Consulting, advising
the telecommunications and consumer goods industry branches. Subsequently, he was employed as a quality manager by Credit Suisse. In 1996, he moved to the international Diebold Management Consulting,
where he became a partner and member of the Board responsible for TIME practice. In January 2000, he was appointed CEO of the Diebold Group. Dr. Roehn joined Deutsche Telekom in 2000 as IT
Director of T-Mobile Deutschland. In 2006, he was appointed Member of the Executive Committee of T-Mobile International. Since May 2009, Dr. Roehn has been the Chief
Information Officer of Deutsche Telekom group.

Management Committee

Pursuant to the Rules of Procedure of the Board of Directors, the Board of Directors established a Management Committee in 2000, which
is empowered to carry out the day-to-day operations in

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accordance
with the annual business plan. On December 31, 2009, the Management Committee consisted of seven chief officers of Magyar Telekom. The members were as follows:

Name

Current position

Member
sinceChristopher Mattheisen

Chairman and Chief Executive Officer


2006Thilo Kusch

Chief Financial Officer


2006István Maradi

Chief Technology and IT Officer


2007István Papp

Chief Operating Officer, Business Services BU


2007Róbert Pataki

Chief Operating Officer, Strategic and Corporate Development BU


2009Éva Somorjai

Chief Human Resources Officer


2007János Winkler

Chief Operating Officer, Consumer Services BU


2006


Other Principal Directorships of Members of Management Committee

Name

Position held

CompanyChristopher Mattheisen

See aboveThilo Kusch

See aboveIstván Maradi

Non-Executive Director, Owner

Centro-plane Kft.István Papp

Member of the Board of Directors

KFKI Zrt.Róbert Pataki

Member of the Supervisory Board

FHB Kereskedelmi Bank Zrt.Éva Somorjai

NoneJános Winkler

None


Biographies of Chief Officers

Christopher Mattheisen.See "Biographies of Members of the Board of Directors" above.

Thilo Kusch.See "Biographies of Members of the Board of Directors" above.

István Maradi.Mr. Maradi graduated in 1989 from the Technical University of Budapest with a degree in communications
engineering, specializing in GSM and mobile communication, then in 2000 obtained an MBA degree at the Open University of London. He started his carrier in Matáv PKI Research Institute
as mobile telecommunications researcher. Then he participated in the start-up of Westel Rádiótelefon Kft. with responsibility for network design. In the
initial period of the company's operations he worked as design engineer, then as radio engineer, and from 1992 as director for network operations. From 1995, he was director of operations at Westel
900 Rt., then at TMH, from 2001 to 2006 Chief Officer and Service Development Director of TMH. From April 1, 2007, he has been Chief Information Officer of Magyar Telekom and from
January 1, 2008, Chief Technology and IT Officer.

István Papp.Mr. Papp holds a degree in economics and an MBA diploma from Warnborough University in Ireland. He started his
professional career at Integra Kft. From 1996, he worked at Anixter Distribution Hungary, first as commerce director and then as regional head of sales. In 1999, he joined Cisco Systems Hungary Kft.
For eight years he served in several executive positions at the company and directed its large enterprise, service provider, government, small and medium enterprise, as well as partner relations,
lines of business. In August 2005, he was appointed head of the region comprising eight countries (Albania, Bosnia-Herzegovina, Croatia, Macedonia, Montenegro, Serbia, Slovenia and Hungary), and was
Cisco Systems Director responsible for the Adriatic region and Hungary. From October 16, 2007, he has been Chief Operating Officer of Magyar Telekom, Head of Business Services LoB and from
January 1, 2008, Chief Operating Officer of Business Services Business Unit.

Róbert Pataki.Mr. Pataki graduated as an economist from the Corvinus University in Budapest and then completed studies in
International Finances and Marketing Management at the University of

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Erasmus
in Rotterdam. He started his career as an investment analyst at Project Finance International Ltd. in The Hague in 1995 and he worked as a financial analyst for Nutricia
Netherlands BV in Rotterdam in 1996. He joined Accenture (Andersen Consulting) in 1996 and until 2001 he worked for Accenture's Strategic Services, first as a strategic consultant, later as a
senior manager responsible for the telecommunications and e-commerce sectors. From 2001, he continued his professional career with A.T. Kearney as a dedicated account manager
providing consultancy services to leading Hungarian telecommunications companies; later in 2003, he became senior manager of A.T. Kearney's European Telecommunications Team responsible for major
European projects in the field of mobile communications and Internet services. He has been Chief Strategist of Magyar Telekom since September 2006. As of April 1, 2009, he was appointed Chief
Operating Officer of Alternative Businesses and Corporate Development Business Unit by keeping his tasks as Chief Strategist of Magyar Telekom as well. Due to organizational changes within the
company, he has worked as Chief Strategy and Corporate Development Officer from September 1, 2009.

Éva Somorjai.Ms. Somorjai completed her studies at the College for Commerce and Catering. From 1989, she worked at
the
international directorate of Magyar Hitelbank. From 1991 through 1994, she was the administrative and financial manager of a real estate investment company in Melbourne, Australia. Between 1996 and
2001, she worked in various management positions in the human resources area of Pepsi Cola's Central European division. In 1999, she was appointed human resources director of the international
organization and personnel development area, from 2000 she filled the position of human resources director of the Hungarian company. She has been working for Magyar Telekom since October 2001. Since
2002, she served as Director of the Group HR Branch. From April 1, 2007, she has been Chief Human Resources Officer of Magyar Telekom.

János Winkler.Mr. Winkler earned an economics degree at the Budapest University of Economic Sciences, and in 2000 an MBA
degree at Purdue University (USA). He started his career as trade manager with Nikex Foreign Trade Company, then from 1986 to 1991 he served in Beijing at the Commercial Section of the Republic of
Hungary, first as commercial secretary, later deputy counselor. From 1992, he was National Sales Manager, later Deputy Director of Marketing at Westel Rádiótelefon Kft.
and in 1994, he was appointed Deputy CEO. From February 1996, he had been Chief Marketing and Sales Officer of Westel 900 (TMH). As of January 20, 2006, he was appointed TMH's CEO and became
member of the Management Committee of Magyar Telekom. From March 1, 2006 he has been Chief Operating Officer of Magyar Telekom's Mobile Services LoB. From January 1, 2008, he has been
Chief Operating Officer of Consumer Services Business Unit.

Supervisory Board

The Supervisory Board has to examine every important report on business policy and every submission made on matters falling into the
exclusive competence of the General Meeting. The General Meeting may pass resolution on the annual report prepared in accordance with the Act on Accounting and the use of the profit after income tax
only upon receipt of the written report of the Supervisory Board, whereas the proposal of the Board of Directors on the payment of dividends and the company's corporate governance report can only be
submitted to the General Meeting with the prior approval of the Supervisory Board.

Pursuant
to the Articles of Association, the Supervisory Board consists of a minimum of three and a maximum of fifteen members elected by the General Meeting for a term of three years.
The Workers' Council nominates one third of the Supervisory Board members. Meetings of the Supervisory Board have a quorum if two-thirds of the elected members are present.

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On
December 31, 2009, the members of the Supervisory Board, their principal occupation and the years of their original election were as follows:

Name

Principal Occupation

Member
sinceAttila Csizmadia

Ministry of Finance, Chief Counsellor


2003Dr. János Illéssy

Managing Director, Lebona Kft.


2006Dr. Sándor Kerekes

Director of Institute of Environmental Sciences Corvinus University Budapest


2006István Koszorú(1)

Member of Magyar Telekom's Central Workers' Council


2007Konrad Kreuzer

Chairman of the Board of Directors of E.ON Hungary Zrt.


2006Martin Meffert

Country manager for Hungary, Head office of T-Home, Deutsche Telekom AG


2009Dr. László Pap

Budapest University of Technology, Professor


1997Zsoltné Varga

Quality Manager, Magyar Telekom


2008György Varju

Chairman of the Central Workers' Council


2005


(1)Mr Koszorú
passed away on March 2, 2010.


The members mandate lasts until May 31, 2010.

Other Principal Directorships of Members of the Supervisory Board

Name

Position held

CompanyAttila Csizmadia

Member of the Supervisory Board

Postaautó Duna Zrt.Member of the Supervisory Board

Puskás Tivadar KözalapítványChairman of the Supervisory Board

MÁV FKG Felépítménykarbantartó és Gépjavító Kft.Member of the Supervisory Board

Távközlési Oktatási AlapítványMember of the Supervisory Board

BME-Infokom Nonprofit Kft.Dr. János Illéssy

NoneDr. Sándor Kerekes

Chairman of the Advisory Board

Zöld Iránytü AlapítványMember of the Supervisory Board

Tomori Pál FöiskolaMember of the Advisory Board

Vezetöképzésért AlapítványMember of the Advisory Board

Lélegzet AlapítványIstván Koszorú

Member of the Board of Directors

DIMENZIÓ EgészségpénztárKonrad Kreuzer

Chairman of the Board of Directors

E.ON SlovenskoChairman of the Board of Directors

E.ON Hungária Zrt.Chairman of the Supervisory Board

E.ON Észak-dunántúli Áramszolgáltató Zrt.Chairman of the Supervisory Board

E.ON Dél-dunántúli Áramszolgáltató Zrt.Chairman of the Supervisory Board

E.ON Tiszántúli Áramszolgáltató Zrt.Chairman of the Supervisory Board

E.ON Közép-dunántúli Gázszolgáltató Zrt.Chairman of the Supervisory Board

E.ON Dél-dunántúli Gázszolgáltató Zrt.Chairman of the Board of Directors

Zapadoslovenska EnergetikaMartin Meffert

NoneDr. László Pap

Member of the Supervisory Board

Viking Zrt.Zsoltné Varga

NoneGyörgy Varju

None


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Biographies of Members of the Supervisory Board

Attila Csizmadia.Mr. Csizmadia holds an engineering degree in telecommunications. From 1968 to 1983, he worked at the Budapest
Telephone
Directorate as a technician, then held various management positions. In 1983, he became a senior staff member at the General Directorate of Hungarian Post. From 1988 to 1990, he was a senior staff
member and Head of Telecommunications Department at the National Planning Office. From 1990, he worked as Head of Department and chief counselor in the Ministry of Finance. He also took part in work
of various inter-departmental committees and consulting bodies dealing with IT and communications issues. He is the Deputy Secretary General of the Scientific Society of Telecommunications.

Dr. János Illéssy.Dr. Illéssy is an electrical engineer graduated from the Budapest
Technical University and acquired MBA and PhD degrees from the University of Pittsburgh, USA. He spent over 15 years with Pannonplast, a plastics producer listed on the Budapest Stock Exchange,
as consultant, controller, CFO and then Chairman-CEO. Between 2001 and 2003 he worked as CFO for the Hungarian subsidiary bank of BNP Paribas. Between 2004 and 2007 he was the CFO and
member of the Board of Directors of BorsodChem. Currently, he is the managing director of Lebona Kft. and teaches Financial Economics at the Institute of International Business Relations and also at
the Business School of Central European University as an Adjunct Professor.

Dr. Sándor Kerekes.Professor Kerekes holds an MSc in Chemistry and Economics. He acquired a Ph.D degree in Economics in
1984
and Doctor of Sciences (the highest degree awarded by the Hungarian Academy of Sciences) in 2003. In 1994, he participated in the Advanced Management Program at Harvard Business School. For
15 years, he was member or Chairman of the Board of Directors or Supervisory Boards of various Hungarian mid-size companies. Since 1986, he has served as the Head of Department and
later as the director of Corvinus University and its legal predecessors. Between 1994 and 1997 and between 2002 and 2006 he served as the Dean of Business Administration Faculty of Corvinus
University. He is the Director of the Institute of Environmental Sciences and Vice Rector of Academic Affairs of Corvinus University. He is member of the editorial boards of various papers
(e.g., Economy and Society, Vezetéstudomány) and the author of many books and articles.

István Koszorú.Mr. Koszorú had been working for Magyar Telekom and its legal predecessor in
positions of transmission technician, general technician, technical designer and plant manager since 1971. He had
also been an elected official of the Workers Council since 1993. From 2008 until February 2010, he was the Chairman of Magyar Telekom's Central Workers' Council.

Konrad Kreuzer.Mr. Kreuzer is a lawyer with a degree in Business Administration. After serving in various positions at the
Universities of
Munich and Konstanz and in the Ministry of Domestic Affairs of the State of Bavaria, he joined Bayernwerke utilities as the Head of the Law and Property Department. Since 1997, he has served as the
Chairman of the Board of Directors of E.ON in Hungary. His current responsibilities are Legal Affairs, Gas Business and International Affairs.

Martin Meffert.Mr. Meffert holds a degree in Telecommunications Engineering from the University of Applied Sciences and a degree
in Economics
from the Business and Administration Academy in Koblenz, Germany. He started his career in 1985 as a telecommunications network planner and later satellite services specialist in the regional
directorate of Deutsche Bundespost in Koblenz. Between 1990 and 1998 he served in the Ministry of Telecommunications in Bonn at the departments of satellite systems and international network projects.
In 1999, he joined the fixed line business of Deutsche Telekom responsible for cooperation and alliance management. Since 2003 he has been a country manager for Hungary at the Head Office of
T-Home.

Dr. László Pap.Dr. Pap graduated from the Budapest Technical University with a degree in
telecommunications. He received a Ph.D in 1980 and Doctor of Sciences (the highest degree awarded by the Hungarian Academy of Sciences) in 1992. He has been a professor in the Electrical Engineering
and Informatics Faculty at Budapest Technical University since 1992. From 1992 to 2008 he served as Head of

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the
Telecommunications Department and from 2001 to 2004 as Strategic Vice Rector. He is a full member of the Hungarian Academy of Sciences and has obtained numerous patents for his inventions. He is
the Honorary President of the Scientific Society of Telecommunications, a member of the Telecommunications Systems Committee of the Hungarian Academy of Sciences, a member of the editorial board of
the periodical World of Nature and Wireless Networks, an expert of the Hungarian Space Research Governmental Committee and the president of the Scientific Committee of Space Research.

Zsoltné Varga.Mrs. Varga graduated from the College of Transport and Telecommunications at Györ in 1991. She
has been working for Magyar Telekom (and its legal predecessor) since 1991. From 1991 to
1996, she was an engineer in the technical area, later she was head of a T-Pont shop. Currently, she works as a quality manager. In 1998, she became an elected member of the Workers'
Council and she is member of the Central Workers' Council. Since 2004 she has been a member and from 2009 deputy chairwoman of Deutsche Telekom's European Workers' Council.

György Varju.Mr. Varju has been working for Magyar Telekom and its legal predecessor since 1977. Until 1998, he acted as an
on-site construction manager. In 1993, he was elected to the Workers' Council, at present he is Chairman of the Central Workers' Council.

Indemnification of the Board of Directors and the Supervisory Board

Pursuant to our Articles of Association, to the extent permitted by law, we are required to indemnify each current and former member of
the Board of Directors and the Supervisory Board, provided on the one hand that he or she was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal or administrative, by reason of the fact of his or her current or former position at the Company and on the other hand that he or she acted in good faith and in a
manner he or she reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal proceeding, had no reasonable cause to believe his or her conduct
was unlawful. We may maintain insurance on behalf of any member of the Board of Directors or the Supervisory Board against any liability asserted against him or her and incurred by him or her in any
such capacity, whether or not we have the obligation to indemnify him or her against such liability.

Compensation of Directors and Officers

For the year ended December 31, 2009, the aggregate compensation of the members of the Board of Directors in their capacity as
Board members was HUF 13.1 million in the following breakdown:

Name

Position held

CompensationDr. István Földesi

Member of the Board of Directors


HUF 4.37 millionDr. Mihály Gálik

Member of the Board of Directors


HUF 4.37 millionFrank Odzuck

Member of the Board of Directors


HUF 4.37 million


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For the year ended December 31, 2009, the aggregate compensation of the members of the Supervisory Board in their capacity as Supervisory
Board members was HUF 42.2 million in the following breakdown:

Name

Position held

CompensationAttila Csizmadia

Member of the Supervisory Board


HUF 3.53 millionDr. Ádám Farkas

Chairman of the Audit Committee (until July 26, 2009)


HUF 2.02 millionMember of the Supervisory Board (until July 29, 2009)


HUF 2.03 millionDr. János Illéssy

Member of the Supervisory Board


HUF 3.53 millionChairman of the Audit Committee (from July 27, 2009)


HUF 1.50 millionMember of the Audit Committee (until July 26, 2009)


HUF 1.02 millionDr. Sándor Kerekes

Member of the Supervisory Board


HUF 3.53 millionMember of the Audit Committee


HUF 1.76 millionDr. László Pap

Chairman of the Supervisory Board


HUF 5.38 millionMember of the Audit Committee


HUF 1.76 millionIstván Koszorú

Member of the Supervisory Board


HUF 3.53 millionKonrad Kreuzer

Member of the Supervisory Board


HUF 3.53 millionÉva Öz

Member of the Supervisory Board (between April 2, 2009 and July 29, 2009)


HUF 1.15 millionZsoltné Varga

Member of the Supervisory Board


HUF 3.53 millionGyörgy Varju

Member of the Supervisory Board


HUF 3.53 millionPéter Vermes

Member of the Supervisory Board (until March 30, 2009)


HUF 0.88 million


For the year ended December 31, 2009, the aggregate compensation of the members of the Management Committee ("MC") was
HUF 1,043 million.

Currently
two of the MC members have an employment contract for a fixed duration. Pursuant to Hungarian legislation, if an employment contract is terminated before the end of its term,
the average compensation received by the employee prior to such termination is payable for the remaining period up to 12 months. In case an employment contract for an undetermined duration is
terminated, the notice period is normally six months, and severance is between 10 and 16 months.

In
addition to the above, the affected persons are bound by the non-compete clause, under which the employee is barred from entering into employment with any Hungarian or
international competitor of Magyar Telekom and is required to refrain from providing direct or indirect services or activities of any kind to such companies for a definite period (not longer than one
year) upon termination of his/her employment. Furthermore, such employee is barred from any action aimed to recruit employees of Magyar Telekom for any other company. This limitation entails certain
compensation which is proportional with the above obligation. If the employee is in breach of the agreement, he/she will reimburse the net amount of compensation to the employer. In addition, the
employee will be liable for a payment of compensation to the employer.

The
MC members from foreign countries may be entitled to housing subsidies.

In
line with the Company's remuneration guidelines, the company provides contribution-based personal pension scheme and the personal insurance scheme on behalf of the MC members. In
addition, the MC members are entitled to the use of company cars.

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Remuneration guidelines

On December 16, 2008, the Board of Directors prepared the Remuneration guidelines of the Company. These guidelines were opined
by the Supervisory Board on March 11, 2009 and were approved by the General Meeting on April 2, 2009.

Board of Directors



Supervisory Board



Audit Committee



Management Committee



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Board Practices

Members of the Board of Directors and the Supervisory Board are elected for a term of three years. Current members of the Board of
Directors and the Supervisory Board serve until May 31, 2010. Members of the Management Committee are elected for an indefinite period.

Employment
contracts with our management employees contain special provisions providing for entitlements after termination of employment; therefore, the amount of severance is higher
than the amount required by the applicable provisions of the Labor Code.

In
compliance with the relevant provisions of the Act IV of 2006 on Business Associations and the Company's Articles of Association, the AGM held on April 26, 2007 elected an
Audit Committee from the independent members of the Supervisory Board. The members of the Audit Committee of Magyar Telekom are Dr. János Illéssy (Chairman),
Dr. László Pap and Dr. Sándor Kerekes. The mandate of the Audit Committee memberssimilarly to that of the Board of Directors
members and the other Supervisory Board memberslasts until May 31, 2010.

The
Audit Committee acts independently within its scope of authority provided in Act IV of 2006 on Business Associations, Act CXX of 2001 on the Capital Market, our Articles of
Association, and in compliance with the rules and regulations of the BSE, the NYSE and the SEC, as well as the provisions and rules of the US Securities Exchange Act of 1934, as amended (the "Exchange
Act").

The
purpose of the Audit Committee is, among others, to oversee:



The
Audit Committee recommends the appointment of independent auditors to be elected at the AGM and approves the scope of external audit services. The Audit Committee
pre-approves all audit and non-audit services to be performed by the external auditor and the related fees, with the exception of fees within the exclusive scope of authority
of the General Meeting. The Audit Committee also reviews and

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evaluates
our annual financial statements, taking into account results of audits and reviews performed by the independent auditors. The Audit Committee meets at least four times a year.

The
Remuneration Committee makes proposals to the Board of Directors with respect to appointment and dismissal, as well as remuneration of chief officers, including establishment and
assessment of
bonus targets. Members of the Remuneration Committee are Frank Odzuck and Dr. Ralph Rentschler. The Chairman of the Remuneration Committee is Guido Kerkhoff who was elected as member of the
Remuneration Committee by the Board of Directors on May 25, 2009. The Remuneration Committee meets at least three times a year.

Employees

We had 10,828 employees as of December 31, 2009. The following table provides information concerning the number of
full-time employees, including full-time equivalents, of Magyar Telekom Plc. and its consolidated subsidiaries:

At December 31,2007

2008

2009Magyar Telekom Plc.


7,008


6,125


6,459Magyar Telekom Plc. and its consolidated subsidiaries


11,723


10,439


10,828


The following table provides information on the breakdown of Magyar Telekom's employees by segment:

At December 31,2008

2009CBU


2,893


2,937BBU


1,469


1,709Headquarters


1,034


1,095Technology


2,078


2,120Macedonia


1,738


1,754Montenegro


868


876All other


359


337Total


10,439


10,828


Total Workforce Management.From 2009, Magyar Telekom introduced a Total Workforce Management ("TWM") system. This scheme focuses on
the total labor
cost and not solely on headcount number and
employee-related expenses. As a result, it enables us to increase the flexibility and efficiency with which all human resource-related expenses are managed, including contracted or temporary employees
as well as outsourcing and entrepreneurial contracts.

Workforce Reduction and Redeployment.Centralization, technological improvements and attrition have allowed us to reduce the size of our
workforce.
While overall personnel levels are falling (disregarding the technical effects of acquisitions and Total Workforce Management), the number of highly skilled employees is increasing. We plan to further
reduce the number of our employees.

In
order to simplify and streamline its organization, Magyar Telekom has already implemented several integration steps. The merger with T-Mobile Hungary in March 2006, the
integration of Emitel and the access business area of T-Online into the parent company from October 2007 and the integration of T-Kábel from October 2009 enabled
the management to eliminate overlaps and simplify the processes and the operational structure of the Group. The decision on the change in the organizational model was a further step to ensure a more
customer-focused approach and a lean management structure. With the aim

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to
further improve efficiency and reduce headcount, management started negotiations with the trade unions and reached an agreement in September 2009.

We
have reached an agreement with the trade unions representing our employees on wage development, headcount reduction and decreases in additional employee allowances at the parent
company level for 2010. The key elements of the agreement are the following: reduction of headcount by 400 in addition to lay-offs of managers and early retirement packages; no wage
increase, but a 1.5 percent bonus budget has been set (significantly below inflation); and a gradual reduction of surplus severance payments in the Collective Agreement. These measures will
reduce our TWM related costs.

These
efficiency improvement measures are necessary steps to mitigate the negative trends in the telecommunications industry being faced by Magyar Telekom. Increasing competition in all
segments and a tougher regulatory (roaming regulation and reducing termination fees) and macroeconomic environment will put pressure on our performance in coming years.

Employee Representation and Labor Relations.Magyar Telekom Plc. has entered into a collective bargaining agreement with the
Hungarian
telecommunications trade unions (Távközlési Szakszervezet, "TÁVSZAK" and Magyar Távközlési
Ágazati Szakszevezet, "MATÁSZ"). The agreement, which can be
terminated by either party with three months' notice, applies to all Magyar Telekom Plc. employees except the CEO, regardless of their union membership status. Wage terms in the agreement must
be renegotiated annually. Under the agreement, employees are generally entitled to prior notice before termination. Furthermore, employees are entitled to a specific amount of severance pay, which
depends on the tenure of the employee. Employees are also entitled to welfare benefits as discussed below.

In
addition to the collective bargaining agreement, employees of our Hungarian operations are generally covered by the Hungarian Labor Code, Law XXII of 1992, as amended, which imposes
various restrictions on the involuntary termination of employment. The Hungarian Labor Code protects employee interests through two different labor organizations: the Trade Union and the Workers'
Council.

The
Trade Union, as the official representative of employee interests in negotiations relating to the terms of employment, has the right to be informed of all corporate measures that may
significantly affect the interests of employees and to commence legal action against us for employment-related conduct that infringes an employment rule. In addition, the Workers' Council directly
represents employee interests in dealings with management and decides jointly with management on matters involving employee welfare funds and institutions. The Workers' Council must be informed
semi-annually on issues affecting our economic performance and changes in wages, employment conditions and working hours. The Workers' Council must also be consulted on corporate measures
affecting employees.

Under
the Act IV of 2006 on Business Associations (the "Companies Act"), employee representatives on the Supervisory Board are nominated by the Workers' Council in cooperation with the
Trade Union. The composition of the Supervisory Board is approved by the AGM. At least one third of the members of the Supervisory Board must be employee representatives. On December 31, 2009,
three members of the Supervisory Board were employee representatives. These members were István Koszorú, Zsoltné Varga and György Varju.

We
believe that our relations with our employees are good. We have not experienced any labor strikes or disruptions since our formation.

Pensions and Benefit Programs.We provide employees with discounted telephone services, subsidized meals, interest-free loans to
purchase
real estate (such loans are not offered or extended to the Company's executive officers and directors), discount holiday facilities and other fringe benefits. In addition to our statutory
contributions to governmental health, retirement and unemployment schemes, we contribute to the employees' voluntary pension fund and supplementary benefits fund, which provide private pension and
health insurance benefits supplementing government pension and health benefits. We do not, however, guarantee payment by the benefits fund to its members. At the end of 2009, approximately

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80 percent
of all employees participated in the pension plan, 60 percent in the self-help plans and 82 percent in the health fund.

Share Ownership of Management

The following table sets out information relating to holdings of ordinary shares by our directors and executive officers at
December 31, 2009:

Name

Position

No. of Shares
OwnedChristopher Mattheisen

CEO, Chairman of the Board of Directors


19,041Thilo Kusch

CFO, Member of the Board of Directors


3,500Dr. Mihály Gálik

Member of the Board of Directors


1,000Attila Csizmadia

Supervisory Board Member


6,272Zsoltné Varga

Supervisory Board Member


1György Varju

Supervisory Board Member


320Éva Somorjai

Chief Human Resources Officer


2,300Total




32,434


For information about share options, see Note 24.1 to the consolidated financial statements. For information about Deutsche Telekom stock
appreciation rights, Mid-term Incentive Plan ("MTIP") programs and stock option plans, see Note 33.4 to the consolidated financial statements.

ITEM 7MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS



Major Shareholders

The share capital of Magyar Telekom Plc. is HUF 104,274,254,300, consisting of 1,042,742,543 Series "A" ordinary
shares with a nominal value of HUF 100 each at December 31, 2009.

Ordinary
shares outstanding as of December 31, 1999 amounted to 1,037,281,600 shares. In June 2000, 630,000 ordinary shares of the Company were registered, which increased Magyar
Telekom Plc.'s number of registered ordinary shares to 1,037,911,600. Of the newly issued shares, 77,270 ordinary shares were traded outside Magyar Telekom. Consequently, the number of shares
outstanding increased to 1,037,358,870 shares.

In
2002, the remaining 552,730 shares from the June 2000 transaction issue were traded outside Magyar Telekom. In addition, as a result of the new management stock ownership program
launched in 2002, we issued 4,900,000 shares of common stock, which were repurchased immediately. As a result, the number of registered shares increased to 1,042,811,600.

At
the end of February 2006, TMH was merged into Magyar Telekom Plc. According to the Hungarian Act on Business Associations it is not mandatory for the shareholders to remain
shareholders of the merged company and the company's share capital should be reduced by the nominal value of the shares held by those shareholders who did not participate in the merger. When these
shareholders elected not to participate in the merger, MagyarCom, as controlling stakeholder, also had to divest some of its interest in Magyar Telekom to avoid a public offering procedure. As 43,385
shares were divested by the departing shareholders, the number of ordinary shares outstanding decreased to 1,042,768,215 as of February 28, 2006, when the Court of Registry registered the
merger.

The
Parliament of the Republic of Hungary approved an Act that abolishes the priority voting share of the state (golden share, Series "B" share). As a result, Magyar
Telekom Plc. amended its Articles of Associations on June 29, 2007, to delete the provisions concerning the "B" shares and converted the one registered priority Series "B" voting
share (golden share) with a face value of HUF 10,000 to 100

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dematerialized
ordinary Series "A" shares with a face value of HUF 100 each and terminated the priority rights associated with the golden share.

With
the effective day of September 30, 2007, Emitel and the access business line of T-Online Hungary merged into Magyar Telekom Plc. Due to the reasons
explained in the paragraph above, MagyarCom, as controlling stakeholder, also had to divest some of the interest in Magyar Telekom to avoid a public offering procedure. As 22,700 shares were divested
by the departing shareholders, the number of ordinary shares outstanding decreased to 1,042,745,615 as of September 30, 2007, when the Court of Registry registered the merger.

Effective
as of September 30, 2009, T-Kábel Magyarország Kft. and Dél-Vonal Kft. merged into Magyar
Telekom Plc. Due to the reasons explained in the previous paragraphs, MagyarCom, as controlling stakeholder, had to divest some of the interest in Magyar Telekom to avoid a public offering
procedure. As 3,072 shares were divested by the departing shareholders, the number of ordinary shares outstanding decreased to 1,042,742,543 as of September 30, 2009, when the Court of Registry
registered the merger.

Information
concerning our ownership structure as of December 31, 2009 is set out in the following table:

Shareholder

Number of
shares

Percentage of
share capitalMagyarCom(1)


617,436,759


59.21Publicly traded(2)


423,802,243


40.65Treasury stock


1,503,541


0.141,042,742,543


100.00


(1)MagyarCom
is a wholly owned subsidiary of Deutsche Telekom.(2)Of
our publicly traded shares, JP Morgan Chase Bank, N.A., as Depositary, had 5,429,283 ADRs, evidencing 27,146,415 shares on its accounts as of
December 31, 2009, for registered holders, such amount representing 2.60 percent of the total shares outstanding. We do not know whether this percentage may be indicative of the
percentage of our ordinary shares held by U.S. persons. Also, members of the Board of Directors, Supervisory Board and the management own a total of 32,434 shares.


MagyarCom does not have different voting rights than our other shareholders and, as with our other shareholders, MagyarCom is entitled to one vote
per each ordinary share that it owns.

Related party transactions

For a discussion of related party transactions, see Notes 16 and 33 to the consolidated financial statements.

ITEM 8FINANCIAL INFORMATION    CONSOLIDATED FINANCIAL STATEMENTS

See "Item 17Financial Statements".

OTHER FINANCIAL INFORMATION



Legal proceedings

Legal proceedings pending before the competent courts

There are numerous legal cases for which provisions were recognized, none of which are individually material, therefore not disclosed.

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The
most significant contingent liabilities of Group are described below. No provisions have been recognized for any of these cases as the management estimates that it is unlikely that
these claims originating from past events would result in a material adverse effect on the Group.

Compensation for termination of a service contract by T-Mobile Macedonia

In January 2002, T-Mobile Macedonia signed an agreement with a subcontractor, including a 3-month trial period,
for the collection of T-Mobile Macedonia's overdue receivables. After the expiration of the 3-month trial period, T-Mobile Macedonia terminated this contract in
April 2002 due to breaches of the contractual obligations by the subcontractor. The subcontractor initiated a lawsuit in April 2003 requesting damage compensation for foregone profit and compensation
for services already rendered. Management estimates it unlikely that the subcontractor will win the court case against T-Mobile Macedonia. The potential loss from the claim is
approximately HUF 4.3 billion. The first instance decision will be made by a primary court of Macedonia, the timing of which is uncertain.

T-Mobile Macedonia's dispute with the Agency on frequency fees

T-Mobile Macedonia paid the invoices issued by the Agency for the 2004 and 2005 radio frequency fees, however, the Agency
issued further invoices for the same periods in May 2007, which T-Mobile Macedonia is disputing as the management
believes that there is no valid legal base for invoicing additional fees. The potential exposure is about HUF 0.8 billion.

Makedonski Telekom's dispute on fixed-to-mobile termination fees

In 2005, Makedonski Telekom changed the retail prices for the traffic from the fixed-to-mobile networks.
According to the interconnection agreements with the mobile operators, the change in retail prices automatically decreased the interconnection fees for termination on the mobile networks. In February
2006, one of the Macedonian mobile operators, Cosmofon, submitted to the Agency a request for dispute resolution with reference to the termination prices. The Agency rejected the requests of Cosmofon
as "ungrounded". This decision of the Agency was appealed by Cosmofon by filing a lawsuit at the Administrative Court of Macedonia. The potential loss from the claim is approximately
HUF 0.4 billion, but the management estimates it unlikely that this will result in any material cash outflows. The final decision will be made by the Administrative Court of Macedonia,
the timing of which is uncertain.

Prices offered at a Government bid for fixed line telephony services in Macedonia

Based on the Law on Electronic Communications (the "Law") and upon Cosmofon's request, the Agency made an inspection at Makedonski
Telekom regarding the Government's tender for procuring fixed line telephone services on September 24, 2009. In its request Cosmofon stated that Makedonski Telekom had submitted an offer with
prices that were predatory and not published in its official pricelist. In its written answer, Makedonski Telekom pointed out that the official pricelist contains only the standard prices excluding
the special discounts and tariff models. We believe that Makedonski Telekom offered these prices in accordance with the conditions of the relevant bid, taking care that the prices were not predatory.
The Agency has not responded yet. Should Makedonski Telekom be found in breach of the Law, the potential fine can be as high as 7 percent of the total annual revenue of Makedonski Telekom for
2008, which would be HUF 3.0 billion.

Employee salary dispute in Montenegro

405 employees initiated a legal proceeding against Crnogorski Telekom and T-Mobile Crna Gora, requesting the payment of
compensation for not increasing salaries from 2005 until June 2008. The plaintiffs are referring to the regulation of this matter by the Collective Bargaining Agreement ("CBA"). Management's view is
that automatic salary increases are not established in the CBA, therefore

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management
believes that the Group will not be required to pay any compensation. The maximum exposure is approximately HUF 0.4 billion.

Investigation into certain consultancy contracts

In the course of conducting their audit of the Company's 2005 financial statements, PricewaterhouseCoopers, the Company's auditors,
identified two contracts the nature and business purposes of which were not readily apparent to them. In February 2006, the Company's Audit Committee retained White & Case, as its independent
legal counsel, to conduct an internal investigation into whether the Company had made payments under those, or other contracts, potentially prohibited by U.S. laws or regulations, including the U.S.
Foreign Corrupt Practices Act ("FCPA") or internal Company policy. The Company's Audit Committee also informed the United States Department of Justice ("DOJ"), the United States Securities and
Exchange Commission ("SEC") and the Hungarian Financial Supervisory Authority of the internal investigation.

Based
on the documentation and other evidence obtained by it, White & Case preliminarily concluded that there was reason to believe that four consulting contracts entered into in
2005 were entered into to serve improper objectives, and further found that during 2006 certain employees had destroyed evidence that was relevant to the investigation. White & Case also
identified several contracts at our Macedonian subsidiary that warranted further review. In February 2007, our Board of Directors determined that those contracts should be reviewed and expanded the
scope of the internal investigation to cover these additional contracts and any related or similarly questionable contracts or payments.

For
further information about the internal and governmental investigations, please refer to the Company's quarterly reports for the first, second and third quarters of 2009 furnished
under cover of Form 6-K and the Company's annual reports on Form 20-F for the year ended December 31, 2008.

On
December 2, 2009, the Audit Committee provided the Company's Board of Directors with a "Report of Investigation to the Audit Committee of Magyar Telekom Plc." dated
November 30, 2009 (the "Final Report"). The Audit Committee indicated that it considers that, with the preparation of the Final Report based on currently available facts, White & Case
has completed its independent internal investigation.

The
Final Report includes the following findings and conclusions, based upon the evidence available to the Audit Committee and its counsel:



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The
Final Report states that "the Investigation did not uncover evidence showing receipt of payments by any Macedonian government officials or political party officials." However, the
Audit Committee's counsel did not have access to evidence that would allow it to identify the ultimate beneficiaries of these expenditures.

Nothing
in the Final Report implicates any current senior executive or Board member of the Company in connection with any wrongdoing.

As
previously disclosed, the Company has taken remedial measures to address issues previously identified by the independent investigation. These measures included steps designed to
revise and enhance the Company's internal controls as well as the establishment of the Corporate Compliance Program.

Due
to these measures, no modifications to the Corporate Compliance Program were viewed as necessary in response to the Final Report. This conclusion has been discussed with the Audit
Committee and the Audit Committee has not made recommendations either relating to the Company's compliance program or internal controls.

The
Company is continuing to assess the nature and scope of potential legal remedies available to the Company against individuals or entities that may have caused harm to the Company.

As
previously announced, the DOJ, the SEC and the Ministry of Interior of the Republic of Macedonia have commenced investigations into certain of the Company's activities that were the
subject of the internal investigation. Also, as previously announced, the Hungarian National Bureau of Investigation ("NBI") has begun a criminal investigation into alleged misappropriation of funds
relating to payments made in connection with the Company's ongoing internal investigation and the possible misuse of personal data of employees in the context of the internal investigation. These
governmental investigations are continuing, and the Company continues to cooperate with those investigations. The Company cannot predict what the final outcome of those investigations may be or the
impact, if any, they may have on its financial statements or results of operations. Furthermore, government authorities
could seek criminal or civil sanctions, including monetary penalties, against the Company or its affiliates as well as additional changes to its business practices and compliance programs.

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Lawsuit by minority shareholders

AGM, April 2008

As previously disclosed, on May 23, 2008, two of our minority shareholders filed suit against Magyar Telekom Plc.,
requesting that the resolutions passed by our Annual General Meeting on April 25, 2008, including the resolution on the payment of dividends, be rendered ineffective. We paid dividends to our
shareholders as approved by the AGM on April 25, 2008. The
Court of Registry entered the changes required by the resolutions passed by the AGM into the company register.

On
May 13, 2009, the court of first instance rendered the resolutions (except for one procedural resolution) passed by the AGM on April 25, 2008 ineffective (the "Ruling").
We believed that the Ruling was unfounded and instructed the law firm representing Magyar Telekom to file an appeal. The law firm representing us submitted an appeal against the Ruling, but the appeal
was filed after the deadline. The court of second instance refused the law firm's request for acceptance of the late filing in its order dated November 2, 2009, which was received by Magyar
Telekom on December 8, 2009. This order was approved by the Supreme Court in its order dated February 16, 2010, which was received by Magyar Telekom on March 22, 2010. No further
appeal is allowed in connection with the order of the Supreme Court. We will address the Ruling by proposing that confirmatory shareholders' resolutions be passed by our shareholders at the next
annual general meeting, which is April 7, 2010, with respect to the resolutions rendered ineffective.

As
the Ruling rendered the shareholders' resolutions in question (including the resolution on the payment of dividends) ineffective from July 7, 2009 (the date as of which the
Ruling became final and enforceable as a result of the order of the Supreme Court received by the Company on March 22, 2010), dividend payments for year 2007, which were made to shareholders by
July 6, 2009 will continue to qualify as dividends. The Ruling will not result in any obligation of, nor require any action by, the shareholders.

EGM, June 2009

As previously disclosed, on July 29, 2009 two minority shareholders filed a law suit against the Company, requesting that the
resolutions passed by the Extraordinary General Meeting on June 29, 2009 (the "EGM") be rendered ineffective, and the suspension, as an interlocutory measure, of the implementation of
resolutions on the approval of the sum due to the shareholders who did not wish to remain shareholders following the merger of two subsidiaries into the Company decided at the EGM and the resulting
opening draft balance sheet and draft merger inventory. On August 31, 2009, the Court of Registry registered the merger of T-Kábel Magyarország Kft.
and Dél-Vonal Kft. into Magyar Telekom Plc. (with the effective date of September 30, 2009), and all the other changes required by the resolutions passed by
the EGM.

Magyar
Telekom disagrees with the claim and has been vigorously defending against it. The claimants' request for the interlocutory measure was refused by the court in an order dated
September 1, 2009. The lawsuit remains before the court of first instance.

We
cannot fully exclude that the Company will be required to take other corporate actions in connection with the shareholders' suits described above. Also, we cannot provide any
assurance that
these matters would not have other adverse effects on the Company that are not currently foreseen.

Dividend Policy

The Board of Directors the Company proposed a HUF 74 per ordinary share dividend distribution to be approved by the Annual
General Meeting of the Company on April 7, 2010. Based on the Board of Directors proposal the record date for payment of the dividends is April 30, 2010.

Under
Hungarian law, the Company is permitted to pay annual dividends out of profits and profit reserves, determined on the basis of the annual unconsolidated accounts prepared in
accordance with

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Hungarian
Accounting Rules, following a declaration by the AGM of shareholders. Prior to the approval of the annual unconsolidated accounts, the Company's shareholders at the General Meeting may also
declare a dividend advance on the basis of an interim set of financial statements. The General Meeting of shareholders may decide to declare a higher or lower dividend than that recommended by the
Board of Directors, provided that shareholders' equity under Hungarian Accounting Rules would still meet the statutory requirements following the dividend payment.

Our
shareholders may also decide not to declare dividends, even if the Board of Directors recommends such a declaration. The Company distributes dividends to holders of shares duly
registered in the shareholders' register as the legal owners of shares on the date determined by our shareholders at the AGM to be the dividend record date.

The
determination of whether to pay dividends and the amount of dividends paid depends upon, among other things, the Company's earnings, financial condition and cash requirements,
applicable restrictions on the payment of dividends under Hungarian law and any other factors the Board of Directors may consider relevant. As of December 31, 2009, the reserves available for
distribution were HUF 266,149 million.

The
Company will declare any cash dividends in Hungarian forints. In the case of shares represented by ADSs, cash dividends are paid to the depository and converted into and paid in U.S.
dollars at the prevailing rate of exchange, net of conversion expenses of the depository and applicable Hungarian withholding tax.

Fluctuations
in exchange rates will affect the amount of dividends that ADS holders receive. Dividends paid to non-Hungarian holders, including U.S. holders, of shares or
ADSs may be converted into foreign currency and repatriated, subject to Hungarian withholding tax.

In
the medium-term, our strategic priority remains finding further value-creating acquisitions, which require a flexible balance sheet to be maintained by keeping the net
debt ratio (net debt to total capital) in the range of 30-40 percent. The dividend payments are not only dependent on the acquisition opportunities that might arise, but also on the
future profitability and financial position of the Group.

Significant changes

For a discussion of subsequent events, see Note 36 to the consolidated financial statements.

ITEM 9THE OFFER AND LISTING

In November 1997, shareholders of Magyar Telekom Plc. completed a Hungarian and international initial public offering of shares.
Magyar Telekom Plc. shares were listed in the "A" category of the Budapest Stock Exchange, and Magyar Telekom Plc. ADSs, each representing five ordinary shares, were listed on the New
York Stock Exchange. The total number of shares sold in the initial public offering was 272,861,367, or 26.31 percent of the total outstanding shares, for an aggregate offering price of over
U.S.$ 1 billion. The offer price was HUF 730 per share and U.S.$ 18.65 per ADS.

In
June 1999, ÁPV sold its remaining 5.75 percent stake in Magyar Telekom Plc. through a secondary offering. The total number of shares sold was 60,096,515,
out of which MagyarCom sold 581,319 additional shares pursuant to a greenshoe option. The offer price was HUF 1,273 per share and U.S.$ 26.50 per ADS. The ADSs are admitted to trading on
the London Stock Exchange's International Order Book.

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Trading on the New York Stock Exchange

The table below sets forth the high and low closing sales prices for the ADSs on the New York Stock Exchange for the periods indicated:

Price per ADSHigh

Low(U.S.$)2005


26.64


19.272006


28.03


17.262007


29.38


23.592008


28.00


11.68First Quarter


27.52


22.35Second Quarter


28.00


23.09Third Quarter


27.76


20.71Fourth Quarter


22.90


11.682009First Quarter


14.31


10.19Second Quarter


16.10


11.25Third Quarter


22.06


14.07Fourth Quarter


23.80


18.502009September


22.06


19.43October


23.80


21.40November


21.63


19.93December


20.45


18.502010January


20.56


17.62February


18.44


16.79March (through March 22, 2010)


19.96


18.30


Source:
Bloomberg


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Trading on the Budapest Stock Exchange

The table below sets forth the high and low closing sales prices for the shares on the Budapest Stock Exchange for the periods
indicated:

Price per ShareHigh

Low(HUF)2005


1,092


8002006


1,072


7592007


1,069


8522008


928


521First Quarter


928


797Second Quarter


880


716Third Quarter


836


710Fourth Quarter


797


5212009First Quarter


598


493Second Quarter


648


504Third Quarter


813


561Fourth Quarter


855


7082009September


813


750October


855


810November


780


726December


739


7082010January


759


706February


727


677March (through March 22, 2010)


755


710


Source:
Bloomberg


ITEM 10ADDITIONAL INFORMATION



Share Capital

As of December 31, 2009, the share capital of Magyar Telekom Plc. was HUF 104,274,254,300, consisting of
1,042,742,543 Series "A" ordinary shares with a nominal value of HUF 100 each.

Shareholders
are entitled to receive dividends in proportion to the aggregate nominal value of shares held by such shareholders out of the distributable reserves assigned for
distribution by the General Meeting. The dividend entitlement lapses after five years from the first payment date.

Prospective Share Repurchase Program

On February 26, 2010, the Board of Directors resolved to propose to the General Meeting to provide authorization for the
repurchase of ordinary Magyar Telekom shares. The purpose of the authorization is to have the ability to supplement Magyar Telekom's current shareholder remuneration policy to be more in line with
international practices. While the authorization will allow
for the repurchase of shares, the Board of Directors believes that dividend payments should remain the primary method for shareholder distributions and remuneration.

According
to the Board of Directors' proposal, the General Meeting would authorize the Board of Directors to purchase a total of up to 104,274,254 ordinary shares (with a face value of
HUF 100 each) of

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Magyar
Telekom Plc. The authorization would be valid for 18 months starting on the approval date of the General Meeting. The shares to be purchased on the basis of this authorization may
not at any time account for more than 10 percent of the share capital of Magyar Telekom Plc. In addition, the shares would be purchased through the stock exchange. The authorization may
be exercised in full or in part, and the purchase can be carried out in partial tranches spread over various purchase dates within the authorization period until the maximum purchase volume is
reached.

Any
such share repurchases by Magyar Telekom could be accompanied by dispositions of Magyar Telekom shares by the Company's majority shareholder necessary to maintain the majority
shareholder's influence in the Company at or below its current level. Hungarian law provides that a shareholder holding more than 33 percent of the voting rights in a Hungarian public company
as of December 1, 2007 (the date on which the relevant law entered into force), and which had not attained that level of ownership by means of a public tender offer, may increase its influence
over the company only by conducting a compulsory tender offer for the remaining shares of the company that it does not already own.

Option to Purchase Securities from Registrant or Subsidiaries

For information about share options, see Note 24.1 to the consolidated financial statements. For information about Deutsche
Telekom stock appreciation rights, MTIP programs and stock option plans, see Note 33.4 to the consolidated financial statements.

Memorandum and Articles of Association

Magyar Telekom Plc. is a limited liability stock corporation, organized under the Companies Act and registered with the Court of
Registration in Budapest under the entry number 01-10-041928.

Deposit Agreement

We amended our Deposit Agreement, dated as of November 13, 1997, as amended and restated pursuant to the Amended and Restated
Deposit Agreement dated as of June 2, 1999, in relation to our ADRs to allow the Depositary to charge certain fees in connection with the surrender of ADRs by holders for the withdrawal of
deposited securities. The amendment, dated as of December 18, 2007, was filed with the SEC on January 24, 2008 as an exhibit to Post-Effective Amendment No. 1 to our
Registration Statement on Form F-6.

Corporate Governance

Magyar Telekom Plc. is governed by four separate bodies: the General Meeting of shareholders, the Supervisory Board, the Audit
Committee and the Board of Directors. Their roles are defined by law and by the Company's Memorandum and Articles of Association and may be described generally as follows:

General Meeting of the Shareholders

The supreme decision making body of the Company is the General Meeting of shareholders. If required, extraordinary General Meetings may
be held at any time. A General Meeting is convened as frequently as set forth in the Articles of Association, but no less than once a year.

The
Board of Directors must call an Annual General Meeting to approve the audited statutory financial statements for the prior year. Shareholders holding at least five percent of the
outstanding shares may require the Board of Directors to hold an Extraordinary General Meeting. The Board of Directors and the Supervisory Board also have the right to call an Extraordinary General
Meeting. The Court of Registration may call a General Meeting if, following the request of shareholders holding at least five percent of the outstanding shares, the Board of Directors fails to call a
General Meeting within the periods prescribed by law or the Articles of Association.

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The
Board of Directors must call a General Meeting within eight days to take necessary measures when:



Typically,
the Board of Directors calls General Meetings. To call a General Meeting, the Board of Directors must publish a notice of the meeting and an agenda at least 30 days
before the scheduled date of the meeting on the website of the Budapest Stock Exchange and on the website of the Company. The Company must notify in writing each member of the Board of Directors and
the Supervisory Board as well as the auditor of the Company that a General Meeting has been called within eight days following publication of such notice.

A
General Meeting meets a quorum if shareholders representing more than half of the voting shares are present in person or by proxy.

If
the General Meeting does not have a quorum, it will be reconvened on the same day. A reconvened General Meeting will have a quorum for those matters on the original agenda, regardless
of the number of shareholders present.

The
General Meeting of the shareholders has the sole right to:



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The Supervisory Board

The Supervisory Board oversees the management of the Company. It may request information from executive officers or managerial
employees of the Company and may inspect books and documents of the Company. Supervisory Board members shall bear unlimited, joint and several liability for damages caused to the Company due to
violation of their supervisory obligations, including any infringement of the obligation relating to the preparation and publication of the annual report prescribed by the Act C of 2000 on Accounting
(the "Accounting Act") and the relating business report.

The
Supervisory Board comprises a minimum of three and a maximum of 15 members. Its members shall be elected by the General Meeting of shareholders for a period of three years. It may
assign certain supervisory tasks to any of its members or may delegate supervisory tasks among its members on a permanent basis. The members must act in person, not through a representative. No
members of the Supervisory Board may receive any instruction from his or her employer or the Company's shareholders as to fulfillment of their duty and obligations as Supervisory Board members. The
Supervisory Board carries out its activities in accordance with rules of procedure established by the Supervisory Board, which are approved by the General Meeting of shareholders.

The Audit Committee

The General Meeting elects a three to five member Audit Committee from the independent members of the Supervisory Board for the same
duration as the membership of the relevant members in the Supervisory Board. The Audit Committee acts independently within its scope of authority provided in the Companies Act, Act CXX of 2001 on the
Capital Market, our Articles of Association, and in compliance with the rules and regulations of the BSE, the NYSE and the SEC, as well as the provisions and rules of the Exchange Act. The Audit
Committee oversees the work of the Company's independent auditor and the Group Compliance Director, evaluates the operation of the financial reporting system and the efficiency of the internal audit
function.

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The Board of Directors

The Board of Directors is the executive body of the Company and represents the Company in dealings with third parties, courts of law
and other authorities. The Board of Directors exercises its rights and performs its duties as an independent body.

The
Board of Directors comprises a minimum of six and a maximum of eleven members. The members of the Board of Directors are elected for a term of three years from the date of the Annual
General Meeting until May 31 of the third year subsequent to the date of the said General Meeting, with the exception that if the General Meeting in the third year is held prior to
May 31 then their assignment lasts until the date of such General Meeting. Members of the Board of Directors may be removed or re-elected by the General Meeting at any time. The
Board of Directors carries out its activities in accordance with rules of procedure established by the Board of Directors and subject to the provisions of applicable law and the Articles of
Association.

A
member of the Board of Directors must act with the due care and diligence that can be generally expected from persons in such a position andunless otherwise provided in
the applicable lawgive priority to the interests of the Company. The members of the Board of Directors shall be held liable, in accordance with provisions of general rules of civil law,
for damages to the Company caused by any infringement of the law, of any breach of the Articles of Association, the resolution of the General Meeting or their management obligations. If the damage was
caused by the resolution of the management as a body, those members are exempted from such liabilities who did not participate in the voting or voted against the resolution in question. The members of
the Board of Directors shall bear unlimited, joint and several liability towards the Company for any damage resulting from the incorrectness of the data, rights or facts notified to the court of
registry, or from any delay in filing or failure to file the notification, including where the annual report prescribed by the Accounting Act and the relating business report is not drawn up or not
published in compliance with the relevant provisions of the Accounting Act.

Capital Increases and Preemptive Rights

Any increase in the registered capital of the Company is implemented in accordance with a resolution of the General Meeting of
shareholders or, based on the General Meeting's authorization, a resolution of the Board of Directors by means of issuance of new shares, either in a public offering or a private placement of shares,
by converting the Company's reserves in excess of the registered share capital into authorized share capital or by converting convertible bonds into shares. Where the share capital is increased by way
of contribution of cash, first the holders of shares belonging to the same series of issue, and then the holders of convertible bonds and the holders of bonds with subscription rights in tandem shall
be granted preferential rightsin this sequencefor the subscription of shares.

If
the Company converts all or a portion of its reserves in excess of its registered capital into registered capital, it must offer the newly issued shares free of charge to existing
shareholders in proportion to their shareholdings.

Voting Rights and Voting

Each ordinary share entitles the holder to one vote. Only shareholders or nominees registered in the shareholders' register at least
six working days prior to the date of the General Meeting may participate at the General meeting with voting right. The General Meeting shall adopt its resolutions by a simple majority vote except for
resolutions on issues listed in the Articles of Associations, which shall require at least a three-quarters majority of the votes cast. If the General
Meeting decides to override a resolution of the Board of Directors, such shareholders resolution shall be binding only if a three-quarter majority of the votes of the shareholders that are present
vote in favor of such a resolution. There is no limitation on the rights of non-resident or foreign shareholders to hold or exercise voting rights on the ordinary shares.

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Transfer of Shares

The consent of the shareholders holding at least a simple majority of the outstanding voting stock of the Company shall be required to
approve the acquisition, directly or indirectly, of the shares of the Company which, on a cumulative basis, would result in any person, or persons acting in concert, holding 10 percent or more,
directly or indirectly, of the outstanding voting stock of the Company.

In
the event of transfer of shares the new shareholder shall ask for registration as a shareholder in the Shareholders' Register. The shareholder shall provide evidence to the registrar
that he acquired the shares in accordance with the conditions set forth in the Articles. If the Company establishes that the transfer occurred in violation of the Articles, it shall not register such
transfer of shares. The Company may refuse the request for registration into the Shareholders' Register by a person acquiring shares who omits to provide the supporting evidence or statement that such
a person is obliged to submit in accordance with the Articles. The registration into the Shareholders' Register based on untrue, false or misleading statements may be deleted by a reasoned resolution
of the Board of Directors. Only shareholders registered in the Company's register may exercise shareholder rights vis-a-vis the Company. If the ownership of the shareholder
ceased to exist with the transfer of shares the custodian shall notify the registrar on this fact within two working days upon such event. The registrar, based on the notification, shall promptly
incorporate such changes in the Shareholders' Register.

Significant Differences in Corporate Governance Practices for Purposes of Section 303A.11 of the New York Stock Exchange Listed Company Manual ("NYSE Manual")

Corporate governance principles for Hungarian stock corporations are set forth in the Companies Act. The Companies Act, along with
other related laws and regulations, describes and summarizes the basic mandatory statutory corporate governance principles applicable for stock corporations in Hungary.

In
2004, the Budapest Stock Exchange issued its Corporate Governance Recommendations (the "Recommendations") containing suggestions related to corporate governance for companies listed
in the Budapest Stock Exchange, taking account of the most commonly used international principles, of experiences gathered in Hungary, and of the characteristics of the Hungarian market. The
Recommendations were updated in 2007 and 2008.

We
believe the following to be the significant differences between Hungarian corporate governance practices, as implemented by us and those applicable to U.S. companies under the NYSE
listing standards.

The Recommendations set forth mandatory provisions of law

The Companies Act requires companies listed on the stock exchange to prepare a Corporate Governance and Management Report that
describes the actual corporate governance system of the company and contains the Declaration based on the Recommendations. The Recommendations, as expressed by the title, make suggestions regarding
recommended applicable corporate governance practices for listed companies on the Budapest Stock Exchange.

The
publication of a so-called "Declaration", whereby the issuers provide information on their corporate governance practices in comparison with the contents of the
Recommendations on a "comply or explain" basis, is mandatory for us.

The
Recommendations address four core areas of corporate governance. These are (i) shareholders rights and treatment of shareholders; (ii) the responsibilities of the Board
of Directors and the Supervisory Board; (iii) rules of committees; and (iv) transparency and disclosure.

In
general, the Recommendations reiterate the responsibilities of the Board of Directors, Supervisory Board and executive management and encourage listed companies to go beyond the
Hungarian legal requirements in the areas of corporate governance and disclosure. While the Recommendations touch

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upon
many of the requirements under the NYSE Corporate Governance Rules, there are some differences. For example, while the Recommendations encourage listed companies to establish committees, the
Recommendations suggest that the nomination and remuneration committees be comprised of a majority of independent directors, rather than exclusively with independent directors. No provision addresses
the corporate governance committee, shareholder votes on equity compensation or periodic meetings of non-management directors. The Recommendations however suggest the Board of Directors be
responsible for and establish guidelines on a wide range of corporate governance issues, such as executive compensation, internal control, succession of departing directors and corporate officers,
risk management, insider trading and corporate disclosure.

Magyar Telekom has a two-tier board system

A Hungarian public stock corporation's shareholders have the power to decide under the Companies Act whether they want to have both a
Supervisory Board and a management board named Board of Directors or a unitary board structure. Under the Companies Act, the two boards are separate and no individual may be a member of both boards.
Close relatives of a member of the Board of Directors may not be elected as a member of the Supervisory Board or vice versa at the same stock corporation. The members of both boards are appointed and
removed by the General Meeting and owe a duty of loyalty and care to the stock corporation.

The
Board of Directors is responsible for managing the company and representing the company in its dealings with third parties. The Board of Directors is also required to ensure
appropriate risk management within the corporation and to establish an internal monitoring system.

Our
Board of Directors, however, is not a management body. It does not conduct the daily operations of the Company. It has the authority to deal with all matters not reserved for the
General Meeting or other corporate bodies. Among other things, it approves the Company's strategy and business plan, organizational restructuring actions of major impact, as well as the conclusion of
major transactions, employs and dismisses the CEO and other Chief Officers, defines their remuneration, sets the targets for top management and evaluates their performance.

The
Board of Directors has set up the Management Committee composed of the CEO and all Chief Officers to conduct the day-to-day operations of the Company.

The
Supervisory Board of a stock corporation supervises the activities of the management for the General Meeting. It acts as an independent body, elects a chairman from among its
members, and passes its resolutions by simple majority.

Although
it is not permitted to make management decisions, the Supervisory Board has comprehensive monitoring functions, including advising the General Meeting on a regular basis in
decisions of fundamental importance to the company by virtue of preliminary analysis of core business reports and other submissions on the agenda of the General Meeting within the exclusive scope of
authority of the General Meeting. To ensure that these monitoring functions are carried out properly, the Board of Directors must, among other things, regularly report to the Supervisory Board with
regard to current business operations and business planning. The Supervisory Board may also request special reports from the Board of Directors or any senior employee at any time.

The
Supervisory Board of Magyar Telekom Plc. is subject to the principle of employee participation. Under the Companies Act, the employees have the right to nominate
one-third of the Supervisory Board members.

The committees required by the NYSE Manual are not fully required under the Companies Act

The Companies Act allows, but does not require committees to be established in business associations. The only exception is that public
limited companies have to set up an audit committee consisting of at least

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three
members. The Articles of Association of the Company may assign certain tasks in connection with the work of the Company's auditor and internal financial control system to the Audit Committee
under the Hungarian regulations.

The
Companies Act gives the exclusive right to the General Meeting to establish the Audit Committee of the Company (the "Audit Committee"). The new law provides that Audit Committee
members should be selected from the members of the Supervisory Board who are "independent" according to the definition provided in the Companies Act. Based on the independence criteria set out in the
Companies Act, a Supervisory Board member who satisfies the independence criteria for purposes of
the Companies Act is also likely to satisfy the applicable criteria for purposes of SEC rules and regulations regarding independence of Audit Committee members.

The
Audit Committee is a permanent committee beside the Supervisory Board; its members are elected by the shareholders from independent Supervisory Board members.

We
are required to disclose information concerning any "audit committee financial expert" (as defined in the relevant SEC rules) serving on our Audit Committee, the fees we pay to the
auditors for various services and the policies we have for approving engagements of the auditors in advance.

Aiming
to further enhance accuracy and completeness of the information disclosed to security holders and investors, a disclosure committee has been established (the "Disclosure
Committee"). This committee ensures that our disclosures are made in a timely manner and in line with the requirements of the applicable laws and the NYSE, the BSE or the SEC regulations.

The
Disclosure Committee, made up of individuals who are knowledgeable in the significant and diverse aspects of the Company's business, finance and risks, assists the CEO and the CFO in
fulfilling their responsibility for oversight of the processes that assure the accuracy and timeliness of the disclosures made by the Company.

The
Board of Directors has established a remuneration committee (the "Remuneration Committee") which performs compensation functions and certain functions of a nomination committee. All
its members are elected by the Board of Directors from among its own members. The Remuneration Committee makes proposals to the Board of Directors regarding the nomination of CEO and Chief Officers,
their compensation, bonus targets and monitors their performance. The Remuneration Committee is also responsible for the development of nomination standards and initiates the
self-evaluation of the members of the Board of Directors.

Hungarian corporate law generally requires shareholder approval for a wider range of transactions and activities than the NYSE Manual

The NYSE Manual requires U.S. companies to seek shareholder approval for certain equity compensation plans and issuances of common
stock. Under the Companies Act on the other hand, shareholder approval is required for amendments to the Articles of Association, certain corporate measures, such as the issuance of new shares and
convertible bonds or bonds with subscription rights, the authorization to purchase the corporation's own shares and other key corporate events.

Shareholder
approval in a Hungarian stock corporation is obtained in the General Meeting, which must be held at least once a year. At the General Meeting the shareholders elect their
representatives to the Supervisory Board, the Audit Committee and the Board of Directors, approve the corporate governance and management report and the financial reports of the previous business
year, resolve the appropriation of distributable balance sheet profit, may give relief from liability to the members of the Board of Directors and approve the rules of procedure of the Supervisory
Board. In addition, the corporation's external auditor is appointed by a shareholders' resolution based on a proposal by the Audit Committee pursuant to our Articles of Association.

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Material contracts

None.

Exchange Control

Investment by foreigners in Hungarian securities is regulated by Act XXIV of 1988 on Foreign Investments, as amended (the "Foreign
Investment Act"), Act XCIII of 2001 on Elimination of Foreign Exchange Restrictions, as amended (the "Liberalization Act") and Act CXX of 2001 on the Capital Market, as amended (the "Capital Market
Act") and implementing decrees. The Foreign Investment Act and the Capital Market Act regulate foreign investment in Hungarian equities. In addition, the Capital Market Act and the Liberalization Act
regulate foreign investment in Hungarian debt instruments and flows of cash. The regulations under these acts do not restrict foreigners from investing in registered shares issued by Hungarian
companies, nor do they limit the number of shares foreigners may own. In addition, foreigners may establish wholly owned subsidiaries in Hungary to acquire all the shares of a Hungarian company.

Shares
held by foreign investors may be generally sold without restrictions to other foreigners or Hungarian persons. Foreign investors may deposit proceeds from sales to Hungarian
persons in a convertible HUF denominated account, the balance of which may be converted into foreign currency and repatriated without restriction, subject to withholding tax rules, or may be paid into
a foreign
currency account of the foreigner in Hungary or abroad. Similarly, foreign investors may convert dividends paid by Hungarian companies into foreign currency and repatriate the proceeds, subject to
withholding tax rules. If a foreign shareholder does not wish to repatriate sale proceeds or dividend payments, it may elect to receive and deposit such payments in Hungarian forints into a
convertible HUF denominated account established with any commercial bank in Hungary. Such accounts will accrue interest in Hungarian forints. The balance remains freely convertible into foreign
currency and may subsequently be repatriated or reinvested in Hungary.

As
of June 16, 2001 essentially all of the previous restrictions were eliminated regarding the conversion of Hungarian forints into foreign currencies and transactions between
foreigners and Hungarian persons. Consequently foreign investors may:



Notwithstanding
the general rules above, according to the Liberalization Act, payment obligations regarding tax, contributions and other fees to the state must be fulfilled in HUF.
Additionally, other laws continue to contain specific requirements affecting foreign exchange transactions (e.g., regulations on money laundering).

Taxation

The following is a summary, under current law, of the principal Hungarian and U.S. federal income tax considerations relevant to an
investment by a U.S. taxpayer in our ordinary shares or ADSs (which we refer to collectively in this summary as the "shares"). This summary applies to you if you are eligible for benefits as a U.S.
resident (a "U.S. resident") under the
current income tax convention between the United States and Hungary (the "Existing Treaty") in respect of your investments in shares.

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In
general, you will be eligible for benefits under the Existing Treaty in respect of such investment if:



Under
current Hungarian domestic law no Hungarian withholding tax will apply on dividends paid by the Company to shareholders other than individuals. Therefore,
non-individual U.S. taxpayers generally will not need to rely on the Existing Treaty in respect of such dividends. Additionally, no Hungarian withholding tax will apply on dividends paid
by the Company to a nominee,
such as the Depository or a broker holding shares held in street name, provided that such nominee provides the Central Clearing House and Depository Ltd. (KELER Zrt.) with a nominee declaration
and a U.S. tax residency certificate. Without such documentation a 10 percent withholding tax will be deducted from dividends paid to such nominee with respect to individual shareholders.
However such amounts can be reclaimed from the Hungarian Tax Authority based on verification by the Company.

This
summary does not purport to be a comprehensive description of all the tax considerations that may be relevant to any particular investor, and does not address the tax treatment of
investors who are subject to special rules. We have assumed that you are familiar with the tax rules applicable to investments in securities generally and with any special rules to which you may be
subject. You should consult your own tax advisers regarding the tax consequences of the ownership of our shares in the light of your own particular circumstances.

You
should note that the United States and Hungary signed a new double taxation convention on February 4, 2010 (the "New Treaty") that will replace the Existing Treaty. The New
Treaty will enter into force when instruments of ratification are exchanged. While the exact timing of the U.S. ratification procedures is uncertain, it is expected that the ratification will be
completed by the end of 2010. The New Treaty contains a grandfathering provision allowing any person entitled to greater benefits under the Existing Treaty to elect to apply the Existing Treaty in its
entirety through December 31, 2010. Subject to this grace period, the New Treaty would generally be effective, in respect of taxes withheld at source, for amounts paid or credited on or after
the first day of the second month following the date the New Treaty enters into force. In respect of other taxes, the New Treaty would generally be effective for taxable periods beginning on or after
January 1 of the first full calendar year after the date the New Treaty enters into force. The most significant changes introduced by the New Treaty are the inclusion of a limitation on
benefits article, which is absent from the Existing Treaty, and a withholding tax exemption for dividends paid to pension funds. You should consult your own tax advisor to determine your eligibility
for the benefits of the New Treaty once it enters into force.

With
regard to Hungarian taxation:

Since
the Company's shares are listed on a regulated stock exchange in the EU, for individual shareholders, dividends from 2009 profits that you receive on the shares will generally be
subject to Hungarian withholding tax at a rate of 10 percent. This tax rate is lower than the 15 percent rate of the Existing Treaty (and New Treaty); therefore, individual U.S.
taxpayers generally will not need to rely on the Existing Treaty (or New Treaty) in respect of such dividends.

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Capital gains that you realize on a sale or other disposition of the shares will not be subject to any Hungarian tax provided that you are not a Hungarian
resident.

3.     Transfer tax

No
Hungarian transfer taxes or stamp duties will apply to a purchase, sale, or other disposition of the shares that you make.

With
regard to U.S. federal income taxation:



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Documents on Display

We are subject to the informational requirements of the Exchange Act. In addition, we are required to file annual reports and other
information we make public in Hungary or with the Budapest Stock Exchange with the U.S. Securities and Exchange Commission under the Exchange Act. We file our annual reports on or before
June 30 each year. We file other information at the time we make it public in Hungary or file it with the Budapest Stock Exchange.

You
may read and copy the registration statement, including the attached exhibits, the reports, statements or other information that we file at the Commission's public reference room in
Washington D.C., which is located at 100 F Street, N.E., Washington, D.C., 20549. Please call the Commission at 1-800-SEC-0330 for further information on the
operation of the public reference rooms. In addition, you may also obtain the reports and other information we
file at the offices of the New York Stock Exchange, Inc., 20 Broad Street, New York, New York, 10005.

ITEM 11QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

For a discussion of market risks, see Note 3, 16 and 17 to the consolidated financial statements.

ITEM 12DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

ITEM 12.D.3

As a general rule, a depositary collects fees for the issuance and cancellation of ADSs from the investor or the investor's
intermediary against the deposit or withdrawal of ordinary shares in the custodian account. As provided in the Deposit Agreement between JP Morgan Chase Bank, as depositary (the "Depositary"), Magyar
Telekom Plc. (the "Company") and Holders of American Depositary Receipts dated as of November 13, 1997, as amended as of June 2, 1999 and December 18, 2007, holders of ADSs
may be charged, directly or indirectly, the following amounts in relation to the ownership of depositary receipts held in the Company's ADR Program, which amounts are payable to the Depositary.

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The
following table shows the fees and charges that a holder of our ADSs may have to pay, either directly or indirectly to the Depositary:

Category

Depositary Actions

Associated Fee(a)

depositing or substituting the underlying shares

Each person to whom ADSs are issued against deposits of shares, including deposits in respect of share distributions, rights and other distributions.

Up to USD 5.00 for each 100 ADSs (or portion thereof), evidenced by the ADRs delivered or surrendered.(b)

receiving or distributing dividends

Distribution of dividends

USD 0.02 per ADS per calendar year(c)

selling or exercising rights

Distribution or sale of securities, the fee being in an amount equal to the fee for the execution and delivery of ADSs, which would have been charged as a result of the deposit of such securities

USD 5.00 for each 100 ADSs (or portion thereof)(d)

withdrawing an underlying security

Acceptance of ADRs surrendered for withdrawal of deposited securities

Up to USD 5.00 for each 100 ADSs (or portion thereof) evidenced by the ADRs surrendered(e)

general depositary services

Administration of ADRs (to be charged only when there was no distribution of annual cash dividends)

An aggregate fee of USD 0.02 per ADS (or portion thereof) per calendar year and payable at the sole discretion of the depositary by ADR holders or by deducting such charge from one or more cash dividends or other
cash distributions.(f)

expenses of the depositary

Expenses incurred on behalf of Holders in connection with: Compliance with foreign exchange control regulations or any law or regulation relating to foreign
investmentThe depositary's or its custodian's compliance with applicable law,
rule or regulation Stock transfer or other taxes and other
governmental charges Cable, telex, facsimile
transmission/delivery Expenses of the depositary in connection
with the conversion of foreign currency into U.S. dollars (which are paid out of such foreign currency)Any other charge payable by depositary or its agents

Expenses payable at the sole discretion of the depositary by ADR holders or by deducting charges from one or more cash dividends
or other cash distributions.


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ITEM 12.D.4.

Direct Payments

JP Morgan Chase Bank, as depositary, has agreed to reimburse certain reasonable expenses related to our ADR program and incurred by us
in connection with such program. In 2009, the depositary reimbursed us U.S. dollar 150,818. The amounts the depositary reimbursed the Company are not necessarily related to the fees collected by the
depositary from ADR holders. Under certain circumstances, including termination of the program prior to December 18, 2012, we are required to repay JP Morgan Chase Bank the amounts reimbursed
in prior periods. The table below sets forth the types of expenses that JP Morgan Chase Bank has agreed to reimburse and the amounts reimbursed during 2009.

Category of Expenses

Amount Reimbursed
for the Year Ended
December 31, 2009U.S. Securities and Exchange Commission filing fees in relation to Form 20-F filing

$
20,120Listing fees

$
38,000Investor Relations(1)

$
92,698Total

$
150,818


---

Indirect Payments

As part of its service to Magyar Telekom, JP Morgan Chase Bank has agreed to waive fees for the standard costs associated with
the administration of our ADR program, associated operating expenses and Investor Relations support estimated to total $390,000. Under certain circumstances, including termination of the program prior
to December 18, 2012, Magyar Telekom is required to repay JP Morgan Chase Bank the amounts waived and/or expenses paid in prior periods. The table below sets forth the fees that
JP Morgan Chase Bank has agreed to waive and/or expenses that JP Morgan Chase Bank has agreed to pay in the year ended December 31, 2009.

Category of Expenses

Amount Waived or Paid
for the Year Ended
December 31, 2009Third-party expenses paid directly

$
0Fees waived

$
390,000Total

$
390,000


The Company has not received any further direct or indirect payments from JP Morgan Chase Bank between December 31, 2009 and the
date of this Annual Report.

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PART II



ITEM 13DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

None.

ITEM 14MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS  AND USE OF PROCEEDS

None.

ITEM 15CONTROLS AND PROCEDURES

(a)   Disclosure Controls and Procedures

Investigation

In the course of conducting their audit of the Company's 2005 financial statements, PricewaterhouseCoopers, the Company's auditors,
identified two contracts the nature and business purposes of which were not readily apparent to them. In February 2006, the Company's Audit Committee retained White & Case, as its independent
legal counsel, to conduct an internal investigation into whether the Company had made payments under those, or other contracts, potentially prohibited by U.S. laws or regulations, including the U.S.
Foreign Corrupt Practices Act ("FCPA") or internal Company policy. The Company's Audit Committee also informed the United States Department of Justice ("DOJ"), the United States Securities and
Exchange Commission ("SEC") and the Hungarian Financial Supervisory Authority of the internal investigation.

Based
on the documentation and other evidence obtained by it, White & Case preliminarily concluded that there was reason to believe that four consulting contracts entered into in
2005 were entered into to serve improper objectives, and further found that during 2006 certain employees had destroyed evidence that was relevant to the investigation. White & Case also
identified several contracts at our Macedonian subsidiary that warranted further review. In February 2007, our Board of Directors determined that those contracts should be reviewed and expanded the
scope of the internal
investigation to cover these additional contracts and any related or similarly questionable contracts or payments.

For
further information about the internal and governmental investigations, please refer to the Company's quarterly reports for the first, second and third quarters of 2009 furnished
under cover of Form 6-K and the Company's annual reports on Form 20-F for the year ended December 31, 2008.

On
December 2, 2009, the Audit Committee provided the Company's Board of Directors with a "Report of Investigation to the Audit Committee of Magyar Telekom Plc." dated
November 30, 2009 (the "Final Report"). The Audit Committee indicated that it considers that, with the preparation of the Final Report based on currently available facts, White & Case
has completed its independent internal investigation.

The
Final Report includes the following findings and conclusions, based upon the evidence available to the Audit Committee and its counsel:



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The
Final Report states that "the Investigation did not uncover evidence showing receipt of payments by any Macedonian government officials or political party officials." However, the
Audit Committee's counsel did not have access to evidence that would allow it to identify the ultimate beneficiaries of these expenditures.

Nothing
in the Final Report implicates any current senior executive or Board member of the Company in connection with any wrongdoing.

As
previously disclosed, the Company has taken remedial measures to address issues previously identified by the independent investigation. These measures included steps designed to
revise and enhance the Company's internal controls as well as the establishment of the Corporate Compliance Program.

Key
aspects of our Corporate Compliance Program include:



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Due
to the above measures, no modifications to the Corporate Compliance Program were viewed as necessary in response to the Final Report. This conclusion has been discussed with the
Audit Committee and the Audit Committee has not made recommendations either relating to the Company's compliance program or internal controls.

The
Company is continuing to assess the nature and scope of potential legal remedies available to the Company against individuals or entities that may have caused harm to the Company.

As
previously announced, the DOJ, the SEC and the Ministry of Interior of the Republic of Macedonia have commenced investigations into certain of the Company's activities that were the
subject of the internal investigation. Also, as previously announced, the Hungarian National Bureau of Investigation ("NBI") has begun a criminal investigation into alleged misappropriation of funds
relating to payments made in connection with the Company's ongoing internal investigation and the possible misuse of personal data of employees in the context of the internal investigation. These
governmental investigations are continuing, and the Company continues to cooperate with those investigations. The Company cannot predict what the final outcome of those investigations may be or the
impact, if any, they may have on its financial statements or results of operations. Furthermore, government authorities could seek criminal or civil sanctions, including monetary penalties, against
the Company or its affiliates as well as additional changes to its business practices and compliance programs.

Evaluation of the Effectiveness of Disclosure Controls and Procedures

As of December 31, 2009 (the "Evaluation Date"), our Board of Directors, including our CEO and CFO, carried out an evaluation of
the effectiveness of our "disclosure controls and procedures" (as defined in Rules 13(a)-15(e) and 15(d)-15(e) under the Exchange Act). Based on that evaluation, these
officers have concluded that as of the Evaluation Date, our disclosure controls and procedures were effective and designed to provide reasonable assurance that information required to be disclosed by
us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the applicable rules and forms, and that it is
accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.

(b)   Management's Annual Report on Internal Control over Financial Reporting

As required by section 404 of the Sarbanes-Oxley Act of 2002, our management is responsible for establishing and maintaining adequate "internal control
over financial reporting" (as defined in Rule 13(a)-15(f) under the Exchange Act). Our system of internal control over financial reporting is designed to provide reasonable
assurance regarding the reliability of financial reporting and the

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preparation
of financial statements for external purposes in conformity with IFRS as issued by the International Standards Board ("IASB").

Because
of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our
Board of Directors, including our CEO and CFO, assessed the effectiveness of the Company's internal control over financial reporting as of December 31, 2009. The Board of
Directors' assessment was based on the framework and criteria established in "Internal ControlIntegrated Framework" issued by the Committee of Sponsoring Organizations of the Treadway
Commission ("COSO"). Based on the assessment under these criteria, our Board of Directors, including our CEO and CFO, has concluded that, as of December 31, 2009, the Company's internal control
over financial reporting was effective.

(c)   Attestation Report of the Registered Public Accounting Firm

The Company's internal control over financial reporting as of December 31, 2009 has been audited by PricewaterhouseCoopers
Könyvvizsgáló és Gazdasági Tanácsadó Kft., an independent registered public accounting firm as
stated in their report which appears herein. See page F-2, Report of Independent Registered Public Accounting Firm to the Board of Directors and Shareholders of Magyar
Telekom Plc.

(d)   Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the period covered by this Annual Report that have materially affected, or are
reasonably likely to materially affect, our internal control over financial reporting.

ITEM 16AAUDIT COMMITTEE FINANCIAL EXPERT

On July 27, 2009 Dr. Ádám Farkas, Chairman and Financial Expert of the Audit Committee,
resigned from his positions as of that date.

The
Audit Committee has determined that Dr. János Illéssy is an "audit committee financial expert" as defined by Item 401 (h) of
Regulation S-K of the Exchange Act, as amended. Dr. Illéssy is also "independent", as that term is defined in Rule 10A-3 under the Exchange
Act.

For
the biography of Mr. Illéssy, see "Item 6Directors, Senior Management and Employees".

ITEM 16BCODE OF ETHICS

We have adopted a code of conduct as defined in Item 16B of Form 20-F under the Exchange Act. Our code of
conduct applies to each and every employee, officer, directors and others acting on behalf of the Company. Our code of conduct is filed as Exhibit 11.1. to this Form 20-F. If
we amend the provisions of our code of conduct that apply to each and every employee, officer, directors and others acting on behalf of the Company or if we grant any waiver of such provisions, we
will disclose such amendment or waiver on our website at http://www.magyartelekom.hu.

Our
Financial Code of Ethics for Treasury and Financial Managers is filed as Exhibit 11.2. to this Form 20-F.

Other Corporate Governance Practices

We adopted procedures for the treatment of complaints relating to auditing and accounting matters. We have posted a description of our
procedures on our investor relations page on our website at http://www.magyartelekom.hu.

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ITEM 16CPRINCIPAL ACCOUNTANT FEES AND SERVICES

Audit and Non-Audit Fees

The following table sets forth the fees (including expenses) of our independent auditors, PwC, related to 2008 and 2009:

For the year ended
December 31,2008

2009(in HUF millions)Audit Fees

500

593Audit-Related Fees

108

205Tax Fees

0

0All Other Fees

0

4Total

608

802


Audit
fees in the above table are the aggregate fees of PwC in connection with the audit of our annual financial statements, review of quarterly reports and services performed in
relation to legal obligations and submissions required by regulatory provisions.

Audit-related
fees in the above table are the aggregate fees of PwC for services which are normally performed by the external auditor in connection with the auditing of the annual
financial statements, e.g., advice on issues of accounting and reporting which were not classified as audit services and support for the interpretation of new accounting and reporting
standards. Audit-related fees in 2009 include HUF 205 million (in 2008: HUF 108 million) relating to the ongoing investigation.

Other
fees in the above table are fees of PwC primarily related to services such as participation by Magyar Telekom employees in conferences and training sessions organized by PwC. There
were no such fees incurred in 2008.

Audit Committee Pre-Approval Policies and Procedures

The "Rules of procedure" of Magyar Telekom Plc.'s Audit Committee were approved on February 15, 2008 and the
"Pre-approval policy" of Magyar Telekom Plc.'s Audit Committee was approved on December 10, 2007. The "Pre-approval policy" requires all services which are to be
performed by our external auditor to be pre-approved by the Audit Committee. This may be in the form of general pre-approval or pre-approval on a
case-by-case basis. In the case of certain services, specific pre-approval of the Audit Committee is required. The Audit Committee has been regularly informed of
the external auditor's services and the relevant fees.

See
Exhibit 15.1. for "Rules of Procedure of Magyar Telekom Plc.'s Audit Committee" and Exhibit 15.2. for "Pre-approval Policy of Magyar
Telekom Plc.'s Audit Committee".

ITEM 16DEXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

Not applicable.

ITEM 16EPURCHASES OF EQUITY SECURITIES BY THE ISSUER  AND AFFILIATED PURCHASERS

Not applicable.

148

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Table of Contents



ITEM 16FCHANGE IN REGISTRANT'S CERTIFYING ACCOUNTANT

Not applicable.

ITEM 16GCORPORATE GOVERNANCE

See "Item 10Significant Differences in Corporate Governance Practices for Purposes of Section 303A.11 of the
New York Stock Exchange Listed Company Manual ("NYSE Manual")."

149

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Table of Contents

PART III



ITEM 17FINANCIAL STATEMENTS

See pages F-1 through F-118 incorporated herein by reference.

ITEM 18FINANCIAL STATEMENTS

Not applicable.

ITEM 19EXHIBITS



150

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Table of Contents

SIGNATURES

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly
caused and authorized the undersigned to sign this annual report on its behalf.

Date:
March 24, 2010

MAGYAR TELEKOM PLC.By:

/s/ CHRISTOPHER MATTHEISENName:

Christopher MattheisenTitle:

Chairman and Chief Executive Officer




By:

/s/ THILO KUSCHName:

Thilo KuschTitle:

Chief Financial Officer


151

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Table of Contents

MAGYAR TELEKOM

INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS



PageConsolidated financial statements:Report of Independent Registered Public Accounting
Firm

F-2Consolidated Statements of financial position as at December 31, 2006, 2007, 2008 (as restated) and
2009

F-3Consolidated Statements of comprehensive income for the years ended December 31, 2007, 2008 and
2009

F-4Consolidated Statements of cash flows for the years ended December 31, 2007, 2008 and 2009

F-5Consolidated Statements of changes in equity for the years ended December 31, 2007, 2008 (as restated)
and 2009

F-6Notes to the Consolidated financial statements

F-9


F-1

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Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM  TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF MAGYAR TELEKOM PLC.

In our opinion, the accompanying consolidated statements of financial position and the related consolidated statements of comprehensive
income, changes in equity and cash flows present fairly, in all material respects, the financial position of Magyar Telekom and its subsidiaries at December 31, 2009 and December 31,
2008, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2009 in conformity with International Financial Reporting Standards
as issued by the International Accounting Standards Board. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2009, based on criteria established inInternal ControlIntegrated Frameworkissued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). The Company's management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting included in Management's Annual Report
on Internal Control over Financial Reporting appearing in Item 15b of the 2009 Annual Report on Form 20-F. Our responsibility is to express opinions on these financial
statements and on the Company's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States) and International Standards on Auditing. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included
performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A
company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures
that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because
of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

PricewaterhouseCoopers
Könyvvizsgáló és Gazdasági Tanácsadó Kft.
Budapest, Hungary
March 24, 2010

F-2

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Table of Contents

MAGYAR TELEKOM        CONSOLIDATED STATEMENTS OF FINANCIAL POSITION  As restated (Notes 1.2.2 and 2.1.5)

At December 31,Note

2006

2007

2008

2009

2009
(unaudited
Note 2.1)(in HUF millions)

(million USD)ASSETSCurrent assetsCash and cash equivalents


6


60,207


47,666


66,680


34,270


182Trade and other receivables


7


102,390


103,576


101,895


110,353


587Other current financial assets


8.1


21,064


63,431


68,498


87,611


466Current income tax receivable


9.1


6,735


1,857


2,676


4,075


22Inventories


10


10,460


10,652


13,291


9,788


52Non current assets held for sale


11


6,825


4,393


1,775


3,269


17Total current assets





207,681


231,575


254,815


249,366


1,326Non current assetsProperty, plant and equipment


12


550,900


534,731


543,689


550,745


2,928Intangible assets


13


329,427


334,914


335,379


335,615


1,785Investments in associates and joint ventures


14


5,771


4,936


4,136


186


1Deferred tax assets


9.4


9,575


1,286


1,590


1,890


10Other non current financial assets


8.2


23,786


24,977


26,094


27,682


147Other non current assets


15


2,142


846


840


893


5Total non current assets





921,601


901,690


911,728


917,011


4,876Total assets





1,129,282


1,133,265


1,166,543


1,166,377


6,202LIABILITIESCurrent liabilitiesFinancial liabilities to related parties


16


77,756


25,210


96,331


70,573


375Other financial liabilities


17


29,903


44,666


37,134


36,332


193Trade payables


18


81,392


86,046


92,340


85,874


457Current income tax payable


9.1


1,736


2,365


1,697


624


3Provisions


19


12,370


20,060


15,842


12,692


68Other current liabilities


20


111,232


44,671


38,092


32,228


171Total current liabilities





314,389


223,018


281,436


238,323


1,267Non current liabilitiesFinancial liabilities to related parties


16


185,432


254,432


243,097


266,998


1,420Other financial liabilities


17


20,697


55,038


23,039


26,221


139Deferred tax liabilities


9.4


5,647


2,714


11,071


18,594


99Provisions


19


3,614


12,665


10,049


9,721


51Other non current liabilities


21


10,131


7,500


1,304


1,100


6Total non current liabilities





225,521


332,349


288,560


322,634


1,715Total liabilities





539,910


555,367


569,996


560,957


2,982EQUITYEquity of the owners of the parentCommon stock





104,277


104,275


104,275


104,275


554Additional paid in capital





27,380


27,379


27,379


27,379


146Treasury stock





(1,504
)

(1,179
)

(1,179
)

(1,179
)

(6
)Retained earnings





393,994


381,727


397,684


398,250


2,118Other components of equity





(1,425
)

(521
)

5,787


9,755


52Total Equity of the owners of the parent





522,722


511,681


533,946


538,480


2,864Non-controlling interests





66,650


66,217


62,601


66,940


356Total equity





589,372


577,898


596,547


605,420


3,220Total liabilities and equity





1,129,282


1,133,265


1,166,543


1,166,377


6,202


These consolidated financial statements were approved and signed by the CEO and CFO of the Company on March 24, 2010.

Christopher Mattheisen

Thilo KuschChairman and Chief Executive Officer

Chief Financial Officer


The
accompanying notes form an integral part of these consolidated financial statements.

F-3

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Table of Contents

MAGYAR TELEKOM        CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

For the year ended December 31,Note

2007

2008

2009

2009
(unaudited
Note 2.1)(in HUF millions, except per share amounts)

(million USD)Revenue


22


676,661


673,056


643,989


3,424Expenses directly related to revenues


23


(177,265
)

(167,558
)

(160,576
)

(854
)Employee related expenses


24


(120,176
)

(100,320
)

(101,918
)

(542
)Depreciation and amortization





(115,595
)

(106,120
)

(101,920
)

(542
)Other operating expenses


25


(139,314
)

(141,049
)

(135,305
)

(719
)Operating expenses





(552,350
)

(515,047
)

(499,719
)

(2,657
)Other operating income


26


4,001


4,249


2,863


15Operating profit





128,312


162,258


147,133


782Finance expenses


27


(35,186
)

(37,199
)

(37,533
)

(199
)Finance income


28


5,217


6,891


4,720


25Share of associates' and joint ventures' profits/(losses)


14


934


1,341


(109
)

(1
)Profit before income tax





99,277


133,291


114,211


607Income tax expense


9.2


(26,221
)

(27,698
)

(20,958
)

(111
)Profit for the year





73,056


105,593


93,253


496Exchange differences on translating foreign operations





861


8,851


6,159


33Revaluation of available-for-sale financial assetsbefore tax





233


(348
)

(6
)

Revaluation of available-for-sale financial assetstax effect





(23
)

35





Other comprehensive income for the year, net of tax





1,071


8,538


6,153


33Total comprehensive income for the year





74,127


114,131


99,406


529Profit attributable to:Owners of the parent





60,155


93,008


77,618


413Non-controlling interests





12,901


12,585


15,635


8373,056


105,593


93,253


496Total comprehensive income attributable to:Owners of the parent





61,059


99,316


81,586


434Non-controlling interests





13,068


14,815


17,820


9574,127


114,131


99,406


529Earnings per share (EPS) information:Profit attributable to the owners of the Company





60,155


93,008


77,618


413Weighted average number of common stock outstanding (thousands) used for basic and diluted EPS





1,041,070


1,041,242


1,041,241


1,041,241Basic and diluted earnings per share (HUF and USD)





57.78


89.32


74.54


0.40


The
accompanying notes form an integral part of these consolidated financial statements.

F-4

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Table of Contents

MAGYAR TELEKOM        CONSOLIDATED STATEMENTS OF CASH FLOWS

For the year ended December 31,Note

2007

2008

2009

2009
(unaudited
Note 2.1)(in HUF millions)

(million USD)Cashflows from operating activitiesProfit for the year





73,056


105,593


93,253


493Depreciation and amortization





115,595


106,120


101,920


542Income tax expense





26,221


27,698


20,958


114Finance expenses





35,186


37,199


37,533


199Finance income





(5,217
)

(6,891
)

(4,720
)

(25
)Share of associates' and joint ventures' profits/ (losses)





(934
)

(1,341
)

109


1Change in assets carried as working capital





6,897


1,481


(1,427
)

(7
)Change in provisions





16,997


(10,265
)

(3,918
)

(21
)Change in liabilities carried as working capital





8,595


1,886


(4,231
)

(23
)Income tax paid





(12,343
)

(20,768
)

(16,053
)

(85
)Dividend received





72


127


2,149


11Interest and other financial charges paid





(32,528
)

(34,119
)

(38,627
)

(205
)Interest received





5,742


7,923


8,453


45Other cashflows from operations





(5,999
)

(4,354
)

(1,604
)

(9
)Net cash generated from operating activities





231,340


210,289


193,795


1,030Cashflows from investing activitiesPurchase of property plant and equipment (PPE) and intangible assets


29


(103,097
)

(116,039
)

(110,228
)

(586
)Purchase of subsidiaries and business units


30


(710
)

(762
)

(5,193
)

(28
)Cash acquired through business combinations





485





460


2Cash spun-off through demerger





(1,173
)







Payments for other financial assetsnet





(39,491
)

(4,075
)

(18,547
)

(99
)Proceeds from disposal of subsidiaries and associates


5.5





1,233


2,074


11Proceeds from disposal of PPE and intangible assets





9,105


6,194


1,135


6Net cash used in investing activities





(134,881
)

(113,449
)

(130,299
)

(692
)Cashflows from financing activitiesDividends paid to shareholders and Non-controlling interest





(162,558
)

(95,343
)

(93,640
)

(498
)Proceeds from loans and other borrowings





283,184


143,014


190,617


1,014Repayment of loans and other borrowings





(230,238
)

(126,901
)

(193,537
)

(1,029
)Proceeds from sale of treasury stock





391








Net cash used in financing activities





(109,221
)

(79,230
)

(96,560
)

(513
)Exchange gains on cash and cash equivalents





221


1,404


654


3Change in cash and cash equivalents





(12,541
)

19,014


(32,410
)

(172
)Cash and cash equivalents, beginning of year





60,207


47,666


66,680


354Cash and cash equivalents, end of year


6


47,666


66,680


34,270


182


The
accompanying notes form an integral part of these consolidated financial statements.

F-5

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Table of Contents

MAGYAR TELEKOM    CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY  As restated (Note 1.2.2)

Shares of
common stock
(a)

Common
stock
(a)

Additional
paid in
capital
(b)

Treasury
stock
(c)

Retained
earnings
(d)

Cumulative
translation
adjustment
(e)

Revaluation
reserve for
AFS financial
assetsnet
of tax
(f)

Reserve for
equity settled
share based
transactions
(g)

Equity of
the owners
of the
parent

Non-controlling
interests
(h)

Total
Equitypieces

(In HUF millions)Balance at December 31, 2006as restated


1,042,768,215


104,277


27,380


(1,504
)

393,994


(1,474
)




49


522,722


66,650


589,372Dividend (i)














(72,729
)










(72,729
)




(72,729
)Dividend declared to Non-controlling interests (j)





























(13,729
)

(13,729
)Elimination of the "B" share (a)


100





























Share options exercised by managers (k)











325


66











391





391Excess related to the acquisition of TSH (l)














3











3


1,540


1,543TSH demerger (l)














243











243


(1,312
)

(1,069
)Reduction in capital as a result of merger with T-Online and Emitel (m)


(22,700
)

(2
)

(1
)




(5
)










(8
)




(8
)Total comprehensive income for the year














60,155


786


118





61,059


13,068


74,127Balance at December 31, 2007as restated


1,042,745,615


104,275


27,379


(1,179
)

381,727


(688
)

118


49


511,681


66,217


577,898Dividend (i)














(77,051
)










(77,051
)




(77,051
)Dividend declared to Non-controlling interests (j)





























(18,431
)

(18,431
)Total comprehensive income for the year














93,008


6,485


(177
)




99,316


14,815


114,131Balance at December 31, 2008as restated


1,042,745,615


104,275


27,379


(1,179
)

397,684


5,797


(59
)

49


533,946


62,601


596,547Dividend (i)














(77,052
)










(77,052
)




(77,052
)Dividend declared to Non-controlling interests (j)





























(13,481
)

(13,481
)Reduction in capital as a result of merger with T-Kábel and Dél-Vonal (n)


(3,072
)




























Total comprehensive income for the year














77,618


3,971


(3
)




81,586


17,820


99,406Balance at December 31, 2009


1,042,742,543


104,275


27,379


(1,179
)

398,250


9,768


(62
)

49


538,480


66,940


605,420Of which treasury stock


(1,503,541
)Shares of common stock outstanding at December 31, 2009


1,041,239,002


The accompanying notes form an integral part of these consolidated financial statements.

F-6

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Table of Contents

MAGYAR TELEKOM        NOTES TO THE CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

The
accompanying notes form an integral part of these consolidated financial statements.

F-7

---



Table of Contents

MAGYAR TELEKOM

NOTES TO THE CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Continued)

Together
with the approval of these financial statements for issue, the Board of the Company proposes a HUF 74 per share dividend distribution (in total
HUF 77,052 million) to be approved by the Annual General Meeting of the Company in April 2010.

The
accompanying notes form an integral part of these consolidated financial statements.

F-8

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Table of Contents

MAGYAR TELEKOM        NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1.     GENERAL INFORMATION

1.1   About the Company

Magyar Telekom Plc. (the "Company" or "Magyar Telekom Plc."), with its subsidiaries form Magyar Telekom Group ("Magyar Telekom" or "the Group").
Magyar Telekom is the principal supplier of telecommunications services in Hungary, Macedonia and Montenegro and alternative service provider in Bulgaria, Romania and in the Ukraine. These services
are subject to various telecommunications regulations depending on the countries of operations (Note 1.3).

The
Company was incorporated in Hungary on December 31, 1991 and commenced business on January 1, 1992. The Company's registered address is Krisztina
körút 55, 1013 Budapest, Hungary.

Magyar
Telekom Plc. is listed on the Budapest and New York stock exchanges, its shares are traded on the Budapest Stock Exchange, while Magyar Telekom's American Depository Shares
(ADSs) each representing five ordinary shares are traded on the New York Stock Exchange.

The
immediate controlling shareholder of the Company is MagyarCom GmbH owning 59.21% of the issued shares, while the ultimate controlling parent of Magyar Telekom is Deutsche
Telekom AG (DT or DTAG).

The
consolidated financial statements are prepared and presented in millions of Hungarian Forints (HUF), unless stated otherwise.

The
CEO and the CFO of the Company were authorized by the Board of the Directors of the Company to approve and sign these consolidated financial statements. These consolidated financial
statements are prepared according to IFRS as issued by the International Accounting Standards Board (IASB), while the statutory consolidated financial statements of the Company are prepared according
to IFRS as adopted by the EU. As there are no applicable differences between the two sets of standards for the Company, the two sets of consolidated financial statements are identical except for the
description of the standards based on which they are prepared. The statutory consolidated financial statements of the Company were approved for issue by the Company's Board of Directors (the Board) on
March 10, 2010, and is to be approved by the annual General Meeting of the Company in April 2010.

On
June 29, 2007, Magyar Telekom's Extraordinary General Meeting approved the merger of Magyar Telekom Plc., Emitel Zrt. and the internet access business line of
T-Online Magyarország Zrt. (T-Online), both of which were 100% subsidiaries of Magyar Telekom Plc. The remaining business lines of T-Online
continued as a separate legal entity under the company name "Origo Zrt.". As the merger occurred between the parent company and its 100% owned subsidiaries, the transaction did not have any impact on
the Consolidated financial position of the Group or its operating segments other than as disclosed in the notes to the Consolidated statements of changes in equity. The merger was registered by the
Hungarian Court of Registration as of September 30, 2007.

On
June 29, 2009, Magyar Telekom's Extraordinary General Meeting approved the merger of Magyar Telekom Plc., T-Kábel Kft. and
Dél-Vonal Kft., two 100% subsidiaries of Magyar Telekom Plc. As the merger occurred between the parent company and its 100% owned subsidiaries, the transaction did
not have any impact on the Consolidated financial position of the Group or its operating segments other than as disclosed in the notes to the Consolidated statements of changes in equity. The merger
was registered by the Hungarian Court of Registration as of September 30, 2009.

F-9

---



Table of Contents

MAGYAR TELEKOM

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1.     GENERAL INFORMATION (Continued)

1.2   Investigation into certain consultancy contracts

1.2.1  Summary of the Investigations

In the course of conducting their audit of the Company's 2005 financial statements, PricewaterhouseCoopers, the Company's auditors, identified two contracts the
nature and business purposes of which were not readily apparent to them. In February 2006, the Company's Audit Committee retained White & Case, as its independent legal counsel, to conduct an
internal investigation into whether the Company had made payments under those, or other contracts, potentially prohibited by U.S. laws or regulations, including the U.S. Foreign Corrupt Practices Act
("FCPA") or internal Company policy. The Company's Audit Committee also informed the United States Department of Justice ("DOJ"), the United States Securities and Exchange Commission ("SEC") and the
Hungarian Financial Supervisory Authority of the internal investigation.

Based
on the documentation and other evidence obtained by it, White & Case preliminarily concluded that there was reason to believe that four consulting contracts entered into in
2005 were entered into to serve improper objectives, and further found that during 2006 certain employees had destroyed evidence that was relevant to the investigation. White & Case also
identified several contracts at our Macedonian subsidiary that warranted further review. In February 2007, our Board of Directors determined that those contracts should be reviewed and expanded the
scope of the internal investigation to cover these additional contracts and any related or similarly questionable contracts or payments.

For
further information about the internal and governmental investigations, please refer to the Company's quarterly reports for the first, second and third quarters of 2009 and the
Company's annual reports on Form 20-F for the year ended December 31, 2008 filed with the SEC.

On
December 2, 2009, the Audit Committee provided the Company's Board of Directors with a "Report of Investigation to the Audit Committee of Magyar Telekom Plc." dated
November 30, 2009 (the "Final Report"). The Audit Committee indicated that it considers that, with the preparation of the Final Report based on currently available facts, White & Case
has completed its independent internal investigation.

The
Final Report includes the following findings and conclusions, based upon the evidence available to the Audit Committee and its counsel:



F-10

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Table of Contents

MAGYAR TELEKOM

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1.     GENERAL INFORMATION (Continued)



The
Final Report states that "the Investigation did not uncover evidence showing receipt of payments by any Macedonian government officials or political party officials." However, the
Audit Committee's counsel did not have access to evidence that would allow it to identify the ultimate beneficiaries of these expenditures.

Nothing
in the Final Report implicates any current senior executive or Board member of the Company in connection with any wrongdoing.

As
previously disclosed, the Company has taken remedial measures to address issues previously identified by the independent investigation. These measures included steps designed to
revise and enhance the Company's internal controls as well as the establishment of the Corporate Compliance Program.

Due
to these measures, no modifications to the Corporate Compliance Program were viewed as necessary in response to the Final Report. This conclusion has been discussed with the Audit
Committee and the Audit Committee has not made recommendations either relating to the Company's compliance program or internal controls.

The
Company is continuing to assess the nature and scope of potential legal remedies available to the Company against individuals or entities that may have caused harm to the Company.

As
previously announced, the DOJ, the SEC and the Ministry of Interior of the Republic of Macedonia have commenced investigations into certain of the Company's activities that were the
subject of

F-11

---



Table of Contents

MAGYAR TELEKOM

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1.     GENERAL INFORMATION (Continued)

the
internal investigation. Also, as previously announced, the Hungarian National Bureau of Investigation ("NBI") has begun a criminal investigation into alleged misappropriation of funds relating to
payments made in connection with the Company's ongoing internal investigation and the possible misuse of personal data of employees in the context of the internal investigation. These governmental
investigations are continuing, and the Company continues to cooperate with those investigations. The Company cannot predict what the final outcome of those investigations may be or the impact, if any,
they may have on its financial statements or results of operations. Furthermore, government authorities could seek criminal or civil sanctions, including monetary penalties, against the Company or its
affiliates as well as additional changes to its business practices and compliance programs.

1.2.2  Accounting implications of the findings of the Investigation

As a result of the findings of the Investigation (Note 1.2.1), we identified three consultancy contracts, the payments of which were erroneously
capitalized as part of the goodwill arising on the original acquisition of Makedonski Telekom in 2001 and the goodwill arising on Makedonski Telekom's repurchase of 10% of its shares in 2006. These
amounts are now corrected and accounted for as though these payments had been expensed in 2001 and 2006 rather than capitalized as part of goodwill as originally reported.

In
addition to the above, the other contracts that were identified by the Final Report, for which the available evidence does not establish that the contracts under which these
expenditures were made
were legitimate, were expensed in 2001-2006, which require no restatements on their own. However, depending on further analysis these contracts will probably qualify as non deductible
expenses for various taxes. As the timing and the amount of the potential tax impacts and any penalties related to these taxes are uncertain, these were provided for retrospectively as at
December 31, 2006, which also had an impact on the balance of the Non-controlling interests.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1.     GENERAL INFORMATION (Continued)

The
table below shows the impacts of these restatements on the Statements of financial position.

2006

2007

2008(In HUF millions)Intangible assetsAs reported


331,740


337,227


337,692Change due to restatement


(2,313
)

(2,313
)

(2,313
)As restated


329,427


334,914


335,379Provisionsnon currentAs reported


3,533


12,886


9,417Change in presentation (Note 2.1.5)


(1,401
)

(1,703
)

(850
)After change in presentation


2,132


11,183


8,567Change due to restatement


1,482


1,482


1,482As restated


3,614


12,665


10,049Retained earningsAs reported


397,311


385,044


401,001Change


(3,317
)

(3,317
)

(3,317
)As restated


393,994


381,727


397,684Non-controlling interestsAs reported


67,128


66,695


63,079Change


(478
)

(478
)

(478
)As restated


66,650


66,217


62,601


The
restatements had no impact on the Statements of comprehensive income or the Statements of cash flows.

1.3   Public service concession and license arrangements

Magyar Telekom's primary activities are the fixed line and mobile operations in Hungary, Macedonia and Montenegro. These services are in most cases regulated by
these countries' laws or other legislations. These services in most cases require the acquisition of a license or concession, which usually requires a one-off fee, which is capitalized and
amortized over the original duration of license or concession, and also requires annual payments, which are recognized as Other operating expenses (included in Fees and levies) in the year the payment
obligation refers to.

The
most important features of the regulations of these services are described below.

1.3.1  Hungarian Fixed line

Magyar Telekom Plc. is the market leading fixed line telecom service provider in Hungary. Act C of 2003 on Electronic Communications, the latest act on the
telecommunications sector, came into effect on January 1, 2004. The National Communications Authority of Hungary (NCAH) is the supreme supervisory body.

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1.     GENERAL INFORMATION (Continued)

Magyar
Telekom Plc. has been a Universal Service Operator (USO) since 2002. According to the Act on Electronic Communications, universal services are basic communications services
that should be available to all customers at an affordable price. The last effective USO contract was signed in 2004 and expired at the end of 2008; no new contract has been concluded since. The
Ministry's intention is to preserve the universal service and for that reason through the amendment of a decree in December 2008 orders the operators formerly in universal service provider
statusamongst them Magyar Telekom Plc.to continue the provisioning of universal service under unchanged terms and conditions. Currently the Company does not consider
itself a universal service provider due to lack of an effective universal service contract. However, discussions are ongoing between the responsible Minister and the earlier universal service
providers on a future possible universal service contract and on the modifications of the underlying regulation in line with the changed market situation. The necessary modifications of the
telecommunications law already entered into force as of
January 1, 2010 and the modification of the concerning government and ministerial decrees is ongoing as well. However a new universal service contractbased on these
conditionshas not yet come into effect.

In
the field of electronic communications Magyar Telekom was designated as an SMP (an operator with significant market power) in 12 fixed line markets out of the 18 relevant markets
stipulated by the EU in 2004 and 2005. These 12 markets include all retail and wholesale telephony services, the market of wholesale leased line termination, the market of minimum set of leased lines
and the wholesale broadband market. As a result of the market analysis conducted at the end of 2006 the Company was designated as SMP on the same markets as in the first round analysis in 2004 with
basically no changes in the corresponding obligations. In 2008 the NCAH commenced the third round of market analysis. To date only the mobile termination wholesale market analysis resolution was
published in this round of analysis. SMP resolutions concerning all other markets subject to analysis are expected to be published in Q2, 2010.

Currently
in Hungary, retail tariffs are regulated in two ways. Price cap methodology is applicable for universal services, andbased on SMP resolutions on residential and
business access marketsthere is another formula used for subscription fees. In addition there is a prohibition of price squeeze in effect for SMP operators and, in accordance with the Act
on Unfair and Restrictive Market Practices, retail prices should be set in accordance with wholesale tariffs providing an acceptable level of retail margins (i.e. no price squeeze).

Magyar
Telekom is Hungary's leading fixed line broadband service provider in the wholesale and one of the leading ones in the retail market. In 2005 the NCAH designated the Company as an
SMP operator on the wholesale broadband access market. In accordance with the effective resolution, all retail products shall be 'reproducible' by competitors based on the wholesale service.
Consequently, the full retail portfolio shall have a wholesale equivalent compliant to the pricing regulations (retail minus methodology) set forth by the NCAH. The Company has a
non-discrimination obligation, which means that the same terms and conditions shall be granted in terms of wholesale services to competitors under identical circumstances.

According
to the Act on Electronic Communications, designated SMP operators are obliged to prepare reference offers for unbundled local loops (RUO) and to provide these services when
there is a request for them by other telecommunications service providers. The reference offer of each SMP operator must be approved by the NCAH. The pricing of these services has to be cost based and
calculatedaccording to the NCAH resolution on the market of wholesale unbundled access to metallic loops published at the end of 2007by Long Run Incremental Costs ("LRIC")
method as opposed to

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1.     GENERAL INFORMATION (Continued)

using
Fully Distributed Costs based on a 2003 Ministerial Decree. The SMP operators may refuse the offer for unbundling if there are technical or economic barriers or if the provision of access to the
local loop or its broadband network access would endanger the integrity of the SMPs' network.

SMPs
are also obliged to prepare reference offers for interconnection (RIO), containing applicable fees, and to provide these services in accordance with the reference offer when there
is a request for them by other telecommunications service providers. The reference offers of the SMPs must be approved by the NCAH, and prices have to be based on LRIC. Fees in the currently effective
reference offers are applicable from April 1, 2009.

According
to the Act on Electronic Communications, designated SMP operators are obliged to enable carrier selection to their subscribers. Consequently, voice telephony customers have the
right to select different service providers for each call directions including Internet calls by dialing a pre-selected number or by using a call-by-call
pre-fixed number. The requirements for carrier selection are set out in the RIO based interconnection agreements between the affected service providers.

Fixed
line telecommunications service providers are obliged under the law to provide number portability on their networks starting January 1, 2004. This means that service
providers must enable subscribers to change service provider without changing their fixed telephone numbers within the same geographical area.

1.3.2  Macedonian Fixed line

The Group is also present in the Macedonian fixed line telecommunications market through its subsidiary, Makedonski Telekom (MKT). MKT is the largest fixed line
service provider in Macedonia. The Macedonian telecommunications sector is regulated by the Electronic Communications Law (ECL), enacted in March 2005. With the latest changes of the ECL published on
August 4, 2008, the existing Concession Contract of MKT is no longer valid as of September 4, 2008. On September 5, 2008 the Agency for Electronic Communications (the Agency), ex
officio, has issued a notification to MKT for those public electronic communication networks and/or services which have been allocated thereto under the Concession Contract. Radiofrequency licenses
were issued to the operators for the bands granted with the Concession Contracts in a form prescribed by the ECL.

On
December 27, 2007 the Agency brought a decision to publish a public tender for the universal provider of electronic communications services in the Republic of Macedonia. The
opening of the qualified bids was on February 18, 2008, and on February 22, 2008 based on the decision of the Agency, MKT was selected as one of the candidates for universal service
provider in the prequalification. Written invitation which should have been submitted by the Agency to selected candidates from the first phase, in order to submit offer for selection of universal
service provider, has not been received yet.

The
regulatory framework for the retail tariff regulation for MKT until August 2008 was provided in the Concession Contract. With the latest changes of the ECL in August 2008 and the
published bylaw for retail price regulation in September 2008, the Agency may prescribe one of the following ways of retail regulation of fixed telephony services: price cap, individual price
approval, cost based prices or benchmarks. On December 17, 2009, the Agency published the draft analysis for the relevant markets 1-6 related to fixed voice retail services for
public debate. Based on the draft analysis, the Agency is planning to impose retail price regulation on MKT as well as to equal the fixed voice access prices for residential and business segment.

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1.     GENERAL INFORMATION (Continued)

On
October 28, 2009 the Agency published guideline for price squeeze, for which MKT sent comments, and currently public debate is ongoing after which the final guidelines will be
enacted.

Under
the ECL, MKT has been designated as an SMP in the market for fixed line voice telephone networks and services, including the market for access to the networks for data transmission
and leased lines. MKT had a cost based price obligation for the Regulated wholesale services, using fully distributed costs (FDC) methodology until July 2007 and using Long Run Incremental Costs
methodology (LRIC) subsequently. A proposal for interconnection fees with LRIC was submitted by MKT in July 2007 and for unbundling fees in December 2007. On May 23, 2008, the Agency issued
approval for the new decreased interconnection and unbundling fees, based on the audit report on MKT's costing accounting system issued by an independent auditor. On December 31, 2008 the
Agency approved the new unbundling fees which entered in force from January 2009. The Agency engaged expert consultancy services for LRIC bottom-up model development for which the result
is expected in 2010. Based on several enacted bylaws published in second half of 2008 MKT has prepared several additional regulated wholesale products, Wholesale Line Rental, Wholesale Leased Line and
Local Bit stream access. MKT as an SMP operator has the obligation to enable its subscribers to access publicly available telephone services of any interconnected operator with officially signed
interconnection contract. On November 15, 2006, MKT signed the first RIO (Reference Interconnection Offer) based Interconnection Agreement with an alternative fixed network operator. On
April 16, 2007, MKT signed the first RUO (Reference Unbundling Offer) based Unbundling Agreement with an alternative fixed network operator. MKT implemented number portability starting from
September 1, 2008.

1.3.3  Montenegrin Fixed line

The Group's Montenegrin subsidiary, Crnogorski Telekom (CT) is registered to provide fixed line telecommunications services in Montenegro as well as to provide
domestic voice and data services as well as VOIP, leased line, public payphone, and cable television, value added services, etc. The telecommunications sector in Montenegro is regulated by the Law on
Electronic Communications that
came into force in August 2008. The Law is based on the 2002 regulatory framework of the EU. All regulations that are contrary to the law became automatically invalid and new ones have been issued or
will have to be issued.

In
Montenegro, for the time being there is no obligation to introduce local loop unbundling, bit stream access or accounting separation. CT implemented Carrier selection in 2008. It can
be expected that CT will have to implement some or all of the obligations above in the coming years. Accordingly, number portability will be introduced by August 2011. The new Law defined Crnogorski
Telekom as an operator with significant market power in the markets of fixed voice telephony network and services, including the market of access to network for data transfer and leased lines as well
as the termination of calls within its network, however, the Law did not prescribe the remedies CT should introduce as a consequence. RIO rates are based on benchmarks as there is no approved cost
accounting methodology prescribed by the regulator in Montenegro. The Agency for Electronic Communications and Postal Services has started the market analysis process and identified the relevant
telecommunication markets in Montenegro identical to those in the EC recommendation 2007/879/EC. It can be expected that within a few years cost oriented RIO prices will have to be implemented in the
country.

Montenegro
signed a Stabilization and Association Agreement with the EU and a transitory Agreement is in force since January 1, 2008. The agreement is requiring the harmonization
of the

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1.     GENERAL INFORMATION (Continued)

telecommunications
regulations with the regulatory framework of the EU within three years of the ratification of the Agreement.

1.3.4  Hungarian Mobile

The Company is also the market leader in the Hungarian mobile market through the brand T-Mobile (T-Mobile HU).

The
initial duration of the concession regarding the GSM 900 public mobile radio telephone service was a period of 15 years starting from the execution of the concession agreement
(November 4, 1993 to November 4, 2008). On October 7, 1999 an amended concession contract was signed between the Ministry of Transport, Communications and Water Management and
T-Mobile HU extending T-Mobile HU's rights and obligations to also provide service in the 1800 MHz band in Hungary till October 7, 2014. The duration of the concession
regarding the DCS 1800 public mobile radio telephone service is 15 years starting from the execution of the new concession agreement (October 7, 1999 to October 7, 2014). As
stipulated in the concession contracts, the Minister is entitled to extend the concession period for both services upon their expiration for another 7.5 years without the invitation of a
tender. On November 8, 2007, the Company signed the renewed Concession Contract along with the Cooperation Agreement with the Minister that is effective from November 2008. The
new Concession Contract prolonged the duration of the 900 MHz frequency usage right till May 4, 2016.

On
December 7, 2004, T-Mobile HU obtained the exclusive right of use of certain frequency blocks for the deployment and operation of an IMT2000/UMTS mobile
telecommunications system (3G system). The duration of the frequency usage right is 15 years (until December 7, 2019) with an option to extend it for another 7.5 years.
T-Mobile HU was obliged by the term of the license decree to start commercial 3G service within 12 months after the acquisition of the license within the inner city of Budapest,
which was completed. We were also obliged to reach a population-wide coverage of 30% within 36 months of license acquisition which was also completed in December 2006. On
August 26, 2005 T-Mobile HU started to provide 3G service and has been operating it in compliance with the license conditions.

T-Mobile
HU is subject to number portability regulation since May 2004, applicable only in case of other mobile operators.

In
January 2005 and October 2006 the NCAH designated T-Mobile HU as having significant market power in the mobile wholesale call termination market, and it is currently
subject to regulatory obligations regarding the termination charge of calls into its network. In December 2008 the NCAH designated T-Mobile HU as an SMP for the third time in a row and in
its resolution reinforced the symmetric mobile termination fees applicable from January 1, 2009, and set out further reduction of tariffs until December 2010 based on a new 'glide path'. The
Company had appealed in court against the resolution.

Since
June 30, 2007, an EU regulation has been regulating international roaming tariffs for wholesale and retail customers on the basis of a price cap system. The Regulation
prescribed a glide-path that mandates further annual reductions of wholesale and retail prices in the forthcoming years. As of July 2009 the EU introduced regulated tariffs for SMS and
data roaming similarly to the regulation of voice roaming.

The
National Table of Frequency Allocations and the Radio Application Table was modified in October 2008 enabling the invitation of bidders for the usage rights of 450 MHz (block "B")
and 26 GHz (blocks "C-G") spectrum.

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1.     GENERAL INFORMATION (Continued)

In
the tender for the fourth mobile license a combined IMT-2000/UMTS/ DCS 1800/E-GSM900 spectrum package (so called 'A' block) was offered for new entrant
candidates. Incumbent mobile operators were excluded from the bid. It was stipulated that the frequency usage rights could be transferred wholly (though not to existing mobile operators), and in the
case of E-GSM900 band there was a possibility of transferring maximum 16 channels to incumbent mobile operator(s). Four companies submitted bids. On March 16, 2009, the tender for
the 4th mobile license was cancelled, and on April 24, the NCAH dismissed the appeals of 3 bidders. One of the bidders, DreamCom appealed at the Municipal Court asking for the review of
the second instance decision of the NCAH, but the court upheld the NCAH's decision. Now, the 4th GSM/UMTS spectrum package is available for a new tender. It is expected that the
new tender will be executed in the course of the implementation of the modified GSM Directive (2009/114/EC Directive, on the frequency bands to be reserved for the coordinated introduction of public
pan-European cellular digital land-based mobile communications) in 2010. Member States have 6 months to transpose the modified GSM Directive into their national
legislation until May 9, 2010.

Only
one license was offered on the 450 MHz tender, for digital cellular system having wider bandwidth. Incumbent mobile operators and 3.5 GHz FWA license holders were excluded from the
bid. Two companies submitted bids. The NCAH declared the tender for the 450 MHz spectrum block's usage right ("B" block) unsuccessful on April 30, 2009.

Five
licenses were offered in the 26 GHz bid; 2 licenses for 112 MHz wide blocks, 1 license for a 84 MHz wide block and 2 licenses for 56 MHz wide frequency block. Incumbent
mobile operators could bid for the 84 MHz wide block only. It was stipulated that the frequencies could be used for publicly available electronic communication services and for the operation of
electronic communications networks (mobile backhaul). T-Mobile HU submitted its bid document solely for the 26 GHz 'D' block and won the spectrum usage right license on April 30,
2009. Two companies submitted bids for the 'E' block, which were granted to Antenna Hungária, the leading Hungarian land and satellite broadcasting and distribution company. The tender
for 2 pieces of 112 MHz and one 56 MHz block was unsuccessful.

The
National Table of Frequency Allocations and the Radio Application Table was modified on November 27, 2009 changing the status of 2.6 GHz spectrum blocks from "planned" to
assignable.

1.3.5  Macedonian Mobile

T-Mobile Macedonia (T-Mobile MK), Magyar Telekom's subsidiary, is the leading mobile service provider in Macedonia. With the changes of
the Electronic Communications Law published on August 4, 2008, the existing Concession Contract of T-Mobile MK ceased to be valid as of August 5, 2008. On September 5,
2008 the Agency for Electronic Communications, ex officio, issued a notification to T-Mobile MK for those public electronic communication networks and/or services which have been allocated
thereto under the Concession Contracts. The license for radiofrequencies used by T-Mobile MK with a bandwidth of 25 MHz in the GSM 900 band, was also issued in a form regulated in the ECL
with a
validity period until September 5, 2018, which can be renewed up to additional 20 years in accordance with the ECL. T-Mobile MK is also registered to provide a public network
for data transmission and radio transmission, with the corresponding data transmission and radio communications services, according to the ECL.

After
the analysis of the market "Call termination services in public mobile communication networks" the Agency on November 26, 2007 brought a decision by which
T-Mobile MK and Cosmofon (competitor of T-Mobile MK, rebranded to One in November 2009) were designated with SMP status on Market 16 (Call termination services in public mobile
communication networks) and several obligations were

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1.     GENERAL INFORMATION (Continued)

imposed
(interconnection and access, transparency in interconnection and access, non-discrimination in interconnection and access, accounting separation and price control and cost
accounting). T-Mobile MK published a RIO with regulated termination rate effective from August 1, 2008. T-Mobile MK was obliged to submit financial reports for 2008
based on accounting separation by May 31, 2009 and submitted them on June 1, 2009. Second round analysis of Market 16 is ongoing and includes the third mobile operator VIP Operator
(subsidiary of Mobilkom Austria). The Agency is also conducting market analysis on relevant markets defined in the Decision on relevant market determination of August 17, 2005. The Agency has
engaged expert consultancy services for calculation of WACC for SMP designated operators (fixed and mobile). In September 2009, the Agency requested data for calculation of WACC to SMP operators
(T-Mobile MK, Cosmofon and Makedonski Telekom). It has also engaged expert consultancy services for LRIC bottom-up model development as means for price control of SMP
operators.

On
June 30, 2009 the Agency brought a Decision for setting the maximum amount of the one-time fee for number portability service. Prior to the decision the price was
established individually by the operators. T-Mobile MK initiated a procedure before the Administrative Court to dispute the decision of the Agency. The administrative procedure has not
started yet.

One
won the public tender for a license for 3G radiofrequencies utilization in November 2007 and started the 3G commercial operations from August 12, 2008. On September 2,
2008 a decision for granting three 3G licenses was published. T-Mobile MK started commercial operations of the 3G services on June 11, 2009. The validity of the license is
10 years i.e. December 17, 2018 , with a possibility for extension for 20 years in accordance with the ECL.

Since
the beginning of 2009 three attempts have been made to award additional two licences for 3G radiofrequencies. On January 27, 2009 a public tender for granting two licences
for 3G radiofrequencies was published. No bids were received and no license was awarded. On July 16, 2009 the tender was repeated under the same conditions and experienced the same outcome in
August 2009. On
December 21, 2009 the tender was published again under the same conditions. Its outcome is expected in 2010.

On
January 10, 2009 a public tender for awarding two licences for 2G radiofrequencies in the 1800 MHz band was published. T-Mobile MK was awarded one license on
June 9, 2009. The validity period is 10 years, with a possibility for extension for 20 years in accordance with the ECL. Also, on January 10, 2009 a tender for one license
in the 1800-1805 MHz for broadband wireless access on the whole territory of republic of Macedonia was published. On May 5, 2009 the Agency brought a Decision pronouncing Mobik
Telekomunikacii the best bidder on the tender. Commercial start defined by the tender conditions is 6 months from awarding of the license.

In
July 2009, the Agency put several secondary electronic communication legislation acts on public debate. So far, only modified Rulebook of number portability was enacted presenting
further stimulation of number portability service. The enactment of these regulations will improve the regulatory framework.

1.3.6  Montenegrin Mobile

Crnogorski Telekom, the Group's Montenegrin subsidiary is also providing mobile services under the T-Mobile brand (T-Mobile CG). CT is
registered as one of three GSM/UMTS providers in Montenegro. T-Mobile CG, as the second mobile operator, was launched on July 1, 2000. The third mobile operator entered the market
in 2007. T-Mobile CG started 3G operations in 2007.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1.     GENERAL INFORMATION (Continued)

According to the Law on Electronic Communications (Note 1.3.3), T-Mobile CG is an SMP in the market of termination of voice calls in its own network however no
specific remedy was introduced by the Law. Accordingly, number portability will be introduced by August 2011 also in the mobile the sector. Interconnect rates have been approved by the Regulator based
on benchmarks. It can be expected that cost oriented termination prices will be implemented in the coming years.

2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

2.1   Basis of preparation

Theses consolidated financial statements of Magyar Telekom have been prepared in accordance with International Financial Reporting Standards as issued by the
International Accounting Standards Board (IASB).

The
consolidated financial statements are presented in millions of HUF. For the convenience of the reader, the consolidated Statement of financial position, Statement of comprehensive
income and Statement of cash flows for the year 2009 are also presented in millions of U.S. dollars (USD) translated at a rate of HUF 188.07 to USD 1 (the official rate of the National
Bank of Hungary at December 31, 2009). These translations are un-audited supplementary information, and are not in compliance with IFRS.

The
preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the
process of applying the Group's accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated
financial statements, are disclosed in Note 4.

2.1.1    Standards, amendments and interpretations effective and adopted by the Group in 2009

-IAS 1

(revised)Presentation of Financial statements. Revised IAS 1 introduced overall requirements for the presentation of financial statements, guideline for their structure and minimum requirements for their
contents. The Group applied the requirements of the revised Standard from January 1, 2009. The most significant change in the presentation of the financial statements is the extension of the Income statement with Other comprehensive income, and
that the Income statement's name changed to Statement of comprehensive income. This also had an effect on the Statement of changes in equity, whereby a number of changes during the year previously disclosed in separate lines are now included in Total
comprehensive income for the year. Also, the term of Balance sheet changed to Statement of financial position, and the term Minority interest changed to Non-controlling interest. Further, as previous years' statements of financial position were
restated according to note 1.2.2 and 2.5, we disclosed four Statements of financial position.-IAS 23

(revised) Borrowing Costs. Under the revised IAS 23 an entity must capitalize borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset as part of the cost
of that asset. The Group applied IAS 23 as of January 1, 2009, which did not have any impact on the financial statements as it had already been the Group's accounting policy to capitalize eligible borrowing costs on qualifying
assets.


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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

-IFRS 2

(amended) Share-based Payment. Main changes and clarifications include references to vesting conditions and cancellations. The changes to IFRS 2 must be applied in periods beginning on or after January 1, 2009.
The Group applied IFRS 2 as of January 1, 2009, which had no impact on the accounts as the Group has no significant share based compensations.-IFRS 7

(amended) Financial Instruments: Disclosures (Improving Disclosures about Financial Instruments). The amendments are in response to calls from constituents for enhanced disclosures about fair value measurements and
liquidity risk in the wake of the recent financial crisis. The revised disclosure requirements are applicable for annual periods beginning on or after January 1, 2009. The Group applied the amended standard from January 1, 2009, which did
not cause significant changes in the presentation of the Group's financial statements.-IFRS 8

Operating Segments. Under IFRS 8, segments are components of an entity regularly reviewed by an entity's chief operating decision-maker. Items are reported based on the internal reporting. IFRS 8 also sets out
requirements for related disclosures about products and services, geographical areas and major customers. The Group adopted IFRS 8 as of January 1, 2009. The adoption resulted in a significant restructuring of the Group's segment
disclosure. The Group restructured the way chief operating decision makers decide on allocation of resources in 2008, which was different from the reportable segments of the Group as per IAS 14. In the new structure concluded during 2008, the
primary focus is on the customer segmentation (consumer / business) rather than on the technology serving the customers (fixed line / mobile). Comparative information has been restated accordingly. See also Note 2.20 and Note 31. The Group
early adopted the IFRS 8 amendment removing the requirement of segment asset disclosures if the CODM does not monitor those.-IFRIC 13

Customer Loyalty programs. This Interpretation addresses accounting by entities that grant loyalty award credits to customers who buy other goods or services. Specifically, it explains how such entities should account
for their obligations to provide free or discounted goods or services to customers who redeem award credits. The Group applied this Interpretation as of January 1, 2009. As for measurement, IFRIC 13 did not cause any change in the Group's
accounts as the loyalty programs had been accounted for in substantially the same way as included in the recently issued IFRIC 13. As for presentation, however, there was a change as the previously recognized liability for the undelivered
elements was included in Provisions, which was changed to Deferred revenue as a result of the application of IFRIC 13. The comparative Statements of financial position of the Group were restated accordingly. See also Note 2.1.5.


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2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

-IFRIC 15

Agreements for the Construction of Real Estate. IFRIC 15 refers to the issue of how to account for revenue and associated expenses by entities that undertake the construction of real estate and sell these items before
construction is completed. The interpretation defines criteria for the accounting in accordance with either IAS 11 or with IAS 18. IFRIC 15 shall be applied for annual periods beginning on or after January 1, 2009. The adoption of
IFRIC 15 had no impact on the accounts as these are not typical transactions of the Group.


2.1.2    Standards, amendments and interpretations effective in 2009 but not relevant for the Group

-IAS 32

(amended) Financial Instruments: Presentation. The IASB amended IAS 32 with respect to the Statement of financial position classification of puttable financial instruments and obligations arising only on liquidation.
As a result of the amendments, some financial instruments that currently meet the definition of a financial liability will be classified as equity. The amendments have detailed criteria for identifying such instruments. The amendments of IAS 32
are applicable for annual periods beginning on or after January 1, 2009. As the Group does not have such instruments that would be affected by the amendments, the amendments to the standard did not have any impact on the Group's financial
statements.-IFRS 1

First-time Adoption of IFRS (revised). As the Group has been reporting according to IFRS for many years, neither the original standard, nor any revisions to that are relevant for the Group.-IFRIC 16

Hedges of a Net Investment in a Foreign Operation. IFRIC 16 refers to the application of Net Investment Hedges. Mainly, the interpretation states which risk can be defined as the hedged risk and where within the
group the hedging instrument can be held. Hedge Accounting may be applied only to the foreign exchange differences arising between the functional currency of the foreign operation and the parent entity's functional currency. A derivative or a
non-derivative instrument may be designated as a hedging instrument. The hedging instrument(s) may be held by any entity or entities within the group (except the foreign operation that itself is being hedged), as long as the designation,
documentation and effectiveness requirements of IAS 39.88 that relate to an net investment hedge are satisfied. IFRIC 16 shall be applied for annual periods beginning on or after October 1, 2008. As Magyar Telekom does not apply such
hedges and does not apply hedge accounting, IFRIC 16 has no impact on the Group's accounts.-IFRIC 9 and IAS 39

In March 2009 the IASB published amendments to IFRIC 9 (Reassessment Embedded Derivatives) and IAS 39 (Financial Instruments: Recognition and Measurement). As a result, entities are required to:assess whether an embedded derivative is required to be
separated from a host contract when the entity reclassifies a hybrid (combined) financial asset out of the fair value through profit or loss category


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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

make such an assessment on the basis of the circumstances
that existed when the entity first became a party to the contract, or, if later, when there was a change in the contract that significantly modified the cash flows determine whether the fair value of the separated embedded derivative can be measured
reliably; if not, the entire hybrid (combined) financial asset must remain in the fair value through profit or loss category.When an entity performs the assessment as required by the amendments it does not apply paragraph (c) of IAS 39, which states that separation of an embedded derivative from the host contract is required only if
the hybrid (combined) instrument is not measured at fair value through profit or loss. The amendments are applicable for annual periods ending on or after June 30, 2009. The Group has no hybrid financial assets, therefore, the amended standard
and interpretation did not have any effect on the Group's financial statements.


2.1.3    Standards, amendments and interpretations that are not yet effective and have not been early adopted by the Group

-IAS 24

(revised). In November 2009, the IASB issued a revised version of IAS 24 Related Party Disclosures. Until now, if a government controlled, or significantly influenced, an entity, the entity was required to disclose
information about all transactions with other entities controlled, or significantly influenced by the same government. The revised standard still requires disclosures that are important to users of financial statements but eliminates requirements to
disclose information that is costly to gather and of less value to users. It achieves this balance by requiring disclosure about these transactions only if they are individually or collectively significant. Furthermore the IASB has simplified the
definition of related party and removed inconsistencies. The revised standard shall be applied retrospectively for annual periods beginning on or after January 1, 2011. Earlier application is permitted. Governments have no ownership in Magyar
Telekom Plc., therefore, the revised standard will not have a significant impact on the disclosures in the Group's financial statements.-IAS 27 and IFRS 3

(amended). In January 2008 the IASB published the amended Standards IFRS 3Business Combinations and IAS 27Consolidated and Separate Financial Statements. The major changes compared to the current
version of the standards are summarized below:With respect to accounting for non-controlling interest an
option is added to IFRS 3 to permit an entity to recognize 100% of the goodwill of the acquired entity, not just the acquiring entity's portion of the goodwill ('full goodwill' option) or to measure non-controlling interest at its fair value.
This option may be elected on a transaction-by-transaction basis.In a step acquisition, the fair values of the acquired
entity's assets and liabilities, including goodwill, are measured on the date when control is obtained. Accordingly, goodwill will be measured as the difference at the acquisition date between the fair value of any investment the business held before
the acquisition, the consideration transferred and the net asset acquired.


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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

A partial disposal of an investment in a subsidiary while
control is retained is accounted for as an equity transaction with owners, and gain or loss is not recognized.A partial disposal of an investment in a subsidiary that
results in loss of control triggers re-measurement of the residual interest to fair value. Any difference between fair value and carrying amount is a gain or loss on the disposal, recognized in profit or loss.Acquisition related costs will be accounted for separately
from the business combination, and therefore, recognized as expenses rather than included in goodwill. An acquirer will have to recognize at the acquisition date a liability for any contingent purchase consideration. If the amount of contingent
consideration accounted for as a liability changes as a result of a post-acquisition event (such as meeting an earnings target), it will be recognized in accordance with other applicable IFRSs, as appropriate rather than as an adjustment of
goodwill.The revised standards require an entity to attribute their
share of losses to the non-controlling interests even if this results in the non-controlling interests having a deficit balance.Effects resulting from an effective settlement of
pre-existing relationships (relationships between acquirer and acquiree before the business combination) must not be included in the determination of the consideration.In contrast to current IFRS 3, the amended version of
this standard provides rules for rights that have been granted to the acquiree (e.g. to use its intellectual property) before the business combination and are re-acquired with the business combination.The revised IFRS 3 brings into scope business
combinations involving only mutual entities and business combinations achieved by contracts alone.The amended version of IFRS 3 has to be applied for Business Combinations with effective dates in annual periods beginning on or after July 1, 2009. Early application is allowed but restricted on annual
periods beginning on or after June 30, 2007. The changes to IAS 27 must be applied in periods beginning on or after July 1, 2009. Early application is allowed. Early application of any of the two standards requires early application of
the other standard, respectively. We believe that that the amended standards will not have a significant impact on the Group's Statement of comprehensive income or Statement of financial position when applied from January 1, 2010.


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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

-IFRS 2

(amended) Share-based Payment. The amendments related to Group Cash-settled Share-based Payment Transactions were published in June 2009. Currently effective IFRSs require attribution of group share-based payment
transactions only if they are equity-settled. The amendments resolve diversity in practice regarding attribution of cash-settled share-based payment transactions and require an entity receiving goods or services in either an equity-settled or a
cash-settled payment transaction to account for the transaction in its separate or individual financial statements. The Group has no significant share based compensations; therefore, we do not expect the amended standard to have a significant effect
on the Group when applied from January 1, 2010. Amendments to IFRS 2 shall be applied retrospectively for annual periods beginning on or after January 1, 2010. The amendments also incorporate the guidance contained in IFRIC 8
(Scope of IFRS 2) and in IFRIC 11 (IFRS 2Group and Treasury Share Transactions). As a result, the Board withdrew IFRIC 8 and IFRIC 11.-IFRS 9

Financial Instruments. The standard forms the first part of a three-phase project to replace IAS 39 (Financial Instruments: Recognition and Measurement) with a new standard, to be known as IFRS 9 Financial
Instruments. IFRS 9 prescribes the classification and measurement of financial assets. The remaining phases of this project, dealing with the classification and measurement of financial liabilities, impairment of financial instruments and hedge
accounting, as well as a further project regarding derecognition, are in progress. The IASB expects to have completed the replacement of IAS 39 by end of 2010.At initial recognition, IFRS 9 requires financial assets to be measured at fair value. After initial recognition, financial assets continue to be measured in accordance with their classification under IFRS 9.
Where a financial asset is classified and measured at amortized cost, it is required to be tested for impairment in accordance with the impairment requirements in IAS 39. IFRS 9 defines the below rules for classification.IFRS 9 requires that financial assets are classified
as subsequently measured at either amortized cost or fair value. There are two conditions needed to be satisfied to classify financial assets at amortized cost: (1) The objective of an entity's business model for managing financial assets has to
be to hold assets in order to collect contractual cash flows; and (2) The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
Where either of these conditions is not satisfied, financial assets are classified at fair value.Faire Value Option: IFRS 9 permits an entity to
designate an instrument, that would otherwise have been classified in the amortized cost category, to be at fair value through profit or loss if that designation eliminates or significantly reduces a measurement or recognition inconsistency
('accounting mismatch').


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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Equity instruments: The default category for equity
instruments is at fair value through profit or loss. However, the standard states that an entity can make an irrevocable election at initial recognition to present all fair value changes for equity investments not held for trading in other
comprehensive income. These fair value gains or losses are not reported as part of a reporting entity's profit or loss, even when a gain or loss is realized. Only dividends received from these investments are reported in profit or loss.Embedded derivatives: The requirements in IAS 39 for
embedded derivatives have been changed by no longer requiring that embedded derivatives be separated from financial asset host contracts.Reclassification: IFRS 9 requires reclassification
between fair value and amortized cost when, and only when there is a change in the entity's business model. The 'tainting rules' in IAS 39 have been eliminated.An entity shall apply IFRS 9 for annual periods beginning on or after January 1, 2013. Earlier adoption is permitted. A reporting entity must apply IFRS 9 retrospectively. For entities that adopt
IFRS 9 for periods before January 1, 2012 the IFRS provides transition relief from restating comparative information. The adoption of the new standard will probably result in changes in the financial statements of the Group, the exact
extent of which we are currently analyzing.-IFRIC 18

Transfers of Assets from Customers. The Interpretation clarifies the requirements of IFRSs for agreements in which an entity receives from a customer an item of property, plant and equipment (or cash to be used
explicitly for the acquisition of property, plant and equipment) that the entity must then use either to connect the customer to a network or to provide the customer with ongoing access to a supply of goods or services. The Interpretation is
effective for annual periods beginning on or after July 1, 2009 and applies prospectively. However, limited retrospective application is permitted. The Group's applicable transactions are not material, therefore, we do not expect the amended
standard to have a significant effect on the Group when applied from January 1, 2010.


2.1.4    Standards, amendments and interpretations that are not yet effective and not relevant for the Group's operations

-IAS 32

(amended)The IASB published an amendment to IAS 32 Financial Instruments: Presentation in October 2009. The amendment clarifies the classification of rights issues as equity or liabilities for rights issues that
are denominated in a currency other than the functional currency of the issuer. These rights issues are recorded as derivative liabilities before the amendment. The amendment requires that such right issues offered pro rate to all of an entity's
existing shareholders are classified as equity. The classification is independent of the currency in which the exercise price is denominated. The application of the amendment is required for annual periods beginning on or after February 1, 2010.
An earlier application is permitted. The amendment will have no impact on the Group's financial statements as Magyar Telekom has no such instruments.


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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

-IAS 39

(amended)The IASB published an amendment in August 2008 to IAS 39 with respect to hedge accounting. The amendment "Eligible Hedged Items" allows to designate only changes in the cash flows or fair value of a
hedged item above or below a specified price or other variable. The amendment of IAS 39 shall be applied retrospectively for annual periods beginning on or after July 1, 2009. The amendment will not have any impact on Magyar Telekom's
accounts as the Group does not apply hedge accounting.-IFRS 1

Additional Exemptions for First-time Adopters. The IASB amended IFRS 1 in July 2009 and in January 2010. As the Group has been reporting according to IFRS for many years, neither the original standard, nor any
revision to that is relevant for the Group.-IFRIC 14

(amended) IAS 19The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction. In November 2009, the IASB issued an amendment to IFRIC 14, which corrects an unintended
consequence of IFRIC 14. Without the amendments, in some circumstances entities are not permitted to recognize some voluntary prepayments for minimum funding contributions as an asset. The amendment permits such an entity to treat the benefit of
such an early payment as an asset. The amendments are effective for annual periods beginning January 1, 2011. The amendments must be applied retrospectively to the earliest comparative period presented. The amended interpretation is not
applicable to Magyar Telekom as the Group has no funded defined post-retirement benefit schemes.-IFRIC 17

Distributions of Non-cash Assets to Owners. This interpretation issued in November 2008 refers to the issue when to recognize liabilities accounted for non-cash dividends payable (e.g. property, plant, and
equipment) and how to measure them. In addition, the interpretation refers to the issue how to account for any difference between the carrying amount of the assets distributed and the carrying amount of the dividend payable. The interpretation shall
be applied for annual periods beginning on or after July 1, 2009. As the Group does not distribute non-cash dividends, IFRIC 17 will have no impact on the Group's financial statements.-IFRIC 19

Extinguishing Financial Liabilities with Equity Instruments. This interpretation issued in November 2009 clarifies the requirements of IFRSs when an entity renegotiates the terms of a financial liability with its
creditor and the creditor agrees to accept the entity's shares or other equity instruments to settle the financial liability fully or partially. The interpretation is effective for annual periods beginning on or after July 1, 2010 with earlier
application permitted. The interpretation shall be applied retrospectively. The interpretation is not applicable to Magyar Telekom as the Group does not extinguish any of its financial liabilities with equity instruments.


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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

-IFRS for Small and Medium-sized Entities.

In July 2009 the IASB issued its IFRS for Small and Medium-sized Entities, which is not relevant for Magyar Telekom.


2.1.5  Changes in presentation

Reclassifications between liabilities and provisions

IFRIC 13 Customer Loyalty programs addresses accounting by entities that grant loyalty award credits to customers who buy other
goods or services. Specifically, it explains how such entities should account for their obligations to provide free or discounted goods or services to customers who redeem award credits. The Group
applied IFRIC 13 from January 1, 2009, which resulted in no change in the measurement of such customer credits, but before the application of IFRIC 13, the Group had recognized
these liabilities as provisions. As a result of the application, we have reclassified these items from provisions to liabilities (deferred revenue), and restated the Group's comparative Statements of
financial position accordingly. The table below shows the impact of the above change in our presentation.

2006

2007

2008(In HUF millions)ProvisionscurrentAs reported


13,004


20,811


17,235Change


(634
)

(751
)

(1,393
)As restated


12,370


20,060


15,842Other current liabilitiesAs reported


110,598


43,920


37,210Change


634


751


1,393As restated


111,232


44,671


38,603Provisionsnon currentAs reported


3,533


12,886


9,417Change


(1,401
)

(1,703
)

(850
)After change in presentation (before impact of investigationNote 1.2)


2,132


11,183


8,567Other non current liabilitiesAs reported


8,730


5,797


583Change


1,401


1,703


850As restated


10,131


7,500


1,433


2.2   Consolidation

2.2.1  Subsidiaries

Subsidiaries in which the Group has an interest of more than one half of the voting rights or otherwise has power to govern the financial and operating policies
as to obtain benefit from its activities, are consolidated.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

The
existence and effect of potential voting rights that are presently exercisable or presently convertible are also considered when assessing whether the Group controls another entity.

Subsidiaries
are consolidated from the date on which control is transferred to the Group, and are no longer consolidated from the date control ceases. The purchase method of accounting
is used to account for business combinations. The cost of an acquisition is measured as the fair value of the assets given up, shares issued or liabilities undertaken at the date of acquisition plus
costs directly attributable to the acquisition. The excess of the cost of acquisition over the fair value of the net assets and contingent liabilities of the subsidiary acquired is recorded as
goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognized directly in the Profit for the year (Other income).

In
case of acquisitions where the transaction takes place between companies under common control (i.e. with other Deutsche Telekom group companies), the transaction is recorded at
the carrying amounts as recorded in the predecessor's accounts, and any gains, losses or differences between the carrying amount and the sale-purchase price are recognized in Retained
earnings.

Inter-company
transactions, balances and unrealized gains on transactions between the Magyar Telekom Group companies are eliminated. Accounting policies of subsidiaries have been
adjusted to ensure consistency with the policies adopted by the Group.

Transactions
with Non-controlling interests are treated as third party transactions. Gains or losses arising on disposals to Non-controlling interests are
recorded in the Profit for the year. Purchases from Non-controlling interests result in goodwill (or other income), being the difference between any consideration transferred and the
relevant share acquired of the carrying value of the net assets of the subsidiary.

2.2.2  Associates and joint ventures

Associates are all entities over which the Group has significant influence but not control, generally reflecting a shareholding of between 20% and 50% of the
voting rights. Joint ventures are entities in which the Group has an ownership of 50% with and equivalent external partner holding the other 50% of the voting rights. Investments in associates and
joint ventures are accounted for using the equity method of accounting and are initially recognized at cost. The Group's investment in associates and joint ventures includes goodwill arising on
acquisitions, and net of any accumulated impairment loss.

The
Group's share of its associates' and joint ventures' post-acquisition profits or losses is recognized in the Profit for the year (Share of associates' and joint ventures'
profits). The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. When the Group's share of losses in an associate or joint venture equals or
exceeds its interest in the company, the Group does not recognize further losses, unless it has incurred legal or constructive obligations or made payments on behalf of the associate or joint venture.

Unrealized
gains on transactions between the Group and its associates and joint ventures are eliminated to the extent of the Group's interest in the company. Accounting policies of
associates and joint ventures have been adjusted where necessary to ensure consistency with the policies adopted by the Group.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

At December 31, 2009 and 2008 the principal operating subsidiaries and associates and joint ventures of the Group were as follows:

Group interest in
capital as at
December 31,Subsidiaries

2008

2009

ActivityIncorporated in Hungary:T-Kábel


100.00%



(a)
Cable TV operatorDataplex


100.00%


100.00%

IT hardware co-location service providerOrigo


100.00%


100.00%

Internet and TV content providerKFKI


100.00%


100.00%

System integration and IT servicesIQSYS


100.00%


100.00%

System integration and IT servicesPro-M


100.00%


100.00%

Professional Mobile Radio (PMR) network operatorISH





100.00%

Integrated healthcare IT servicesTelekom New Media





100.00%

Interactive service provider of telecommunications applicationsIncorporated in Macedonia:Makedonski Telekom (MKT)


56.67%


56.67%

Fixed line telecom service providerT-Mobile Macedonia (T-Mobile MK)


56.67%


56.67%

Cellular telecom service providerStonebridge


100.00%


100.00%

Holding companyIncorporated in Montenegro:Crnogorski Telekom (CT)


76.53%


76.53%
(b)
Telecom service providerT-Mobile Crna Gora (T-Mobile CG)


76.53%



(b)
Cellular telecom service providerInternet Crna Gora (ICG)


76.53%



(b)
Internet service and content providerIncorporated in Romania:Combridge


100.00%


100.00%

Wholesale telecommunications service providerIncorporated in Bulgaria:Orbitel


100.00%


100.00%

Alternative telecommunications and internet service providerNovatel BG


100.00%


100.00%

Wholesale telecommunications service providerIncorporated in the Ukraine:Novatel UA


100.00%


100.00%

Alternative telecommunications and internet service provider


(a)T-Kábel
merged into Magyar Telekom Plc. as of September 30, 2009.(b)T-Mobile
Crna Gora and Internet Crna Gora merged into Crnogorski Telekom as of May 1, 2009.


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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Group interest in
capital as at
December 31,Associates/Joint ventures

2008

2009

ActivityIncorporated in Hungary:Hunsat


50%


50%

Satellite telecommunicationsMagyar RTL (M-RTL)


25%



(a)
Television broadcast companyIKO-Telekom Media Holding


50%



(a)
Media holding company


---

The
Group's interest in the capital of the above subsidiaries, associates and joint ventures equals the voting rights therein.

2.3   Foreign currency translation

2.3.1  Functional and presentation currency

Items included in the financial statements of each of the Group's entities are measured using the currency of the primary economic environment in which the entity
operates ('the functional currency').

The
consolidated financial statements are presented in millions of HUF, as the Group's presentation currency is the Hungarian Forint.

2.3.2  Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange
gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies
are recognized in the Profit for the year (Finance income).

2.3.3  Group companies

The results and financial position of all of the Group's entities (none of which has the currency of a hyperinflationary economy) that have a functional currency
different from the presentation currency are translated into the presentation currency as follows:



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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)



2.4   Financial instruments

A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.

Financial
assets of the Group include cash and cash equivalents, equity instruments of another entity (available-for-sale) and contractual rights to receive cash
(trade and other receivables) or another financial asset from another entity or to exchange financial assets or financial liabilities with another entity under conditions that are potentially
favorable to the entity (derivatives).

Financial
liabilities of the Group include liabilities that originate from contractual obligations to deliver cash or another financial asset to another entity
(non-derivatives); or to exchange financial assets or financial liabilities with another entity under conditions that are potentially unfavorable to the entity (derivatives).

Financial
liabilities, in particular, include liabilities to banks and related parties, finance lease payables, trade payables and derivative financial liabilities.

Finance
lease receivables and liabilities meet the criteria of a financial instrument, but these are recognized and measured according to IAS 17Leases. See
Note 2.17.

The
fair value of traded financial instruments is determined by reference to their market prices at the end of the reporting period. This typically applies to AFS financial instruments.

The
fair value of financial instruments that are not traded in an active market (e.g. derivative financial instruments) is determined by using discounted cash flow valuation
technique. The fair value of forward foreign exchange contracts is determined using quoted spot exchange rates and appropriate interest rates at the end of the reporting period.

The
fair value of other financial instruments is also determined by using discounted cash flow valuation technique. The expected quarterly cash inflows or outflows are discounted by
market based interest rates interpolated from the official Budapest and EUR Interest Rate Swap.

The
fair value of long term fixed-rate financial liabilities (Financial liabilities to related parties, Bank loans and Nonconvertible bonds and debentures) is also determined
by using discounted cash flow valuation technique. The cash flows of the liabilities are discounted by interest rates, which are reasonable to the Group for similar financial instruments. The carrying
amount of floating-rate financial liabilities or expiring within one year approximate the fair values at the end of the reporting period.

Assumptions
applied in the fair value calculations are subject to uncertainties. Changes in the assumptions applied in the calculations would have an impact on the carrying amounts, the
fair values

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

and/or
the cash flows originating from the financial instruments. Sensitivity analyses related to the Group's financial instruments are provided in Note 3.

2.4.1  Financial assets

The Group classifies its financial assets in the following categories:



The
classification depends on the purpose for which the financial asset was acquired. Management determines the classification of financial assets at their initial recognition.

Regular
way purchases and sales of financial assets are recognized on the trade-date, the date on which the Group commits to purchase or sell the asset. Investments are
initially recognized at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss.
Financial assets carried at fair value through profit or loss are initially recognized at fair value, and transaction costs are expensed in the Profit for the year.

The
Group assesses at each financial statement date whether there is objective evidence that a financial asset is impaired. There is objective evidence of impairment if as a result of
loss events that occurred after the initial recognition of the asset have an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably
estimated.

Impairment
losses of financial assets are recognized in the Profit for the year against allowance accounts to reduce the carrying amount until the derecognition of the financial asset,
when the net carrying amount (including any allowance for impairment) is derecognized from the Statement of financial position. Any gains or losses on derecognition are calculated and recognized as
the difference between the proceeds form disposal and the (net) carrying amount derecognized.

Financial
assets are derecognized when the rights to receive cash flows from the investments have expired or have been transferred and the Group has transferred substantially all risks
and rewards of ownership.

2.4.1.1  Financial assets at fair value through profit or loss

The "financial assets at fair value through profit or loss" measurement category includes the following financial assets:



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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Assets
in this category are classified as current assets (Other financial assets). No reclassification between categories have been made in the past and no reclassifications are expected
in the future.

Assets
in this category are initially recognized and subsequently carried at fair value. Gains or losses arising from changes in the fair value are recognized in the Profit for the year
(Other financial income) in the period in which they arise. The Group only classifies derivative financial instruments in this category.

Derivatives
are initially recognized at fair value on the date a derivative contract is entered into and their fair values are re-measured at subsequent financial statement
dates. Magyar Telekom does not apply hedge accounting for its financial instruments, therefore all gains and losses are recognized in the Profit for the year (Finance income).

2.4.1.2  Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Receivables are
included in current assets, except those with maturities over 12 months after the financial statement date. These are classified as non-current assets.

The
following items are assigned to the "loans and receivables" measurement category.



Loans
and receivables are initially recognized at fair value and subsequently carried at amortized cost using the effective interest method, less any impairment.

The
carrying amount of loans and receivables, which would otherwise be past due, whose terms have been renegotiated is not impaired if the collectability of the renegotiated cash flows
are considered ensured.

(a)   Cash and cash equivalents

Cash and cash equivalents include cash on hand and in banks, and all highly liquid deposits and securities with original maturities of three months or less, and
exclude all overdrafts.

(b)   Trade and other receivables

Trade and other receivables are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method, less provision
for impairment.

A
provision for impairment of trade and other receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the
underlying arrangement. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganization, and default or delinquency in payments as well
as historical collections are considered indicators that the trade receivable is impaired.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

If
there is objective evidence that an impairment loss on loans and receivables carried at amortized cost has been incurred, the amount of the loss is measured as the difference between
the asset's carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset's original effective
interest rate (i.e. the effective interest rate computed at initial recognition). The carrying amount of the asset is reduced through the use of an allowance account, and the amount of the loss
is recognized in the Profit for the year (Other operating expensesBad debt expense).

The
Group first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and collectively for financial assets that
are not individually significant. If no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, Magyar Telekom includes the asset in a group
of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is
recognized are not included in a collective assessment of impairment.

The
Group's benchmark policy for collective assessment of impairment is based on the aging of the receivables due to the large number of relatively similar type of customers.

Individual
valuation is carried out for customers under litigation; bankruptcy proceedings and for the total receivables of customers with overdue receivables. Itemized valuation is also
performed in special circumstances, if there is an overdue receivable from any designated customer with different credit risk attributes.

When
a trade receivable is established to be uncollectible, it is written off against Other operating expenses in the Profit for the year (Bad debt expense) with a parallel release of
cumulated impairment. Subsequent recoveries of amounts previously written off are credited against the same line of the Statement of comprehensive income.

If,
in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized (such as an
improvement in the debtor's credit rating), the previously recognized impairment loss shall be reversed by adjusting the allowance account. The reversal shall not result in a carrying amount of the
financial asset that exceeds what the amortized cost would have been had the impairment not been recognized at the date the impairment is reversed. The amount of the reversal shall be recognized in
the Profit for the year as a reduction to Other operating expenses (Bad debt expense).

Amounts
due to, and receivable from, other network operators are shown net where a right of set-off exists and the amounts are settled on a net basis (such as interconnection
receivables and payables).

(c)   Employee loans

Employee loans are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method, less any impairment loss.

Difference
between the nominal value of the loan granted and the initial fair value of the employee loan is recognized as prepaid employee benefits. Interest income on the loan granted
calculated by using the effective interest method is recognized as finance income, while the prepaid employee benefits are amortized to Employee related expenses evenly over the term of the loan.

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2.4.1.3  Available-for-sale financial assets (AFS)

AFS financial assets are non-derivative financial assets that are either designated in this category or not classified in any of the other categories.
They are included in other non current financial assets unless management intends to dispose of the investment within 12 months of the financial statement date. In this latter case they are
included in current assets (Other financial assets).

The
"available-for-sale financial assets" measurement category includes:



AFS
financial assets are initially recognized and also subsequently carried at fair value. The unrealized changes in the fair value of available-for-sale
financial assets are recognized in equity (Revaluation reserve for AFS financial assets).

Interest
on available-for-sale debt securities calculated using the effective interest method is recognized in the Profit for the year (Finance income). Dividends
on available-for-sale equity instruments are recognized in the Profit for the year (Finance income) when the Group's right to receive payments is established.

The
Group assesses at each financial statement date whether there is objective evidence that a financial asset is impaired. There is objective evidence of impairment if as a result of
loss events that occurred after the initial recognition of the asset have an impact on the estimated future cash flows of the financial asset that can be reliably estimated. If any such evidence
exists for AFS financial assets, the cumulative unrealized gain (if any) is reclassified from Other comprehensive income to Profit for the year, and any remaining difference is also recognized in the
Profit for the year (Finance income). Impairment losses recognized on equity instruments are not reversed through the Profit for the year, while impairment losses recognized on debt instruments are
reversed through the Profit for the year.

When
AFS financial assets are sold or redeemed, therefore derecognized, the fair value adjustments accumulated in equity are reclassified from Other comprehensive income to Profit for
the year (Finance income).

2.4.1.4  Held-to-maturity investments

This category includes non-derivative financial assets with fixed or determinable payments and fixed maturity that the Group has the positive
intention and ability to hold to maturity. The Group does not classify any of its financial instruments in this category.

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2.4.2  Financial liabilities

There are two measurement categories for financial liabilities used by the Group:



No
reclassification between categories has been made in the past and no reclassifications are expected in the future. Both types of financial liabilities are initially recognized at fair
value, while subsequent measurements are different (see below). We remove a financial liability (or a part of a financial liability) from the Statement of financial position when, and only when, it is
extinguishedi.e. when the obligation specified in the contract is discharged, cancelled or expired.

2.4.2.1  Financial liabilities carried at amortized cost

The measurement category for "financial liabilities measured at amortized cost" includes all financial liabilities not classified as "at fair value through profit
or loss".

(a)   Loans and other borrowings

Borrowings are recognized initially at fair value less transaction costs, and subsequently measured at amortized costs using the effective interest rate method.
The effective interest is recognized in the Profit for the year (Finance expenses) over the period of the borrowings.

(b)   Trade and other payables

Trade and other payables (including accruals) are recognized initially at fair value and subsequently measured at amortized cost using the effective interest
method. The carrying values of trade and other payables approximate their fair values due to their short maturity.

2.4.2.2  Financial liabilities at fair value through profit or loss

Since the Group currently has no intention of measuring non-derivative financial liabilities at fair value, generally only derivative financial
instruments are assigned to this category.

The
Group does not designate any derivatives as hedging instruments, therefore, all derivatives are classified as "held for trading".

Derivatives
are initially recognized at fair value on the date a derivative contract is entered into and their fair values are re-measured at subsequent financial statement
dates. Magyar Telekom does not apply hedge accounting for its financial instruments, therefore all gains and losses are recognized in the Profit for the year (Finance income).

The
Group considers only those contracts as a separable host contract and an embedded derivative which are denominated neither in the functional currency of either of the contracting
parties nor in a currency that is commonly used in contracts to purchase or sell non-financial items in the economic environment in which the transaction takes place (e.g. a
relatively stable and liquid currency that is commonly used in local business transactions or external trade). The Group has identified EUR and USD (except Montenegro) as currencies commonly used in
the Group's operating area.

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2.5   Inventories

Inventories are stated at the lower of cost or net realizable value using the historical cost method of accounting, and are valued on a weighted average basis.
The cost of inventories comprises all costs of purchase, cost of construction and other costs incurred in bringing the inventories to their present
location and condition. Net realizable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the
sale.

Phone
sets are often sold for less than cost in connection with promotions to obtain new subscribers with minimum commitment periods (Note 4.6). Such loss on the sale of equipment
is only recorded when the sale occurs if the normal resale value is higher than the cost of the phone set. If the normal resale value is lower than costs, the difference is recognized as impairment
immediately.

2.6   Non current assets held for sale

An asset is classified as held for sale if it is no longer needed for the future operations of the Group, and has been identified for sale, which is highly
probable and expected to take place within 12 months. These assets are accounted for at the lower of carrying value or fair value less cost to sell. Depreciation is discontinued from the date
of designation to the held for sale status. When an asset is designated for sale, and the fair value is determined to be lower than the carrying amount, the difference is recognized in the Profit for
the year (Depreciation and amortization) as an impairment loss.

2.7   Property, plant and equipment (PPE)

Property, plant and equipment are stated at historical cost less accumulated depreciation and impairment losses.

The
cost of an item of PPE comprises its purchase price, including import duties and non-refundable purchase taxes, after deducting trade discounts and rebates, any costs
directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management. The initial estimate of the costs of
dismantling and removing the item and restoring the site on which it is located is also included in the costs if the obligation incurred can be recognized as a provision according to
IAS 37Provisions, Contingent Liabilities and Contingent Assets.

Government
grants relating to the purchase of PPE are deducted from the original cost of the items and are recognized in the Profit for the year through the reduced amount of
depreciation of the related assets over their useful lives. Investment tax credits relating to qualifying investment projects (Note 9.5) are also recognized in this manner.

Cost
in the case of telecommunications equipment comprises of all expenditures including the cabling within customers' premises and interest on related loans.

Subsequent
expenditure on an asset that that meets the recognition criteria to be recognized as an asset or an addition to an asset is capitalized, while maintenance and repairs are
charged to expense when incurred.

When
assets are scrapped, the cost and accumulated depreciation are removed from the accounts and the loss is recognized in the Profit for the year as depreciation expense.

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When
assets are sold, the cost and accumulated depreciation are removed from the accounts and any related gain or loss is recognized in the Profit for the year (Other operating income).

Depreciation
is calculated on a straight-line basis from the time the assets are deployed and charged over their economic useful lives. On an annual basis, Magyar Telekom
reviews the useful lives and residual values for consistency with current development plans and advances in technology. For further details on the groups of assets impacted by the most recent useful
life revisions refer to Note 12. The annual revisions are conducted in the second quarter of the year and the resulting changes are applied from the third quarter of the year. In addition to
the regular revisions, any investment decisions made throughout the year may also result in a change of useful life of a group of assets in any period of the year.

2.8   Intangible assets

Intangible assets are stated at historical cost less accumulated amortization and impairment losses.

Acquired
computer software licenses are capitalized on the basis of the costs incurred to acquire and bring to use. These costs are amortized over the estimated useful life of the
software. Costs associated with developing or maintaining computer software programs are generally recognized as an expense as incurred. Costs directly associated with the production of identifiable
and unique software products controlled by the Group, and that will probably generate economic benefits exceeding costs beyond one year, are recognized as intangible assets. Direct costs include the
software development employee
related costs and an appropriate portion of relevant overheads. Computer software development costs recognized as assets are amortized over their estimated useful lives. As these assets represent an
immaterial portion of all software, these are not disclosed separately.

Costs
associated with the acquisition of long term frequency licenses are capitalized including any related borrowing costs. The useful lives of concessions and licenses are determined
based on the underlying agreements and are amortized on a straight line basis over the period from availability of the frequency for commercial use until the end of the initial concession or license
term. No renewal periods are considered in the determination of useful life.

Goodwill
represents the excess of the cost of an acquisition over the fair value of the Group's share of the net assets and contingent liabilities of the acquired subsidiary or business
at the date of acquisition. Goodwill is carried at cost less accumulated impairment losses. Impairment testing is carried out on an annual basis for all goodwill in the last quarter of the year based
on the carrying values as at September 30 of the year. Impairment losses on goodwill are not reversed. Gains and losses on the disposal of an entity or business include the carrying amount of
goodwill relating to the entity or business sold.

Amortization
is calculated on a straight-line basis from the time the assets are deployed and charged over their economic useful lives. On an annual basis, Magyar Telekom
reviews the useful lives for consistency with current development and replacement plans and advances in technology. For further details on the groups of assets impacted by the most recent useful life
revisions refer to Note 13. The annual revisions are conducted in the second quarter of the year and the resulting changes are applied from the third quarter of the year. In addition to the
regular revisions, any investment decisions made throughout the year may also result in a change of useful life of a group of assets in any period of the year.

In
determining whether an asset that incorporates both intangible and tangible elements should be treated under IAS 16Property, Plant and Equipment or as an
intangible asset under IAS 38Intangible

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2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Assets,
management uses judgment to assess which element is more significant and recognizes the assets accordingly.

2.9   Impairment of PPE and intangible assets

Assets that are subject to amortization or depreciation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount
may not be recoverable. An impairment loss is recognized for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of the assets' fair
value less costs to sell and its value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows
(cash-generating unitsCGUs).

The
fair values of the individual tangible and intangible assets of the Group in most cases can not be determined as individual assets do not generate cash flows. Instead, the Group
determines CGUs to which the individual assets are allocated and the fair values can only be determined at CGU level, primarily by using discounted cash flow analyses. See also Note 4.3.
Corporate assets which have the distinctive characteristics of not generating cash inflows independently of other assets or groups of assets are allocated to CGUs when conducting impairment tests.

Goodwill
is tested for impairment annually or more frequently if circumstances indicate that impairment may have occurred. When conducting the impairment tests, Magyar Telekom allocates
goodwill to its operating segments. Operating segments may include one clearly identifiable company or a group of companies, or components of one company and other companies as well.

For
the subsidiaries included in the operating segments the Group establishes the subsidiaries' recoverable amounts by determining their fair value less cost to sell by using valuation
techniques. These include the use of recent arm's length transactions, reference to other instruments that are substantially the same, discounted cash flow analyses and option pricing models, making
maximum use of market inputs and relying as little as possible on entity-specific inputs. The fair values determined as described above are used as a basis when establishing the need for an impairment
of any goodwill allocated to the operating segments. See also Note 4.2. If the calculated fair value less cost to sell is lower than the carrying amount of the operating segment, goodwill is
impaired.

2.10 Provisions and contingent liabilities

Provisions are recognized when Magyar Telekom has a present legal or constructive obligation as a result of past events and it is probable that an outflow of
resources embodying economic benefits will be required to settle the obligation, and a reliable estimate of the amount of the obligation can be made.

Provisions
are measured and recorded as the best estimate of the expenditure required to settle the present obligation at the financial statement date.

Provisions
for obligations expected to fall due after 12 months are generally recognized at their present value and are accreted (against Finance expense) until utilization or
reversal.

No
provision is recognized for contingent liabilities. A contingent liability is a possible obligation that arises from past events and whose existence will be confirmed only by the
occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity; or a present obligation that arises from past events but is not recognized
because it is not probable that an outflow of resources

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2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

embodying
economic benefits will be required to settle the obligation or the amount of the obligation cannot be measured with sufficient reliability.

2.11 Treasury stock

When the Company or its subsidiaries purchase the Company's equity shares, the consideration transferred including any attributable incremental external costs are
deducted from the Equity of the owners of the parent as Treasury stock until they are re-sold or cancelled. When such shares are subsequently sold, the treasury share balance decreases by
the original cost of the shares, thereby increasing the equity, while any gains or losses are also recognized in equity (Retained earnings). Treasury stock transactions are recorded on the transaction
date.

2.12 Revenues

Revenues for all services and equipment sales (Note 22) are shown net of VAT, discounts and excluding sales within the Group. Revenue is recognized when
the amount of the revenue can be reliably measured, and when it is probable that future economic benefits will flow to the Group and all other specific recognition criteria of IAS 18 on the
sale of goods and rendering of services are met for the provision of each of the Group's services and sale of goods.

Customers
of the Group are granted loyalty awards (credit points) based on their usage of the Group's services including timely payment of their invoices. Loyalty awards can be
accumulated and redeemed to obtain future benefits (e.g. call credits, handset discounts, etc.) from the operators of the Group. When customers earn their credit points, the fair value of the
credit points earned are deducted from the revenue invoiced to the customer, and recognized as Other liabilities (deferred revenue). See also Note 2.1.5. On redemption (or expiry) of the
points, the deferred revenue is released to revenue as the customer collected (or waived) the undelivered element of the deemed bundle.

Revenues
from operating leases are recognized on a straight line basis over the period the services are provided. Operating lease revenues are primarily included in the System
integration and IT revenues.

2.12.1  Fixed line and mobile telecommunications revenues

Revenue is primarily derived from services provided to Magyar Telekom's customer subscribers and other third parties using Magyar Telekom's telecommunications
network, and equipment sales.

Customer
subscriber arrangements typically include an equipment sale, subscription fee and charge for the actual voice, internet, data or multimedia services used. The Group considers
the various elements of these arrangements to be separate earnings processes and classifies the revenue for each of the deliverables into the categories as disclosed in Note 22 using the
residual method for each of the elements. These units are identified and separated, since they have value on a standalone basis and are sold not only in a bundle, but separately as well. Therefore the
Group recognizes revenues for all of these elements using the residual method that is the amount of consideration allocated to the delivered elements of the arrangements equals the total consideration
less the fair value of the undelivered elements.

The
Group provides customers with narrow and broadband access to its fixed, mobile and TV distribution networks. Service revenues are recognized when the services are provided in
accordance with contractual terms and conditions. Airtime revenue is recognized based upon minutes of use and contracted

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2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

fees
less credits and adjustments for discounts, while subscription and flat rate revenues are recognized in the period they relate to.

Revenue
and expenses associated with the sale of telecommunications equipment and accessories are recognized when the products are delivered, provided that there are no unfulfilled
obligations that affect the customer's final acceptance of the arrangement.

Advertising
revenues are recognized in the period that the advertisements are exhibited.

Revenues
from premium rate services (Voice and non-voice) are recognized on a gross basis when the delivery of the service over Magyar Telekom's network is the responsibility
of the Group, the Group establishes the prices of these services and bears substantial risks of these services, otherwise presented on a net basis.

Customers
may also purchase prepaid mobile, public phone and internet credits ("cards") which allow those customers to use Magyar Telekom's telecommunications network for a selected
amount of time. Customers must pay for such services at the date when the card is purchased. Revenues from the sale of cards are recognized when used by the customers or when the credits expire with
unused traffic.

Third
parties using Magyar Telekom's telecommunications network include roaming customers of other service providers and other telecommunications providers which terminate or transit
calls on Magyar Telekom's network. These wholesale (incoming) traffic revenues included in Voice and Non-voice (Data and Internet) revenues are recognized in the period of related usage. A
proportion of the revenue received is often paid to other operators (interconnect) for the use of their networks, where applicable. The revenues and costs of these transit calls are stated gross in
the Financial statements as the Group is the principal supplier of these services using its own network freely defining the pricing of the services, and recognized in the period of related usage.

2.12.2  System integration and IT revenues

Contracts for network services, which consist of the installation and operation of communication networks for customers, have an average duration of
2-3 years. Revenues for voice and data services are recognized under such contracts when used by the customer.

Revenue
from outsourcing contracts reflects the extent of actual services delivered in the period in accordance with the terms of the contract. The contracts are analyzed based on the
requirements of IFRIC 4Determining whether an Arrangement contains a Lease, and if they include embedded lease elements, the revenues attributable to these are recognized according
to IAS 17Leases as described in Note 2.17.

Revenue
from system integration contracts requiring the delivery of customized products and/or services is generally covered by one of the following types of contracts: fixed-price or
time and material-based. For fixed-price contracts, revenue is generally recognized based on percentage of completion taking into account the proportion that contract costs incurred for work performed
to date bear to the estimated total contract costs. In the case of contracts billed on the basis of time and material, revenue is recognized as the services are rendered.

Revenue
from maintenance services (generally fixed fee per month) is recognized over the contractual period or as the services are provided. Revenue from repairs, which are not part of
the maintenance contract, billed on the basis of time and material used is recognized as the services are provided.

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Revenue
from hardware and software sales or sales-type leases is recognized when the risk of ownership is substantially transferred to the customer, provided there are no
unfulfilled obligations that affect the customer's final acceptance of the arrangement. Any costs of these obligations are recognized when the corresponding revenue is recognized.

Revenues
from construction contracts are accounted for using the percentage-of-completion method. The stage of completion is determined on the basis of the costs
incurred to date as a proportion of the estimated total costs. Receivables from construction contracts are classified in the Statement of financial position as Trade receivables. If the total actual
and estimated expenses exceed revenues for a particular contract, the loss is recognized immediately.

2.13 Employee benefits

2.13.1  Short term employee benefits

Short term employee benefits are recognized as a current expense in the period when employees render their services. These include wages, social security
contributions, bonuses, paid holidays, discounted telephone bills, meal and holiday contributions and other fringe benefits and the tax charges thereon.



Payments to defined contribution pension and other welfare plans are recognized as an expense in the period in which they are earned by
the employees.

Magyar
Telekom does not have significant post-employment defined benefit schemes.

2.13.2  Share based compensation

Magyar Telekom recognizes the costs of services received from its employees in a share based payment transaction when services are received. Magyar Telekom
recognizes a corresponding increase in its equity reserves (Reserve for equity settled share based transactions) if the services are received in an equity-settled share based payment transaction. If
the services are received in a cash-settled share based payment transaction, the Group recognizes the expense against a liability, re-measured at each financial statement date.

Fair
values are determined using option pricing models (such as Black-Scholes and Monte Carlo simulation) and other relevant techniques. As Magyar Telekom Plc. is listed and
actively traded on the Budapest and New York Stock Exchanges, the share price and its history is readily available as a basis for fair value calculations.

Bonuses
tied to the long term performance of the Magyar Telekom share are recognized in the Profit for the year at their time-proportioned fair value (Note 24.1)
against an accumulating balance in Provisions.

2.13.3  Termination benefits

Termination benefits are payable whenever an employee's employment is terminated before the nominal retirement date or whenever an employee accepts voluntary
redundancy in exchange for these benefits. The Group recognizes termination benefits when it is demonstrably committed to either terminate the employment of current employees according to a detailed
formal plan without the possibility

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of
withdrawal or to provide termination benefits as a result of an offer made to encourage voluntary redundancy.

2.14 Research and Marketing expenses

Research as well as marketing costs are expensed as incurred. Research costs are not material, while marketing expenses are disclosed in Note 25.

2.15 Capitalization of borrowing costs

Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset form part of the cost of that asset. Other
borrowing costs are recognized as an expense. Borrowing costs include interest and other costs that the Group incurs in connection with the borrowing of funds. The borrowing costs eligible for
capitalization are capitalized applying the weighted average of the borrowing costs applicable to the general borrowings of the Group that are outstanding during the period. A qualifying asset is an
asset that necessarily takes a substantial period of time, in general over 12 months, to get ready for its intended use.

2.16 Income taxes

2.16.1  Corporate income taxes

Corporate income taxes are payable to the central tax authorities of the countries in which the Group's consolidated entities operate. The basis of the tax is the
taxable entities' accounting profit adjusted for non-deductible and non-taxable items. The nominal tax rates and the determination of the tax base vary among the countries in
which the Group operates.

2.16.2  Other income taxes

Other income taxes include certain local and central taxes levied in Hungary on the companies' net margins, determined at a substantially higher level than the
corporate tax base, but applying a significantly lower tax rate. These other income taxes are deductible from the corporate tax base.

2.16.3  Deferred taxes

Deferred tax is recognized applying the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying
amounts in the Consolidated financial statements. However, deferred tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business
combination that at the time of the transaction affects neither accounting nor taxable profit. Deferred tax is determined using income tax rates that have been enacted or substantially enacted by the
financial statement date and are expected to apply when the related deferred tax asset is realized or the deferred tax liability is settled.

Deferred
tax assets are recognized to the extent that it is probable that future taxable profit (or reversing deferred tax liabilities) will be available against which the temporary
differences can be utilized.

Deferred
tax is also provided on taxable temporary differences arising on investments in subsidiaries and associates and joint ventures, except where the timing of the reversal of the
temporary difference is

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controlled
by the Group and it is probable that the temporary difference will not reverse in the foreseeable future.

2.17 Leases

2.17.1  Operating leaseGroup as lessor

Assets leased to customers under operating leases are included in Property, plant and equipment in the Statement of financial position. They are depreciated over
their expected useful lives on a basis consistent with similar assets. Rental income is recognized as revenue on a straight-line basis over the lease term.

2.17.2  Finance leaseGroup as lessor

Leases of assets where Magyar Telekom transfers substantially all the benefits and risks of ownership are recognized and disclosed as revenue against a finance
lease receivable. The revenue equals the estimated present value of the future minimum lease payments receivable and any unguaranteed residual value (net investment in the lease). The cost of the
asset sold in a finance lease transaction is recognized at the inception of the lease. Each lease receipt is then allocated between the receivable and finance income so as to achieve a constant rate
of return on the finance receivable balance outstanding. The interest element of the lease receipt is recognized as Finance income.

2.17.3  Operating leaseGroup as lessee

Costs in respect of operating leases are charged to the Profit for the year on a straight-line basis over the lease term.

2.17.4  Finance leaseGroup as lessee

Leases of property, plant and equipment where Magyar Telekom assumes substantially all the benefits and risks of ownership are classified as finance leases.
Finance leases are capitalized at the fair value of the asset or if lower, at the estimated present value of the future minimum lease payments against a finance lease payable. Each lease payment is
allocated between the finance liability and finance charges
so as to achieve a constant rate of interest on the outstanding finance balance payable. The finance lease obligations, net of finance charges, are included in the Statement of financial position
(Other financial liabilities). The interest element of the lease payments is charged to the Profit for the year (Finance expense) over the lease period. Property, plant and equipment acquired under
finance lease contracts are depreciated over the shorter of the lease term or the useful life of the asset.

2.17.5  Sale and leaseback transactions

Sale and leaseback transactions involve the sale of an asset by Magyar Telekom and the leasing of the same asset or part of it back to Magyar Telekom. When sale
and leaseback transactions qualify as finance leases any gain on the sale is deferred and recognized in the Profit for the year over the lease term through lower depreciation expense. If the leaseback
qualifies as an operating lease, any gains or losses on the sale are recognized in the Profit for the year (Other operating income) at the time of the sale as the sales price reflects the fair value
of the asset, while the lease payments are recognized in the Profit for the year (Other operating expenses) on a straight line basis over the period of the lease.

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2.18 Earnings per share

Basic earnings per share is calculated by dividing profit attributable to the owners of the Company for the period by the weighted average number of common stocks
outstanding. Diluted earnings per share is calculated considering the weighted average number of diluting share options (if any) in addition to the number of common stocks outstanding.

2.19 Dividends

Dividends payable to the Company's shareholders and to Non-controlling shareholders of the Group's subsidiaries are recorded as a liability and
debited against equity (Retained earnings or Non-controlling interests) in the Group's financial statements in the period in which the dividends are approved by the shareholders.

2.20 Segments

The Group adopted IFRS 8 in 2009, which resulted in a significant restructuring of the Group's segment disclosure. In 2008, the Group restructured the way
the chief operating decision makers decide on the allocation of resources, which is different from the primary segments of the Group reported as per IAS 14 in previous years.

In
the Financial statements, the Group's segments are reported in a manner consistent with the internal reporting provided to the chief operating decision makers, the members of the
Management Committee (MC) of Magyar Telekom Plc. The MC is responsible for allocating resources to, and assessing the performance of, the operating segments on a monthly basis. The accounting
policies and measurement principles of the operating segments are very similar to those applied for the Group described in the previous sub-notes of the Summary of significant accounting
policies. The differences primarily originate from the fact that the operating segments' annual results are determined and closed at an earlier stage, around January 10-12 each
year, than these Financial statements. Any items discovered and requiring adjustment between the closing date of the segment results and the approval date of the Financial statements are reflected in
the next year's segment results.

The
operating segments' revenues include revenues from external customers as well as the internal revenues generated from other segments for telecommunications and, to a lesser extent,
from inter-segment support services. In order to concentrate on real performance achieved on third party transactions, the number of inter-segment cross-charges applied within the organizations of
Magyar Telekom Plc. operating in different segments is fairly limited. These cross-charges are not meant to allocate all the actual costs to the operating segment which are in fact incurred for
the operation of the particular segment. Consequently, regardless of the costs incurred for the operation of another segment, the supporting organizations of the operating segments do not charge
revenues for the services delivered within Magyar Telekom Plc., the largest legal entity of the Group.

The
operating segments' results are monitored by the MC to EBITDA (Earnings before interest, tax, depreciation and amortization), which is defined by the Group as Operating profit
without Depreciation and amortization expense.

The
MC does not monitor the assets and liabilities at segment level.

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MAGYAR TELEKOM

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Another important KPI monitored at segment level is capital expenditure (Capex), which is determined as the gross additions to PPE and Intangible assets, excluding those due to business
combinations.

2.21 Comparative information

In order to maintain consistency with the current year presentation, certain items may have been reclassified for comparative purposes. Material changes in
disclosures, if any, are described in detail in the relevant notes.

3.     FINANCIAL RISK MANAGEMENT

3.1   Financial risk factors

Magyar Telekom is primarily exposed to credit risks related to its financial assets. In addition, the Group is also exposed to risks from movements in exchange
rates, interest rates that affect the fair value and/or the cash flows arising from financial assets and liabilities.

Financial
risk management aims to limit these risks through ongoing operational and finance activities. Selected derivative and non-derivative hedging instruments are used
for this purpose, depending on the risk assessment. Magyar Telekom only hedges the risks that affect the Group's cash flows, no hedges are concluded to hedge fair values. Derivatives are exclusively
used as hedging instruments, i.e., not for trading or other speculative purposes. To reduce the counterparty risk, hedging transactions are generally only concluded with Deutsche Telekom or
leading Hungarian financial institutions. Nevertheless, hedge accounting is not applied to such transactions, considering that not all the criteria in IAS 39 are met.

The
detailed descriptions of risks, the management thereof as well as sensitivity analyses are provided below. These sensitivity analyses calculate with reasonably possible changes in
the relevant risk variables and their impact on profit before tax. The impacts disclosed below are subject to an average effective income tax rate of approximately 20% in the Group, i.e. the
impact on Profit for the year would be
approximately 80% of the before tax amount. The potential impacts disclosed (less tax) would be the same on the Group's Equity.

There
were no major changes in these risks compared to the previous reporting period.

3.1.1  Market risk

Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk
comprises three types of risk: currency risk, interest rate risk and other price risk.

The
fundamentals of Magyar Telekom's financing strategy are established each year by the Board of Directors. The Group's policy is to borrow centrally using a balanced combination of
medium term and short term loans, and fixed and floating interest rates on those loans. The Board of Directors has approved two debt protection ratio limits, and monitors their fulfillment annually.
At the end of 2008 and 2009 Magyar Telekom fulfilled both criteria, Total Debt to EBITDA ratio of 1.61 in 2009 (2008: 1.49), the allowed maximum of which would be 2.5 and EBITDA to Interest Expense
ratio of 7.59 in 2009, (2008: 8.86), the allowed minimum of which would be 3.0. The Group's Treasury department is responsible for implementing the finance policy and for ongoing risk management. The
details of foreign exchange,

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MAGYAR TELEKOM

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3.     FINANCIAL RISK MANAGEMENT (Continued)

liquidity
and counterparty risk management guidelines are determined and monitored by the Group Treasurer continuously.

Magyar
Telekom is exposed to interest and foreign exchange (FX) rate risk associated with its interest bearing assets and liabilities and anticipated transactions. As the vast majority
of the revenues and expenses of the Hungarian entities arise in HUF, the functional currency of Magyar Telekom is HUF. Consequently, Magyar Telekom's objective is to minimize the level of its
financial risk in HUF terms.

For
the presentation of market risks, we also provided sensitivity analyses that show the effects of hypothetical changes of relevant risk variables on Profit before tax. These
hypothetical changes were modeled to present a reasonably possible change in the relevant risk variables. The periodic effects are determined by relating the hypothetical changes in the risk variables
to the balance of financial instruments at the end of the latest reporting period (2009) and the preceding reporting period (2008). The balances at the end of the reporting period are usually
representative for the year as a whole, therefore the impacts are calculated using the year end balances as though the balances had been constant throughout the reporting period. As the global
economic situation has not changed
significantly compared to the end of the previous reporting period, the methods and assumptions used in the sensitivity calculations did not change. As a result of the still rather volatile
international capital and securities markets, a higher fluctuations of the FX and interest rates are also possible.

3.1.1.1  Foreign currency risk

Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in FX rates. Currency risks
primarily arise on financial instruments being denominated in a currency that is not the functional currency of the given operating segment of the Group. Differences resulting from the translation of
the foreign subsidiaries financial statements into the Group's presentation currency are not taken into consideration. Relevant risk variables are generally all non-functional currencies
in which Magyar Telekom has financial instruments.

Due
to the free-float of the HUF introduced in 2008, the Group is exposed to FX risk in case of FX denominated financial instruments of the Hungarian entities to a higher
degree than before. In order to mitigate this risk, Magyar Telekom minimized its foreign currency borrowings in the past years, or covered it with derivative instruments to substantially reduce FX
risk.

(a)   FX risks arising on loans from DTIF and related swaps with DT AG

In the past few years, all related party loans payable of Magyar Telekom were denominated in HUF. In agreement with Deutsche Telekom, the related party loans
taken from the financing vehicle of Deutsche Telekom, Deutsche Telekom International Finance B.V. (DTIF) from June 2009 are denominated in EUR, while, at the same time, cross-currency interest
rate swaps are concluded with Deutsche Telekom AG to fix the actual cash flows of Magyar Telekom in HUF for the whole nominal amount and interest payments of these loans. Even though the Group does
not apply hedge accounting, the change in the HUF/EUR exchange rate has no significant (net) impact on Profit before tax related to the hedged loans and the swaps together.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3.     FINANCIAL RISK MANAGEMENT (Continued)

(b)   FX risks arising on third party loans and related swaps

Magyar Telekom also has third party loans denominated in EUR, for the majority of which we also concluded cross-currency interest rate swap agreements with one of
the substantial Hungarian banks to eliminate FX risk in connection with these loans and hedge the whole foreign currency denominated cash flows of these loans. Even though the Group does not apply
hedge accounting, the change in the HUF/EUR exchange rate has no significant (net) impact on Profit before tax related to the hedged loans and the swaps together.

(c)   Other FX exposure

The remaining FX exposure of Magyar Telekom is mostly related to (i) holding foreign currency cash balances in its subsidiaries in the Southern and Eastern
Europe region, and (ii) operating activities through revenues from, and payments to, international telecommunications carriers as well as capital expenditure contracted with vendors in foreign
currency. In line with currency hedging policy, the Company holds sufficient amounts of foreign currencies on its bank accounts, the amounts of which are determined considering the balance of FX
denominated trade and leases payables and trade receivables in order to hedge the currency risk arising in connection with those assets and liabilities. The Group's foreign currency denominated assets
(primarily held by the Group's foreign subsidiaries), however, exceed the Group's foreign currency denominated liabilities (other than the above described loans), therefore changes of the functional
currencies' exchange rates would have significant impact on the profit of the Group. Compared to the spot FX rates as of December 31, 2009, a 20% weaker functional currency (HUF and MKD)
against the EUR and USD would have caused HUF 4.1 billion unrealized gain on this net balance (2008: HUF 6.6 billion gain). The same amount of loss would have been caused
by a 20% stronger functional currency against the EUR and USD.

In
order to reduce the above exposure, Magyar Telekom occasionally enters into derivative contracts. The fair value of the open short term forward positions was HUF
-502 million (liability) as of December 31, 2009, while the Group had no open forward deals at the end of 2008. These positions were opened to hedge the FX risks of future FX
payments exceeding FX incomes and to cover the FX risk of a short term EUR denominated loan taken from DTAG. Compared to the spot FX rates as of December 31, 2009, a 20% weaker functional
currency HUF against the EUR would have caused HUF 6.2 billion unrealized gain on this net balance. Approximately the same amount of loss would have been caused by a 20% stronger HUF
against the EUR.

Due
to the global financial crisis, even a more than 20% fluctuation of the functional currencies against the EUR is possible as extraordinary market conditions may cause extreme
volatility on FX markets.

3.1.1.2  Interest rate risk

Magyar Telekom is also exposed to interest rate fluctuations. This is due to the fact that changing interest rates affect the fair value of the fixed rate
instruments and also affect the cash flows through the floating rate instruments.

Changes
in the market interest rates of non-derivative financial instruments with fixed interest rates only affect income if these are measured at their fair value. On the
other hand, all financial instruments with fixed interest rates (which are carried at amortized cost) are not subject to cash flow interest rate risk.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3.     FINANCIAL RISK MANAGEMENT (Continued)

Changes
in the market interest rate of interest rate derivatives (interest rate swaps, cross-currency swaps) that are not part of a hedging relationship as set out in IAS 39
affect financial income or expense (net gain/ loss from re-measurement of the financial assets to fair value).

Changes
in market interest rates affect the interest income or expense of non-derivative floating-interest financial instruments for which no cash flow hedges are in place.

(a)   Financial assets

Excess cash of the Group's Hungarian operations is primarily used to repay loans, however, significant amount of cash of the Group's Macedonian and Montenegrin
subsidiaries are held in local banks. These amounts are deposited primarily on fixed interest rate terms in order to minimize exposure to market changes that would potentially adversely change the
cash flows from these instruments.

The
Group's HUF denominated bank deposits amounted to HUF 6.5 billion at the end of 2009 (2008: HUF 29.5 billion). A 4 percentage point higher interest
rate throughout 2009 (assuming the year-end 2009 balance throughout 2009) would have resulted in HUF 0.3 billion higher interest income in 2009 (2008:
HUF 1.2 billion). The interest income would be lower by the same amount in case of 4 percentage point lower interest rate.

The
Group's MKD denominated bank deposits amounted to HUF 32.7 billion at the end of 2009 (2008: HUF 29.8 billion). A 2 percentage point higher
interest rate throughout 2009 (assuming the year-end 2009 balance throughout 2009) would have resulted in HUF 0.7 billion higher
interest income in 2009 (2008: HUF 0.6 billion). The interest income would be lower by the same amount in case of 2 percentage point lower interest rate.

The
Group's EUR denominated bank deposits amounted to HUF 37.0 billion at the end of 2009 (2008: HUF 52.1 billion). A 2 percentage point higher
interest rate throughout 2009 (assuming the year-end 2009 balance throughout 2009) would have resulted in HUF 0.7 billion higher interest income in 2009 (2008:
HUF 1.0 billion). The interest income would be lower by a smaller amount as interest rates are usually smaller than 2%.

The
Group's USD denominated bank deposits amounted to HUF 2.0 billion at the end of 2008, while the Group had no significant amount of such deposits at the end of 2009. A
1 percentage point higher interest rate throughout 2008 (assuming the year-end 2008 balance throughout 2008) would have resulted in less than HUF 0.1 billion higher
interest income in 2008. The interest income would be lower by a smaller amount as interest rates are usually smaller than 1%.

As
a result of the volatile international capital and securities markets, a higher fluctuation of the interest rates is also possible, the exposure to which is mitigated by the balanced
portfolio of fixed and floating interest rate borrowings (see above). Sensitivities have been disclosed for a movement of 4 percentage points for HUF, 2 percentage points for MKD and
EUR, and 1 percentage point for USD, but extraordinary market conditions may cause extreme volatility on money markets, which can result in even higher percentage point change in interest
rates.

(b)   Financial liabilities

Financial liabilities exposed to interest rate risk are primarily the related party (DTIF) and third party loans and the related swap agreements in place. These
loans are almost exclusively taken by the Company

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3.     FINANCIAL RISK MANAGEMENT (Continued)

as
the financing of the Group is managed centrally. The analysis below describes the Group's net exposure to the net interest rate risks related to the loans and the related swap agreements.

As
the vast majority of debt portfolio is denominated in HUF, or swap agreements are in place so that the loans payable are exposed to changes in HUF interest rates, the Group is mostly
exposed to the HUF interest rate fluctuations for its financial liabilities. To control this interest rate risk, a combination of fixed and floating rate debt is used. Fixed interest-bearing debts
(including loans swapped to fixed interest and excluding loans swapped to floating interest) made up 56% of the Group's total debt as of December 31, 2009 (2008: 53%).

In
addition, some of the Group's loan agreements with Deutsche Telekom include a fixed interest rate that in fact may change in case of downgrading the credit rating of Deutsche Telekom
by specific international rating agencies below the level of credit rating BBB+. Such rating downgrades from the current grade would have caused additional annual interest payments of approximately
HUF 0.2 billion (assuming the year-end 2009 balance and rating throughout 2009) on top of the pre-fixed amount of interest (2008: HUF 0.6 billion).
On the other hand, such rating upgrades above the level of the credit rating A would have caused HUF 0.3 billion lower interest expense for 2009 (2008: HUF 0.3 billion).

Floating
interest-bearing debts (including loans swapped to floating interest and excluding loans swapped to fixed interest) made up 44% of the Group's total debt as of
December 31, 2009 (2008: 47%). A 4 percentage point higher interest rate throughout 2009 (assuming the year-end 2009 balance throughout 2009) would have resulted in
HUF 6.7 billion higher interest expense in 2009, while the same decrease of interest rates would cause the same decrease in interest payments (2008: HUF 7.3 billion).

3.1.1.3  Other price risk

As of the end of the reporting periods, Magyar Telekom did not hold any material investments, which could be affected by risk variables such as stock exchange
prices or other indices, therefore, the Group's exposure to such price changes are very limited. See also Note 8.2.

3.1.2  Credit risk

Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation.

The
maximum exposure to credit risk as at the financial statement dates are represented by the carrying amounts of the financial assets in the Statement of financial position. Guarantee
agreements reducing the maximum exposure to credit risk as at the end of the reporting period are described later in this section.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3.     FINANCIAL RISK MANAGEMENT (Continued)

The
following table represents Magyar Telekom's maximum exposure to credit risk as at December 31, 2008 and 2009.

At December 31,2008

2009(In HUF millions)Cash and cash equivalents


66,680


34,270Bank deposits with original maturities over 3 months


59,300


50,660Trade receivables


93,201


100,524Loans to Deutsche Telekom Group companies





29,587Finance lease receivables


23,082


23,531Employee loans


4,383


4,870Dividend receivable from associates


2,033


Derivative financial instruments


1,011


1,285Trade receivables over one year


414


1,487Loans to third parties


779


580Financial assets available for sale


282


276RDC receivables


952


839Other current


2,186


1,626Other non-current


170


552254,473


250,087


The
vast majority of credit risks may arise in respect of Cash and cash equivalents, Bank deposits with original maturities over 3 months and Trade receivables, and to a lesser
extent, of Finance lease receivables. Cash and cash equivalents, Bank deposits with original maturities over 3 months and Trade receivables have short term maturities, which represent the vast
majority of the Group's financial assets.

According
to the Group's risk management policy Magyar Telekom Group companies deposit the excess cash only in banks rated at least BBB+ (or equivalent), or make efforts to get
guarantees for the deposits from banks rated at least BBB+. Moreover, Magyar Telekom prefers to deposit in banks which grants loans for Magyar Telekom to make possible the compensation of debts and
loans in case of the default of the bank.

Cash
and cash equivalents and Bank deposits with maturities over 3 months held in Hungary are primarily denominated in HUF and concentrations of credit risk are limited as Magyar
Telekom places its cash in Hungary with substantial credit institutions. Further, excess HUF cash is also used for repayment of the HUF denominated loans and borrowings, or is deposited at partner
banks which grant loans for Magyar Telekom, therefore, the credit risk related to cash held in HUF is very limited.

Cash
and cash equivalents and Bank deposits with maturities over 3 months held in Macedonia are primarily denominated in MKD and EUR, while the Cash and cash equivalents and Bank
deposits with maturities over 3 months held in Montenegro are primarily denominated in EUR. Cash and cash equivalents and Bank deposits with maturities over 3 months deposited in these
countries run higher counterparty risk, due to the small amount of internationally substantial financial institutions in those countries. The bank deposits in Montenegro of
HUF 12.2 billion as at December 31, 2009 (2008: HUF 19.8 billion) and those in Macedonia of HUF 57.5 billion as at December 31, 2009 (2008:
HUF 13.2)

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3.     FINANCIAL RISK MANAGEMENT (Continued)

are
fully covered with bank guarantees issued by international financial institutions rated at BBB+ or above, or Magyar Telekom has the right to net the deposits with loans taken from the guarantor,
in case of default of the bank. Credit risk related to bank deposits is further limited by the diversification of the deposits among several independent credit institutions determinant on the local
market.

Finance
lease receivables, in most cases, are legally embedded in service contracts also requiring to provide assets related to the services, which are legally in the Group's ownership.
Should the partners fail to pay their bills, we are entitled to discontinue the services and take the assets back to the Group's locations. As these assets are rarely customer specific, we can utilize
these assets in other ways as well, therefore, the credit risk related to finance leases is in fact rather limited.

Concentrations
of credit risk relating to trade receivables are limited due to the large number of customers comprising the Group's customer base and their dispersion across many
different geographic areas and industries.

No
financial assets other than trade and other receivables had to be impaired in the reported years, as they are neither past due nor are there any signs of impairment.

The
following table contains the carrying amount of trade receivables broken down by reportable segment (note 31).

At December 31,2008

2009(In HUF millions)CBU


31,923


38,133BBU


25,740


27,221Headquarters


15,422


15,554Macedonia


12,017


12,061Montenegro


5,853


4,763Technology


843


859All other


1,403


1,93393,201


100,524


The
amounts in the table above are shown net of provisions for impairment losses of HUF 29.7 billion as at December 31, 2009 (2008: HUF 26.3 billion).
The annual bad debt expense of the Group had historically been under 1% of the consolidated revenues, except in 2009 (1.4%). Changes in customer payment behavior in the future, however, may result in
higher impairment losses. Each additional
1 percentage point of uncollectible revenue would result in additional impairment charges of HUF 6.4 billion in 2009 (2008: HUF 6.7 billion).

CBU, BBU and Headquarters (Hungary)

Consumer Services Business Unit (CBU) provides fixed and mobile telecommunications and TV distribution services to residential
customers, while the Business Services Business Unit (BBU) has primarily large corporate customers. There's no significant difference between the recoverability of the segments' receivables.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3.     FINANCIAL RISK MANAGEMENT (Continued)

There
are varying credit checking practices applied across the members of the Group. The majority of customers are located in Hungary. For these customers the Company follows the
practice described below.

Credit
checking for CBU customers at the time of the service request is carried out automatically by the credit checking application of the Sales Department. A variety of checks
including checking the SOS list of faulty IDs, the bankruptcy list, the internal database of risky installation locations, the collection history of the past 6 months, the outstanding debt and
the joint database of debtors of the Hungarian mobile operators are performed depending on the service to be used. As of January 1, 2009, the Fraud Detecting System was implemented, which is
used to monitor extreme usage and fraudulent behavior of customers not only for mobile but also for fixed-line and Internet services.

In
case of BBU, customer managers call a hotline of the Business Customer Care group to check if the customer has outstanding debts.

Dunning
procedures for both CBU, BBU and Headquarters are run automatically by the billing systems including SMS, telephone calls, reminder letters, pseudo disconnections, termination
letters and disconnections. Over a minimum overdue amount we apply varying and customized reminder procedures to the different customer groups in which varying deadlines are applied. After the
termination of the contract and depending on the expected success of the process, we combine the different collection steps of involving external partners, selling the outstanding debt or initiating
legal proceedings. All parts of the process are regulated by internal directives.

Macedonia

The process of managing the credit risk from operating activities includes preventive measures such as credibility checking and
prevention barring, corrective measures during legal relationship for example reminding and disconnection activities, collaboration with collection agencies and collection after legal relationship as
litigation process, court proceedings, involvement of the executive unit and factoring. The overdue payments are monitored through a debt escalation procedure based on customer type, credit class and
amount of debt. The credit risk is controlled through credibility checkingwhich determines that the customer is not indebted and the customers credit worthiness and through preventive
barringwhich determines the credit limit based on the usual level of the customer's consumption. There's no concentration of risk in Macedonia either with any single customer or group of
customers with similar characteristics. The procedures in Macedonia ensure on a permanent basis that sales are made to customers with an appropriate credit history and that an acceptable level of
credit exposure is not exceeded.

Montenegro

If customers are independently rated, these ratings are used. Otherwise, if there is no independent rating, risk control assesses the
credit quality of the customer, taking into account past experience in collection and other factors. In Montenegro the Group uses a system of reminders leading to discontinuance of the service as the
main tool to collect overdue receivables. Also, according to the balance and number of outstanding bills, the Group uses instruments of litigation of customers. However, customers may be affected by
the lower liquidity situation due to the recent volatility in the global and Montenegrin financial markets, which could in turn impact their ability to repay the amounts owed. To the extent that
information is available, management revised estimates of expected future cash flows in their impairment assessments.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3.     FINANCIAL RISK MANAGEMENT (Continued)

3.1.3  Liquidity risk

Liquidity risk is the risk that an entity may encounter difficulty in meeting obligations associated with financial liabilities.

Prudent
liquidity risk management implies maintaining sufficient Cash and cash equivalents and Bank deposits as well as available funding through adequate amount of committed credit
lines. The Group Treasury's management aims at maintaining flexibility in funding by keeping committed credit lines available. The undrawn credit lines amounted to 50.5 billion as at
December 31, 2009 (2008: HUF 44.8 billion), and the Company also had uncommitted credit lines from several Hungarian Banks as at December 31, 2009. In addition to the
above, Deutsche Telekom confirmed its readiness to finance Magyar Telekom Group's budgeted financing needs until the end of June 2011. Despite the fact that this has not been formulized in a contract,
it can be considered as a "quasi shelf facility".

The
following two tables summarize the maturity structure of Magyar Telekom's financial liabilities including the interest payable on those liabilities as of December 31, 2009 and
2008. As the majority of the financial liabilities are paid from the cash generated from the ongoing operations, the maturity analysis of the financial assets as at the end of the reporting periods
(in comparison with the financial liabilities) would be meaningless, therefore, is not included in the tables below.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3.     FINANCIAL RISK MANAGEMENT (Continued)

December 31, 2009

Total

within 1 year

1 to 5 years

after 5 years(In HUF millions)Trade payables


85,874


85,874





Dividend payable


303


303





Financial liabilities to related parties


403,771


87,380


216,987


99,404Bank loans


63,430


37,466


25,964


Finance lease liabilities


5,686


1,360


2,847


1,479Nonconvertible bonds and debentures


191


70


121


Other financial liabilities


1,495


1,371


123


1Total other financial liabilities


70,802


40,267


29,055


1,480Total cash flows


560,750


213,824


246,042


100,884Open swap positions' cash flowsGross cash inflow in EUR million


308


21


119


168Gross cash inflow in HUF million (at spot rate)


83,499


5,808


32,190


45,501Gross cash outflow in HUF million


100,298


7,276


44,355


48,667Net cash outflow in HUF million


16,799


1,468


12,165


3,166Open forward positions' cash flowsGross cash inflow in EUR million


123


123





Gross cash inflow in HUF million (at spot rate)


33,313


33,313





Gross cash outflow in HUF million


33,993


33,993





Net cash outflow in HUF million


680


680





December 31, 2008Trade payables


92,340


92,340





Dividend payable


290


290





Financial liabilities to related parties


434,404


126,703


248,606


59,095Bank loans


59,379


37,227


22,152


Finance lease liabilities


7,148


1,721


3,534


1,893Nonconvertible bonds and debentures


193


71





122Other financial liabilities


5,812


5,270


541


1Total other financial liabilities


72,532


44,289


26,227


2,016Total cash flows


599,566


263,622


274,833


61,111Open swap positions' cash flowsGross cash inflow in EUR million


(43
)

(23
)

(20
)

Gross cash inflow in HUF million (at spot rate)


(11,386
)

(6,090
)

(5,296
)

Gross cash outflow in HUF million


11,275


6,191


5,084


Net cash outflow (inflow) in HUF million


(111
)

101


(212
)




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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3.     FINANCIAL RISK MANAGEMENT (Continued)

The average maturity of Magyar Telekom's debt portfolio was 2.59 years as at December 31, 2009 (2008: 2.58 years), both of which are in line with the predefined
liquidity management limit range of keeping the average maturity of the debt portfolio between 2 and 3 years.

The
floating interest payments arising from the financial instruments were calculated using the last interest rates fixed before December 31, 2009 and 2008.

3.2   Capital risk management

The Group's objectives when managing capital are to safeguard the Group's ability to continue as a going concern in order to provide returns for shareholders and
benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.

The
Company's management proposes to the owners (through the Board) of the Company to approve dividend payments or adopt other changes in the Company's equity capital in order to
optimize the capital structure of the Group. This can be effectuated primarily by adjusting the amount of dividends paid to shareholders, or alternatively, by returning capital to shareholders by
capital reductions, selling or buying own shares. Consistent with others in the industry, the Group monitors capital on the basis of the gearing ratio. This ratio is calculated as Net debt divided by
Equity (including Non-controlling interest) and Net debt. Net debt is calculated as follows:



During
2008 and 2009, the Group's strategy as approved by the Board was to maintain a gearing ratio within 30% to 40%. The gearing ratio at December 31, 2009 was 30.8% (2008:
29.9%).

In
addition to the above, according to the Hungarian Companies Act, Magyar Telekom Plc. has to ensure that the Company's Equity does not fall below its Common stock,
i.e. the total of the reserves
should not be negative. The Company is in compliance with this regulation, and no such statutory regulation exists for consolidated equity.

The
equity capital, which the Group manages, amounted to HUF 606 billion on December 31, 2009 (2008: HUF 598 billion).

4.    CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS

Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable
under the circumstances.

The
Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, rarely equal the related actual results. The estimates and
assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities are outlined below.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

4.    CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS (Continued)

4.1   Useful lives of assets

The determination of the useful lives of assets is based on historical experience with similar assets as well as any anticipated technological development and
changes in broad economic or industry factors. The appropriateness of the estimated useful lives is reviewed annually, or whenever there is an indication of significant changes in the
underlying assumptions. We believe that this is a critical accounting estimate since it involves assumptions about technological development in an innovative industry and heavily dependent on the
investment plans of the Group. Further, due to the significant weight of depreciable assets in our total assets, the impact of any changes in these assumptions can be material to our financial
position, and results of operations. As an example, if Magyar Telekom was to shorten the average useful life of its assets by 10%, this would result in additional annual depreciation and amortization
expense of approximately HUF 10 billion (2008: HUF 11 billion). See Notes 12 and 13 for the changes made to useful lives in 2009.

The
Group constantly introduces a number of new services or platforms including, but not limited to, the UMTS based broadband services in the mobile communications and the
fiber-to-the-home rollout in the fixed line operations. In case of the introduction of such new services, the Group conducts a revision of useful lives of the
already existing platforms, but in the vast majority of the cases these new services are designed to co-exist with the old platforms, resulting in no change-over to the new
technology. Consequently, the useful lives of the older platforms usually do not require shortening.

4.2   Estimated impairment of goodwill

Goodwill is no longer amortized, but tested for impairment annually or more frequently. The recoverable amounts of the operating segments are calculated
based on fair value less cost to sell determined by the discounted projected cash flows of the operating segments over the next ten years with a terminal value. This is highly judgmental, which
carries the inherent risk of arriving at materially different recoverable amounts if estimates used in the calculations would prove to be inappropriate. The Group has an implemented policy to
make the impairment test based on a 10-year cash flow projection on reasonable and supportable assumptions that present the management's best estimate on market participants' assumptions
and expectations.

When
conducting the goodwill impairment tests, goodwill is allocated to the cash generating operating segments of the Group, CBU, BBU, MBU, Macedonia fixed line, Macedonia mobile,
Montenegro mobile. No goodwill was allocated to Montenegro fixed line.

In
order to determine the recoverable amounts of the operating segments, the Group calculates the operating segments' fair values less cost to sell. In the calculations, Magyar Telekom
uses a range of weighted average cost of capital (WACC) before tax and estimated perpetual growth rate (PGR) depending on the country of operations and the characteristics of the markets the Group's
segments operate in. The WACCs are determined based on CAPM (capital asset pricing model) using the average betas of the peer group, 10 year zero coupon yields and a debt ratio in line with the
usual indebtedness of listed peer telecommunications companies, while the PGRs used are in line with the long-term average growth rate for the particular telecommunications sector.

The
Headquarters and Technology operating segments of the Group primarily include support functions, therefore the carrying values and the future cash flows of these operating segments
are allocated to the other, cash generating operating segments based on the cash generating operating segments'

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

4.    CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS (Continued)

unlevered
free cash flows (determined as EBITDA reduced by capital expenditures and change in net working capital), also considering the relative use of the central services by the cash generating
operating segments.

The
table below shows the WACCs and PGRs used in the fair value calculations of the Group's operating segments for the goodwill impairment test conducted in 2009. The table below also
includes sensitivity analyses that show how much impairment should have been recognized as at December 31, 2009 for the goodwill allocated to the operating segments if we had changed the WACCs
used in the calculations to reasonably possible levels. The possible changes in the WACCs would be the result of the reasonably possible changes in the risk free interest rates we disclosed in
Note 3.1.1.2. In case of the cash flow projections and the PGRs used in the sensitivity calculations, we disclose the first round decimal rate in case of the PGR and the first round decimal
change to the cash flow projections that would result in impairment.

2009

CBU

BBU

MBU

Macedonia
fixed line

Macedonia
mobile

Montenegro
mobileWACCUsed in the calculation


13.76
%

13.68
%

14.17
%

8.55
%

10.71
%

10.65
%if changed to


18.49
%

18.39
%

18.88
%

10.68
%

12.86
%

12.77
%Potential impairment (HUF million)








180








PGRUsed in the calculation


2.0
%

0.5
%

2.0
%

1.0
%

1.0
%

1.0
%if changed to


(5.0
)%

(5.0
)%

(5.0
)%

(5.0
)%

(5.0
)%

(5.0
)%Potential impairment (HUF million)











630





Cash flowsif changed by


(27
)%

(27
)%

(27
)%

(27
)%

(27
)%

(27
)%Potential impairment (HUF million)











699








The
table below shows the rates we used when we performed the goodwill impairment testing on the new segments for comparative purposes. No sensitivity analysis is provided to the
comparative amounts as the original goodwill impairment testing for year-end 2008 was performed on the old segments that were compliant with IAS 14, but are not compliant with
IFRS 8.

2008

CBU

BBU

MBU

Macedonia
fixed line

Macedonia
mobile

Montenegro
mobileWACC


13.22%


13.11%


14.40%


10.80%


11.14%


11.07%PGR


2.0%


0.5%


2.0%


0.0%


2.0%


0.5%


4.3   Estimated impairment of property, plant and equipment, and intangibles

We assess the impairment of identifiable property, plant, equipment and intangibles whenever there is a reason to believe that the carrying value may materially
exceed the recoverable amount and where impairment of value is anticipated. The calculations of recoverable amounts are primarily determined by value in use calculations, which use a broad range of
estimates and factors affecting those. Among others, we typically consider future revenues and expenses, technological obsolescence, discontinuance of services and other changes in circumstances that
may indicate impairment. If impairment is identified using the

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MAGYAR TELEKOM

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

4.    CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS (Continued)

value
in use calculations, we also determine the fair value less cost to sell (if determinable), to calculate the exact amount of impairment to be charged. As this exercise is highly judgmental, the
amount of a potential impairment may be significantly different from that of the result of these calculations.

4.4   Estimated impairment of trade and other receivables

We calculate impairment for doubtful accounts receivable based on estimated losses resulting from the inability of our customers to make required payments. For
the largest customers and other telecommunications service providers, impairment is calculated on an individual basis, while for other customers it is estimated on a portfolio basis, for which we base
our estimate on the aging of our accounts receivable balance and our historical write-off experience, customer credit-worthiness and recent and expected changes in our customer payment
terms. These factors are reviewed periodically, and changes are made to the calculations when necessary. In addition, we consider also the nature of the business (residential, business, fixed line,
mobile, internet, cable TV, etc.) and the environment in which the Group's entities operate in the various markets. The estimates also involve assumptions about future customer behavior and the
resulting future cash collections. If the financial condition of our customers were to deteriorate, actual write-offs of currently existing receivables may be higher than expected and may
exceed the level of the impairment losses recognized so far. See also Note 3.1.2.

4.5   Provisions

Provisions in general are highly judgmental, especially in case of legal disputes. The Group assesses the probability of an adverse event as a result of a past
event and if the probability of an outflow of economic benefits is evaluated to be more than fifty percent, the Group fully provides for the total amount of the estimated liability (see also
Note 2.10). The assessment of the probability is highly judgmental, asfor examplein Hungary there are very few cases where the appealed NCAH decisions have been
finally concluded by the Supreme Court. Further, in Macedonia, there is also a lack of sufficient history for CPC or Agency decisions appealed against at the Administrative Court. In order to
determine the probabilities of an adverse outcome, the Group uses internal and external legal counsels.

4.6   Subscriber acquisition costs

Subscriber acquisition costs primarily include the loss on the equipment sales (revenues and costs disclosed separately) and fees paid to subcontractors that act
as agents to acquire new customers. The Group's agents also spend a portion of their agent fees for marketing the Group's products, while a certain part of the Group's marketing costs could
also be considered as part of the subscriber acquisition costs. The up-front fees collected from customers for activation or connection are marginal compared to the incremental acquisition
costs. These revenues and costs are recognized when the customer is connected to the Group's fixed or mobile networks. No such costs or revenues are capitalized or deferred. These acquisition
costs (losses) are recognized immediately as they are not accurately separable from other marketing costs. Among these, net losses on equipment sales of the Group amounted to
HUF 17.4 billion in 2009 (2008: HUF 19.2 billion), while agent fees amounted to HUF 9.2 billion in 2009 (2008: HUF 8.8 billion). The Group's
marketing costs amounted to HUF 16.2 billion in 2009 (2008: HUF 22.1 billion).

F-60

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MAGYAR TELEKOM

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

5.    BUSINESS COMBINATIONS

5.1   Acquisitions in 2009

5.1.1  IKO New Media, IKO Content & Rights and IKO-Telekom Media Holding

Magyar Telekom signed a strategic co-operation agreement with IKO Production Kft, the other 50% owner of IKO-Telekom Média
Holding (ITMH) in 2008 to split the investments of ITMH and gain full control of ITMH's two 100% owned subsidiaries, IKO New Media (IKO NM) and IKO Content & Rights (IKO CR). According to the
co-operation agreement, the properties of ITMH were split between the owners by way of a demerger; as a result of which Magyar Telekom gained 100% ownership over the part demerging from
the original holding company under the name Telekom Media Holding (TMH), IKO NM and IKO CR as of May 31, 2009, while the remaining part of the Holding (IKO Media Holding) including the 31%
stake in M-RTL remained with IKO Production. M-RTL had been included in the consolidated financial statements as a 25% associate. As part of the above transaction, we have
accounted for the sale of this investment in M-RTL and ITMH, and a business combination with TMH, IKO NM and IKO CR. The gain on the disposal of M-RTL was accounted for
as "Other income" in the Profit for the year.

IKO
NM is one of the leading companies in the Hungarian interactive service market, and is the service provider of telecommunications applications for M-RTL. In addition, IKO
NM produces TV shows and is one of the largest aggregators of premium rate telecommunications services in Hungary. IKO CR is an aggregator in the content outsourcing market.

Following
the business combinations, the newly acquired subsidiaries were renamed to Telekom New Media (TNM) and Telekom Content & Rights (TCR) respectively.

The
carrying values as well as the fair values of assets and liabilities acquired through these business combinations as well as the considerations transferred are disclosed in the table
below in aggregate amounts.

Fair
values

Carrying
values(in HUF millions)Fair value of 25% share in M-RTL


4,728Consideration transferred


4,728Net assets acquired


3,040Goodwill


1,688Net assets acquired:Cash and cash equivalents


2,074


2,074Trade and other receivables


598


598Income tax receivable


57


57Property, plant and equipment


22


22Intangible assets


1,436


111Less: Investment in ITMH as a joint venture


(382
)

(382
)Trade and other payables


(513
)

(513
)Net deferred tax liability


(252
)

3,040


1,967


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MAGYAR TELEKOM

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

5.    BUSINESS COMBINATIONS (Continued)

As
the transaction did not require any cash outflow from the Group, the cash balances of the acquired companies are disclosed as Proceeds from disposal of subsidiaries and associates in
the 2009 Statement of cash flows.

TMH,
TNM and TCR have been consolidated in the MBU operating segment of the Group since May 31, 2009.

The
goodwill arising on this acquisition partly represents the assembled workforce that can not be recognized as a separable asset. Further, the customer contract value recognized only
represents the customers and services rendered to them existing on the acquisition date, while the majority of the goodwill represents the value of, and the future expected revenues from, customers to
be acquired from the acquisition date and the planned extension of services.

5.1.2  ISH

In May 2009, Magyar Telekom signed a share purchase agreement to acquire a 100% equity stake in International System House Kft (ISH). The agreed enterprise value
was HUF 2.9 billion, to which the value of the net cash was added at the closing of the transaction. Depending on 2009 and 2010 financial performance, further earn-out
payments could also be made. ISH specializes in developing, installing and operating integrated healthcare IT services. With market leadership in its segment, ISH achieved nearly
HUF 2.9 billion of revenues in 2008 and EBITDA of HUF 1 billion. The transaction was closed on November 30, 2009, since when ISH has been a consolidated subsidiary
of the Group, included in the BBU operating segment.

As
the purchase price allocation has not been completed yet, the fair values of assets and liabilities acquired at the time acquisition, are preliminary amounts, disclosed in the table
below. Further, as there were no reliable IFRS compliant carrying values available at the time of acquisition, these values are not disclosed in the table below.

F-62

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Table of Contents

MAGYAR TELEKOM

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

5.    BUSINESS COMBINATIONS (Continued)

Provisional
fair values(in HUF millions)Purchase price of ownership acquired


3,101Additional estimated purchase price


12Additional costs directly attributable to the business combination


45Consideration transferred


3,158Net assets acquired


2,831Goodwill


327Net assets acquired:Cash and cash equivalents


345Trade and other receivables


1,285Income tax receivable


124Inventories


67Property, plant and equipment


31Intangible assets


935Other non current financial assets


929Other financial liabilities


(198
)Trade and other payables


(468
)Net deferred tax liability


(219
)2,831


The
initial purchase price and a part of the additional costs were paid in cash in 2009, while the remaining estimated HUF 27 million is payable in 2010.

The
goodwill arising on this acquisition partly represents the assembled workforce that can not be recognized as a separable asset. Further, the customer contract value recognized as an
intangible asset only represents the customers and services rendered to them existing on the acquisition date, while the majority of the goodwill represents the value of, and the future expected
revenues from, customers to be acquired from the acquisition date and the planned extension of services.

5.1.3  Cable TV networks

In 2009 Magyar Telekom acquired a number of cable TV networks for HUF 1,745 million in individually insignificant transactions. All these
acquisitions qualified as business combinations of the CBU operating segment of the Group. The purchase price of these networks in most cases included connected customers, while in the remaining few
cases the network was fully completed with immediate capability of connecting customers to them. The purchase prices paid for these networks also included goodwill representing the networks' potential
of acquiring additional customers and conveying additional services.

The
fair values of assets acquired through these individually insignificant business combinations at the time acquisition as well as the considerations transferred, are disclosed in the
table below in aggregate

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MAGYAR TELEKOM

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

5.    BUSINESS COMBINATIONS (Continued)

amounts.
As there were no reliable IFRS compliant carrying values available at the time of acquisition, these values are not disclosed in the table below.

Fair values(in HUF millions)Purchase price of ownership acquired


1,745Additional costs directly attributable to the business combination


Consideration transferred


1,745Net assets acquired


(1,324
)Goodwill


421Net assets acquired:Property, plant and equipment


938Intangible assets


3861,324


The
total purchase price was paid in cash in 2009.

5.1.4  KFKI Direkt

Magyar Telekom signed a share purchase agreement to acquire 100% of KFKI Direkt Kft. in February 2009. The purchase price was HUF 300 million plus
an earn-out payment depending on the 2009 financial performance of up to a maximum of HUF 100 million. KFKI Direkt is a systems integration and infrastructure support company
with specialist expertise in these areas. KFKI Direkt achieved approximately HUF 1.5 billion revenues and exceeded HUF 200 million EBITDA in 2008. KFKI Direkt
de-merged from KFKI in 1995, while the remainder of the KFKI Group was acquired by Magyar Telekom in 2006. The transaction was closed on June 30, 2009, since when KFKI Direkt has
been a consolidated subsidiary of the Group, included in the BBU operating segment.

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MAGYAR TELEKOM

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

5.    BUSINESS COMBINATIONS (Continued)

The
carrying values and the fair values of assets and liabilities acquired as well as the considerations transferred are disclosed in the table below.

Fair
values

Carrying
values(in HUF millions)Purchase price of ownership acquired


300Additional estimated purchase price


10Additional costs directly attributable to the business combination


17Consideration transferred


327Net assets acquired


304


187Goodwill


23Net assets acquired:Cash and cash equivalents


115


115Trade and other receivables


106


106Income tax receivable


10


10Property, plant and equipment


17


17Intangible assets


144


Trade and other payables


(61
)

(61
)Net deferred tax liability


(27
)

304


187


The
initial purchase price and the additional costs were paid in cash in 2009, while the additional purchase price is expected to be paid in 2010.

The
goodwill arising on this acquisition partly represents the assembled workforce that can not be recognized as a separable asset. Further, the customer contract value recognized only
represents the customers and services rendered to them existing on the acquisition date, while the majority of the goodwill represents the value of, and the future expected revenues from, customers to
be acquired from the acquisition date and the planned extension of services.

5.2   Acquisitions in 2008

5.2.1  Cable TV networks

In 2008 Magyar Telekom acquired a number of cable TV networks for HUF 687 million in individually insignificant transactions. All these acquisitions
qualified as business combinations of the CBU operating segment of the Group. The purchase price of these networks in most cases included connected customers, while in the remaining few cases the
network was fully completed with immediate capability of connecting customers to them. The purchase prices paid for these networks also included goodwill representing the networks' potential of
acquiring additional customers and conveying additional services.

The
fair values of assets and liabilities acquired through these individually insignificant business combinations at the time acquisition as well as the considerations transferred, are
disclosed in the table below in aggregate amounts.

F-65

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MAGYAR TELEKOM

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

5.    BUSINESS COMBINATIONS (Continued)

As
there were no reliable IFRS compliant carrying values available at the time of acquisition, these values are not disclosed in the table below.

Fair values(in HUF millions)Purchase price of ownership acquired


687Additional costs directly attributable to the business combination


Consideration transferred


687Net assets acquired


555Goodwill


132Net assets acquired:Trade and other receivables


4Property, plant and equipment


522Intangible assets


104Income taxes payable


(30
)Trade and other payables


(14
)Net deferred tax liability


(31
)555


The
total purchase price was paid in cash in 2008.

5.3   Acquisitions in 2007

5.3.1  MobilPress

In December 2006, Magyar Telekom agreed to acquire a 100% stake in MobilPress for HUF 600 million plus the dividend to be declared for 2006 (max.
HUF 50 million). The transaction was subject to the approval of the Hungarian Competition Authority. The transaction was closed on January 25, 2007, and MobilPress has been
consolidated since that date, included in the MBU operating segment of the Group. MobilPress is one of the major Hungarian mobile content providers and manages, among others, the t-zones
portal, with revenues of approx. HUF 1.5 billion in 2006.

F-66

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Table of Contents

MAGYAR TELEKOM

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

5.     BUSINESS COMBINATIONS (Continued)

The carrying values of MobilPress's net assets at acquisition as well as the consideration transferred are disclosed in the table below. The Group has estimated the fair values of the
net assets acquired to equal their carrying values.

Carrying values/
Fair values(in HUF millions)Purchase price of ownership acquired


600Additional purchase price


50Consideration transferred


650Net assets acquired


93Goodwill


557Net assets acquired:Cash


64Trade and other receivables


266Non current assets


56Trade and other payables


(285
)Other financial liabilities


(2
)Non current liabilities


(6
)93


The
total purchase price was paid in cash in 2007.

The
goodwill arising on this acquisition partly represents the assembled workforce that can not be recognized as a separable asset. The majority of the goodwill represents the value of,
and the future expected revenues from, customers to be acquired from the acquisition date and the planned extension of services.

5.3.2  T-Systems Hungary (TSH)

In December 2006, the Company signed a sale-purchase agreement to acquire an additional 2% ownership in TSH effective from January 1, 2007 for
a purchase price of HUF 60 million. TSH had been an associate of the Group since September 2004, with the majority owner being another Deutsche Telekom Group member. As the transaction
took place between entities under common control, the acquisition was accounted for at cost. The carrying values of TSH's net assets at acquisition as well as the consideration

F-67

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Table of Contents

MAGYAR TELEKOM

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

5.     BUSINESS COMBINATIONS (Continued)

transferred
are disclosed in the table below. TSH has been a consolidated subsidiary of the Group since January 1, 2007 included in the BBU operating segment.

Carrying values(in HUF millions)Purchase price of ownership acquired


60Carrying value of TSH as an associate


1,540Associate goodwill


149Consideration transferred


1,749Net assets acquired


1,752Excess (recognized in equity)


3Net assets acquired:Cash


421Trade and other receivables


6,356Inventory


146Property, plant and equipment


925Intangible assets


3,202Trade payables


(3,471
)Other financial liabilities


(4,258
)Provisions


(179
)Total net assets


3,142Less: Non-controlling interest


(1,539
)Associate goodwill transferred to goodwill


1491,752


The
purchase price of HUF 60 million was paid in cash in 2007.

5.4   Pro forma information on business combinations

The following pro forma information shows the most important financial data of the Group, including the subsidiaries acquired as if they had been consolidated
from the beginning of the financial year in which

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MAGYAR TELEKOM

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

5.     BUSINESS COMBINATIONS (Continued)

the
acquisition was made, and also how much the business combinations contributed to the reported figures since the acquisition date in the year of acquisition.

2007

2008

2009(in HUF millions)RevenuesReported


676,661


673,056


643,989Pro formaif consolidated from beginning of year


676,661


673,145


647,652Current year contribution since date of business combination in the year of acquisition


4,969


53


1,185Profit for the yearReported


73,056


105,593


93,253Pro formaif consolidated from beginning of year


73,056


105,604


93,724Current year contribution since date of business combination in the year of acquisition


(1,812
)

7


110


5.5   Disposals of subsidiaries

In November 2009, the Company signed a sale-purchase agreement for the total of its 100% investment in Orbitel, which was subject to the approval of
the Bulgarian competition office, which was received in January 2010. Consequently, the deal was not closed in 2009, therefore Orbitel was continued to be consolidated in 2009. See also
Note 36.

In
2008 the Group sold its 100% investment in MontMak. In 2007 the Group sold the total of its 51% ownership in Montenegrocard. The results of the above transactions have been recognized
as Other operating income in the years of disposal (Note 26).

All
the above subsidiaries sold conducted non-core operations and were insignificant to the Group, therefore they did not constitute discontinued operations.

6.     CASH AND CASH EQUIVALENTS

Cash and cash equivalents include cash on hand and in banks, and all highly liquid deposits and securities with original maturities of three months or less, and exclude all overdrafts.
These financial assets are exposed to credit risks, for which see more details in Note 3.1.2. No impairment had to be recognized for any of these balances in the reported years.

At December 31,2008

2009(in HUF millions)Cash on hand


112


175Cash in bank (demand deposits)


11,088


7,396Bank deposits with original maturities within 3 months


55,480


26,69966,680


34,270


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Table of Contents

MAGYAR TELEKOM

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

6.     CASH AND CASH EQUIVALENTS (Continued)

Cash and cash equivalents by country of location



At December 31,2008

2009(in HUF millions)Hungary


38,257


12,302Macedonia


22,308


20,313Montenegro


4,699


986Other countries


1,416


669Group


66,680


34,270


7.     TRADE AND OTHER RECEIVABLES

7.1   Trade and other receivablescarrying amounts

At December 31,2008

2009(in HUF millions)Trade receivables from third parties





87,092


95,032Trade receivables from Deutsche Telekom Group companies





5,903


5,492Trade receivables from associates and joint ventures





206


Total trade receivables


(b
)

93,201


100,524Prepayments and advance payments





6,902


4,998Advance dividend paid to Non-controlling interests


(a
)




3,166Other taxes receivable





744


358Other





1,048


1,307Total other receivables





8,694


9,829101,895


110,353


(a)   Advance dividend paid to Non-controlling interests

This item includes the advance dividend paid by Crnogorski Telekom to its minority shareholders during the year, as approved by an Extraordinary General Meeting.
There are legal uncertainties around the status of an advance dividend paid in Montenegro, therefore, we disclose these amounts paid as an advance as we would have the rights to reclaim these payments
should the General Meeting of Crnogorski Telekom decide on a lower final dividend to be declared or use this payment to offset the final dividend liability to be approved by the Annual General Meeting
of Crnogorski Telekom closing the 2009 financial year in 2010.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

7.     TRADE AND OTHER RECEIVABLES (Continued)

(b)   Age profile of Trade receivables

The following tables show the age profile of the Group's trade receivables by reportable segment by days outstanding (past due). The carrying amounts of past due
receivables are shown net of impairment losses charged as of the financial statement dates.

of which past due byCarrying
amount as
of Dec 31,
2009of which
not past
due

less
than
30 days

30-60 days

61-90 days

91-180 days

181-360 days

over
360 days(in HUF millions)CBU


38,133


27,952


5,393


1,221


542


950


1,071


1,004BBU


27,221


22,753


2,428


756


315


533


375


61Headquarters


15,554


12,432


2,858


221


2








41Macedonia


12,061


8,699


2,073


496


124


446


162


61Montenegro


4,763


3,263


644


224


143


255


183


51Technology


859


816


24


2


3


12


2


All others


1,933


1,534


260


80


4


38


17


Total


100,524


77,449


13,680


3,000


1,133


2,234


1,810


1,218




of which past due byCarrying
amount as
of Dec 31,
2008of which
not past
due

less
than
30 days

30-60 days

61-90 days

91-180 days

181-360 days

over
360 days(in HUF millions)CBU


31,923


22,620


5,873


947


498


859


876


250BBU


25,740


21,134


3,107


559


308


422


153


57Headquarters


15,422


11,845


2,262


487


374


251


179


24Macedonia


12,017


9,402


1,397


447


177


351


188


55Montenegro


5,853


3,813


1,243


244


156


247


75


75Technology


843


733


105


2


1





2


All others


1,403


1,003


160


102


9


80


12


37Total


93,201


70,550


14,147


2,788


1,523


2,210


1,485


498


The
vast majority of past due trade receivables are partly or fully impaired depending on the period of delay of payments. Only insignificant amounts of past due trade receivables are
not impaired based on past experience of payment behavior of certain business customers. As these amounts are not significant, these are not disclosed separately.

Non
past due receivables are not assessed collectively for impairment, but in case of bankruptcy of the customer non past due receivables may have to be partly or fully impaired, the
amount of which is not significant, therefore, not disclosed separately. The non past due trade receivables represent approximately 1.4 months of revenue. As disclosed in Note 3.1.2, the
annual bad debt expense of the Group is approximately 1.4 percent of the annual revenue, therefore, we can estimate that approximately 1-2 percent of the non past due portion
of trade receivables will not be collected, i.e. will have to be impaired in future periods, but are not impaired at the end of the reporting period.

F-71

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Table of Contents

MAGYAR TELEKOM

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

7.     TRADE AND OTHER RECEIVABLES (Continued)

The
Group has no collaterals related to its trade receivables.

7.2   Impairment losses of financial assets

Impairment losses are recognized for Trade and other receivables from third parties and one finance lease receivable in 2007. The table below shows the impairment
loss and changes therein for 2008 and 2009.

At December 31,2008

2009(in HUF millions)Impairment loss, beginning of period


30,263


26,312Charged to expensenet (included in Other operating expenses)


4,353


9,072Translation difference


592


404Utilized


(8,896
)

(6,123
)Impairment loss, end of period


26,312


29,665


The
closing balance as at December 31, 2007 included the impairment charged for a finance lease receivable (disclosed in Note 8) in an amount of
HUF 1,500 million. This impairment loss was reversed in 2008 as the negotiations with the customer resulted in an agreed schedule of the termination of the contract and the recovery of
the finance lease receivable was ensured. The reversal was recognized as a reduction to the Bad debt expense in 2008.

The
carrying amount of financial assets that would otherwise be past due or impaired whose terms have been renegotiated is not material therefore no separate disclosure is provided on
those.

The
amount of receivables that are individually determined to be impaired is not material, therefore, these are not disclosed separately.

The
table below includes the impairment losses and the changes therein in 2009 for the reportable segments of the Group.

Impairment losses by segment

At
December 31,
2008

Charged
to
expense

Translation
difference

Utilized

At
December 31,
2009(in HUF millions)Macedonia


8,858


910


240


(693
)

9,315CBU


8,454


5,244





(2,558
)

11,140Montenegro


5,188


453


161


(1,836
)

3,966BBU


2,464


1,000





(661
)

2,803Headquarters


1,160


1,324


2


(283
)

2,203Technology


17


69








86All others


171


72


1


(92
)

152Group


26,312


9,072


404


(6,123
)

29,665


F-72

---



Table of Contents

MAGYAR TELEKOM

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

8.     OTHER FINANCIAL ASSETS

Other financial assets include receivables due within 12 months from the financial statement date (current) and due after 12 months from the financial statement date (non
current). These financial assets are exposed to credit risks, for which see more details in Note 3.1.2. Other than a finance lease receivable (Note 7.2) none of these financial assets
had to be impaired in any of the reported years.

8.1   Other current financial assets

At December 31,2008

2009(in HUF millions)Bank deposits with original maturities over 3 months


(a
)

59,300


50,660Finance lease receivable


(b
)

3,718


3,797Loans and receivables from employees


(c
)

798


419RDC receivable


(d
)

189


193Derivative financial instruments contracted with related parties


(e
)




662Derivative financial instruments contracted with third parties


(f
)

1,011


623Dividend receivable from joint ventures


(g
)

2,033


Loans to Deutsche Telekom Group companies


(h
)




29,587Other





1,449


1,67068,498


87,611


---

At December 31,2008

2009(in HUF millions)Macedonia


42,809


38,418Montenegro


16,455


12,242Hungary


36


59,300


50,660


F-73

---



Table of Contents

MAGYAR TELEKOM

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

8.     OTHER FINANCIAL ASSETS (Continued)

8.2   Other non current financial assets

At December 31,2008

2009(In HUF millions)Finance lease receivable


(b
)

19,364


19,734Loans and receivables from employees


(c
)

4,018


4,492RDC receivable


(d
)

763


646Trade receivables over one year


(i
)

414


1,487Financial assets available for sale


(j
)

282


276Other





1,253


1,04726,094


27,682


---

F-74

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Table of Contents

MAGYAR TELEKOM

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

9.     INCOME TAX

9.1   Current income tax receivable and payable

Current income tax receivable and payable in the Statement of financial position represent the amount of corporate and other income taxes receivable from, and
payable to, the tax authorities of the countries in which the Group operates.

9.2   Income tax expense

The table below shows the tax expenses charged in the 3-year period presented in the Profit for the year.

For the year ended
December 31,2007

2008

2009(in HUF millions)Corporate income tax


7,795


9,941


5,914Other income taxes


9,321


9,462


7,929Deferred income taxes


9,105


8,295


7,115Total income tax expense


26,221


27,698


20,958


9.3   Tax rate reconciliation

The reconciliation between the reported income tax expense and the theoretical amount arising by applying the statutory income tax rates is as follows:

For the year ended
December 31,2007

2008

2009(in HUF millions)IFRS profit before income tax





99,277


133,291


114,211Tax at 16%





(15,884
)

(21,327
)

(18,274
)Impact of different tax rates


(a
)

(4,088
)

(1,512
)

3,730Tax on items not subject to tax


(b
)

1,650


2,278


1,807Tax on non deductible items


(c
)

(1,107
)

(2,134
)

(1,251
)Other income taxes


(d
)

(9,321
)

(9,462
)

(7,929
)Impact of tax deductibility of other income taxes


(e
)

2,873


2,883


2,559Withholding tax


(f
)

(1,684
)

(1,111
)

(1,128
)(De)/recognized deferred tax on tax losses


(g
)

73


1,436


Broadband tax credit accretion


(h
)

1,267


1,251


1,476Changes in the Macedonian tax regime


(i
)







417Change in tax rate


(j
)







(2,365
)Income tax expense





(26,221
)

(27,698
)

(20,958
)Effective tax rate





26.4
%

20.8
%

18.4
%


F-75

---



Table of Contents

MAGYAR TELEKOM

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

9.     INCOME TAX (Continued)

(a)   Impact of different tax rates

The corporate tax rate in Hungary was 16% in the reported periods. As of September 1, 2006 a so called Solidarity tax was introduced in Hungary, which is
an extra 4% tax on a base very similar to the corporate tax base, therefore included in the corporate tax expense, with fewer adjusting items from accounting profit before tax to arrive at the tax
base. The tax rate reconciliation for all 3 years includes 16%, while the difference arising due to the introduction of the Solidarity tax is included in this line of the reconciliation.

This
line of the reconciliation also includes the tax impacts of the different tax rates of the foreign countries where the Group is also present through its subsidiaries.

The
Group is also present in foreign countries where the tax rate is generally lower than in Hungary. The tax rate in Macedonia was 12% in 2007, 10% in 2008 and 0% in 2009 in respect of
the undistributed profit before tax. Deferred tax balances have been recalculated before 2007 when the decrease was enacted in advance and also in 2009 when new changes regarding the year 2009 were
enacted. The corporate tax rate is 9% in Montenegro, 16% in Romania, 10% in Bulgaria, and 25% in the Ukraine in all the reported years.

(b)   Tax on items not subject to tax

Items not subject to income tax consist primarily of donation for non-profit organizations and R&D cost deductible from corporate income tax base, as
well as the Share of associates' and joint ventures' profits or losses as it is included net of tax in the Profit before income tax. This line of the reconciliation includes the tax impact of the
above items.

(c)   Tax on non deductible items

This line of the reconciliation shows the tax impact of the non deductible expenses, including premature receivable write-downs, certain impairment losses and
entertainment expenses.

(d)   Other income taxes

Other income taxes include certain local and central taxes levied in Hungary on the companies' net margins, determined at a substantially higher level than the
corporate tax base, but with substantially lower tax rates. As the first line of the reconciliation calculates theoretical tax expense calculated using the corporate tax rate, the Hungarian local
business tax and the innovation fee impose additional income tax expenses for the Hungarian entities of the Group, included in this line of the reconciliation.

(e)   Deductibility of other income taxes from the corporate tax base

The above described Hungarian other income taxes are deductible expenses for corporate tax purposes. In addition, 100% of the local business tax paid was
deductible further from the corporate tax base in the presented three years.

F-76

---



Table of Contents

MAGYAR TELEKOM

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

9.     INCOME TAX (Continued)

(f)    Withholding tax

Macedonia and Montenegro levy a 5% withholding tax on dividend distribution to Hungary. The reconciliation includes the amount of deferred tax calculated and
recognized on the undistributed profits of these subsidiaries that are expected to be subject to withholding tax in case of dividend distributions.

(g)   (De)/recognized deferred tax on tax losses

Deferred tax asset is recognized on tax losses only to the extent that the realization of the related tax benefit is probable. Deferred tax assets on tax
losses that will probably not be recovered are un/de-recognized. On the other hand, when the recoverability of the previously un/derecognized tax losses becomes probable, these deferred
tax assets are recognized.

(h)   Broadband investment tax credit accretion

Broadband investment tax credit accretion shows the increase of the net present value of the investment tax credit deriving from the utilization of the tax
credits in year(s) following the year of recognition.

(i)    Changes in the Macedonian tax regime

Due to the changes in the Macedonian corporate tax law we reversed the year-end 2008 deferred tax liability of our Macedonian subsidiaries, and
further no deferred tax liability is accounted for during 2009.

(j)    Change in tax rate

The new tax law enacted in Hungary in 2009 eliminated the solidarity tax of 4% introduced in 2006 and at the same time increased the corporate income tax rate to
19% as of January 1, 2010. Deferred
tax balances have been recalculated accordingly, the impact of which is included in this line of the reconciliation.

F-77

---



Table of Contents

MAGYAR TELEKOM

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

9.     INCOME TAX (Continued)

9.4   Deferred taxes

Magyar Telekom's deferred tax balances are as follows:

Balance
at
Dec. 31,
2007

Effect
on
profit

Other
movements

Balance
at
Dec. 31,
2008

Effect
on
profit

Other
movements

Balance
at
Dec. 31,
2009(in HUF millions)Deferred tax assets and (liabilities)Investment tax credits


13,588


1,873


350


15,811


547


428


16,786Net operating loss carry-forward


541


741





1,282


507





1,789Investments in subsidiaries


(1,413
)

(12
)




(1,425
)

99





(1,326
)Withholding tax


(3,640
)

402





(3,238
)

139





(3,099
)Other financial assets


(8
)

(208
)

35


(181
)

529





348Impairment of receivables, inventory


2,562


(1,604
)




958


1,105





2,063Property, plant and equipment and intangible assets


(9,471
)

(9,464
)

(143
)

(19,078
)

(8,080
)

(536
)

(27,694
)Goodwill


(7,091
)

(1,198
)




(8,289
)

(1,563
)




(9,852
)Trade and other payables


(418
)

546





128


(8
)




120Loans and other borrowings


123


439





562


(205
)




357Deferred revenue


293


531





824


(954
)




(130
)Provisions for liabilities and charges


3,506


(341
)




3,165


769





3,934Total net deferred tax asset/(liability)


(1,428
)

(8,295
)

242


(9,481
)

(7,115
)

(108
)

(16,704
)Of which deferred tax liability after netting


(2,714
)







(11,071
)







(18,594
)Of which deferred tax asset after netting


1,286








1,590








1,890Items included in other movementsInvestment tax credit recognized against cost of PPE








350








428AFS financial assetsvaluation differences recognized in equity








35








Currency translation adjustment arising on consolidation








(112
)







(38
)Arising on business combinations








(31
)







(498
)242








(108
)


The
Group consists of a number of legal entities, most of which have deferred tax assets and liabilities. The assets and liabilities are netted by legal entity so that one legal entity
has either a deferred tax asset or a liability and the consolidated Statement of financial position includes these items accordingly.

The
Group's net deferred tax liability balance is HUF 16,704 million which includes a high amount of individual deferred tax asset and liability items (see in the above
table). Of these items, approximately HUF 6,428 million net deferred tax is expected to reverse in 2010 (deferred tax asset of HUF 6,653 million and deferred tax liability
of HUF 225 million). The above items exclude deferred tax items expected to arise in 2010.

F-78

---



Table of Contents

MAGYAR TELEKOM

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

9.     INCOME TAX (Continued)

Deferred
tax arising on investment tax credits are recognized against the cost of the related investment.

Deferred
tax arising on the revaluation of available-for-sale financial assets recognized in Other comprehensive income is also recognized in Other comprehensive
income.

Temporary
differences associated with investments in subsidiaries for which deferred tax liabilities or assets have not been recognized amounted to a net liability of
HUF 8,716 million at December 31, 2009 (2008: net liability of HUF 3,211 million).

If
the Group's Macedonian subsidiaries distributed all their distributable reserves in the form of a dividend, the Group would have to pay HUF 2,191 million withholding
tax, and deferred tax liability in the same amount is recognized as at December 31, 2009. If the Group's Montenegrin subsidiary distributed all its distributable reserves in the form of a
dividend, the Group would have to pay HUF 908 million withholding tax, and deferred tax liability in the same amount is recognized as at December 31, 2009. As the Group can
control the timing and the form of the dividends, deferred tax liabilities have only been recognized to the extent of the planned dividend distributions of the subsidiaries' retained earnings
(undistributed results of 2007-2009) in the foreseeable future.

Deferred
tax assets are recognized for tax loss carry forwards only to the extent that realization of the related tax benefit is probable. There is no tax loss expiring in 2010 for which
a deferred tax asset has been recognized. As of December 31, 2009, the balance of recognized tax losses is HUF 10,702 million of which HUF 9,475 million is not
subject to statutory limitations (2008: HUF 9,978 million of which HUF 8,088 million was not subject to statutory limitations). For tax losses in an amount of
HUF 1,285 million no deferred tax asset was recognized as at December 31, 2009 (2008: HUF 1,984 million).

9.5   Investment tax credits

In order to increase broadband internet penetration in Hungary, companies investing over HUF 100 million in a year in broadband assets
(e.g. DSL lines, UMTS assets) from 2003 can apply for a corporate tax reduction. The potential reduction of the corporate tax charge is defined as a percentage of the companies' capital
investment in broadband assets. As these investment tax credits are of a government grant nature, Magyar Telekom recognized the deferred tax asset against the cost of the related investment. If the
tax credits are not utilized in the year when earned, the amount of tax credits carried forward can be utilized at a higher amount as outstanding amounts can be accreted. This accretion is recognized
as an increase in the deferred tax asset against a reduction in the deferred tax expense.

F-79

---



Table of Contents

MAGYAR TELEKOM

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

9.     INCOME TAX (Continued)

The
following table shows the details of the tax credits in HUF millions:

Earned in year

Amount of
qualifying
broadband
investment

Amount of
tax credit
earned

Accretion
recognized in tax
expense to date

Tax credit
utilized

Tax credit
carried
forward at
December 31,
20092003


6,194


2,592


1,132


(3,724
)

2004


6,968


3,027


1,517


(1,693
)

2,8512005


13,991


5,765


1,296


(2,203
)

4,8582006


15,184


4,423


1,150


(473
)

5,1002007


11,343


3,036


527


(87
)

3,4762008


2,215


461


40





5012009














Total


55,895


19,304


5,662


(8,180
)

16,786Expires in year


2015


7,7092016


5,1002017


3,4762018


50116,786


In
order to utilize the tax credits and certain tax deductibility opportunities earned by the Group's entities, they have to comply with strict requirements as set out in the relevant
tax regulations. Management believes that the Group has complied and will be able to comply with the requirements to recognize these as deferred tax assets.

9.6   Tax reviews

The tax authorities may at any time inspect the books and records within five years from the end of the year when tax declarations were submitted and may impose
additional tax assessments with penalties and penalty interest. Management is not aware of any circumstances which may give rise to a potential material liability in this respect, other than certain
minor items already provided for.

9.7   Dividends paid by Magyar Telekom Plc.

The dividends paid and payable by Magyar Telekom Plc. to its owners may be subject to withholding or income taxes of the owners, which do not have an
impact on the amount of the dividend declared or on the Company's tax expense as these taxesif anyare levied on the owners.

F-80

---





Table of Contents

MAGYAR TELEKOM

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

10.   INVENTORIES

At December 31,2008

2009(in HUF millions)Cables, wires and other materials, work-in-progress and advances


2,964


2,492Inventory for resale


10,703


7,619Subtotal


13,667


10,111Less allowances for obsolete inventory


(376
)

(323
)13,291


9,788


The
Inventory for resale balance as at December 31, 2008 included hardware and software assets in an amount of HUF 1,851 million which had been sold in a finance
lease contract to a major business customer in and after 2001, which terminated the contract for the assets and the related services as of December 31, 2008. In December 2008 the Group
concluded a contract for the sale of these assets in a finance lease transaction effective from January 2009. The Group disclosed these assets as inventory as at December 31, 2008 as the assets
were neither leased to the old customer any more, nor sold to the new customer yet.

11.    NON CURRENT ASSETS HELD FOR SALE

Non current assets held for sale include primarily land and buildings identified for sale, which is expected within 12 months, as a result of the continuing improvement of
utilization of properties and headcount reductions. In addition, the December 31, 2009 balance also includes the non current assets of Orbitel, the Group's consolidated subsidiary, for which
the Company signed a sale-purchase agreement in November 2009.

F-81

---



Table of Contents

MAGYAR TELEKOM

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

12.   PROPERTY, PLANT AND EQUIPMENT

Land and
related
rights

Buildings

Telecom.
equipment

Other
equipment

Total(in HUF millions)At January 1, 2008Cost


6,687


127,522


1,057,554


98,645


1,290,408Accumulated depreciation


(1,919
)

(28,497
)

(644,042
)

(76,826
)

(751,284
)Carrying amount


4,768


99,025


413,512


21,819


539,124Of which held for sale














(4,393
)534,731Carrying amountJanuary 1, 2008


4,768


99,025


413,512


21,819


539,124Exchange differences


49


725


2,660


320


3,754Additions due to business combinations








522





522Additions due to asset retirement obligations





2,303


1,111





3,414Investments


257


6,880


67,337


11,015


85,489Disposals





(2,683
)

(867
)

(416
)

(3,966
)Depreciation charge





(4,357
)

(70,588
)

(7,928
)

(82,873
)Reclassifications


294


(294
)







Carrying amountDecember 31, 2008


5,368


101,599


413,687


24,810


545,464At December 31, 2008Cost


7,276


133,605


1,109,442


102,775


1,353,098Accumulated depreciation


(1,908
)

(32,006
)

(695,755
)

(77,965
)

(807,634
)Carrying amount


5,368


101,599


413,687


24,810


545,464Of which held for sale














(1,775
)543,689Carrying amountJanuary 1, 2009


5,368


101,599


413,687


24,810


545,464Exchange differences


29


472


1,760


119


2,380Additions due to business combinations








965


43


1,008Additions due to and revisions of asset retirement obligations





468


(235
)




233Investments





1,533


74,165


6,088


81,786Disposals


(9
)

(152
)

(66
)

(421
)

(648
)Depreciation charge


(109
)

(4,002
)

(64,661
)

(7,916
)

(76,688
)Reclassifications


288


(288
)







Carrying amountDecember 31, 2009


5,567


99,630


425,615


22,723


553,535At December 31, 2009Cost


7,333


135,732


1,171,086


102,550


1,416,701Accumulated depreciation


(1,766
)

(36,102
)

(745,471
)

(79,827
)

(863,166
)Carrying amount


5,567


99,630


425,615


22,723


553,535Of which held for sale














(2,790
)550,745


F-82

---



Table of Contents

MAGYAR TELEKOM

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

12.   PROPERTY, PLANT AND EQUIPMENT (Continued)

The
closing balance of Property, plant and equipment (PPE) includes assets in the course of construction in an amount of HUF 30,664 million as at December 31, 2009
(2008: HUF 32,601 million). In the table above the assets in course of construction are shown in the categories where the capitalization is expected.

Additions
due to business combinations include the fair value of the assets acquired by Magyar Telekom through business combinations in the reported years.

Additions
due to and revisions of asset retirement obligations represent the amounts recognized as part of the carrying amounts of the constructed assets against a provision for asset
retirement obligation in the reported year (Note 19.5).

Investments
represent the regular investing activity in PPE assets. These additions are shown net of the investment tax credit related to broadband investments. For more details, see
Note 9.4.

No
impairment was identified in 2009 and 2008.

The
reclassifications between asset categories or their impact on depreciation expense was not material.

Included
in buildings are assets sold and leased back under finance lease conditions. At December 31, 2009 the gross book value of the leased back assets is
HUF 2,706 million (2008: HUF 2,739 million) and the net book value is HUF 1,172 million (2008: HUF 1,450 million).

Included
mainly in buildings and telecom equipment are assets leased under finance lease conditions (other than sale and lease back). At December 31, 2009 the gross book value of
the finance leased assets is HUF 2,150 million (2008: HUF 2,646) and the net book value is HUF 1,237 million (2008: HUF 1,813 million).

Included
in telecommunications equipment at December 31, 2009 are assets leased under operating lease contracts to customers with a gross book value of
HUF 1,698 million (2008: HUF 1,759 million) and net book value of HUF 155 million (2008: HUF 1,122 million). Depreciation for the year of these
assets amounted to HUF 1,543 million (2008: HUF 469 million). The future minimum lease payments receivable under these contracts are disclosed in Note 32.4.

HUF 2,409 million
of PPE has restricted titles as at December 31, 2009 (2008: HUF 3,263 million), which are included in our assets as finance leases.

The
reviews of the useful lives of property, plant and equipment during 2009 affected the lives of a large number of assets including primarily IT hardware, antennas, antenna towers and
vehicles. The revisions primarily resulted in the extension of the useful lives as a result of later expected replacement of the affected assets than originally estimated. The revision results in the
following change in the original trend of depreciation in the current and future years.

2009

2010

2011

2012

After
2012(in HUF millions)Increase/(decrease) in depreciation


(2,017
)

(3,426
)

(165
)

157


5,451


F-83

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Table of Contents

MAGYAR TELEKOM

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

12.   PROPERTY, PLANT AND EQUIPMENT (Continued)

The
useful lives assigned to different types of property, plant and equipment are as follows:

YearsBuildings


550Duct, cable and other outside plant


338Other telecommunications equipment


225Other equipment


212


13.   INTANGIBLE ASSETS

Goodwill
(as
restated)

Software

Concessions
and
licenses

Other

Total(in HUF millions)At January 1, 2008Cost


243,999


135,990


54,262


23,243


457,494Accumulated amortization





(94,821
)

(17,257
)

(10,502
)

(122,580
)Carrying amount


243,999


41,169


37,005


12,741


334,914Carrying amountJanuary 1, 2008


243,999


41,169


37,005


12,741


334,914Exchange differences


346


357


298


250


1,251Additions due to business combinations


132








104


236Investments





19,680


2,525


255


22,460Disposals











(235
)

(235
)Amortization charge





(16,263
)

(3,464
)

(3,520
)

(23,247
)Carrying amountDecember 31, 2008


244,477


44,943


36,364


9,595


335,379At December 31, 2008Cost


244,477


155,513


50,096


22,663


472,749Accumulated amortization





(110,570
)

(13,732
)

(13,068
)

(137,370
)Carrying amount


244,477


44,943


36,364


9,595


335,379Carrying amountJanuary 1, 2009


244,477


44,943


36,364


9,595


335,379Exchange differences


173


328


147


19


667Additions due to business combinations


2,459


410





2,491


5,360Investments





17,355


1,421


1,304


20,080Disposals





(124
)

(22
)

(14
)

(160
)Impairment


(969
)










(969
)Amortization charge





(16,302
)

(4,065
)

(3,896
)

(24,263
)Carrying amountDecember 31, 2009


246,140


46,610


33,845


9,499


336,094At December 31, 2009Cost


246,140


164,668


52,134


25,906


488,848Accumulated amortization





(118,058
)

(18,289
)

(16,407
)

(152,754
)Carrying amount


246,140


46,610


33,845


9,499


336,094Of which held for sale














(479
)335,615


F-84

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Table of Contents

MAGYAR TELEKOM

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

13.   INTANGIBLE ASSETS (Continued)

As
a result of the findings of the Investigation (Note 1.2), we identified three consultancy contracts, the payments of which were erroneously capitalized as part of the goodwill
arising on the original acquisition of Makedonski Telekom in 2001 and the goodwill arising on Makedonski Telekom's repurchase of 10% of its shares in 2006. These amounts have been retrospectively
derecognized from goodwill.

Additions
due to business combinations include the fair value of assets acquired by Magyar Telekom through business combinations in the reported years and the goodwill arising on these
business combinations.

Investments
represent the regular investing activity in intangible assets.

The
amortization expense as well as the impairment losses of intangible assets including goodwill is accounted for in the depreciation and amortization line of the Statement of
comprehensive income.

Other
than goodwill, the Group has no intangible assets with indefinite useful life. Intangible assets other than goodwill are amortized over their respective economic useful lives, as
indicated below.

YearsSoftware


28Concessions and licenses


325Other intangible assets


310


The
reviews of the useful lives of intangible assets during 2009 affected the lives of a large number of assets including primarily IT and operation support systems and software. The
revisions primarily resulted in the extension of the useful lives as a result of later expected replacement of the affected assets than originally estimated. The revision results in the following
change in the original trend of amortization in the current and future years.

2009

2010

2011

2012

After
2012(in HUF millions)Increase/(decrease) in amortization


(722
)

(1,367
)

1,160


764


164


The
most significant intangible assets of the Group are the goodwill arising on business combinations. For the goodwill impairment tests, the total amount of goodwill was allocated to
the operating segments of the Group as follows.

As at December 31,2008

2009(in HUF millions)CBU


139,326


139,743BBU


44,871


45,220Macedonia mobile


38,804


38,837Macedonia fixed line


12,506


12,506Montenegro mobile


5,487


5,612Other segments


3,483


4,222Total goodwill


244,477


246,140


F-85

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Table of Contents

MAGYAR TELEKOM

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

13.   INTANGIBLE ASSETS (Continued)

The
Group regularly carries out an impairment test on goodwill in the last quarter of the financial years. We established in 2007 and 2008 that the carrying amount of goodwill did not
suffer impairment. In 2009 Magyar Telekom decided to sell its 100% stake in Orbitel, as a result of which we carried out an interim impairment test on the Orbitel goodwill. The offered purchase price
was known at the time of the interim impairment test, which was lower than the carrying amount of Orbitel's net assets, which resulted in a partial impairment of goodwill in an amount of
HUF 969 million during 2009. During the annual impairment test conducted in the last quarter of 2009 no additional goodwill impairment was established for any goodwill of the Group.

14.   INVESTMENTS IN ASSOCIATES AND JOINT VENTURES

For the
year ended
December 31,2008

2009(in HUF millions)Opening balance


4,936


4,136Dividends


(2,141
)

(102
)Share of associates' and joint ventures' profits/(losses)


1,341


(109
)Disposal of ITMH (Note 5.1.1)





(382
)Disposal of M-RTL (Note 5.1.1)





(3,357
)Closing balance


4,136


186


The
following table shows the total assets and liabilities as at December 31, 2008 and 2009, and revenues and profit for the year ended December 31, 2008 and 2009 of
Hunsat, the single remaining significant joint venture of the Group.

Hunsat
2008

Hunsat
2009(in HUF millions)Current assets


1,285


1,017Non current assets


3


2Current liabilities


(1,001
)

(728
)Non current liabilities





Revenues


3,387


3,448Profit for the year


186


291


There
are no material contingent liabilities of our associates and joint ventures as of December 31, 2008 or 2009. Neither does the Group have any contingent liabilities or
commitments to our associates or joint ventures as at the end of the reporting periods.

15.   OTHER NON CURRENT ASSETS

Other non current assets mainly include long-term prepaid employee benefits.

F-86

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Table of Contents

MAGYAR TELEKOM

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

16.   FINANCIAL LIABILITIES TO RELATED PARTIES

Financial liabilities to related parties include loans taken from DTIF, predominantly denominated in HUF. For the whole nominal amount and interest payment of loans denominated in EUR
granted by DTIF we have cross-currency interest rate swap agreements in place so that Magyar Telekom's exposure in fact remains in HUF. The loans and the related swap agreements are accounted for and
disclosed on a gross basis. These loans are primarily taken for significant acquisitions and dividend payments. Some of these loans, when expiring, are also refinanced by DTIF, depending on the actual
cash position of the Group.

The
tables below show the details of the financial liabilities towards Deutsche Telekom Group members as at December 31, 2009 and 2008.

December 31, 2009

Carrying
amount

Currency

Interest
rate

Fixed/
floating

Repayable(in HUF
millions)



(%)20,313

EUR


1.35

floating


Jan 20109,486

HUF


8.86

floating


Jan 201010,016

HUF


8.17

fixed


Jul 201020,033

HUF


8.18

fixed


Jul 2010Due within 1 year


59,848Accrued interest


7,675Derivatives


3,050Total current


70,5739,486

HUF


8.86

floating


Jan 201125,000

HUF


7.73

floating


Apr 201134,232

HUF


7.75

fixed


Jul 20119,486

HUF


8.86

floating


Jan 201240,000

HUF


7.22

floating


May 20129,486

HUF


7.07

floating


Jan 201325,000

HUF


7.26

fixed


Oct 201320,871

EUR


4.45

fixed


Jun 201442,912

EUR


4.08

fixed


Jan 201550,525

HUF


8.30

fixed


May 2015Total non-current


266,998


F-87

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Table of Contents

MAGYAR TELEKOM

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

16.   FINANCIAL LIABILITIES TO RELATED PARTIES (Continued)

December 31, 2008

Carrying
amount

Currency

Interest
rate

Fixed/
floating

Repayable(in HUF
millions)



(%)9,486

HUF


12.35

floating


Jan 20095,000

HUF


9.68

fixed


Sep 200925,000

HUF


9.61

fixed


Oct 200928,000

HUF


9.15

floating


Oct 200920,000

HUF


7.55

fixed


Oct 2009Due within 1 year


87,486Accrued interest


8,845Total current


96,3319,486

HUF


12.35

floating


Jan 201010,060

HUF


8.17

fixed


Jul 201020,121

HUF


8.18

fixed


Jul 20109,486

HUF


12.35

floating


Jan 201125,000

HUF


9.30

floating


Apr 201134,384

HUF


7.75

fixed


Jul 20119,487

HUF


12.35

floating


Jan 201240,000

HUF


11.93

floating


May 20129,487

HUF


12.35

floating


Jan 201325,000

HUF


7.26

fixed


Oct 201350,586

HUF


8.30

fixed


May 2015Total non-current


243,097


The
table below shows the carrying amounts and fair values of the related party loans.

At December 31,2008

2009Book
value

Fair
value

Book
value

Fair
value(in HUF millions)HUF denominated loansAt fixed rate


190,151


194,861


160,677


169,877At floating rate


140,432


140,432


102,944


102,945330,583


335,293


263,621


272,822EUR denominated loansAt fixed rate








42,912


47,157At floating rate








20,313


20,313





63,225


67,470Accrued interest


8,845


8,845


7,675


7,675Swaps








3,050


3,050Total related party financial liabilities


339,428


344,138


337,571


351,017


F-88

---



Table of Contents

MAGYAR TELEKOM

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

16.   FINANCIAL LIABILITIES TO RELATED PARTIES (Continued)

The
weighted average interest rate on related party loans was 6.75% in 2009 (9.39% in 2008, 7.95% in 2007). The fixed interest rate loans are exposed to fair value risk as it is stated
in the table above. Any decrease of market interest rates will result in an increase of the fair value of the fixed interest liabilities.

Accrued
interest include the nominal interest earned that is paid quarterly, semi-annually or annually.

Derivatives
contracted with related parties include cross-currency interest rate swaps and FX forwards concluded with DT AG to change the Group's exposure to HUF in case of the EUR
denominated loans.

There
were no defaults and breaches in connection with the financial liabilities to related parties.

17.   OTHER FINANCIAL LIABILITIES

At December 31,2008

2009(in HUF millions)Bank loans


(a
)

33,246


32,810Finance lease payable (Note 32.1)





1,018


763Accrued interest





1,246


1,139Third party derivatives


(b
)




179Other





1,624


1,441Total other financial liabilitiescurrent





37,134


36,332Bank loans


(a
)

19,313


23,316Finance lease payable (Note 32.1)





3,474


2,660Other





252


245Total other financial liabilitiesnon current





23,039


26,221


(a)    Bank loans

As at December 31,2008

2009(in HUF millions)Current bank loans


33,246


32,810Non current bank loans (within 1-5 years)


19,313


23,316Total bank loans


52,559


56,126


Loans
totaling HUF 9,997 million at December 31, 2009 are revolving loans (2008: HUF 2,277 million) which can be prepaid at any time and may be drawn
down in one to six month rolling periods.

The
weighted average interest rate on bank loans was 7.92% in 2009 (8.54% in 2008, 7.41% in 2007).

F-89

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Table of Contents

MAGYAR TELEKOM

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

17.   OTHER FINANCIAL LIABILITIES (Continued)

The
following table compares the carrying values and the fair values of the Group's bank loans.

At December 31,2008

2009Book
value

Fair
value

Book
value

Fair
value(in HUF millions)HUF denominated bank loansAt fixed rate


11,000


11,768


11,000


12,090At floating rate


28,515


28,515


38,215


38,21539,515


40,283


49,215


50,305EUR denominated bank loansAt fixed rate


10,767


11,069


5,164


5,316At floating rate


2,277


2,277


1,747


1,74713,044


13,346


6,911


7,063Total bank loans


52,559


53,629


56,126


57,368


Floating
interest rate loans are subject to interests calculated based on mostly BUBOR (Budapest Inter-Bank Offered Rate) and EURIBOR (Euro Inter-Bank Offered
Rate) plus a margin interest formula.

The
majority of the Group's third party loans and borrowings are subject to floating interest rates, which are exposed to cash flow risks. If interest rates are rising, it results in
higher cash outflows through interest payments.

There
were no defaults and breaches in connection with other financial liabilities.

(b)   Third party derivatives

Third party derivatives included FX forward deals in a total fair value of HUF 179 million (unrealized loss) as of December 31, 2009. There
were no such derivatives of a liability nature as at December 31, 2008.

(c)   Credit facilities

At December 31, 2009, Magyar Telekom had un-drawn committed credit facilities of HUF 50,479 million (2008:
HUF 44,833 million). These credit facilities, should they be drawn down, are subject to an interest rate of EURIBOR, BUBOR and commercial floating bank prime rates plus a margin
depending on the currency and institution providing the facilities.

F-90

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Table of Contents

MAGYAR TELEKOM

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

18.    TRADE PAYABLES

At December 31,2008

2009(in HUF millions)Payable to DT Group companies


5,850


5,169Payable to associates and joint ventures


7


7Other trade payables


86,483


80,69892,340


85,874


19.    PROVISIONS

Severance

Legal
cases

MTIP

Fixed to
mobile
IC fees

ARO

Other
(as restated)

Total(in HUF millions)January 1, 2008


14,722


5,652


55


6,984


1,244


4,068


32,725Amounts utilized


(10,988
)

(199
)

(175
)




(72
)

(558
)

(11,992
)Amounts reversed


(62
)

(1,469
)




(8,499
)




(1,464
)

(11,494
)Exchange rate difference


31


246











14


291Accretion














70





70Additions


6,061


2,683


356


1,515


3,414


2,262


16,291December 31, 2008


9,764


6,913


236





4,656


4,322


25,891Amounts utilized


(7,832
)

(1,887
)

(277
)




(63
)

(2,519
)

(12,578
)Amounts reversed


(1,532
)

(1,298
)







(26
)




(2,856
)Exchange rate difference


43


189











11


243Accretion














184





184Additions


8,304


1,733


397





259


836


11,529December 31, 2009


8,747


5,650


356





5,010


2,650


22,413Of which current


8,295


3,471








175


751


12,692Of which non current


452


2,179


356





4,835


1,899


9,721


Magyar
Telekom does not expect any reimbursement with regards to the provisions recognized, therefore, no related assets have been recognized in the financial statements.

Provisions
recognized for customer loyalty programs in previous years have been retrospectively reclassified as other liabilities (current and non current). See more information in
Note 2.1.5.

19.1 Severance

The majority of the provision for severance as at December 31, 2009 relates to the stand-by-pool and the employee terminations in
2010 in relation to the further organizational changes in Magyar Telekom Plc. The stand-by-pool of employees include people whose legal status is an employee, however,
these people do not provide services to the Company any more, but the Company provides a reduced amount of compensation and pays social security expenses for them for maximum 4 years. This is a
way of severance that is not paid in one lump sum but in maximum 48 installments following the discontinuation

F-91

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Table of Contents

MAGYAR TELEKOM

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

19.    PROVISIONS (Continued)

of
services. The provision for severance as at December 31, 2008 mostly related to the major restructuring of Magyar Telekom Plc's operations from January 1, 2009, and impacted
all functions of the Company.

961
employees were dismissed in 2009 (2008: 1,910) at Group level, related to which severance payments were made. The balance of provision as at December 31, 2009 relates to 569
employees and former employees in the stand-by-pool (2008: 738) working in various functions of the Group.

The
total payments made in relation to employee termination in 2009 amounted to HUF 8,700 million, of which HUF 7,832 million was charged against the
provision as at December 31, 2008, while the rest was recognized as employee related expense in 2009. The relatively high amount of the reversal of provision in 2009 is the result of the
different actual mix of employees severed compared to the originally estimated mix (length of service years, choice of immediate leave versus stand-by pool, etc.).

The
total payments made in relation to employee termination in 2008 amounted to HUF 13,468 million, of which HUF 10,988 million was charged against the
provision as at December 31, 2007, while the rest was recognized as employee related expense in 2008.

19.2 Legal cases

Provisions for legal cases mainly include amounts expected to be paid to regulatory and competition authorities as well as to ex-employees and trading
partners as a result of legal disputes. There are numerous legal cases for which provisions were recognized, none of which are individually material, therefore not disclosed. Further, the disclosure
of any individual legal case could hurt the Group defending its position at various courts.

19.3 MTIP

For more details on the Mid-term Incentive Plan see Note 24.1.1.

19.4 Fixed to mobile (F2M) interconnect fees

The amount provided for in this category in prior years included amounts collected from Magyar Telekom Plc's customers, which were estimated as probably
repayable to universal customers related to the reduced fixed to mobile termination charges, which was accounted for as a reduction of revenues.

Pursuant
to a decree, the Company had the obligation to decrease the F2M tariffs of the universal services subscribers by the amount of the decrease in the F2M termination rates. The
Company did not fulfill this obligation because the mobile operatorsreferring to their lawsuits against the NCAH resolutionsdid not, from a legal point of view, decrease the
F2M termination rates, in their interconnection agreements with the Company.

The
NCAH called upon the Company to repay the difference to its universal customers regardless of the status of the above legal cases. In August 2008, the negotiations with NCAH resulted
in a positive conclusion, whereby the NCAH accepted the Company's arguments that in other forms of compensation the Company had already passed on the required discounts to the customers. Even though
the NCAH conclusion was limited to the year 2005, based on the NCAH's reasoning for the relief, management believes that the Company passed on the required discounts to its customers in the subsequent
years of 2006-2009 as well. As a result of the above, management believed that the recognition of the provision was

F-92

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Table of Contents

MAGYAR TELEKOM

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

19.    PROVISIONS (Continued)

no
longer necessary, and in 2008 released to revenues the total amount of the provision accumulated in prior years.

19.5 Asset retirement obligations (ARO)

Asset retirement obligations primarily exist in case of the telecommunications structures constructed on third parties' properties.

In
2009, the Group conducted a revision of the required provisions, primarily as a result of the increased discount rates, and recognized the difference as a change in estimate in an
amount of HUF 233 million against the carrying amounts of the related assets.

In
2008, the Group conducted a revision of the probabilities of having to dismantle the constructed assets and having to remediate the landlords' and public premises after dismantling,
and revised the projected cash outflows expected to be incurred to settle these obligations at the end of the useful life of the assets. As a result of the revision, the Group recognized an additional
HUF 3,344 million provision in 2008 against an increase in the carrying amounts of the related assets.

19.6 Other provisions

Other provisions include guarantee obligations and further other individually small items as well as provisions for onerous contracts. The December 31,
2006 balance of Other provisions has been restated to also include the provisions for the potential tax implications of the contracts identified by the Investigation (Note 1.2.2).

20.    OTHER CURRENT LIABILITIES

At December 31,2008

2009(in HUF millions)Deferred revenue and advances received


(a)


14,495


12,131Other taxes and social security





9,925


8,838Salaries and wages





8,136


8,652EKG payable


(b)


3,476


Dividend payable to Non-controlling interests





290


303Other liabilities





1,770


2,30438,092


32,228


(a)   Deferred revenue and advances received

Deferred revenue and advances received include amounts already collected but not yet earned. Included in these are also the accruals recognized for customer
loyalty programs in previous years that have been retrospectively reclassified from provisions and are now disclosed in this caption. See more information in Note 2.1.5.

F-93

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Table of Contents

MAGYAR TELEKOM

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

20.    OTHER CURRENT LIABILITIES (Continued)

(b)   EKG payable

During 2005 the Company concluded an agreement with the Hungarian government for taking over the operation of the existing Electronic Governmental Backbone
Network (EKG) for a period of 50 months. During the term of the agreement the Company committed to significant upgrades of the network and transferring it back to the government at the end of
the term free of charge. During the term of the agreement, the Company had exclusivity in providing telecommunication services to the government institutions connected to the network. As the substance
of the agreement is of a nature similar to a concession, the Company recognized an intangible asset (right) and a corresponding liability. The contract expired in 2009, with the last payments made
in 2009.

21.    OTHER NON CURRENT LIABILITIES

At December 31,2008

2009(in HUF millions)Deferred revenue (Note 20)


908


1,089EKG payable (Note 20)


385


Other


11


111,304


1,100


F-94

---



Table of Contents

MAGYAR TELEKOM

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

22.    REVENUE

For the year ended
December 31,2007

2008

2009(in HUF millions)Fixed line revenuesVoice retail


159,772


151,033


128,133Voice wholesale


30,319


21,494


21,322Internet


57,796


59,823


55,089Data


27,440


28,839


30,762TV


18,102


18,830


23,753Equipment


5,395


7,058


4,745Other fixed line revenues


10,509


12,818


10,276Total Fixed line revenue


309,333


299,895


274,080Mobile revenuesVoice retail


195,718


196,983


192,704Voice wholesale


46,244


46,241


41,563Voice visitor


6,632


5,995


4,959Non voice


45,068


50,936


56,188Equipment


23,121


21,169


21,320Other mobile revenues


8,984


10,441


9,262Total Mobile revenue


325,767


331,765


325,996System integration and IT revenue


41,561


41,396


43,913Total revenue


676,661


673,056


643,989


None
of the Group's customers represent a significant source of revenue. Revenues from transactions with a single external customer (or group of entities thatknowingly to
usare under common control of a third party or government) do not exceed 10 per cent of the Group's revenues.

23.    EXPENSES DIRECTLY RELATED TO REVENUES

For the year ended
December 31,2007

2008

2009(in HUF millions)Voice, data and internet related payments


86,244


79,076


71,583Material cost of equipment sold


41,957


45,061


44,011Payments to agents and other subcontractors


49,064


43,421


44,982177,265


167,558


160,576


F-95

---



Table of Contents

MAGYAR TELEKOM

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

24.    EMPLOYEE RELATED EXPENSES

For the year ended
December 31,2007

2008

2009(in HUF millions)Short term benefits


99,459


96,407


100,425Share based payments (Note 24.1)


(134
)

356


397Termination benefits (Note 19.1)


25,332


8,510


7,640Total before capitalization


124,657


105,273


108,462Expenses capitalized


(4,481
)

(4,953
)

(6,544
)120,176


100,320


101,918Total costs expensed in relation to defined contribution plans (including social security)


28,791


23,376


23,690Closing number of employees


11,723


10,438


10,828


24.1 Share-based compensation

24.1.1  Mid-term incentive plan (MTIP)

In 2004 Magyar Telekom launched a Mid Term Incentive Plan (MTIP) for its top and senior management, whereby the targets to be achieved are based on the
performance of the Magyar Telekom share. The MTIP is a cash settled long term incentive instrument which was planned to cover five years, with a new package being launched in each year, and with each
tranche lasting for three years. In 2009, Magyar Telekom decided on prolonging the original program by one additional year, with the same concept. At the beginning of the plan each participant has an
offered bonus. This bonus will be paid out at the end of the plan, depending on the achievement of the two fixed targets, an absolute Magyar Telekom share specific and a relative Index target.
Depending on the achievement of the targets, 0, 50 or 100% of the bonus is paid if neither, one or both of the targets are met, respectively.

The
relative performance target is linked to the Total Return of the Magyar Telekom share compared to the performance of the Dow Jones Euro STOXX Total Return Index during the vesting
period, each at the last 20 trading days. Measurement is the un-weighted average Magyar Telekom share price plus dividend payments. The absolute performance target is achieved when the
Magyar Telekom share price, adjusted for dividends paid during the tenure, is more than 35 percent higher at the end of the lock-up period than at the beginning of the plan. The basis of the
calculation is the un-weighted average closing price of the Magyar Telekom share at the Budapest Stock Exchange during the last 20 trading days before the beginning and the end of the
plan.

The
share price calculated according to the above are included in the table below. When determining the Group's liability, these target figures are weighted with the fair value factors
of achieving these targets. The fair value factors are calculated using the Monte Carlo technique. The target figures are multiplied by the relevant fair value factors and these amounts are then
accrued for the given tranche period.

F-96

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Table of Contents

MAGYAR TELEKOM

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

24.    EMPLOYEE RELATED EXPENSES (Continued)

This technique
aims to determine the fair values of the share options granted and present it in accordance with the accruals concept.

Tranche

Vesting period

MT Share price
at the beginning of
the vesting period

Fulfillment1

January 1, 2004December 31, 2006


755

Only absolute target met2

January 1, 2005December 31, 2007


843

Neither targets met3

January 1, 2006December 31, 2008


949

Only relative target met4

January 1, 2007December 31, 2009


1,013

Only relative target met5

January 1, 2008December 31, 2010


912

6

January 1, 2009December 31, 2011


561




The
provision for the payments in relation to the MTIP program and the movements thereof are disclosed in Note 19.

24.1.2  Management share option plan

On April 26, 2002, the annual Shareholders' Meeting approved the introduction of a new management share option plan and authorized the Company's Board of
Directors to purchase 17 million "A" series registered ordinary shares, each having a nominal value of HUF 100 as treasury shares. Consequently, the Company issued 4,900,000
shares on July 1, 2002, which were repurchased immediately as treasury shares.

On
July 1, 2002, the Company granted 3,964,600 options to participants of the stock option plan at an exercise price of HUF 933 for the first tranche (exercisable in 2003)
and HUF 950 for the second and third tranches (exercisable in 2004 and 2005). As the Company's share price as quoted on the Budapest Stock Exchange on the grant date was HUF 833 per
share, there was no intrinsic value to the options. The options had a life of five years from the grant date, meaning that the un-exercised options were forfeited without
replacement or compensation on June 30, 2007.

The
option with respect to a maximum of one-third of the shares that could be purchased under the first tranche was exercisable from July 1, 2003 until the end of the
term. The option with respect to a maximum of a further one-third of the shares that could be purchased under the second tranche was exercisable from July 1, 2004 until the end of
the term. The option with respect to the rest of the shares that could be purchased under the third tranche was exercisable from July 1, 2005 until the end of the term.

As
the management share option plan did not fall into the scope of IFRS 2Share based Payments, the Group did not recognize compensation expense in any of the periods.

F-97

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Table of Contents

MAGYAR TELEKOM

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

24.    EMPLOYEE RELATED EXPENSES (Continued)

The
table below shows the movements in the number of management stock options in thousands.

2005

2006

2007

Average
exercise
price(in HUF)Opening number of share options


3,207


1,929


1,307


944Number of share options exercised


(991
)

(539
)

(414
)

944Forfeited share options


(287
)

(83
)

(893
)

944Closing number of share options


1,929


1,307





Number of exercisable options at end of year


1,929


1,307








The
average share price on the exercise dates in 2007 was HUF 985 (2006: HUF 1,060).

24.1.3  The former CEO's share option plan

The former CEO of Magyar Telekom was granted share options in 2000, 2001, 2002, 2003 and 2004. The exercise price of the options was determined in US dollars and
the options had no intrinsic values on the grant dates in 2000, 2001, 2002 and 2003, while those granted in 2004 had an intrinsic value of HUF 63 million. One third of the options
granted vested after one year, another one third vested two years after the grant date, while the last third vested after three years. The options are exercisable for ten years after the grant date.

In
2006, the former CEO resigned and exercised his remaining options from 2003 and 2004. Although the last third of the 2004 grant would not have been exercisable, the resignation
agreement concluded between the Company and the CEO allowed the early exercising of these 487 thousand options. Further, the settlement was concluded in cash even though the plan was originally
intended as equity settled. The options granted in 2000 remain exercisable with the original conditions. The closing share price on the exercise date was HUF 1,060.

The
table below shows the details of the CEO's share options.

Options granted in year2000

2001

2002

2003

2004

TotalNumber of options granted (thousand)


103


250


303


619


1,462


2,737Exercised (thousand)in 2005





(250
)

(303
)

(413
)

(487
)

(1,453
)Exercised (thousand)in 2006











(206
)

(975
)

(1,181
)Outstanding (thousand) at December 31, 2009


103














103Exercisable (thousand) at December 31, 2009


103














103Exercise price in USD


7.36


2.93


3.48


3.62


3.87Remaining contractual life at December 31, 2009 (years)


0.5














F-98

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Table of Contents

MAGYAR TELEKOM

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

25.    OTHER OPERATING EXPENSES

For the year ended
December 31,2007

2008

2009(in HUF millions)Materials, maintenance and service fees


69,034


72,858


71,650Marketing


20,152


22,065


16,180Fees and levies


15,640


16,000


14,712Consulting, audit and other expert fees


12,818


10,960


11,230Rental and operating lease


9,304


9,947


11,153Bad debt expense


5,136


4,353


9,072Other expenses


7,230


4,866


1,308139,314


141,049


135,305


Consulting,
audit and other expert fees among others include expenses incurred in relation to the audit of the standalone and consolidated financial statements of the Company by
PricewaterhouseCoopers (PwC) as follows.

For the year ended
December 31,2007

2008

2009(in HUF millions)Audit of the financial statements


765


500


593Other audit related fees


176


108


205Tax advisory fees


12





Other non audit related fees








4Total expenses payable to PwC


953


608


802


Audit
of the financial statements in the above table are the aggregate fees of PwC in connection with the audit of our annual financial statements, reviews of quarterly reports
and services performed in relation to legal obligations and submissions required by regulatory provisions.

Other
audit-related fees in the above table are the aggregate fees of PwC for services which are normally performed by the external auditor in connection with the auditing of the annual
financial statements, e.g. advice on issues of accounting and reporting, which were not classified as audit services,
and support with the interpretation of new accounting and reporting standards. Audit-related fees in 2009 also included HUF 205 million (2008: HUF 108 million) incurred
relating to the ongoing investigation (Note 1.2).

Tax
advisory fees in the above table are fees of PwC for services relating to issues of domestic and international taxation (adherence to tax law, tax planning and tax
consulting). Furthermore, services were commissioned for the assistance with tax audits and appeals, evaluations for taxation purposes, as well as assistance to tax law.

Other
non audit related fees in the above table are fees of PwC primarily related to services like participation by Magyar Telekom employees in conferences and training sessions
organized by PwC.

F-99

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Table of Contents

MAGYAR TELEKOM

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

26.    OTHER OPERATING INCOME

For the year ended
December 31,2007

2008

2009(in HUF millions)Compensation for renaming (Note 33.1)


229


676


Gain on sale of PPE, Intangible assets and assets held for sale


3,203


2,126


326Gain on sale of subsidiaries and associates (Notes 5.1 and 5.5)





1,233


1,371Other operating income


569


214


1,1664,001


4,249


2,863


27.    FINANCE EXPENSES

For the year ended
December 31,2007

2008

2009(in HUF millions)Interest expense


31,147


32,798


33,479Other finance expenses (Fee expense)


4,039


4,659


4,780less: interest capitalized





(258
)

(726
)35,186


37,199


37,533


Other
finance expenses mainly include bank charges.

Interest
expense is shown net of interest capitalized using an average borrowing rate of 8.25% (2008: 8.3%).

F-100

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Table of Contents

MAGYAR TELEKOM

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

28.    FINANCE INCOME

For the year ended
December 31,2007

2008

2009(in HUF millions)Gains/(losses) on the subsequent measurement of financial instruments at fair value through profit and loss (derivatives) contracted with related
parties








(2,387
)Gains/(losses) on the subsequent measurement of financial instruments at fair value through profit and loss (derivatives) contracted with third
parties


(139
)

789


(568
)Gains/(losses) on the derecognition of financial instruments at fair value through profit and loss contracted with related parties








(141
)Gains/(losses) on the derecognition of financial instruments at fair value through profit and loss contracted with third parties


828


(477
)

(441
)Gains/(losses) on the derecognition of AFS financial instruments (Reclassifications from Other comprehensive income)








Net foreign exchange losses


(1,481
)

(648
)

(269
)Finance lease interest income


1,675


1,340


1,390Interest and other finance income


4,334


5,887


7,1365,217


6,891


4,720


29.    PURCHASE OF PROPERTY, PLANT AND EQUIPMENT AND INTANGIBLE ASSETS

For the year ended
December 31,2007

2008

2009(in HUF millions)Investments in property, plant and equipment (Note 12)


75,825


85,489


81,786Investments in intangible assets (Note 13)


28,010


22,460


20,078Total investments in PPE and intangible assets


103,835


107,949


101,864Recognition of investment tax credit (Note 9.4)


3,561


350


428Change in payables relating to capital expenditures


(4,299
)

7,740


7,936103,097


116,039


110,228


The
Group had no significant non cash transactions in any of the reported years.

F-101

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Table of Contents

MAGYAR TELEKOM

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

30.    PURCHASE OF SUBSIDIARIES AND BUSINESS UNITS

For the year ended
December 31,2007

2008

2009(in HUF millions)ISH








3,131Cable TV networks





687


1,745KFKI Direkt








317M-Factorycontingent consideration





75


Mobilpress


650





T-Systems Hungary


60





Total purchase of subsidiaries and business units


710


762


5,193


See
Note 5 for further details of business combinations.

31.    REPORTABLE SEGMENTS AND INFORMATION ABOUT GEOGRAPHICAL AREAS

31.1 Reportable segments

Magyar Telekom established its current management structure in Hungary based on customer segments that require different technology and marketing strategies, and
support functions. The Group's operating segments in Hungary are: Consumer Services Business Unit, Business Services Business Unit, Media Business Unit, Group Headquarters and Technology Business
Unit. In addition, the Group also has operations in Macedonia and Montenegro, which represent two additional reporting segments. Of these segments, MBU has not qualified as a reportable segment,
therefore, it is included in "All other" in the reconciliations of the reportable segments' totals.

The
Consumer Services Business Unit (CBU) operates in Hungary, providing mobile, fixed line telecommunications and TV distribution services (including marketing, sales and customer
relations activities) to residential and small business telecommunications customers in Hungary, with several million customers mainly under the T-Mobile and T-Home brands.

The
Business Services Business Unit (BBU) operates in Hungary, providing mobile and fixed line telecommunications, info-communications and system integration services
(including marketing, sales and customer relations activities) mainly under the T-Systems and
T-Mobile brands to key business partners (large corporate and public sector customers), as well as small and medium businesses (SMB). BBU's customer portfolio includes approximately 3,000
key business partners and over 40,000 SMB customers.

The
Group Headquarters (Headquarters) is responsible for providing wholesale mobile and fixed line services in Hungary, and also performs strategic and cross-divisional management and
support functions including Procurement, Treasury, Real estate, Accounting, Tax, Legal, Internal Audit and similar shared services and other central functions of the Group's management. Headquarters
is also responsible for the Group's points of presence in Bulgaria, Romania and Ukraine, providing wholesale services to local companies and operators.

The
Technology Business Unit (Technology) is responsible for the operations and development of the mobile, fixed line and cable TV network, as well as IT management in Hungary.

F-102

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Table of Contents

MAGYAR TELEKOM

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

31.    REPORTABLE SEGMENTS AND INFORMATION ABOUT GEOGRAPHICAL AREAS (Continued)

The
Group also has full-scale mobile and fixed line telecommunications operations in Macedonia and Montenegro, which represent two additional reporting segments of the Group.
From 2009, similarly to the Hungarian operations, in these countries also less emphasis is put on the segregation by technology (fixed line or mobile services), but up until the end of 2009, the
Group's operations in Macedonia and Montenegro were reviewed separately for the fixed line and mobile operations, therefore, these were two separate operating segments by country.

In
addition to the operating segments described above, there are a few operations, which do not qualify as operating or reportable segments. These operations (including MBU as well) are
grouped in "All other" included in the reconciliations of the reportable segments' totals to the Group totals.

Comparative
information has been provided for 2008, including minimum level of estimates as the new structure was gradually introduced in 2008. We have also provided comparative figures
for 2007, which include more management estimate (except in case of Macedonia and Montenegro) as the Group operated in the old structure in 2007, which was completely different from the current
structure of operations, it was not a simple regrouping of organizations. These numbers have never been reviewed or evaluated by the MC.

F-103

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Table of Contents

MAGYAR TELEKOM

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

31.    REPORTABLE SEGMENTS AND INFORMATION ABOUT GEOGRAPHICAL AREAS (Continued)

31.1.1  Information regularly provided to the MC

The following tables present the segment information by reportable segment regularly provided to the Management Committee of the Group, reconciled to the
corresponding Group numbers.

For the year ended
December 31,2007

2008

2009(in HUF millions)RevenuesTotal CBU revenues


346,495


341,563


322,336Less: CBU revenues from other segments


(42,219
)

(38,655
)

(33,849
)CBU revenues from external customers


304,276


302,908


288,487Total BBU revenues


172,346


179,174


170,989Less: BBU revenues from other segments


(14,308
)

(16,833
)

(18,835
)BBU revenues from external customers


158,038


162,341


152,154Total Headquarters revenues


164,428


153,544


135,456Less: Headquarters revenues from other segments


(75,403
)

(69,384
)

(59,889
)Headquarters revenues from external customers


89,025


84,160


75,567Total Technology revenues


9,166


11,370


10,556Less: Technology revenues from other segments


(7,771
)

(7,877
)

(7,599
)Technology revenues from external customers


1,395


3,493


2,957Total Macedonia revenues


74,332


76,097


82,312Less: Macedonia revenues from other segments


(111
)

(285
)

(214
)Macedonia revenues from external customers


74,221


75,812


82,098Total Montenegro revenues


35,747


33,148


34,442Less: Montenegro revenues from other segments


(241
)

(105
)

(51
)Montenegro revenues from external customers


35,506


33,043


34,391All other (net)


14,200


11,216


8,351Total consolidated revenue of the segments


676,661


672,973


644,005Measurement differences to Group revenue





83


(16
)Total revenue of the Group


676,661


673,056


643,989


F-104

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Table of Contents

MAGYAR TELEKOM

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

31.    REPORTABLE SEGMENTS AND INFORMATION ABOUT GEOGRAPHICAL AREAS (Continued)

For the year ended
December 31,2007

2008

2009(in HUF millions)Segment results (EBITDA)CBU


188,304


193,314


181,920BBU


82,694


90,816


80,307Headquarters


(26,507
)

(15,899
)

(22,209
)Technology


(56,839
)

(49,059
)

(47,485
)Macedonia


42,018


39,132


42,861Montenegro


13,732


10,815


13,736All other


505


(191
)

(414
)Total EBITDA of the segments


243,907


268,928


248,716Measurement differences to Group EBITDA





(550
)

337Total EBITDA of the Group


243,907


268,378


249,053Depreciation and amortization of the Group


(115,595
)

(106,120
)

(101,920
)Total Operating profit of the Group


128,312


162,258


147,133




For the year ended
December 31,2007

2008

2009(in HUF millions)Capital expenditure (Capex) on PPE and Intangible assetsCBU


11,983


13,540


23,774BBU


2,997


7,493


2,905Headquarters


8,665


8,507


4,520Technology


61,617


58,716


48,989Macedonia


9,880


15,709


15,320Montenegro


6,936


3,751


4,913All other


2,603


710


1,433Total capital expenditure of the segments


104,681


108,426


101,854Measurement differences to capital expenditure of the Group


(846
)

(477
)

10Total investments of the Group in PPE and Intangible assets


103,835


107,949


101,864


Total
investments of the Group in PPE and Intangible assets correspond to the "Investments" lines disclosed in Notes 12, 13 and 29.

F-105

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Table of Contents

MAGYAR TELEKOM

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

31.    REPORTABLE SEGMENTS AND INFORMATION ABOUT GEOGRAPHICAL AREAS (Continued)

31.2 Information about geographical areas

The table below shows the revenues generated from external customers in the countries where the Group operates, using the same measurement principles as for the
corresponding Group numbers.

For the year ended
December 31,Revenues

2007

2008

2009(in HUF millions)Hungary


562,276


554,747


520,584Macedonia


73,807


75,956


82,098Montenegro


35,256


33,043


34,391Romania


2,729


5,244


3,636Bulgaria


2,530


3,933


3,151Ukraine


63


133


129Total revenue of the Group


676,661


673,056


643,989


None
of the Group's external customers represent a significant source of revenue.

The
table below shows the Non current assets of the Group located in the countries of operations (including goodwill allocated to these countries) and the reconciliation to the total Non
current assets of the Group, using the same measurement principles as for the corresponding Group numbers.

As at December 31,Non current assets

2008

2009(in HUF millions)Hungary


707,271


709,576Macedonia


126,062


130,046Montenegro


43,051


42,480Bulgaria


5,012


3,124Romania


2,632


2,532Ukraine


16


19Total excluding Other non current financial assets and Deferred tax assets


884,044


887,777Other non current financial assets (Note 8.2)


26,094


27,528Deferred tax assets (Note 9.4)


1,590


1,890Total Non current assets of the Group


911,728


917,195


32.    LEASES AND OTHER COMMITMENTS

32.1 Finance leaseGroup as lessee

Finance leases in 2008 and 2009 mainly relate to the sale and lease back of spaces in buildings accommodating telephone exchanges. In most cases the contracts are
denominated in EUR, the term of the leases is 510 years, and the contracts include renewal options but no purchase options.

F-106

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Table of Contents

MAGYAR TELEKOM

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

32.    LEASES AND OTHER COMMITMENTS (Continued)

Future
lease payments under finance leases related to sale and lease back transactions at December 31, 2008 and 2009 are as follows:

At December 31, 2008

At December 31, 2009Present
value

Interest
component

Minimum
lease
payment

Present
value

Interest
component

Minimum
lease
payment(in HUF millions)Within 1 year


265


438


703


291


389


68015 years


1,154


1,211


2,365


1,067


1,012


2,079After 5 years


699


331


1,030


505


172


677Total


2,118


1,980


4,098


1,863


1,573


3,436


Finance
leases other than sale and lease back in 2008 and 2009 mainly relate to vehicles and IT equipment. In most cases the contract term of the leases is 35 years
with renewal and purchase options.

Future
lease payments under finance leases other than sale and lease back transactions at December 31, 2008 and 2009 are as follows:

At December 31, 2008

At December 31, 2009Present
value

Interest
component

Minimum
lease
payment

Present
value

Interest
component

Minimum
lease
payment(in HUF millions)Within 1 year


753


265


1,018


472


208


68015 years


864


305


1,169


473


295


768After 5 years


757


106


863


615


187


802Total


2,374


676


3,050


1,560


690


2,250


The
Group has no contingent rents related to its finance leases. The Group does not sub-lease any of the assets leased in a finance lease contract.

32.2 Operating leaseGroup as lessee

Operating lease commitments are mainly in respect of the rental of mobile cell sites, and to a lesser extent, related to buildings, network and other
telecommunications facilities.

At December 31,2008

2009(in HUF millions)Within 1 year


6,741


7,54115 years


17,798


20,897After 5 years


14,945


16,131Total


39,484


44,569


F-107

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Table of Contents

MAGYAR TELEKOM

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

32.    LEASES AND OTHER COMMITMENTS (Continued)

The
lease commitments represent a high amount of individually immaterial lease agreements, the terms of which vary on a wide range, spanning from 3 to 20 years with renewal
options in most cases, but no purchase options.

32.3 Finance leaseGroup as lessor

Finance leases primarily include the private mobile Tetra network constructed for the exclusive use of the Hungarian State, and to a lesser extent equipment
provided to business customers as part of our outsourcing contracts where the Group is the service provider.

Future
lease receivables under finance leases at December 31, 2008 and 2009 are as follows:

At December 31, 2008

At December 31, 2009Present
value

Interest
component

Minimum
lease
receipt

Present
value

Interest
component

Minimum
lease
receipt(in HUF millions)Within 1 year


3,718


1,606


5,324


3,797


1,641


5,43815 years


12,853


4,104


16,957


15,270


3,810


19,080After 5 years


6,511


605


7,116


4,464


286


4,750Total


23,082


6,315


29,397


23,531


5,737


29,268


The
interest component represents the unearned finance income. The present value due within one year is included in Other current financial assets, while the present value after one year
is included in Other non current financial assets. The finance income accruing to the Group over the lease term is recognized in the Profit for the year (Finance income).

The
unguaranteed residual values accruing to the benefit of the Group are insignificant.

32.4 Operating leaseGroup as lessor

The following table includes the future minimum lease payments receivable by the Group for the operating leases of towers and PBX (private business exchange)
equipment where Magyar Telekom is the lessor.

At
December 31,2008

2009(in HUF
millions)Within 1 year


2,394


1,2101-5 years


2,524


1,943After 5 years


728


1,115Total


5,646


4,268


F-108

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Table of Contents

MAGYAR TELEKOM

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

32.    LEASES AND OTHER COMMITMENTS (Continued)

32.5 Purchase commitments for tangible and intangible assets

The table below summarizes Magyar Telekom's contractual purchase commitments for tangible and intangible assets with the majority falling due within one year.

At
December 31,2008

2009(in HUF
millions)Property, plant and equipment


2,797


4,407Intangible assets


2,701


1,788Total


5,498


6,195


32.6 Commitments related to the extended GSM license of T-Mobile HU

The Company renewed its mobile concession contract for the use of the 900 MHz frequency band that expired on November 4, 2008 for an additional term of
seven and a half years, as agreed with the Hungarian Government. At the same time, the Company agreed to carry out large-scale investment projects to further increase mobile broadband coverage. In
addition to the payment of the HUF 10 billion concession fee, Magyar Telekom agreed with the Government to spend at least HUF 20 billion in 2008 and 2009 on further
increasing mobile broadband coverage in Hungary. This agreement includes that 25% of the unfulfilled obligation would have to be paid as a penalty to the Government at the end of 2009 if Magyar
Telekom had not increased the coverage as agreed. Management believes that the Company fulfilled the obligation by the end of 2009, and therefore no fine can be expected.

33.    RELATED PARTY TRANSACTIONS

33.1 Deutsche Telekom Group

Deutsche Telekom AG is the ultimate controlling owner of Magyar Telekom Plc. holding 59.21% of the issued shares. Deutsche Telekom (DT) Group has a number
of fixed line, mobile and IT service provider subsidiaries worldwide, with whom Magyar Telekom Group has regular transactions.

The
Company is directly owned by MagyarCom GmbH, which is a holding subsidiary of DTAG. Magyar Telekom pays dividends annually to its owners including MagyarCom GmbH.

Deutsche
Telekom International Finance (DTIF) is the treasury center of DT Group, which typically provides loan financing across the DT Group including Magyar Telekom.

The
Company's Hungarian operations were renamed in 2004 and 2005. The renaming continued in 2006 in Macedonia (T-Mobile) and in Montenegro (T-Home and
T-Mobile) in 2007, and was completed in 2008 in Macedonia (T-Home). The expenditures incurred in connection with the launch and promotion of the new brands and the loss of
value caused by discontinuing the old brands were compensated in value by Deutsche Telekom AG. The compensation received was recognized in the Profit for the year (Other operating income).

F-109

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Table of Contents

MAGYAR TELEKOM

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

33.    RELATED PARTY TRANSACTIONS (Continued)

The
table below summarizes the above related party transactions with DT group.

2007

2008

2009(in HUF millions)Revenues from telecom services provided to DT Group


6,729


16,035


22,059Costs of services provided by DT Group


(11,881
)

(20,759
)

(16,819
)Other income from DTAG


229


676


Interest expense to DTIF


(23,301
)

(26,986
)

(27,530
)Dividend paid to MagyarCom GmbH


(88,296
)

(45,690
)

(45,690
)Accounts receivable from DT Group companies


6,878


5,903


5,492Accounts payable to DT Group companies


(7,524
)

(5,850
)

(5,169
)Loans receivable from DTAG








29,587Accrued interests payable to DT Group companies


(5,210
)

(8,845
)

(7,675
)Loans payable to DT Group companies


(274,432
)

(330,583
)

(329,896
)Fair value of swap agreements with DTAGnet








(2,388
)


Deutsche
Telekom has pledged its support for Magyar Telekom's financing needs through to June 30, 2011.

33.2 Associates and joint ventures

Hunsat is a joint venture founded by the Company (50%) and Antenna Hungária (50%). The revenues of Hunsat include commissions received from
Hungarian telecommunications companies for the use of services of international satellite agencies. The operational transactions and balances with Hunsat are insignificant. Dividends received from
Hunsat amounted to HUF 93 million in 2009 (2008: HUF 89 million, 2007: HUF 72 million).

M-RTL
was an associate of Magyar Telekom Group until May 2009 (Note 5.1.1). M-RTL is a television broadcast company that sells airtime through media
agencies to Magyar Telekom, and Magyar Telekom provides telecom services to M-RTL, but these inter-company services are not material. M-RTL declared dividends to Magyar Telekom
directly and indirectly in an amount of HUF 825 million in 2008 (2007: HUF 750 million).

IKO-Telekom
Média Holding (ITMH) was a joint venture holding company of Magyar Telekom and IKO Production Kft., with a 50-50% ownership
(Note 5.1.1). The operating transactions between the Group and ITMH were insignificant. Dividends declared by ITMH to the Company amounted to HUF 2,033 million in 2008, primarily
representing the indirect dividends from M-RTL.

33.3 Board and supervisory board members

The remuneration of the members of the Company's Board of Directors amounted to HUF 13 million in 2009 (2008: HUF 13 million, 2007:
HUF 11 million). The remuneration of the members of the Company's Supervisory Board amounted to HUF 42 million in 2009 (2008: HUF 46 million, 2007:
HUF 42 million).

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Table of Contents

MAGYAR TELEKOM

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

33.    RELATED PARTY TRANSACTIONS (Continued)

33.4 Key management

Key management has been identified as the members of the Group's Management Committee, which is the chief operating decision making body of Magyar Telekom.

The
table below shows in total the compensation expenses (including social security and other payroll related taxes) incurred by the Group in relation to the key management.

At December 31,2007

2008

2009(in HUF millions)Salaries and other short-term employee benefits


978


1,063


1,377Contractual termination expense


1,129





248Share based compensation (Note 24.1)


(123
)

80


1311,984


1,143


1,756


The
Group does not provide loans to its key management.

In
2001, DT's shareholders approved the introduction of the 2001 Stock Option Plan, resulting in the granting of stock options in 2001 and 2002. 50 percent of the options granted
to each beneficiary may only be exercised following the end of a vesting period of two years. The remaining 50 percent of the options granted to each beneficiary may be exercised after the end
of a vesting period of three years. All options are vested as of December 31, 2009. The exercise price of the 2001 option is EUR 30.00, the term of the options runs until August 12,
2011. The exercise price of the 2002 option is EUR 12.36, the term of the options runs until July 14, 2012. At the time they were granted, the options of the 2001 and 2002 tranches had no
intrinsic value, but a fair value of EUR 4.87 and EUR 3.79 respectively. The Company's Chief Financial Officer (CFO), who was a senior manager of DT at the time of the stock option, is a participant
of the 2002 tranche, having 6,510 share options. Magyar Telekom does not have any potential obligation deriving from the CFO's share options, and no expenses or liabilities have been
recognized in the presented years as these options are not in the scope of IFRS 2 and IFRIC 11 according to the transitional rules.

Further,
the Company's CFO is also a participant of the 2004, 2005 and 2006 MTIP programs of DT, which are very similar to those of Magyar Telekom as described in Note 24.1.1, the
difference being that the targets of the programs are tied to the performance of the DT shares. As of December 31, 2008, one performance target of the 2006 program of DT had been achieved.
Consequently, the MTIP reward earned EUR 66,000 (HUF 18 million) was paid out by Magyar Telekom, as agreed with DT.

Some
members of the Key management are participants of the 2006, 2007 MTIP programs of Magyar Telekom; and all of them are participants in the 2008 and 2009 MTIP program of Magyar
Telekom. Some members of the former Key management were also participants of the 2006 MTIP program of Magyar Telekom. One performance target of the 2007 MTIP program of Magyar Telekom had been
achieved. Consequently, 50% of the MTIP reward (HUF 104 million in total) will be paid out by Magyar Telekom in 2010 to the present and former members of Key management. As of
December 31, 2008, one performance target of the 2006 MTIP program of Magyar Telekom had been achieved. Consequently, 50% of the MTIP reward (HUF 55 million in total) was paid out
in 2009 by Magyar Telekom to the present and former members of Key management. See also note 24.1.1.

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Table of Contents

MAGYAR TELEKOM

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

33.    RELATED PARTY TRANSACTIONS (Continued)

In
2001 and 2002, Deutsche Telekom granted stock appreciation rights (SARs) to employees in countries where it was not legally possible to issue stock options. Magyar Telekom employees
only participated in the 2001 program. Each individual SAR entitles the plan participant to receive an amount in cash subject to these terms and conditions. Magyar Telekom does not have any potential
obligation deriving from that contract, since Deutsche Telekom will pay the compensation, if any, to the participants, and further, the fair value of the SARs as at December 31, 2009 is
estimated to be zero. No member of the current key management is a participant of the SAR program, but former members of the key management were participants of the 2001 SAR program.

34.    ADDITIONAL DISCLOSURES ON FINANCIAL INSTRUMENTS

34.1 Financial assets and liabilities

The tables below include the carrying amounts and fair values of the Group's financial assets and liabilities as at December 31, 2009 and 2008.

34.1.1  Financial assetsCarrying amounts and fair values

Carrying amountDecember 31, 2009

Loans and
receivables

Held-to-
maturity

Available-
for-sale

Held for
trading

Total

Fair
value(in HUF millions)Cash and cash equivalents


34,270











34,270


34,270Bank deposits with original maturities over 3 months


50,660











50,660


50,660Trade receivables


100,524











100,524


100,524Trade receivables over one year


1,487











1,487


1,486Employee loans


4,870











4,870


4,228Derivative financial instruments contracted with related parties











662


662


662Derivative financial instruments contracted with third parties











623


623


623Loans to Deutsche Telekom Group companies


29,587











29,587


29,587Loans to third parties


580











580


580RDC receivables


839











839


795Dividend rec. from joint ventures

















Financial assets AFS








276





276


276Other current


1,626











1,626


1,626Other non current


552











552


552Total


224,995





276


1,285


226,556


225,869


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Table of Contents

MAGYAR TELEKOM

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

34.    ADDITIONAL DISCLOSURES ON FINANCIAL INSTRUMENTS (Continued)



Carrying amountDecember 31, 2008

Loans and
receivables

Held-to-
maturity

Available-
for-sale

Held for
trading

Total

Fair
value(in HUF millions)Cash and cash equivalents


66,680











66,680


66,680Bank deposits with original maturities over 3 months


59,300











59,300


59,300Trade receivables


93,201











93,201


93,201Trade receivables over one year


414











414


396Employee loans


4,383











4,383


4,148Derivative financial instruments contracted with third parties











1,011


1,011


1,011Loans to third parties


779











779


779RDC receivables


952











952


876Dividend rec. from joint ventures


2,033











2,033


2,033Financial assets AFS








282





282


282Other current


2,186











2,186


2,186Other non current


170











170


170Total


230,098





282


1,011


231,391


231,062


Loans
and receivables are measured at amortized cost, while available-for-sale and held-for-trading assets are measured at fair value.

Cash
and cash equivalents, trade receivables, dividend receivable from joint ventures, loans to Deutsche Telekom Group companies and other current financial assets mainly have short
times to maturity. For this reason, their carrying amounts at the end of the reporting period approximate their fair values.

Financial
assets available for sale include investment in equity instruments, all measured at fair value.

Finance
lease receivables (2009: HUF 23,531 million, 2008: HUF 23,082 million) meet the criteria of a financial instrument, but these are recognized and
measured according to IAS 17Leases, therefore not included in the tables above, but in Note 32.3.

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Table of Contents

MAGYAR TELEKOM

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

34.    ADDITIONAL DISCLOSURES ON FINANCIAL INSTRUMENTS (Continued)

34.1.2  Financial liabilitiesCarrying amounts and fair values

Carrying amountDecember 31, 2009

Measured at
amortized cost

Held for
trading

Total

Fair
value(in HUF millions)Financial liabilities to related parties (including accrued interest)


334,521


3,050


337,571


351,017Bank loans (including accrued interest)


57,265





57,265


58,507Trade payables


85,874





85,874


85,874Dividend payable


303





303


303Nonconvertible bonds and debentures


191





191


160Derivative financial instruments contracted with third parties





179


179


179Other current


1,279





1,279


1,279Total


479,433


3,229


482,662


497,319




Carrying amountDecember 31, 2008

Measured at
amortized cost

Held for
trading

Total

Fair
value(in HUF millions)Financial liabilities to related parties (including accrued interest)


339,428





339,428


344,138Bank loans (including accrued interest)


53,805





53,805


54,875Trade payables


92,340





92,340


92,340Dividend payable


290





290


290Nonconvertible bonds and debentures


193





193


193Other current


4,988





4,988


4,988Other non current


386





386


345Total


491,430





491,430


497,169


Derivatives
are measured at fair value, while all other financial liabilities are measured at amortized cost.

Additional
fair value information on the financial liabilities is provided in Notes 16 and 17.

Trade
payables, dividend payable and other current financial liabilities generally have short times to maturity, therefore the carrying values approximate the fair values.

Finance
lease liabilities meet the criteria of a financial instrument, but these are recognized and measured according to IAS 17Leases, therefore not included in the
tables above, but in Note 32.1.

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Table of Contents

MAGYAR TELEKOM

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

34.    ADDITIONAL DISCLOSURES ON FINANCIAL INSTRUMENTS (Continued)

34.2 Items of income, expense, gains and losses arising on financial instruments

The tables below include income, expense, gains and losses arising on financial instruments in 2009 and 2008.

From subsequent measurement2009

From
interest

At fair
value

Currency
translation

Impairment
loss

Recalculation

From
derecognition

From fee
expense

Net
gain/loss(In HUF millions)Loans and receivables


7,048





(82
)

(9,071
)







(4,056
)

(6,161
)Held-to-maturity investments























Available-for-sale financial assets





(6
)
















(6
)Financial instruments held for trading





(2,955
)










(582
)




(3,537
)Financial liabilities measured at amortized cost


(32,569
)




358











(14
)

(32,225
)Net gain/loss of financial instruments under the scope of IAS 39


(25,521
)

(2,961
)

276


(9,071
)




(582
)

(4,070
)

(41,929
)Net gain/loss related to finance lease (out of scope of IAS 39)


678





(66
)













612




From subsequent measurement2008

From
interest

At fair
value

Currency
translation

Impairment
loss

Recalculation

From
derecognition

From fee
expense

Net
gain/loss(In HUF millions)Loans and receivables


6,611





1,190


(5,866
)







(3,554
)

(1,619
)Held-to-maturity investments























Available-for-sale financial assets





(348
)
















(348
)Financial instruments held for trading





789











(477
)




312Financial liabilities measured at amortized cost


(32,728
)




(1,753
)




(743
)




(96
)

(35,320
)Net gain/loss of financial instruments under the scope of IAS 39


(26,117
)

441


(563
)

(5,866
)

(743
)

(477
)

(3,650
)

(36,975
)Net gain/loss related to finance lease (out of scope of IAS 39)


692





(85
)

1,500











2,107


Impairment losses on Loans and receivables includes all expenses incurred or expected to be incurred in relation to the default of our customers.
Before writing off or factoring, we impair the receivables to their recoverable amounts through the use of an impairment provision account, as a result of which the actual write-off or
factoring of these receivables results in no derecognition gains or losses.

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Table of Contents

MAGYAR TELEKOM

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

34.    ADDITIONAL DISCLOSURES ON FINANCIAL INSTRUMENTS (Continued)

34.3 Other disclosures about financial instruments

Magyar Telekom Plc. is also exposed to risks that arise from the possible drawdown of guarantees in a nominal amount of HUF 16.4 billion as
at December 31, 2009 (2008: HUF 17.0 billion). These guarantees were issued by Hungarian banks on behalf of Magyar Telekom as collaterals to secure the fulfillment of the Group's
certain contractual obligations. The Group has been delivering on its contractual obligations and expects to continue doing so in the future, therefore no drawdown of the guarantees has happened so
far, and is not expected to happen in the future.

There
were no financial assets or liabilities, which were reclassified into another financial instrument category.

No
financial assets were transferred in such a way that part or all of the financial assets did not qualify for de-recognition.

The
Group does not have compound financial instruments with multiple embedded derivatives.

35.    CONTINGENT ASSETS AND LIABILITIES

35.1 Contingent assets

A contingent asset is a possible asset that arises from past events and whose existence will be confirmed only by the occurrence of uncertain future events not
within the control of the Group. The Group has no such contingencies where the inflow of economic benefits would be probable and material.

35.2 Contingent liabilities

The most significant contingent liabilities of the Group are described below. No provisions have been recognized for these cases as management estimates that it
is unlikely that these claims originating from past events would result in any material economic outflows from the Group.

35.2.1  Macedonia

35.2.1.1  Compensation for termination of a service contract by T-Mobile MK

In January 2002, T-Mobile MK signed an agreement with a subcontractor, including a 3-month trial period, for the collection of
T-Mobile MK's overdue receivables. After the expiration of the 3-month trial period, T-Mobile MK terminated this contract in April 2002 due to breaches of the
contractual obligations by the subcontractor. The subcontractor initiated a lawsuit in April 2003 requesting damage compensation for foregone profit and compensation for services already rendered.
Management estimates it unlikely that the subcontractor would win the court case against T-Mobile MK. The potential loss from the claim is approximately HUF 4.3 billion. The
first instance decision will be made by a primary court of Macedonia, the timing of which is uncertain.

35.2.1.2  T-Mobile MK's dispute with the Agency on frequency fees

T-Mobile MK paid the invoices issued by the Agency for the 2004 and 2005 radio frequency fees, however, the Agency issued further invoices for the
same periods in May 2007, which T-Mobile MK is disputing as the management believes that there is no valid legal base for invoicing additional fees. The potential exposure is about
HUF 0.8 billion.

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Table of Contents

MAGYAR TELEKOM

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

35.    CONTINGENT ASSETS AND LIABILITIES (Continued)

35.2.1.3  MKT's dispute on fixed-to-mobile termination fees

In 2005, MKT changed the retail prices for the traffic from fixed to mobile network. According to the interconnection agreements with the mobile operators the
change in retail prices automatically decreased the interconnection fees for termination in the mobile networks. In February 2006, one of the Macedonian mobile operators, Cosmofon, submitted to the
Agency a request for dispute resolution with reference to the termination prices. The Agency rejected the requests of Cosmofon as "ungrounded". This decision of the Agency was appealed by Cosmofon by
filing a lawsuit at the Administrative Court of Macedonia. The potential loss from the claim is approximately HUF 0.4 billion, but the management estimates it unlikely that this would
result in any material cash outflows. The final decision will be made by the Administrative Court of Macedonia, the timing of which is uncertain.

35.2.1.4  Prices offered at a Government bid for fixed line telephony services in Macedonia

Based on the Law on Electronic Communications (the "Law") and upon Cosmofon's request, the Agency made an inspection at Makedonski Telekom regarding the
Government's tender for procuring fixed line telephone services on September 24, 2009. In its request Cosmofon stated that Makedonski Telekom had submitted an offer with prices that are
predatory and not published in its official pricelist. In its written answer, Makedonski Telekom pointed out that the official pricelist contains only the standard prices excluding the special
discounts and tariff models. We believe that Makedonski Telekom offered these prices in accordance with the conditions of the relevant bid, taking care that those are not predatory, i.e. the
allegations are groundless. The Agency has not responded yet. Should Makedonski Telekom be found in breach of the Law, the potential fine can be as high as 7% of the total annual revenue of Makedonski
Telekom for 2008, i.e. the maximum amount of the fine may reach HUF 3.0 billion.

35.2.2  Montenegro

35.2.2.1  Employee salary dispute in Montenegro

405 employees initiated a legal proceeding against CT and T-Mobile CG, requesting the payment of compensation for not increasing salaries from 2005
until June 2008. The plaintiffs are referring to the regulation of this matter by the Collective Bargaining Agreement (CBA). Management's view is that automatic salary increase is not established in
the CBA, therefore management believes that the Group will not be subject to any compensations payable. The maximum exposure is approximately HUF 0.4 billion.

35.2.3  Hungary

35.2.3.1  Guarantees

Magyar Telekom Plc. is exposed to risks that arise from the possible drawdown of guarantees for which see more details in Note 34.3.

35.2.3.2  Investigation



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Table of Contents

MAGYAR TELEKOM

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

36.    EVENTS AFTER THE REPORTING PERIOD

36.1 Sale of Orbitel

In January 2010 the Company closed the sale of Orbitel (Note 5.5). The final sale price was EUR 3,628,000, received in January 2010. As the expected sales
price was lower than the original carrying value of Orbitel, an impairment was charged in 2009 on the goodwill arising on the original acquisition of Orbitel, consequently, there will be no additional
gains or losses to be recognized in 2010, when the sale was concluded.

F-118

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