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Table of Contents

As filed with the Securities and Exchange Commission on March 24, 2011



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, 2010

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
Accounting and Taxation Director
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

N/A*Ordinary Shares

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, 2010)

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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to
be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such
files).    Yes  o    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


16Organization


16History and Development


16Description of Business and its Segments


16Strategy


17Overview of Magyar Telekom's Revenues and Principal
Activities


19CBU


19BBU


27Headquarters


34Technology


38Macedonia


40Montenegro


42Distribution and Sales


44Competition


47Dependence on patents, licenses, customers, industrial, commercial
and financial contracts


51Regulation


52Pricing


64Organizational Structure


67Property, Plant and Equipment


67Infrastructure and Technology


68Environment Protection


72Item 4A

Unresolved Staff Comments


72Item 5

Operating and Financial Review and Prospects


73Management overview


73Operations reviewGroup


80Operations reviewBy segment


94Liquidity and Capital Resources


104Research and Development


108Risk Management Policies


111Item 6

Directors, Senior Management and Employees


114Board of Directors


114Management Committee


118Supervisory Board


120Indemnification of the Board of Directors and the Supervisory
Board


124Compensation of Directors and Officers


124Board Practices


127


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Table of Contents

PageEmployees


128Share Ownership of Management


130Item 7

Major Shareholders and Related Party Transactions


131Major Shareholders


131Related Party Transactions


132Item 8

Financial Information


133Consolidated Financial Statements


133Other Financial Information


133Legal proceedings


133Dividend Policy


136Significant Changes


137Item 9

The Offer and Listing


138Item 10

Additional Information


140Share Capital


140Prospective Share Repurchase Program


140Option to Purchase Securities from Registrant or Subsidiaries


140Memorandum and Articles of Association


140Deposit Agreement


140Corporate Governance


141Capital Increases and Preemptive Rights


144Voting Rights and Voting


144Transfer of Shares


144Material Contracts


144Exchange Control


145Taxation


145Documents on Display


148Item 11

Quantitative and Qualitative Disclosures About Market Risk


148Item 12

Description of Securities Other than Equity Securities


148PART IIItem 13

Defaults, Dividend Arrearages and Delinquencies


150Item 14

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


150Item 15

Controls and Procedures


151Item 16A

Audit Committee Financial Expert


154Item 16B

Code of Ethics


154Item 16C

Principal Accountant Fees and Services


155Item 16D

Exemptions from the Listing Standards for Audit Committees


155Item 16E

Purchases of Equity Securities by the Issuer and Affiliated Purchasers


156Item 16F

Change in Registrant's Certifying Accountant


156Item 16G

Corporate Governance


156PART IIIItem 17

Financial Statements


157Item 18

Financial Statements


157Item 19

Exhibits


157


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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 "TMH" refers to the
mobile operations of Magyar Telekom Plc.; 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. On May 29, 2010, this responsibility was transferred to the Ministry of
National Development.

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.

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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

American Depository SharesADSL

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 LocationBRAS

Broadband Remote Access ServerCPE

Consumer Premises EquipmentCRM

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 Costs


iv

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Table of Contents

Abbreviation

TermFMC

Fixed Mobile ConvergenceFTTH

Fiber to the HomeFTTx

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 CoaxHSI

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)IP

Internet ProtocolIPSec

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 Evolution


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Table of Contents

Abbreviation

TermLTO

Local Telecommunications OperatorMLLNI

Managed Leased Line Network InternetMMDS

Multichannel Multipoint Distribution ServiceMMS

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 StorageNAT

Network Address TranslationNAPA-WINE

Network-Aware P2P-TV Application over Wise NetworksNFC

Near Field CommunicationNGA

Next Generation AccessNG EMM

Next Generation Enterprise Marketing ManagementNGMN

Next Generation Mobile NetworksNGN

Next Generation NetworkNGOSS

Next Generation Operation Support SystemNMIA

National Media and Infocommunications AuthorityNT

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 Service


vi

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Table of Contents

Abbreviation

TermSAC

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 AgreementSMB

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, 2006,
2007, 2008, 2009 and 2010 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 31,2006

2007

2008

2009

2010

2010HUF

HUF

HUF

HUF

HUF

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


671,196


676,661


673,056


643,989


609,579


2,922Operating profit


135,408


128,312


162,258


147,133


112,094


537Profit attributable to the owners of the parent


74,700


60,155


93,008


77,618


64,378


309Operating profit per share


130.16


123.25


155.83


141.31


107.65


0.52Basic earnings per share


71.80


57.78


89.32


74.54


61.83


0.30Diluted earnings per share


71.78


57.78


89.32


74.54


61.83


0.30Consolidated Financial Position Data:Amounts in accordance with IFRSTotal assets


1,129,282


1,133,265


1,166,543


1,166,377


1,109,006


5,315Net assets


589,372


577,898


596,547


605,420


594,712


2,850Common stock


104,277


104,275


104,275


104,275


104,275


500Total Equity of the owners of the parent


522,722


511,681


533,946


538,480


531,512


2,547


(1)Translated
into U.S. dollars at the official exchange rate of the National Bank of Hungary on December 31, 2010 of U.S. dollar 1.00 =
HUF 208.65. These translations are unaudited and presented for convenience purposes only.


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Table of Contents

Year ended December 31,2006

2007

2008

2009

2010(in millions)Other data:Weighted average number of sharesBasic


1,040


1,041


1,041


1,041


1,041Diluted


1,041


1,041


1,041


1,041


1,041


Dividends

The following table sets forth the dividend per Magyar Telekom ordinary share for the years 2006, 2007, 2008, 2009 and 2010. 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)Year2006


70


0.36532007


74


0.42872008


74


0.39382009


74


0.39352010(2)


50


0.2396


(1)Translated
into U.S. dollars at the official exchange rate of the National Bank of Hungary on December 31, 2010 of U.S. dollar 1.00 =
HUF 208.65, December 31, 2009 of U.S. dollar 1.00 = HUF 188.07, December 31, 2008 of U.S. dollar 1.00 = HUF 187.91, December 31, 2007 of U.S.
dollar 1.00 = HUF 172.61 and December 31, 2006 of U.S. dollar 1.00 = 191.62.(2)The
Board of Directors of the Company has proposed a HUF 50 per ordinary share dividend distribution to be approved by the Annual General Meeting of
the Company on April 12, 2011.


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 208.65, which was the official rate quoted and published on December 31,
2010.

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.

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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

LowYear2006


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


176.672010


208.65


208.15


240.57


184.002010September


203.43


216.22


227.80


203.13October


197.95


197.55


201.02


193.23November


218.76


201.88


218.76


190.78December


208.65


209.67


214.72


205.002011January


200.31


206.31


216.37


198.14February


197.05


198.67


201.95


194.86March (through March 23, 2011)


190.06


194.82


198.46


190.04


(1)The
average of the exchange rates on each business day during the relevant period.


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

Average(1)

High

LowYear2006


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


264.172010


278.75


275.41


290.03


261.602010September


277.33


282.25


288.78


276.12October


273.69


274.46


276.83


270.53November


284.54


275.70


284.54


270.78December


278.75


277.47


280.60


273.432011January


273.30


275.45


279.40


271.93February


272.34


271.18


274.28


268.21March (through March 23, 2011)


269.66


272.15


273.92


269.66


(1)The
average of the exchange rates on each business day during the relevant period.


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.

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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New Regulatory Framework (revised)" 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. The NRF review implementation process was launched by the Ministry in October 2010, and Magyar
Telekom is providing written input and comments to the Ministry in the course of the consultation process.

The
National Media and Infocommunications Authority of Hungary ("NMIA") was officially established on August 11, 2010 to ensure the undisturbed operation, in compliance with
applicable legislation, of the media and the markets for electronic communications, postal and information technology services in Hungary in accordance with the Electronic Communications Act and Act I
of 1996 on Television Broadcasting, as amended. The new, converged regulator performs the tasks of its predecessors: the National Communications Authority ("NCA") and the National Radio and Television
Commission ("NRTC"). According to the official announcement, the purpose of the merger, among others, is cost efficiency, more rational allocation of resources, more cost effective work, avoidance of
duplication of work and better cooperation of the supporting activities within a single organizational structure. One of the primary responsibilities of the NMIA is to perform market analysis
procedures under which it defines "relevant markets," or markets subject to the regulatory framework. The NMIA 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
previously 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 18 markets (i.e., markets 1-9, 11-13 and 16). By the end of March 2008, the NCA had published 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 was 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,

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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 NMIA, which is expected to be completed in 2011. Until now only two resolutions with
respect to market 7/2007 (voice call termination on individual mobile networks) and market 1/2007 (access to public telephone network at a fixed location for residential and
non-residential customers) have been published. The extension of the definition of market 11 (unbundling of the local loops) from copper to optical networks by the NMIA makes the extension
of the unbundling obligation to Magyar Telekom's new technology (optical) networks easier for the NMIA. This is expected to have an adverse impact on our business results. In 2008, Magyar Telekom
launched a widespread optical network deployment program. In the event the NMIA 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 2011.

The
Ministry of National Development published the final version of the Infocommunications Strategy currently titled as the "Digital Renewal Action Plan" on December 23, 2010.
The Strategy has four priorities (citizens, growing enterprises and employment, effective and secure operating government and infrastructure available for all) and 82 action plans related to them.
Some objectives are related to the effective ICT operation of the government, including consolidation and centralization of governmental networks and applications (already implemented in a decree) and
the state's role in infrastructure development. The exact details, resource allocation and exact timing of the latter are not yet included in the strategy. The full or partial achievement of these
objectives may have direct impact on Magyar Telekom's network solutions and could indirectly affect the Company's operations.

In
addition, our businesses in Macedonia and Montenegro are also subject to various regulatory developments. In Montenegro, the additional relevant markets (e.g., trunk segment
of leased lines, retail market of publicly available services for local, domestic and international calls, wholesale market on access and origination of calls in public mobile telephone networks) are
expected to be defined by the Agency for Electronic Communications and Postal Services ("EKIP") in the first half of 2011 and consequently, the new market analysis may result in additional obligations
in the fourth quarter of 2011 or the first quarter of 2012, which may have an impact on the profitability of the company depending on the nature and scope of obligations imposed.

In
Macedonia, in particular, the current and possible future SMP status of T-Mobile Macedonia in various markets may lead to additional obligations, such as lower mobile
termination rates, national roaming, lower RUO and IC fees, access to ducts and specific network elements,
universal service and requirements to publish general conditions and quality parameters of services. The activities of the Agency for Electronic Communications ("AEC") related to retail price control
will be enhanced.

The
European Commission (the "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 NMIA 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

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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 (i.e., without a subscription for a PSTN line), 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 the case of increasing price competition, this may narrow our ability to give
adequate market responses against the competitors' actions.

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.

For
example, 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. Telenor has also launched a new mobile service in cooperation with Red Bull (the producer of energy drinks) under the name "Red Bull Mobile". 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 was required to be implemented by national
legislation by May 9, 2010. There is a possibility for an E-GSM900 spectrum tender in the second quarter of 2011 at the earliest. The tender may further increase the competition in
the Hungarian mobile market. On July 1, 2010, during the conference of the Hungarian Association of ICT companies, the Deputy Secretary of State of the Ministry of National Development
indicated the possibility of conducting a 450 MHz tender in the near future and this tender is still on the agenda of the NMIA and may possibly take place in 2011. Incumbents are expected to be
excluded in the same way as in the tender of 2008.

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

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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 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.

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 or potentially requiring their impairment.

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 to upgrade our cable networks (coax) to EuroDocsis3.0 technology. The EuroDocsis3.0 technology
upgrade was performed in 2010. As described below, due to poor economic conditions in Hungary in 2009 and 2010, the FTTH roll-out did not proceed according to our original strategy in
2010, and we expect the FTTH roll-out will be further delayed in 2011. Many of our competitors have started to invest in deploying a NGA 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.

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Further,
the economic crisis in 2009 and 2010 in Hungary has affected our ability to invest in and deploy new technology. In 2009 and 2010, 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. See "The
value of our investments, results of operations and financial condition could be adversely affected by economic developments in Hungary and other countries". In addition, the economic crisis has also
affected 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 360,000 households via optical network
solution by the end of 2013. Our original target was to connect 780,000 households 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 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, 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.

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.

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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 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 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 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.

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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 government investigations into contracts and activities in Montenegro and Macedonia may result in fines or other sanctions.

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.

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 delivery 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

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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. Further, in relation to certain activities that were the subject of the internal investigation, the Hungarian Central Investigating Chief Prosecutor's Office has
commenced a criminal investigation into alleged corruption with the intention of violating obligations in international relations and other alleged criminal offenses. In addition, the Montenegrin
Supreme State Prosecutor is also investigating the activities of the Company that were the subject of the internal investigation and has requested information from the Company in relation to the
relevant contracts. These governmental investigations are continuing, and the Company continues to cooperate with these investigations.

As
previously disclosed, the Company, through its external legal counsel, is engaged in discussions with the DOJ and the SEC regarding the possibility of resolving their respective
investigations as to the Company through negotiated settlements. The Company has not reached any agreement with either the DOJ or the SEC regarding resolution of their respective investigations, and
discussions with both agencies are continuing. We may be unable to reach a negotiated settlement with either agency. Any resolution of the investigations could result in criminal or civil sanctions,
including monetary penalties and/or disgorgement, against the Company or its affiliates, which could have a material effect on the Company's financial position, results of operations or cash flows, as
well as require additional changes to its business practices and compliance programs. The Company cannot predict or estimate whether or when a resolution of the DOJ or SEC investigations will occur,
or the terms, conditions, or other parameters of any such resolution, including the size of any monetary penalties or disgorgement, the
final outcome of these investigations, or any impact such resolution may have on its financial statements or results of operations.

A lawsuit by our minority shareholders may require us to take time-consuming and/or expensive corrective actions.

As previously disclosed in May 2010, two Hungarian minority shareholders filed a lawsuit against the Company, requesting the
Metropolitan Court to render ineffective the resolutions passed by the general meeting on April 7, 2010. These two shareholders have previously brought lawsuits challenging resolutions passed
by Magyar Telekom's shareholders at previous general meetings, as previously disclosed by the Company.

On
October 29, 2010, the Metropolitan Court announced its first instance judgment rejecting the minority shareholders' claim. This first instance judgment is not final and
binding as the plaintiffs submitted an appeal against the judgment.

Magyar
Telekom disagrees with the lawsuit initiated by the minority shareholders and will continue to vigorously defend against the claims. We cannot fully exclude that the Company will
be required to take other corporate actions in connection with the shareholders' suit described above. Also, we cannot provide any assurance that this matter 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

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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. Further, effective as of
November 12, 2010, the Company's ADSs were delisted from and are no longer traded on the New York Stock Exchange ("NYSE"), which may impact the liquidity of our ADSs.

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 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.

In
2009, the global financial crisis led to declining demand, which resulted in declining prices and higher churn rates, both in our consumer and business segments in Hungary. The
negative trends experienced in 2009 continued in 2010 as well. We experienced positive signs of recovery in the second half of 2010, but the Hungarian economy is still very fragile. We expect
continued pressure on demand for telecommunications services both in the fixed and mobile sectors due to the weak labor market, lower household disposable income, as well as fewer orders from business
customers and the public sector. 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. Due to the continuing weak economic conditions, the new government has sought to implement cost-savings measures in government spending. Based on a Government
resolution, the new government intends to deliver HUF 20 billion of savings related to the 2010 budget for national asset management, which includes IT and telecommunication services. As
a result of the requested price allowances in relation to government contracts, we experienced a negative impact on our 2010 revenues and expect that these price allowances will affect our results in
the coming years by HUF 5-7 billion. Furthermore, the Government issued a decree which authorized a state-owned company to exclusively provide ICT services for public
administration and/or state-owned organizations, institutions and companies. This company is entitled to consolidate the state-owned networks and to make the necessary infrastructure developments.
These measures by the Government aiming at, amongst other purposes, cost savings will have a negative impact on our SI/IT revenues; however the actual effect cannot be determined at this time, as the
exact timing of contract amendments and network development are not included in the decree. Our subsidiary, Pro-M, also faces risks emerging from government-financed, EDR-based
projects that might be affected by the financial situation of Hungary. 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 2010 performance and "Item 5Management
OverviewOutlook" for our expectations for 2011.

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.

We
may also experience higher financing costs in the future as higher fluctuations of interest rates seem to be more likely due to the increased volatility in the international capital
and money markets after the financial crisis. For additional information about our financial risk management, see Note 3 to the consolidated financial statements.

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We are subject to unpredictable changes in Hungarian tax regulations.

In October 2010, the Hungarian government imposed special "crisis" taxes on the telecommunications, energy and retail sectors. The
taxes were introduced with a retroactive effect for the fiscal year 2010. The special telecommunications tax is a progressive tax to be calculated on the revenues from electronic telecommunication
services. Tax rates are: 0 percent (on revenues below HUF 500 million), 4.5 percent (on revenues between HUF 500 million and HUF 5 billion) and
6.5 percent (on revenues exceeding HUF 5 billion). The total special telecommunications tax paid by the Company in 2010 amounted to HUF 28 billion and the impact on
Earnings before Interest, Tax, Depreciation and Amortization ("EBITDA") was HUF 27 billion. Pursuant to the relevant legislation, these special taxes will be in effect until the end of
2012; however, there are indications from the government that these special taxes or other similar taxes affecting the telecommunications sector may be imposed beyond 2012. We are in the process of
reviewing how the special telecommunications tax will affect our plans beyond 2010.

On
March 14, 2011, the European Commission announced that it had decided to send a request for information to Hungary, in the form of a 'letter of formal notice', thereby opening
an infringement procedure against Hungary in relation to the special telecommunications tax. The Commission raised concerns that this tax is incompatible with EU telecommunications rules. Hungary has
two months to reply to the request. If the Commission receives no reply, or if the responses presented by the Hungarian Government do not address the Commission's concerns, the Commission may issue a
formal request for Hungary to ensure that it complies with EU law on the taxation of telecommunications companies. The Commission may also eventually bring the case before the Court of Justice of the
European Communities. The outcome of the infringement procedure, to which the Company and/or its affiliates are not party, is uncertain.

On
March 1, 2011 the Hungarian Government announced that as part of its long-term effort to reduce the Hungarian budget deficit it intends to amend existing law that
provides for a reduction in corporate tax rates from the current 19 percent to 10 percent starting in 2013. When the law reducing future corporate tax rates was enacted in 2010, the
Group recalculated its deferred tax balances, resulting in the reversal of net deferred tax liabilities of HUF 14.5 billion in the 2010 comprehensive income statement. The recent
announcement of the intended cancellation of the scheduled reduction of the tax rate from 2013 is expected to cause the recognition of a substantially higher amount of net deferred tax liabilities in
2011 and result in a negative impact on deferred tax expense in 2011 equivalent in magnitude to the positive impact on net deferred tax expense in 2010.

These
uncertain and unforeseeable changes to tax legislation in Hungary has had, and in the future may continue to have, as a result of these or similar regulations introduced by the
government, a material effect on our results of operations and financial condition.

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 were listed on the NYSE until November 12, 2010, on which date the delisting of our ADSs from
the NYSE became effective and our ADSs are no longer traded on the NYSE. 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 1.9 million fixed voice
access lines as of December 31, 2010. We are also Hungary's largest mobile telecommunications services provider, with more than 5.2 million mobile subscribers (including users of prepaid
cards) as of December 31, 2010.

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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. The Media Business Unit, a separate
operating segment in 2008 and 2009 (which was not a reportable segment for accounting purposes due to its relatively small size), was reported to the Management Committee as part of the Group
Headquarters in 2010. 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 and also includes the operations of the Media Business Unit, considered as
a separate operating segment in 2008 and 2009 in Hungary. Headquarters 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.

We
have not made any significant acquisitions between 2008 and 2010. For the investments in capital expenditures between 2008 and 2010 by our reportable segments, see Note 32.1.1
to the Consolidated Financial Statements. For the discussion of our major infrastructure developments, see "Item 4Information on the CompanyInfrastructure and
Technology."

STRATEGY

As a result of our strategy, Magyar Telekom has maintained a leading position in its Hungarian fixed line, mobile, Internet and data
businesses in 2010.

The
telecommunications industry is undergoing a major change globally. Worldwide trends are driving towards an integrated telecommunications, information, media and entertainment
market. The economic crisis has also led to restructuring between market segments.

We
expect that the traditional telecommunications market will no longer deliver sizeable revenue growth in Hungary. The fixed voice market as a major revenue and profit source is
declining; mobile is no longer able to compensate this decline. However, we expect that new core segments, especially mobile broadband, broadcasting and IT services will deliver sizable revenue growth
in the coming years. The fixed market is characterized by 3Play bundles, with TV services becoming a driver and core element of service

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offerings,
while the mobile market is driven by fierce competition in broadband. An increasing technology platform-based competition can be observed in the domestic market, and our competitors are
extensively deploying next-generation countrywide fixed and mobile networks. The battle for customer contact has pushed prices down. This slower development in the telecommunications
market is likely to lead to consolidation between market players to increase economies of scale and enable growth.

Our
Corporate Strategy was designed in order to address these global and local market challenges and better exploit our position as an integrated telecommunications operator with a full
range of services. Our Corporate StrategyFIX, TRANSFORM, INNOVATEenables us to exploit and develop our extended customer base, significantly improve efficiency and capture
growth opportunities. The strategic objective in the short/mid-term is to fix critical factors within the core business (simplified and focused lean operation, lower cost structure,
end-to-end responsibilities) and to further strengthen our positions in core connectivity segments (voice, mobile broadband, TV) that will enable us to shift resources and
priorities towards focused innovation and expansion.

Our
new growth areas support conscious revenue restructuring, i.e., our growth in our new core segments, such as broadband, broadcasting, IT and content services, is expected to
gradually compensate for lower revenues from traditional telecommunications, while non-core areas, such as energy, e-health, finance, and insurance services, support customer
retention and the maintenance of high-margin revenues.

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

1.       Slow down voice churn



2.       Reach competitive cost structure



3.       Secure market leader position in broadband



4.       Achieve market leader position on the TV market



5.       Stabilize revenues



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OVERVIEW OF MAGYAR TELEKOM'S REVENUES AND PRINCIPAL ACTIVITIES

For the years ended December 31, 2008, 2009 and 2010, our total revenues by business segment were as follows:

Year ended December 31,

Year ended
December 31,2008

2009

2010

2010/2009(in HUF millions)

(% change)RevenuesTotal CBU revenues


341,563


322,336


314,773


(2.3
)Less: CBU revenues from other segments


(38,655
)

(33,849
)

(30,066
)

11.2CBU revenues from external customers


302,908


288,487


284,707


(1.3
)Total BBU revenues


179,174


170,989


159,271


(6.9
)Less: BBU revenues from other segments


(16,833
)

(18,861
)

(15,683
)

16.8BBU revenues from external customers


162,341


152,128


143,588


(5.6
)Total Headquarters revenues


163,905


143,776


123,013


(14.4
)Less: Headquarters revenues from other segments


(70,945
)

(62,258
)

(53,184
)

14.6Headquarters revenues from external customers


92,960


81,518


69,829


(14.3
)Total Technology revenues


11,370


10,556


8,287


(21.5
)Less: Technology revenues from other segments


(7,877
)

(7,599
)

(7,142
)

6.0Technology revenues from external customers


3,493


2,957


1,145


(61.3
)Total Macedonia revenues


76,097


82,312


77,598


(5.7
)Less: Macedonia revenues from other segments


(285
)

(214
)

(134
)

37.4Macedonia revenues from external customers


75,812


82,098


77,464


(5.6
)Total Montenegro revenues


33,148


34,442


32,874


(4.6
)Less: Montenegro revenues from other segments


(105
)

(51
)

(44
)

13.7Montenegro revenues from external customers


33,043


34,391


32,830


(4.5
)All other (net)


2,416


2,426


1


(100.0
)Total consolidated revenue of the segments


672,973


644,005


609,564


(5.3
)Measurement differences to Group revenue


83


(16
)

15


n.a.Total revenues of the Group


673,056


643,989


609,579


(5.3
)


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 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. The most important "other services" are: energy retail business, mobile purchase (buying opportunity based on SMS)
and insurance business. These services are often provided in cooperation with other companies.

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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.

Fixed Line Services

Voice Retail Services

Subscribers

The following table sets forth information regarding the key voice operating statistical figures of CBU, including PSTN, VoIP and
VoCable lines:

At December 31,2008

2009

2010Voice servicesTotal voice access


1,921,486


1,740,619


1,587,192Payphone


16,274


14,788


11,897Total outgoing traffic (thousand minutes)


3,550,076


3,135,892


2,762,690Blended MOU (outgoing)


151


159


160Blended ARPA (HUF)


3,650


3,630


3,427


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.

Digital Home.Based on our Digital Home concept, we started to sell a complete portfolio of devices, including e-books,
Network-attached
Media Storage, Media Streamer and Xbox video game consoles to gain new broadband subscribers. Since November 2010, simultaneously with the world premier of Xbox Live, T-Home started
to offer the Xbox online gaming service. As a brand new service in our Digital Home portfolio, the Otthonörzö ("Home Security") service was launched in January 2010. With
the help of a wireless radio communication channel and fixed line broadband Internet technology, our clients can monitor their home through their mobile devices.

Fees and Charges

We charge fixed line subscribers a one-time connection fee, monthly subscription charges and traffic charges based on
usage. Traffic charge is measured in minutes in residential price plans while either in seconds or in minutes in business price plans, depending on the specific plan.

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 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

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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 subscribed to, the
customer is granted the "T-Home Double Discount" or the "T-Home Triple Discount," respectively.

Our
voice portfolio offers 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 domestic calls periods for a fixed monthly fee.

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

2009

2010Internet productsRetail DSL market share (%)(1)


54


58


63Cable broadband market share (%)(1)


18


19


20Number of retail DSL customers


404,878


435,558


462,566Number of cable broadband customers


127,683


152,878


181,056Number of fiber optic connections


0


7,247


19,109Total retail broadband customers


532,561


595,683


662,731Blended broadband ARPU (HUF)


5,103


4,427


3,944


(1)Data
relates to Magyar Telekom Plc. The figures are our estimates and are based on the number of subscribers in the market.


T-Home provides broadband Internet services for residential and SOHO customers through three different technologies such as copper
(ADSL, VDSL), coax network (Cable Internet) and GPON (Optical Internet). The prices and bandwidths offered on these technologies 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. We offer
1/5/15 Mbit/s download bandwidth packages.

VDSL.In 2010, we offered VDSL service in more than 90 cities, reaching 145,000 households. We offer two special services
on this technology in
addition to the normal ADSL services: up to 25 Mbit/s Internet access and HD channels on IPTV.

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Cable Internet.We also provide cable Internet by using cable television infrastructure. After the continuous development
of our cable network, we
offer ED3 technology almost on all of our cable networks. At the end of 2010, ED3 services were available in approximately 589,000 households. We offer 5 and 15 Mbit/s maximum download speeds in the
whole network and we also offer 25/50/80 Mbit/s maximum download speeds in ED3 service.

Optical Internet.After the introduction of our optical Internet portfolio on GPON network in April 2009, we continued
our FTTx network
roll-out program in 2010 as well. We offer optical Internet packages with 5/15/25/50 Mbit/s maximum download speeds. GPON services are available in approximately
227,000 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 961,000 households by the end of 2010.

TV

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

At December 31,2008

2009

2010TV servicesNumber of cable TV customers


422,936


406,841


370,212Number of satellite TV customers


5,338


156,142


254,188Number of IPTV customers


28,496


67,430


124,374Total TV customers


456,770


630,413


748,774Blended TV ARPU (HUF)


3,537


3,280


2,949


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 slightly 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 IPTV over ED3, the sale of IPTV services has been dynamically
increasing and the
number of IPTV connections reached more than 124,000 by end of 2010. IPTV allows broadcasts to be seen on a television set with a set-top-box over copper, ED3 or optical
network. The product line offers various interactive contents, such as time-shift function, EPG on screen, recording on the hard disc built in the set-top-box, web
EPG service, video on demand service and picture-in-picture. In 2010, we continued to increase the coverage of this service by developing our networks. T-Home IPTV
is available in more than 1,600,000 households in Hungary.

Cable TV.With the integration of T-Kábel, analogue and digital cable TV products have become an integral part of the
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, as well as the continuous migration towards more improved platforms (e.g., IPTV). We have sought to offset our Cable TV
churn with network and customer acquisitions.

Sat TV.We launched satellite TV service (T-Home Sat TV) in 2008. By entering the Sat TV market we became a nation-wide TV
service provider. The sale of our Sat TV service increased rapidly and the number of Sat TV customers reached more than 254,000 by the end of 2010. With the introduction of the

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DVB-S
service, we are able to provide 3Play bundled services (TV, Internet, voice) in 78 percent of the country.

We
have reached one of our main strategic objectives by becoming the number one 3Play service provider in Hungary (based on number of customers) under the T-Home brand,
which strengthens and broadens our customer base (less churn sensitivity).

Fixed Line Telecommunications Equipment Sales

We distribute an extensive range of telecommunications equipment, from individual telephone sets to modems, HAGs,
set-top-boxes, TVs and complete network systems, through a network of customer service centers and our technical unit. In addition to stand-alone telephone-set
sales, we offer various price plans combining voice, Internet and TV services together with a wide range of device portfolio supporting service packages (e.g., phones, routers, TVs, etc.). We
also continually research new device solutions (e.g., media streamer, gaming consoles, ePAD) 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, revenues from retail energy trade and
other miscellaneous revenues.

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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

2009

2010Mobile penetration (%)(1)


121.8


117.7


120.2Mobile SIM market share (%)(2)


43.9


43.4


43.4Number of customers


4,648,323


4,343,672


4,416,312Postpaid share in the customer base (%)


29.1


35.2


39.0MOU


127


126


138ARPU (HUF)


3,397


3,164


3,239Postpaid


7,265


6,454


5,956Prepaid


1,862


1,670


1,635Overall churn rate (%)


16.9


27.5


21.0Postpaid (%)


12.1


15.1


15.9Prepaid (%)


18.8


33.1


24.0Ratio of non-voice revenues in ARPU (%)


15.2


16.7


18.6Average SAC per gross add (HUF)


6,813


7,680


6,570Number of mobile broadband subscriptions


182,687


326,384


488,867Mobile broadband market share (%)(2)


53.4


45.9


47.8Population-based indoor 3G coverage(2)


n.a.


65.4


65.4


(1)Data
relates to the mobile penetration in Hungary, including customers of all three service providers.(2)Data
relates to Magyar Telekom Plc., figures published by NMIA.


On December 31, 2010, we accounted for 43.4 percent of the total Hungarian mobile market in terms of subscribers based on the
number of active SIM cards and 44.8 percent in terms of total number of active SIM cards generating traffic in the previous three months as published by NMIA.

We
were the first mobile operator to launch HSDPA service in Hungary in 2006. The outdoor mobile broadband coverage based on population reached about 75.2 percent by the end of
2010. We have managed to maintain our market leader position in the mobile Internet market. At the end of 2010, we had a market share of 47.8 percent based on the number of subscriptions and
43.1 percent based on the number of subscriptions with data transfers according to information published by NMIA.

Despite
the difficult economic circumstances in 2010, we were able to increase the number of our mobile subscribers with attractive price plans. The number of mobile broadband
subscriptions increased and at the end of 2010, we had 488,867 subscribers representing a 49.8 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 prepaid customer is considered to be churned after a period of 12
to 15 months depending on the amount charged on the prepaid card.

Traffic.The average monthly traffic per CBU mobile subscriber was 138 minutes in 2010. The usage increased as a result of
free or discounted usage
in closed user groups.

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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 in 2010 to remain competitive and develop loyalty.

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.

We
introduced a shareable business tariff called Etalon Team in June 2010. For a single monthly fee, this product can be used by several employees of a small business company as a
shareable usage pool.

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 above 90 percent at the end of
2010.

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 2010, 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, ePads, 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, iPhone 3GS in 2009 and iPhone 4 in 2010 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 also have a wide range of
Android-, Windows Phone 7- and Symbian-based smartphone portfolio. The related terminals are offered with the MediaMánia price plans. Among the operating systems, Android
became increasingly popular and due to the wide selection of smartphone devices with MediaMánia tariffs, T-Mobile was able to increase its smartphone penetration in 2010.

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

2009

2010Voice servicesBusiness PSTN lines


110,389


100,172


86,439Managed leased lines (Flex-Com connections)


6,037


4,745


3,454ISDN channels


288,338


270,466


236,706Total lines


404,764


375,383


326,599Total outgoing traffic (thousand minutes)


798,157


656,372


557,319MOU (outgoing)


191


178


176ARPU (HUF)


5,457


5,162


4,880


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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.

Due
to the continuing weak economic conditions, the new government has sought to implement cost-savings measures in government spending. Based on a Government resolution,
the new government intends to deliver HUF 20 billion of savings related to the 2010 budget for national asset management, which includes IT and telecommunication services. As a result of
the requested price allowances in relation to government contracts, we had a negative impact on our 2010 revenues and expect that these price allowances will affect our results in the coming years by
HUF 5-7 billion.

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.

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
in 2009, we also offer flat rate price plans to our largest key customers. To prevent customer churn, we 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 the 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.

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Internet Services

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

At December 31,2008

2009

2010Internet servicesNumber of leased line Internet subscribers


617


558


564Number of retail DSL customers


31,805


32,358


30,192Retail DSL ARPU (HUF)


13,743


12,712


10,485


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 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

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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, we launched a new MultiFlex service. It is an Ethernet-level virtual private network service on
our Ethernet-aggregation
and MPLS-backbone network, where access may be provided through multiplying copper pairs, optical fiber, or micro, which enables connections to our customers with a speed up to 1 Gbit/s.
We provide proactive fault repair and SLA report, and our partners can access the report via our VIP portal website. In 2009, we launched a few new service options, such as Redundancy and
Measurement-based SLA options. By the end of 2010, we had more than 200 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 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, we launched the HSDPA mobile backup option to improve the reliability of data transmission. Furthermore, we
allow 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 to our corporate
customers. It creates a
unique live, face-to-face communication experience over the network. Telepresence uses powerful integrations to our IP Complex Plus network 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

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utilities
(e.g., gas, electricity) are also available through Távszámla. At the end of 2010, the registered users of Távszámla
exceeded 97,000.

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 the spring of 2009, we acquired ISH, an IT services vendor with a significant client base in the healthcare sector. On
February 28, 2011, we completed the purchase of Daten-Kontrol Kft., which develops, installs and operates IT applications from two sites in Budapest and Pécs.

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).



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 at the headquarters or 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.

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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.

ASP, SaaS services

We provide ASP/SaaS services to local governments, medium 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 2011 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

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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

2009

2010Mobile operationsNumber of customers


713,469


775,912


792,106Overall churn rate (%)


5.8


8.0


8.2MOU


325


336


340ARPU (HUF)


7,655


6,458


5,926Number of mobile broadband subscriptions


81,339


102,161


135,583Ratio of non-voice revenues in ARPU (%)


20.2


23.6


26.3Average SAC per gross add (HUF)


9,092


8,280


6,030


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 continually 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.

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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. EDR services have been available since
2006 for public safety and security agencies, such as e-learning and the 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 possibility for Pro-M after having finished negotiations concerning the related processes with the responsible 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. The EDR contract was modified in 2010 as EDR service fees were lowered for 2010 and 2011 due to the fact that the Central Office for Administrative and Electronic
Public Services at the Prime Minister's Office was required to fulfill cost cutting requirements to comply with the saving measures introduced by the Hungarian government.

HEADQUARTERS

Headquarters is responsible for:



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).

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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 2010. Most
Internet service providers and cable TV service providers are further expanding their traditional service portfolios and become 2Play or 3Play (and in certain cases even 4Play) service providers
through intensive up-sell strategies. 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
gradually shifting to all IP-based technologies regarding both the backbone capacity and the end-user access. Furthermore, the domestic wholesale market is undergoing
significant market consolidation, especially in the cable TV market.

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 services in our sales.

International data 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 50 international partners for our retail activities. 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 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 74 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 and international voice partners

International roaming service was available for our subscribers on 433 networks in 188 countries as of December 31, 2010, of
which 243 networks in 125 countries were available for prepaid customers. As of December 31, 2010, customers could use 270 GPRS networks in 124 countries. Since January 1, 2008,
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.

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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 28 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 2010, we had contractual relationships with 19 ISPs. Due to the strong competition caused by alternative broadband
technologies (mobile broadband and cablenet), the number of wholesale ADSL connections decreased to 130,965 at the end of December 2010, from 161,270 at the end of 2009. We expect further decreases in
the number of wholesale ADSL connections in 2011.

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 nine wholesale IPTV partners at December 31, 2010. The number of wholesale IPTV subscribers reached 975 at December 31, 2010. 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.

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 experienced significant 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 155 Mbit/s), high reliability leased line connections between service access
points. Our Gigalink service provides high capacity (from 155 Mbit/s to 10 Gbit/s) connections for large volume data transmission. The market demands have been gradually moving towards Ethernet-based
solutions. As a result, the HSLL users gradually started migrate to Ethernet in 2010.

Infrastructure service

We share our physical infrastructure (ducts, poles, equipment housing) on a commercial basis. Our partners are mostly cable TV
companies. We had 23 partners at December 31, 2010. We have to face competition in this market particularly within major cities and regarding backbone relations.

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Interactive mobile service

There are two major lines of interactive messaging services: premium and normal rate. Both service groups are available on the
following service channels: voice, SMS, MMS. 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 international capital markets, the handling of
payments and clearing transactions, foreign exchange and hedging, as well as mergers and acquisitions ("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.

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.

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Our
fleet management is conducted through MKB Eurolízing Zrt., which provides fleet management and mobility services, with approximately 2,650 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 is also comprised of 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 sell electricity and gas to our existing customer base as a bundled product supplementing the telecommunication services offered.

We
launched 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 acceptance. After this initial phase, we have provided services from May 2010 in a limited service area. Based upon our experiences in this limited service area, we will assess the possibility of
becoming a nationwide energy service provider in 2012.

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 in 2008 and became a central technology unit serving the Company's business units as internal clients. Currently it employs approximately
1,900 professionals. 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

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technology
side, mobile and fixed network areas were initially kept separate because processes differed significantly.

In
2010, a substantial organizational change took place in Technology: the mobile and fixed network technology areas merged. This merger, referred to as "TU 2.0", provides opportunities
for exploiting synergy effects by the following steps:



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 started
the harmonization and merger of fixed line and mobile processes, made modifications to adjust operations to the new organizational structure and developed the detailed rules of operations. According
to the new organizational structure, all network development-related functions have been consolidated in the NT Plan and Build unit. At the same time, all operations related tasks, both fixed and
mobile, have been consolidated in the NT Operations unit. An important 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 directorate is responsible for setting strategic goals and objectives for Technology and ensuring the strategic harmonization with the
rest of the Company. This organization is also responsible for the governance of Technology as a whole, including reporting, process and risk management, quality management and business alignment
(including demand management).

Technology
maintains direct relationships with the respective technology units of DT. DT maintains supervision of major strategic activities. In 2010, DT established its European region
and defined common regional strategic goals for both NT and IT areas. Regional collaborations focus on standardization to exploit volume effect of technology procurements and cost savings derived from
maintenance. As an example, IT application retirement, procurement and GPON testing will be coordinated among the EU Group affiliates.

Technology
also performs extensive Research and Development ("R&D") activities. Particularly in co-operation with Hungarian universities, 43 research projects have been
completed in 2010 to identify future opportunities of telecommunications services and technology innovations.

In
2010, the most important NT developments included the following:



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As
for the IT strategy, we successfully carried out several substantial developments in 2010, including:



MACEDONIA

Fixed line services

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 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.

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

At December 31,2008

2009

2010Number of revenue generating fixed linesResidential lines


356,082


305,806


281,436Business lines


34,864


31,443


29,255Payphone


1,692


1,218


889Total


392,638


338,467


311,580ISDN channels


38,598


34,766


32,328Total


431,236


373,233


343,908Number of retail DSL customers


81,858


109,617


130,127Number of wholesale DSL access


17,008


18,751


21,091Total DSL access


98,866


128,368


151,218Retail DSL market share (estimated) (%)


81


83


84Number of dial-up customers


5,910


1,813


633Number of leased line customers


129


228


301Number of IPTV customers


1,952


14,150


30,123


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 and April 2009, respectively, the 'Call & Surf Start' 2Play
package and the '3 Max Start' 3Play package were introduced in the Macedonian fixed line market. The '2Max' package (fixed line and TV) was introduced in November 2009.

Makedonski
Telekom introduced FTTH service in December 2009. Call & Surf Optic, Office Complete Optic and 3Play Optic packages were introduced on 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 had a customer base of 1,295,285 at the end of 2010, compared to 1,381,094 at the end of 2009. It represents an estimated market share of
51.3 percent in the Macedonian mobile telecommunications market at the end of 2010 as opposed to 56.4 percent at December 31, 2009 (based on the number of total SIM cards). The
mobile market penetration in Macedonia is 122.8 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 AEC uses the 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 31,2008

2009

2010Number of subscribersPostpaid subscribers


360,706


419,148


418,083Prepaid subscribers


1,018,485


961,946


877,202Total subscribers


1,379,191


1,381,094


1,295,285MOU


111


121


135ARPU (HUF)


2,586


2,678


2,690Mobile penetration in Macedonia (%)(1)


110.5


116.1


122.8T-Mobile Macedonia's market share (%)(1)


59.4


56.4


51.3


(1)Data
estimated by T-Mobile Macedonia based on internal analysis of competition.


The decrease in the number of T-Mobile Macedonia subscribers in 2010 was due to aggressive pricing offers by competitors. The pricing
offers were accompanied by strong marketing campaigns focusing on very low price levels.

The
Macedonian mobile market was characterized by highly competitive campaigns and offers in 2010. Due to the increased competitiveness and in order to prevent churn and encourage
usage, T-Mobile Macedonia launched various campaigns, price plans and additional services specially designed to meet subscribers' needs with focus on value instead of price. These offers
are targeting different customer segments.

In
2010, T-Mobile Macedonia introduced several products that differentiate T-Mobile Macedonia in the mobile market and provide additional value for the
customers.

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 4Play bundled product, Family Max which is a joint offer containing fixed line and mobile telephony, high speed ADSL Internet and
IPTV for one monthly subscription fee.

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 31,2008

2009

2010Number of revenue generating fixed linesResidential lines


144,897


140,591


137,156Business lines


18,532


18,241


17,476Total


163,429


158,832


154,632ISDN channels


18,806


18,058


17,052Total


182,235


176,890


171,684Number of retail DSL customers


38,956


54,983


68,540Number of dial-up customers


17,455


5,184


1,160Number of leased line customers


188


191


193Number of IPTV customers


17,531


29,612


40,042


Crnogorski Telekom is the sole provider of ADSL in Montenegro, although competitors 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. In 2010, the number of ADSL
subscribers at Crnogorski Telekom surpassed 68,000.

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 the 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 2010, Crnogorski Telekom reached market leadership in the Pay TV segment with over 32 percent market share in the number of customers based on EKIP reports.

In
2010, the main focus of our sales activities in Montenegro was to increase broadband data penetration including Extra TV (IPTV) and ADSL sales. In September 2009, Crnogorski Telekom
introduced its 3Play offer with great success. In October 2010, the company introduced its first fixed-mobile integrated solution combining voice, data and Extra TV into one offer for Montenegrin
families.

Mobile services

T-Mobile Crna Gora is the second largest mobile operator in Montenegro with 37.0 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 and 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 31,2008

2009

2010Number of subscribersPostpaid subscribers


89,070


104,095


109,982Prepaid subscribers(1)


417,449


427,362


354,057Total subscribers


506,519


531,457


464,039MOU


105


96


105ARPU (HUF)


2,886


2,459


2,430Mobile penetration in Montenegro (%)(1)


185.6


208.7


199.5T-Mobile Crna Gora's market share (%)(1)


36.1


36.7


37.0


(1)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, 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.

DISTRIBUTION AND SALES

CBU

Magyar Telekom had 48 direct shops (T-Points) at the end of 2010. 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 206 shops. In 2010, 14 shops were integrated resulting in a total of 136 shops
selling the T-Mobile and T-Home product portfolio.

We
have a strong focus on mobile and fixed line broadband sales and we have further developed cooperation with Internet and IT equipment retailers. With our retail partners, the number
of outlets selling our broadband services increased to 139 in 2010.

We
also sell our prepaid products (e.g., prepaid SIM packages, plastic top-up cards, on-line top-up) through major Hungarian retail channels.
Prepaid products are available at 242 sales points nationwide.

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 a high service level to our Enterprise customers with full dedication to not only client management, but also technical
support and service desk level support. In 2009, approximately 70 key

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account
managers handled approximately 2,800 large enterprises in governmental accounts, industrial accounts, commercial accounts, utility and media accounts and financial accounts. The largest
multinational companies are being served at the DT Group level by a separate team in order to assure utmost attention to their cross-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.

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 on 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
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 is 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) are
handled by approximately
50 account managers within BBU.

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

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

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Macedonia

Makedonski Telekom and T-Mobile Macedonia have developed different sales channels in order to serve customers from
different segments. These channels include:



The
main sales channel is the Makedonski Telekom and T-Mobile Macedonia shop network. There are 46 active joint shops (43 shops and three kiosks). From October 1,
2010, all shops offer complete product portfolio of T-Home and T-Mobile under the same conditions and customer service level. A new retail DT concept was introduced in four
shops in 2010. One of the shops was also redesigned as a "café and shop", in addition to the one opened on January 23, 2009.

Another
channel of the distribution network of Makedonski Telekom and T-Mobile Macedonia is the dealers' cooperation. Currently the network consists of 11 master dealers
with 105 shops as T-Mobile Macedonia partners and 15 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. Postpaid and prepaid packages of T-Mobile Macedonia (with or without handsets) are available in all dealers' shops.
Prepaid vouchers are also available in more than 6,500 kiosks. In addition, some of the kiosks also sell T-Mobile Macedonia prepaid packages without handsets.

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

In
2010, direct agents put strong emphasis on sale of FTTH products for residential and SOHO/SMB customers and sale of telecommunications and Internet services under customized ICT
solutions and data services especially for the SMB segment. In addition, T-Mobile Macedonia is using subsidized handsets and high quality service as strong tools for customer retention and
churn prevention both in the residential and business segments.

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 12 own T-Centers accompanied by a network of 12 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 shop, door-to-door and telesales. In October 2010, a business telesales channel was introduced in order to cover SMB and SOHO
segments not covered by SMB coordinators.

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COMPETITION

CBU

Fixed line services

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

There
is a continuous concentration of market players in the telecommunications market in Hungary. In November 2010, Invitel announced that they acquired Fibernet (the fourth biggest
cable service provider in Hungary) and then sold one-third of its cable TV network to UPC, another cable operator. Many small cable companies were also acquired or merged.

Voice

In 2010, the main reasons for fixed line churn continued to be mobile substitution, cable competition and the effects of the economic
crisis.

In
our service areas, some service providers (the largest one of which is Invitel) offer pre-selection and call-by-call services and were able to
attract some of our customers. However, we responded to this challenge with competitive flat rate voice packages to regain the traffic generated by customers.

The
value of stand-alone fixed voice service continued to decrease for our customers as cable competitors continued to offer VoIP services at very low prices. 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 2/3Play
bundles for discounted prices. Our largest competitors based on customer numbers are UPC and Digi but we also have to face strong competition from mid-sized and small cable operators in
many regions in Hungary.

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. We kept our leading position in a continuously, but slowly growing retail Internet market.

A
technology shift from ADSL to cable Internet and mobile broadband has continued 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 more than 40 percent of total Internet subscriptions in 2010. However, a large number of customers use mobile Internet
as a complementary service along with fixed line technologies.

ULL
services have only marginal shares in the broadband market.

TV

The growth of pay TV penetration and the trend of digitalization continued in the television market in 2010.

The
market growth was primarily driven by DVB-S technology and T-Home has played an important part in that growth as we acquired the largest number of new
DVB-S customers. UPC, the largest service provider in the pay TV market, lost
a significant number of subscribers as well as market share during 2010 as their DVB-S subscriber base has not grown and their traditional cable operation was challenged by Digi. Digi's
focus shifted from DVB-S to their cable operations and they acquired some small service providers to gain more customers.

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Cable
operators are slowly, but consistently, 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) offer IPTV services. DVB-T television
service offered by Antenna Hungária Zrt. is available from December 2008. Its network coverage based on population exceeded approximately 95 percent by the end of 2010. Antenna
Hungária Zrt. offers a few channels for a very low subscription fee under the brand MindigTV.

Mobile Services

In 2010, the Hungarian mobile telecommunications market was characterized by intense competition, driven by new broadband services and
decreasing tariff levels. Penetration growth in 2010 was very moderate compared to the previous years indicating that the mobile SIM market reached its saturation.

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, on December 31, 2010, we accounted for 43.4 percent share of the total Hungarian mobile market in terms of subscribers and
44.8 percent in terms of total number of active SIM cards generating traffic in the previous three months according to data published by NMIA.

The
direct competitors of T-Mobile Hungary are Telenor and Vodafone.

Vodafone,
the third mobile network operator in Hungary by SIM market share, continued to focus on customer acquisitions (especially in the field of mobile broadband) supported by
attractive tariff offers
and marketing campaigns. Vodafone's SIM market share slightly increased to 22.8 percent by the end of 2010 based on the data published by NMIA.

In
April 2010, Vodafone set up a partnership with Invitel in order to develop and launch a new product called Vodafone SmartOffice, designed for small businesses. They have also been
engaged in a wholesale agreement with Netfone since July 2010, allowing cable service providers to sell Vodafone's mobile Internet.

In
order to follow its parent company's innovation strategy Pannon was rebranded to Telenor in May 2010. The company kept a clear retention and community focus, and maintained its
second position in the voice market. At the same time, they pushed mobile broadband and advertised Telenor as the company covering the most settlements (towns and villages) in Hungary. In addition,
their already existing Djuice brand was separated from Telenor and relaunched in April 2010, as the first real second brand in the mobile market. Djuice is targeting youth under 26 years with a
relatively new concept and a very simple and transparent product portfolio. As part of their multibrand strategy, Telenor established an exclusive partnership with Red Bull and launched a new brand
under the name of Red Bull Mobile. Its service portfolio includes competitive tariffs and complete packages with some of the latest handsets. Telenor continued their partnership with Invitel, which
sells Telenor's mobile broadband subscriptions bundled with their ADSL packages under the name of Net&Go. By the end of 2010, Telenor's SIM market share slightly decreased to 32.4 percent based
on the data published by NMIA.

Mobile
Internet penetration reached 13.1 percent at the end of 2010. The number of active mobile Internet users constantly grew during the year. Despite intense mobile Internet
competition, we are market leaders when considering both total and active customer numbers, with 47.8 percent and 48.6 percent market share, respectively, according to data published by
NMIA.

BBU

In 2010, our main competitors in the telecommunications market were Invitel, GTS, Telenor and Vodafone. In order to minimize the
effect of the economic downturn in 2010, BBU focused on cross selling activities by providing integrated, managed network services, systems integration and outsourcing services.

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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 a 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 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 2010.

Our
main competitors in the IT Infrastructure services are Getronics, Synergon, HP-EDS, S&T Unitis and IBM. Our main competitors in the IT Application Development services
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 SMB sector
(i.e., standardized products via economies of scale).

HeadquartersWholesale Services

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 our 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 our wholesale products.

The
Hungarian mobile broadband market is open for the entrance of MVNOs. Vodafone signed long-term strategic wholesale agreements with Btel and Netfone in July 2010 and with
Externet in October 2010, regarding mobile Internet services. The agreements enable MVNOs to provide mobile broadband services under their own brand and MVNOs can contract directly with subscribers.

Our
main competitors in the domestic wholesale market are GTS Hungary, Invitel, British Telecom, MVM and Netfone.

In
the third party wholesale market we face strong competitors (Telenor and Vodafone) regarding normal rate services and premium rate voice services.

There
is also intense competition in the market for international wholesale services. The worldwide 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, Pantel, 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 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 of the 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 services. In November 2009, they were re-branded as ONE. While ONE is our main competitor in the retail fixed line market, they are also one of our most important
partners in providing wholesale fixed line and ADSL services.

In
September 2008, number portability was introduced as a main service for opening the market for competitors. The fixed line numbers were primarily ported from Makedonski Telekom's
network to competitors' networks, mainly into ONE's network.

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

Internet

In the fixed line broadband market, there are three major service providers in addition to Makedonski Telekom: ONE, CableTel and
Telekabel. Makedonski Telekom continues to be the market leader both in terms of customer numbers and revenue market share based on latest available market report of the AEC (end of third quarter of
2010). It faces competition mainly from cable TV operators' cable broadband Internet, offered to cable TV customers through their own networks and from broadband services through Makedonski Telekom's
wholesale ADSL offer. 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 AEC 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 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 only one GSM operator (VIP).

According
to our estimates, as at December 31, 2010, T-Mobile Macedonia had a customer market share of approximately 51.3 percent, ONE 29.7 percent, and
VIP 19.0 percent. The mobile penetration rate increased to 122.8 percent by the end of 2010, due to strong and intense competition on the basis of prices, subscription options,
subsidized handsets, range of services offered, innovation and quality of service.

According
to information from the AEC published on November 11, 2010 and analyses on the Market for services for access and call origination in the public mobile communication
networks (Market

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15),
World Teleconnect International Macedonia d.o.o has entered the market as MVNO, with 100,000 numbers assigned to it for provision of mobile phone services.

Montenegro

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

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.

By
the 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 the cable TV segment.

Stronger
competition has been 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 by 2011.

In
2010, Promonte, the incumbent mobile operator, was rebranded to Telenor, in line with its Norwegian parent company.

In
the Montenegrin mobile market, T-Mobile Crna Gora had a market share of 37.0 percent, Telenor had a market share of 39.6 percent, while Mtel had a market
share of 23.4 percent in terms of number of active subscribers at the end of 2010 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 (Telenor) 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 (Telenor) 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 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.

New Regulatory Framework (revised)

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 coming into force. These proposals did not include any deregulation efforts.

The
amendments to the NRF were adopted on November 24, 2009 by the European Parliament; changes to the framework have to be implemented through national law by May 25,
2011. The NRF Review implementation process was launched by the Ministry in October 2010 and we are providing written input and comments in the course of the consultation process.

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



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Special Requirements Applicable to Providers with SMP

The most significant impact on our business stems from the EU Framework's special requirements are 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,

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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 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". The EU will reevaluate its Roaming Regulation II in 2011 and implement further
regulatory remedies and requirements if the European Commission finds that necessary, but this is not expected earlier than the summer of 2012.

In
December 2010, BEREC published the "International Mobile Roaming Regulation report" from available roaming data. The amended Roaming Regulation (EC) 544/2009 expires on
June 30, 2012. The Commission must complete its review and report on the effectiveness of that regulation to the European Parliament and Council by no later than June 30, 2011. For that
reason, the European Commission launched a public consultation to examine retail and wholesale roaming developments, future trends and possibilities. Opinions had to be sent by February 11,
2011. Any new regulatory remedies are expected not to take effect earlier than summer of 2012.

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Legislative Developments in the EU

NGA Recommendation.The European Commission adopted the final version of its NGA recommendation on September 20, 2010.

The
recommendation aims to promote a consistent approach to regulated access to NGA networks imposed by NRAs on operators designated as having SMP on market 4 (wholesale network
infrastructure access at a fixed location) and market 5 (wholesale broadband access). In particular, the recommendation seeks to avoid distortions of the single market and provide legal assurance to
operators investing in NGA.

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 of the recommendation.

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 a 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. The
emphasis is on access to civil engineering infrastructure (duct, pole, manhole, other physical asset sharing and designing newly built facilities so as to allow partners deploying their fibers),
access to FTTH terminating segment (in house wiring) and fiber unbundling. Bit stream access is a possible further obligation.

The
recommendation proposes cost-based prices for all obligations. A favorable change to the previous draft recommendation is that long-term access pricing
(period discounts) may be acceptable if the discounts only reflect the reduction of risk for the investor, judged over an appropriate timeframe and there is no margin squeeze. Volume discounts may be
acceptable if the discounts are calculated over a relevant area (as designated by the NRA) and apply equally to all
access seekers willing to buy at the same volume, only reflect the reduction of risk for the investor are judged over an appropriate timeframe and there is no margin squeeze. Further, geographic
segmentation has to be considered by the NRA (only wired substitution is mentioned in this respect).

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 enable the use of the 900/1800 MHz
frequencies for UMTS and more advanced wireless technologies alongside today's GSM services.

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

Hungary
did not meet the implementation deadline of May 9, 2010. Issuing a letter of formal notice, the European Commission started an infringement procedure against Hungary on
September 20, 2010, on the basis that Hungary has not taken measures to adapt the revised GSM Directive. The European Commission can initiate a case in the European Court, which can oblige
Hungary to comply with the implementation or it can impose fines.

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Consultation on universal service principles in e-communications.Public consultation on the second review of the universal
service
principles was held in 2010. Current EU rules on universal service obligations for telecommunications service providers date from 2002 and guarantee that all Europeans have access to public telephone
networks and to basic telecommunications services. The aim of the consultation was 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. However, the public consultation was closed in May 2010 and no European Commission opinion or proposal has been published to date.

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:



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.

Establishment of the new regulatory authority.The National Media and Infocommunications Authority of Hungary ("NMIA") was
officially established on
August 11, 2010 to ensure the undisturbed operation, in compliance with pertaining legislation in force, of the media and the markets for electronic

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communications,
postal and information technology services in Hungary in accordance with Act C of 2003 and Act I of 1996 on Television Broadcasting. The new, converged regulator performs the tasks of
its predecessors: the NCA and the NRTC. The aims of the merger are: cost efficiency, more rational allocation of resources, avoidance of duplication of work and better cooperation of the supporting
activities within a single organizational structure.

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 Directory Assistance service as well as free calls to emergency services. 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. The necessary
modifications of the telecommunications law and the concerning government and ministerial decrees entered into force in the first half of 2010. The new legislation provides more favorable
conditionsin line with market changesthan the earlier regime. The main modification includes a 'last resort' access obligation, easing the obligation to maintain public
payphones and modification of the financing scheme.

Based
on discussions between the Ministry and operators, we signed a "pre-contract" with the Ministry on December 30, 2009, which included future conditions for
providing universal services and an agreement to sign a final contract with the same conditions by March 31, 2010. However, after lengthy discussions, no universal service contract was signed
between the Ministry and operators due to the late submission of bylaws. Further negotiations with the Ministry of National Development have started, and if we were to enter into a new contract, it
would be based on the relevant modified government and ministerial decrees which contain more favorable conditions then the previous legislation.

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 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.

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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 NMIA 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 NMIA.

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, there is only a 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.

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:



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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:



The
NCA 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

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(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 and on the public telephone access
market 7 and market 1 (in accordance with the new EU Recommendation on relevant markets) have been adopted. On market 7, the NMIA 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. On market 1, the NMIA maintained the obligations of access, non
discrimination, prohibition of unjustifiable excessive prices (price cap regulation), carrier selection and carrier pre-selection. Furthermore, NMIA significantly extended the scope of
technologies included in its market definition, with wireless local loop, home zone services for mobile operators, wired and wireless broadband access, leased lines and FTTH included in the market
definition.

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 NMIA. 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 2011.

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

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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 7.5 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, we 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, we won the spectrum tender for the 26 GHz "D" spectrum block. On May 18, 2009, we asked for the frequency assignment decision from the NCA, which was
received on July 10, 2009. The total amount capitalized was HUF 510 million.

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 on 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 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. Changes to the NRF are required to be
implemented through national legislation by May 25, 2011. The NRF Review implementation process was launched by the Ministry in October 2010 and Magyar Telekom has provided, and will continue
to provide, written input and comments in the course of the consultation process.

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, which was followed by

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a
second consultation meeting on January 21, 2010. The new Government, which came into power in June 2010 is evaluating the different implementation options.

Although
official decisions have not been made public, the 900 MHz tender-auction could be further delayed in 2011 due to the unfavorable financial conditions of the operators created
by the special tax on the telecommunications sector.

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 in 2011. The 2.6 GHz
band is the core frequency band in Europe for LTE, which meets the NGMN.

The
ministerial decree on frequency fee has been under revision. The new band fee concept is expected to revise the current usage proportional frequency usage calculation. The timing of
the new regulation is not known.

NGA.The Hungarian NRA published its draft resolutions on wholesale (physical) network infrastructure access market (market
4) and wholesale
broadband access market (market 5) in December 2010. The draft resolutions maintain all previous obligations and impose new ones. The drafts contain all obligations listed in the EC
Recommendation. Market 4 changes include: extension of the obligation to next generation networks, duct sharing, dark fiber and access to backhaul services. Cable networks are taken into account as
substitutes of ADSL, however, no obligations are imposed on them. Market 5 changes include: extension of the obligation on next generation networks, duct sharing, access to backhaul services and
migration rules. The cable networks are expected to be part of market 5 as well because of their high fixed broadband market share in Hungary. No detailed geographical segment analysis (concerning
sub-markets) was carried out by NMIA.

Implementation of EU Recommendation on termination rates.We assume that the NMIA will implement the Commission
Recommendation on the Regulatory
Treatment of Fixed and Mobile Termination Rates in Hungary in 2011. As our fixed and mobile IC models calculate with a 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 we have nearly symmetric IC traffic, the effect of the Recommendation
on our (fixed and mobile) net IC balance (IC expenses and IC revenues) is expected to be near to neutral. On March 11, 2011, the NMIA published its draft resolution on Market 7/2007 (Voice call
termination on individual mobile networks). According to the draft resolution, the earlier obligations have not changed, but the termination rates are expected to be lower. The draft resolution
includes the details of the LRIC bottom-up model. We will provide comments on the draft resolution to the NMIA.

Interconnection fees.On February 24, 2011, the NMIA published its draft resolution on Market 2/2007 and 3/2007. The
earlier obligations were
not changed, but it is possible that some new obligations will be imposed, such as maximum interconnection fees of VoIP or making the interconnection fees on our cable network part of Magyar Telekom
RIO. We will provide comments on the draft resolution to the NMIA.

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,

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and
these terms may not be less favorable than those offered to other service providers controlled by it or controlling it.

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.

Broadcasting and Transmission

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. In October 2010 (as a result of the Act LXXXII of 2010), a new authority, the NMIA was established, merging the former National Radio
and Television Commission (supervising broadcasting) and the former National Communications Authority (supervising electronic communications).

The
NMIA 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).

In
December 2010, a New Media Law was adopted (Act CLXXXV of 2010 on Media Services and Mass Media), implementing the Audiovisual Media Services Directive. The law came into force on
January 1, 2011, and imposes certain additional burdens and obligations to our organizations dealing with media.

PRICING

Fixed Line Subscription Fees and Usage Charges

There used to be two types of price cap regulation, however the price cap for universal services (3 percent for CPI) is no
longer in effect from April 22, 2010. On the other hand, the price cap regulation deriving from the SMP resolution on market 1 (residential and business access markets) is still in effect and
applies to subscription fees of various price plans. 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.

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

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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 NMIA examines whether the price of the network service is in line with the incurred costs. If the network prices are
cost-based, the NMIA refers the case to the Competition Authority. If the network prices are not cost-based, the NMIA 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

Magyar Telekom is currently identified as having SMP in all 7 regulated markets.

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.

The
draft of the new SMP resolution regarding the wholesale (physical) network infrastructure access (market 4) was published in December 2010 and contains broadening remedies on
passive network elements, such as ducts, in-house wiring, and NGA optical (GPON) networks.

Magyar
Telekom is designated as SMP operator in the wholesale broadband access market (market 5). The "retail-minus" pricing rule is in effect for the wholesale broadband market of
nationwide bit-stream access service (including naked bit-stream access), requiring us to provide services at prices lower than retail prices according to a certain margin. The
margin applied in the retail minus formula is determined by a fixed amount, instead of on the basis of a percentage (the more common standard internationally). The local bit-stream access
service is currently cost-based. The draft of the new SMP resolution regarding the wholesale broadband access market, including the retail minus methodology, was published in December
2010.

Once
the drafts are finalized, we will have to submit the first versions of our new reference offers for interconnection and unbundling, most likely in the first half of 2011.

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 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.

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Final
SMP resolutions are expected to be published in 2011.

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, Magyar Telekom 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.Magyar Telekom'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 by 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 NMIA 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 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.

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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, which was 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, 2010, see Note 2.2 to the consolidated financial statements.

PROPERTY, PLANT AND EQUIPMENT

The real estate portfolio of the Company had a book value of HUF 104,129 million at December 31, 2010.
Approximately 77 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 22 percent are owned by the Company, 40 percent jointly owned and
38 percent leased. These figures include the sites used for telecommunications towers and antennas, but do not include the number of base stations. We have 3,435 base stations, of which five
percent are owned by Magyar Telekom Plc. and 95 percent are leased from other telecommunications operators or other third parties.

The
total area of properties used by Magyar Telekom Plc. as of December 31, 2010 was approximately 621,000 m2. The majority of sites used in our operations
are smaller than 100 m2. Approximately 39 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.

We
have financed and continue to finance our capital expenditures from cash generated from operating activities. Any excess cash is primarily used to repay loans.

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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, 2010, and each of the two prior years in kilometers (not including the network of T-Kábel):

At December 31,2008

2009

2010(in kilometers)Copper cable


162,737


166,408


168,785Fiber optic cable


16,547
*

16,092


17,261Fiber optic cable (broadband access)


0


2,095


2,492


*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
683,942 by December 31, 2010, 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 2010, we continued the roll-out of
the ADSL technology nationwide. At the end of 2010, almost 624,000 customers were using ADSL lines for connection to the Internet. By the end of 2010, our infrastructure allowed up to
1.5 million of our analogue and ISDN2 subscribers to have access to the ADSL service. This represents coverage of more than 1,350 towns and cities (potentially approximately 2,910,000
households) in our service area. More than 1,600,000 households are covered with DSL-based IPTV technology and more than 85,000 users also use the TV service on copper lines. In 2008, we
introduced the VDSL2 technology to provide high-speed data access with data speed of 25 Mbit/s. Consistent with our continuous VDSL rollout plans, in 2010, approximately 145,000 households
were covered by 25 Mbit/s and/or HD TV service. At the end of 2010, the number of connected VDSL customers was 15,860.

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 2010. 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 finished the DOCSIS 3.0 upgrade of our HFC
networks as well.

By
the end of 2010, we reached approximately 227,000 households covered by optical network and 589,000 households covered by ED3.0 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 2011, we also 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, we launched our 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 82 standard-definition television programs, 4 HD TV channels and 3 public radio stations are broadcasting. The
T-Home Sat TV continued to be a very popular service in 2010.

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 80 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). Optical cables were installed to the important mobile base stations to serve 3G. 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, GPON, 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, business and residential Internet access, 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 equipment for PoP redundancy developments and for serving the increasing traffic demands. In 2010, we carried out a half-year public testing of the IPv6 protocol involving our
residential and corporate customers.

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

In
2010, a new "best-effort Internet core" segment was introduced in order to offload Internet transit traffic from the top level of the MPLS network, ensuring extra
capacity and long-term expansion possibility in a cost-efficient way. In 2010, we also started the migration of old Cisco BRASs to new Redback Smart Edge devices. The main goal
is to support the traffic growth forecasted over the next years. The migration also prepares the introduction of IPv6 and NAT in order to handle IPv4 address shortage. The migration will be completed
in 2011 for all Ethernet-based access devices. After 2011, less than 15 percent of customers will remain on ATM technology.

Point-to-multipoint
network was launched in the 26 GHz band in 2010 as we are entitled to use the 3x28 MHz frequency block in the 26 GHz band for 15 years
from July 2009. The 26 GHz band is utilized for microwave point-to-point and point-to-multipoint links as well.
Point-to-multipoint applications are supported by the Nokia Siemens Network Intracom's equipment is feasible for direct access of SMB

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customers
in areas without fiber optic coverage. The network was launched in the fourth quarter of 2010, with the installation of five base stations and 16 sectors in four cities.

In
2009, we introduced EuroDocsis 3.0 function in Budapest for high speed Internet service. In this phase we have covered 370,000 households. After the introduction of high speed
Internet service over ED3, we started to launch the IPTV over ED3 service. In 2010, we continued the introduction of ED3
services (high speed Internet and IPTV) in the South East Hungary region and in the surrounding areas of Budapest. By the end of 2010, we reached approximately 589,000 households covered by HFC
network with the capability of high speed Internet and IPTV.

Development
of our traditional (such as PSTN/ISDN) networks has been limited to maintenance and for legal compliance purposes. Our 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 2010, we continued to deploy a carrier-grade multi-service NGN, upgraded the IMS, and implemented PSTN Emulation on it. The Austrian Digital
System type PSTN switches are replaced by this IMS-based solution. We launched the commercial IPTV service at the end of 2006 and in 2010 it covered 828 towns with over 124,000 customers.
The PSTN replacement with MSAN and IMS was 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 established the framework of the centralized alarm supervision and the support systems for IPTV, VoIP and XPlay
services have been developed and introduced. We also created an automatic trouble shooting support system along the NGOSS conception. We have been operating an automatic service support system for NGN
services.

2G
Network. At December 31, 2010, our GSM network consisted of 2,489 base station sites providing 99.9 percent population coverage. Our EDGE Packet Switched Data Service
population coverage reached 91.3 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

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capable
of HSDPA, therefore the UMTS/HSDPA population coverage reached 75.2 percent by the end of 2010, serving 463 settlements in Hungary. The network allows 14.4 Mbit/s nominal downlink speed
and HSUPA is provided with 1.44 Mbit/s as well. In September 2010, HSPA+ services were launched at 10 sites.

ARCchart
prepared a study about Worldwide Mobile Broadband Performance. They found TMH 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 to offer and provide a wide range of products and
services that will satisfy customers' demands. In the last few years, Makedonski Telekom upgraded the network to extend its capacities in order to support strong growth of broadband services.

Digital
switching systems are used in the network for providing PSTN/ISDN services. In order to assure reliable voice services and to provide a base for further network migration
towards NGN, we began the implementation of a new IMS platform in 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 and it is continuously being developed as a main transport for IP/MPLS and Ethernet traffic. During 2010, the DWDM network was extended in accordance with the increased bandwidth
demands.

The
existing copper-wire network is used as the basis for providing broadband services based on DSL technologies. Beginning in 2008, in order to support higher speed of
Internet packages and introduction of IPTV, ADSL2+ technology has been used. In 2010, 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, 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. This migration has continued in 2010 as well.

The
IP/MPLS network, as a base for transport of IP services, has been continuously developed and extended in accordance with traffic growth. In 2010, Makedonski Telekom extended
capacity of some interfaces of the IP/MPLS network.

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. In 2009, Head end equipment was extended for an additional number of channels and new applications were developed. During
2010, the IPTV platform was upgraded to a new software version in order to support new functionalities and a larger number of users.

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

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installed GPON
equipment and built fiber optic infrastructure in a few areas in Skopje. In 2010, Makedonski Telekom continued with the implementation of FTTH.

IT
application and operation efficiency has been increased by introduction of new IT development standards and new IT technologies, supporting Makedonski Telekom and
T-Mobile Macedonia processes and activities and providing a secure business environment.

IT
has developed systems and platforms to support development and sales of fixed and mobile converged services and introduction of 4Play service for T-Mobile Macedonia and
Makedonski Telekom customers.

Following
DT's strategy for transformation and standardization of IT on a group-wide basis, Makedonski Telekom and T-Mobile Macedonia are participating in
several Next Generation projects, such as NG CRM, NG Billing, NG Enterprise Marketing Management, Target Architecture and One.ERP.

T-Mobile
Macedonia has built a high quality and high capacity network that meets the requirements and needs of its growing subscriber base.

At
the end of 2010, the 2G radio access network consisted of 751 base stations on 551 sites providing 99.9 percent population coverage. The 3G radio access network consists of
135 Node base stations installed on 135 sites providing 62 percent population coverage allowing subscribers to use high speed
Internet. In 2010, trial for data speed increase in 3G network has been conducted on two base station sites. A data speed increase to 14.4 Mb/s has been tested and deployed on 10 percent of the
3G network and the implementation of the higher speed will continue in 2011.

In
2010, the billing system upgrade project was finished, which enabled new rating and billing functions, such as cost control, split billing and enhanced roaming ratings.
T-Mobile Macedonia service platforms were complemented with functionalities that enable a unified customer experience across all servicing channels (IVR, SMS, MMS, web, handset).

T-Mobile
Macedonia is hosting the third mobile entrant in the local market for 2G services in some areas and from 2010, for 3G services on the whole network, 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.

During
2010, Makedonski Telekom and T-Mobile Macedonia have started a three year project for implementation of a new consolidated CRM system that should enable 360 degree
customer insight and further sharpen the customer focus of T-Mobile Macedonia.

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.

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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 as issued
by the IASB. 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.

MANAGEMENT OVERVIEW

General

2010 was an eventful year for Hungary, as well as for our company. The main driver of our 2010 performance and share price was the
difficult economic and regulatory environment. Our financial results experienced a downward trend at the beginning of 2010 as our business performance continued to be affected by negative trends in
prior quarters due to the wider economic downturn, declining domestic consumption, strong competition and market saturation in our core markets. However, market conditions started to improve in the
second half of 2010, positively impacting our financial performance by the end of the year. These signs of recovery were partially set back by the government's decision in October to impose a special
tax on a number of sectors, including telecommunications services.

We
achieved our public targets in 2010 with a revenue decline of 5.3 percent, a 5.5 percent decrease in underlying EBITDA (EBITDA excluding investigation-related costs,
severance payments and accruals, and related provision reversals, as well as the special telecommunications tax) and a reduction in capital expenditures ("capex") of 10 percent, as per our
previous guidance.

Year ended December 31,2009

2010(in HUF millions)Details of special influences, special telecommunications tax and EBITDA performanceInvestigation-related costs


6,398


2,313Severance payments and accruals, provision reversals


7,357


6,055Total Special Influence


13,755


8,368Special telecommunications tax





26,970EBITDA


249,053


212,966Underlying EBITDA, also excluding special telecommunications tax


262,808


248,304


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Driven by the continuing intense competition and depressed household consumption, our residential business remained under significant pressure
with high fixed churn levels and lower usage. To address these trends, we continued to execute our strategy aimed at positioning Magyar Telekom as the leading
3Play operator with a focus on TV services. As a result, the ratio of multiple-play subscribers to total subscribers increased from 35 percent at the end of 2009 to
43 percent by the end of 2010. In addition, our satellite TV customer base in Hungary increased significantly from 156,142 customers at the end of 2009 to 254,188 customers at the end of 2010,
and the number of IPTV customers increased from 67,430 customers at the end of 2009 to 124,374 customers at the end of 2010. Due to these favorable trends, Magyar Telekom strengthened its second
position on the pay TV market in Hungary, according to a report published by NMIA, and it is our intention to become the number one player in time.

In
the residential mobile market, we witnessed positive trends in both our subscriber base and revenues. After a declining subscriber trend in 2009, the number of active customers
increased again in 2010 and TMH remained the market leader in terms of market share based on the total number of active SIM cards generating traffic in the previous three months as published by NMIA.
The number of TMH's Internet subscribers increased rapidly and going forward, we expect smart phones to become the principal driver of growth in the mobile data market, which we expect to support with
our high quality 3G network covering more than 75 percent of the Hungarian population.

In
the BBU segment our business customers are facing increased pressure to renegotiate their contracts with us to achieve cost savings, resulting in a decline in voice revenues. Our
SI/IT revenues have also decreased mainly due to the economic uncertainties and the government's strict budgetary measures, as governmental institutions, our largest customer group, stopped IT
investments by the end of the year.

Although
the economies of Macedonia and Montenegro were starting to emerge from the recession by the second half of 2010, 2010 was a challenging year for our international markets.
Despite our continuous efforts to increase customer retention in the fixed line market, the churn rate remained relatively high in both countries. In addition, usage declined further, also due to the
unfavorable economic environment. However, due to initiatives we launched in 2010 to counter these negative factors, including the introduction of multi-play packages, we managed to
increase our broadband and IPTV subscriber base further.

In
the mobile segment of our international markets, both of our subsidiaries faced intense competition. T-Mobile Macedonia's market share decreased, but the company
continued to maintain its position as the market leader on the basis of the total number of SIM cards as published by AEC. Demand for mobile broadband services in Macedonia is increasing, supported by
iPhone sales, and T-Mobile Macedonia continues to expand its 3G coverage. In Montenegro, competitors are still aggressive in the prepaid segment, while T-Mobile Crna Gora
maintained its position as market leader in the postpaid segment based on the number of SIM cards as published by EKIP. Since the fourth quarter of 2010, T-Mobile Crna Gora has been the
first and only Blackberry service provider and iPhone 4 distributor in Montenegro.

Looking
ahead, we expect that we will continue to face challenges in 2011. Although macroeconomic improvement is expected to continue in Hungary, household spending on
telecommunications services is expected to remain under pressure due to increased household debt burdens and the slowly
decreasing unemployment rate. At the same time we expect our business customers to continue to be conservative in terms of costs, leading to continued pressure on prices in contracts.

In
order to further enhance our efficiency and to react faster to changes in the market and the wider economy, we implemented a number of changes to our management structure. From
July 1, 2010, all mass market product management, communications, market research and branding competencies are consolidated under the area of a Chief Marketing Officer. A Chief Sales Officer
position was also created responsible for sales, customer service, provisioning and logistics for customer premises equipment to help ensure a seamless end-to-end service for
our mass market customers. In parallel, approximately 28,000

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small
and medium size business customers were transferred from BBU to our mass market business, CBU. As most of these customers require products that are included in our residential portfolio, this
enables us to serve them more efficiently and also enables our BBU segment to focus more on the crucial corporate, multinational and government accounts that require complex telecommunications and IT
solutions, which we believe differentiates us from the rest of the market.

We
believe that the telecommunications sector will experience a significant growth in mobilization and data communication. We are committed to providing the highest level of customer
experience through our high quality fixed and mobile network, and we intend to invest in the future by developing better quality and more efficient networks.

In
line with our strategy of capturing incremental revenue sources in business areas where the company can build on its existing capabilities, we entered the retail energy market in
2010, via the resale of natural gas and electricity, leveraging our extensive sales networks. We anticipate that participation in the retail electricity and gas market will enable us to retain
existing, and win new, telecommunications customers with attractive energy offers, as we expect that such electricity and gas offers will help to support upsell and upgrade offers in the
telecommunications business.

Dividend

The Board of Directors proposed a HUF 50 per ordinary share dividend distribution to be approved by the Annual General Meeting
of the Company on April 12, 2011.

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.

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 (CBU), Business Services Business Unit (BBU), Technology Business Unit (Technology) and Group Headquarters (Headquarters). In
addition, the Group also has operations in Macedonia and Montenegro, which represent two additional reporting segments. The Media Business Unit, a separate operating segment in 2008 and 2009 (which
was not a reportable segment for accounting purposes due to its relatively small size) was reported to the MC as part of the Group Headquarters in 2010, therefore we have included its numbers in the
Headquarters' numbers in all three years presented.

The
movement of HUF against the Macedonian Denar ("MKD") and EUR can significantly affect all revenue and expense lines of 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 as issued by the IASB. 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 significant changes globally. We have observed several long-term trends
which are changing the structure of the Hungarian telecommunications market. These 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 and the growing need
for customized content) and competition and regulation (i.e., low entry barriers, new business models, convergence in the telecommunications and media broadcast industry).

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, we cannot predict the behavior of our competitors. 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.

Each
of our business segments is affected by its unique business environment, and we are subject to circumstances and events that are unforeseen or beyond our control. As the world
economy shows signs of recovery, there have been indications of improvement in macroeconomic trends in Hungary however the recovery has been slow. After a one percent increase in GDP in 2010, analyst
and government forecasts indicate GDP growth above three percent in 2011. The unemployment rate remains very high, above ten percent, and the volatility of the Hungarian currency is expected to
continue. The government has sought to finance the Hungarian budget deficit through special taxes on several industries (e.g., banking, telecommunications and retail), as negotiations to renew
loan resources from international financial

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institutions,
such as the International Monetary Fund ("IMF") and the European Central Bank ("ECB") were suspended in the summer of 2010.

In
order to balance the government budget, the government implemented several measures to decrease the deficit to 3.0 percent of GDP in 2011. The most significant of these was
the 6.5 percent special telecommunications tax, which had a negative impact of HUF 26,970 million on our EBITDA in 2010. Our Business Services Business Unit was also affected by
heavy spending cuts by the government, our largest business customer. Despite these measures and a negative business environment, we expect that our core business units will be able to continue to
generate strong cash flows from the operations, although the special telecommunications tax will impact our dividend policy. Partially mitigating these negative measures, the government lowered the
income tax rates from 2011, which may lead to increased demand for telecommunications services as household disposable income increases. Tax rates for small and medium-sized companies were also
lowered.

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 and
increased competition in the fixed line market, including competition from VoIP or VoCable providers. Mobile substitution is still the main driver of the churn and we expect that average mobile per
minute fees will be continue to be lower than average fixed line per minute fees in 2011. As indicated in our strategy, to mitigate the decrease in fixed line voice revenues we are now moving from a
traditional traffic-based revenue structure to an access-based revenue structure, which will allow us to substitute declining traffic revenues with content, entertainment and bundled access revenues.
Based on draft directives of NMIA, fixed line interconnection tariffs are expected to reduce further in 2011 and in the years after, having additional negative impact on our fixed line revenues.

We
aim to move further toward content and media services to support traditional access services, build new revenue streams and exploit new revenue sources. As the market is shifting
towards multiplay offers, we are combining our product portfolio in order to provide all services for every customer demand on every platform. In the second half of 2010, we presented the first 4Play
offer in the Hungarian market.

In
the saturated fixed line market TV remains the key driver. Building on our large variety of platforms (cable, IP, DVB-S), we are targeting to reach those customers who
currently have less than three of our services. In 2010, we increased the number of our Revenue Producing Customers ("RPC") more than our competitors, as a result, we gained additional market share.
We are targeting continued growth in the RPC figures to be continued in 2011, however margins are under pressure due to significant competition. To strengthen our position in the TV market, we are
building on our two existing channels (weather, lifestyle), and we are committed to add more channels to our broadcasting services depending on market conditions.

In
mobile operations in Hungary, market penetration is now saturated, and we expect flat development in 2011. 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.

Fixed
line interconnection tariffs are expected to be reduced by ten percent in 2011, and by an additional ten percent in December 2012 (with the extension to VoIP and VoCable).
Fixed-to-mobile and mobile-to-mobile termination tariffs as well as mobile termination fees are expected to be further reduced.

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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 operations to these new areas with lower profitability has a dilutive effect on
the company's profitability both in the fixed line segment and at the Magyar Telekom Group level.

In
Macedonia, competition is increasing both in the fixed line and mobile segment. Our main competitors in the fixed line segment are ONE and two major cable TV operators (Telekabel and
CableTel), targeting the retail voice market with 3Play offers (ONE is capable of offering 4Play as well), aggressive pricing and marketing communication. Fast-growing fixed broadband, the
roll-out of new platforms (FTTx) and combined fixed-mobile products may only partially offset the decline in fixed voice revenues.

We
also expect more intensive regulatory measures in Macedonia in the future. In addition to currently existing obligations (RIO, RUO, Naked DSL, Number Portability,
Cost-based pricing, Accounting separation, Access to specific network elements, Wholesale Line Rental, Wholesale Digital Leased Line, Minimal set of leased lines, Bitstream Access), new
regulations are expected to come into
effect in relation to asymmetric mobile termination and control of retail prices. A further decline in wholesale fees (e.g., IC, leased lines, WLR) is also expected.

In
the mobile segment the competition is also very strong with three players in the market but mobile voice revenues are still expected to increase on the basis of fast growth in mobile
broadband based on the new 3G technology. T-Home services included in T-Mobile bundled offers were launched during 2010. Demand for mobile data services
(e.g., IP-VPN, DLL, Metro Ethernet) is expected to decrease due to unfavorable market conditions.

In
Crnogorski Telekom, we are also expecting difficulties due to competition and regulation in the near future. Fixed wholesale revenues are expected to be the most impacted by
regulatory actions (reducing international termination rates to rates at the 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, new regulatory actions are expected related to prepaid registration (i.e., the obligation to register each prepaid customer with the regulator) and SIM
changes, cost-based pricing, wholesale obligation and number portability.

Expenses

We are entirely committed to improving internal operational efficiency in all of our business segments. To accomplish our goals
despite the intensifying competitive environment, we expect to offset decreasing revenue with strict cost control. We will continue our group-wide efficiency project Save for Service
("S4S"). This multi-year project yielded substantial savings in 2010, and will be continued in the coming years. The target for S4S in 2011 is to overhaul cross-functional,
end-to-end processes, and to exploit all cost saving opportunities with better optimization and re-organization of processes irrespective of current organizational
borders.

We
have reached an agreement with trade unions on wage development, headcount reduction and decreases in additional employee allowances at the parent company for 2011. The key elements
of the agreement are the following: reduction of headcount by 300 employees in addition to executive termination and retirement and a four percent wage increase from July 2011 (two percent for higher
paid employees). These measures will reduce our Total Workforce Management ("TWM") related costs.

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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 2011, impacting us negatively.

Total investments in tangible and intangible assets

Compared to previous years, the key priorities of capex spending have not changed. Investments in new products and platforms
(e.g., FTTx, LTE) 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 an ICT leader in Hungary, while expansion into new segments (e.g., energy sector) will also demand
additional investments.

Striving
for further improvement in customer orientation, the strategic priority for 2011 and beyond is the successful implementation of a 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 outdated billing systems but to bring a new approach to the entire customer
management process by integrating fixed and mobile portfolios.

In
2010, we succeeded in decreasing our total level of investments in tangible and intangible assets compared to 2009, despite the volatility of the Hungarian currency during the year.

According
to our strategy, 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 revenue and underlying EBITDA, also excluding the special telecommunications tax, decreased more moderately than our previous
estimates of a 6-8 percent and 7-9 percent decrease in revenue and underlying EBITDA, respectively, in 2010. Revenues decreased by 5.3 percent and
underlying EBITDA decreased by 5.5 percent, which resulted in an almost flat EBITDA compared to the prior year, primarily due to our strong focus on cost efficiency. In line with our target,
our capex decreased by 10 percent compared to 2009. Despite a special telecommunications tax advance payment of HUF 28 billion, our free cash flow (defined as operating cash flow
and investing cash flow adjusted for proceeds from / payments for other financial assets) declined by HUF 4,548 million. These results indicate the beginnings of a recovery in the
Hungarian economy and we continue to see positive signs in customer spending.

Improved
trends have also been observed in the Hungarian residential market: mobile usage increased in 2010 and churn due to non-payment significantly declined in the last
quarters. The number of mobile subscribers grew in 2010 after a slight decrease in 2009. Growth continued in the number of TV customers and mobile Internet subscribers. In addition, we successfully
implemented further cost cutting measures, notably in employee-related and other operating expenses.

In
light of the above trends, we expect that our revenues will decline by 3-5 percent and underlying EBITDA by 4-6 percent in 2011 compared to
2010, excluding special influences and the special telecommunications tax. In addition, we are aiming to further reduce capex spending by approximately 5 percent.

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OPERATIONS REVIEWGROUP

Revenues

The following table sets forth information regarding our revenues:

Year ended December 31,

Year ended
December 31,2008

2009

2010

2009/2008

2010/2009(in HUF millions)

(percent change)Fixed line revenues


299,895


274,080


249,633


(8.6
)

(8.9
)Mobile revenues


331,765


325,996


315,173


(1.7
)

(3.3
)SI/IT revenues


41,396


43,913


44,773


6.1


2.0Total revenues


673,056


643,989


609,579


(4.3
)

(5.3
)


Fixed Line Revenues

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

Year ended December 31,

Year ended
December 31,2008

2009

2010

2009/2008

2010/2009(in HUF millions)

(percent change)Voice-retail


151,033


128,133


106,623


(15.2
)

(16.8
)Voice-wholesale


21,494


21,322


21,317


(0.8
)

(0.0
)Internet


59,823


55,089


53,755


(7.9
)

(2.4
)Data


28,839


30,762


27,710


6.7


(9.9
)TV


18,830


23,753


28,549


26.1


20.2Equipment


7,058


4,745


4,091


(32.8
)

(13.8
)Other fixed line revenues


12,818


10,276


7,588


(19.8
)

(26.2
)Total fixed line revenues


299,895


274,080


249,633


(8.6
)

(8.9
)


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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 31,2008

2009

2010

2009/2008

2010/2009(percent change)Number of fixed lines at Magyar Telekom Plc. (including Emitel)Residential


1,595,517


1,387,609


1,215,393


(13.0
)

(12.4
)Business


204,839


190,248


175,822


(7.1
)

(7.6
)Payphone


16,284


14,801


11,912


(9.1
)

(19.5
)Total


1,816,640


1,592,658


1,403,127


(12.3
)

(11.9
)ISDN channels


419,754


383,952


349,108


(8.5
)

(9.1
)Total


2,236,394


1,976,610


1,752,235


(11.6
)

(11.4
)Number of fixed lines at Makedonski TelekomResidential


356,082


305,806


281,436


(14.1
)

(8.0
)Business


34,864


31,443


29,255


(9.8
)

(7.0
)Payphone


1,692


1,218


889


(28.0
)

(27.0
)Total


392,638


338,467


311,580


(13.8
)

(7.9
)ISDN channels


38,598


34,766


32,328


(9.9
)

(7.0
)Total


431,236


373,233


343,908


(13.5
)

(7.9
)Number of fixed lines at Crnogorski TelekomResidential


144,897


140,591


137,156


(3.0
)

(2.4
)Business


18,532


18,241


17,476


(1.6
)

(4.2
)Total


163,429


158,832


154,632


(2.8
)

(2.6
)ISDN channels


18,806


18,058


17,052


(4.0
)

(5.6
)Total


182,235


176,890


171,684


(2.9
)

(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 2009 and 2010, mainly driven by lower subscription fees and outgoing traffic revenues at Magyar Telekom Plc. due to a decreased
customer base and lower usage resulting primarily from weak economic conditions, mobile substitution and also competition from VoCable and VoIP service providers.

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 2009 and in 2010 was mainly due to lower
revenues in the Hungarian fixed line operations driven by a lower average number of fixed line subscribers. Lower subscription revenues at Makedonski Telekom were also driven by a 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

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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.

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,

Year ended
December 31,2008

2009

2010

2009/2008

2010/2009(in thousands of minutes)

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


4,020,941


3,520,251


3,098,288


(12.5
)

(12.0
)Makedonski Telekom


1,194,717


876,761


698,770


(26.6
)

(20.3
)Crnogorski Telekom


324,603


300,902


301,639


(7.3
)

0.2


Domestic outgoing fixed line traffic revenues decreased in 2009 compared to 2008 mainly as a consequence of lower fixed to mobile revenues in
Hungary due to the reversal of a HUF 8,525 million provision booked on F2M termination fees in June 2008, as described below.

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 despite 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 8,525 million provision
recorded in prior years.

In
2009 and 2010, the decline in the number of PSTN lines and decreasing traffic led to lower domestic outgoing traffic revenues in Hungary. We offered several price discounts to
customers choosing different flat-rate and optional price plans to decrease churn, resulting in lower average per minute fees. Traffic revenues also declined due to the increasing usage of
bundled fixed line services (2Play, 3Play and 4Play price plans).

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 offset 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 31,2008

2009

2010

2009/2008

2010/2009(in thousands of minutes)

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


73,746


64,946


64,919


(11.9
)

(0.0
)Makedonski Telekom


22,481


18,527


16,798


(17.6
)

(9.3
)Crnogorski Telekom


53,202


47,386


43,166


(10.9
)

(8.9
)


(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 2009 and 2010 at Magyar Telekom Plc. and also at our foreign
subsidiaries resulting from lower volumes of minutes and loss of lines.

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

Value-added
and other services revenues declined both in 2009 and 2010 primarily driven by lower revenues at Magyar Telekom Plc. and Makedonski Telekom 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 remained
at the same level throughout the reported period. While prices and volumes fluctuated during the period in our markets of operation, overall, revenues remained stable as these underlying trends either
offset each other or did not result in material increases or decreases.



Internet revenues declined both in 2009 and 2010 primarily in Hungary, as the increase in broadband volumes did not fully offset the
effect of lower prices as a result of strong 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. These decreases were partly
offset by an increase in the number of Cablenet customers in Hungary and ADSL connections at our foreign subsidiaries.

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

Year ended December 31,

Year ended
December 31,2008

2009

2010

2009/2008

2010/2009(percent change)HungaryRetail DSL customers


436,683


467,916


492,758


7.2


5.3Wholesale DSL access


196,776


161,270


130,965


(18.0
)

(18.8
)Total DSL access


633,459


629,186


623,723


(0.7
)

(0.9
)Cable broadband customers


127,683


152,878


181,056


19.7


18.4Fiber optic connections


0


7,247


19,109


n.a.


163.7Leased line Internet subscribers


617


558


564


(9.6
)

1.1MacedoniaRetail DSL customers


81,858


109,617


130,127


33.9


18.7Wholesale DSL access


17,008


18,751


21,091


10.2


12.5Total DSL access


98,866


128,368


151,218


29.8


17.8Leased line Internet subscribers


129


228


301


76.7


32.0MontenegroRetail DSL customers


38,956


54,983


68,540


41.1


24.7Leased line Internet subscribers


188


191


193


1.6


1.0




Data revenues increased in 2009 compared to 2008 mainly driven by the increase at Crnogorski Telekom due to a 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).

Data
revenues decreased in 2010 compared to 2009. Lower narrowband data revenue at Headquarters was primarily due to lower Flex-Com leased line revenues driven mainly by a
decrease in volumes attributable to migration to cheaper products. Lower broadband data revenue reflected the sale of Orbitel (an alternative telecommunications and Internet service provider in
Bulgaria, in which we had 100 percent interest) in January of 2010, and no further revenues from Orbitel as a result. See Note 2.2.1 and Note 26 to the consolidated financial
statements for details of Orbitel's sale. At Magyar Telekom Plc., lower data broadband revenue for BBU was driven by decreased revenues relating to ADSL portfolios and leased lines. Lower
broadband revenues at Combridge, our subsidiary offering retail and wholesale fixed line telecommunications services in Romania, were primarily driven by the loss of retail key accounts and decreased
prices due to strong competition. These decreases were partially offset by the increase in Makedonski Telekom's broadband data revenues.



TV revenues increased both in 2009 and 2010. The increase in TV revenues resulted primarily from the introduction of satellite TV
service in Hungary in November 2008. The number of satellite TV customers increased significantly and reached 254,188 customers at December 31, 2010 compared to 5,338 at the end of 2008. The
growth in the IPTV subscriber base both in Hungary and at our foreign subsidiaries

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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 our TV customer figures in Hungary, Macedonia and Montenegro:

Year ended December 31,

Year ended
December 31,2008

2009

2010

2009/2008

2010/2009(percent change)HungaryCable TV customers


422,936


406,841


370,212


(3.8
)

(9.0
)Satellite TV customers


5,338


156,142


254,188


2,825.1


62.8IPTV customers


28,496


67,430


124,374


136.6


84.4Total TV customers


456,770


630,413


748,774


38.0


18.8Number of IPTV customersMakedonski Telekom


1,952


14,150


30,123


624.9


112.9Crnogorski Telekom


17,531


29,612


40,042


68.9


35.2




Revenues from sales of fixed line equipment decreased both in 2009 and 2010. In 2009, the decrease was primarily due to lower revenues
at Combridge. Lower telecommunications equipment rental revenue throughout the period at Magyar Telekom Plc. reflected the decrease in the number of rented telephone sets. At Makedonski
Telekom, the decrease was due to lower sales volumes of personal computers and ADSL modems, partially offset by increased sales volumes of TV sets.



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

Other
fixed line revenues decreased by 19.8 percent in 2009 compared to 2008. The decrease partly resulted from lower other revenues due to a decreased number of contact center
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.

Other
fixed line revenues decreased by 26.2 percent in 2010 compared to 2009. The decrease resulted mainly at Technology, as we no longer received revenues from DT after
termination of the agreement to provide customer care service to DT from January 2010 as well as lower volumes of construction work for the government due to cuts in government spending. Lower
revenues from telephone book publishing at Magyar Telekom Plc. also negatively affected other fixed line revenues. These decreases were partially offset by higher other fixed line revenues at
CBU from the sale of set-top-boxes to Slovak Telekom and increased revenues from family insurance services.

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Mobile Revenues

The following table sets forth information regarding our mobile revenues:

Year ended December 31,

Year ended December 31,2008

2009

2010

2009/2008

2010/2009(in HUF millions)

(percent change)Voice-retail


196,983


192,704


185,967


(2.2
)

(3.5
)Voice-wholesale


46,241


41,563


36,815


(10.1
)

(11.4
)Voice-visitor


5,995


4,959


4,217


(17.3
)

(15.0
)Voice


249,219


239,226


226,999


(4.0
)

(5.1
)Non-voice


50,936


56,188


57,789


10.3


2.8Equipment


21,169


21,320


22,691


0.7


6.4Other mobile revenues


10,441


9,262


7,694


(11.3
)

(16.9
)Total mobile revenues


331,765


325,996


315,173


(1.7
)

(3.3
)


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

Year ended December 31,

Year ended December 31,2008

2009

2010

2009/2008

2010/2009(percent change)T-Mobile HungaryTotal number of subscribers


5,361,792


5,119,584


5,208,418


(4.5
)

1.7MOU


152


155


168


2.0


8.4ARPU (HUF)Total subscriber


4,087


3,764


3,732


(7.9
)

(0.9
)Postpaid subscriber


7,720


6,736


6,066


(12.7
)

(9.9
)Prepaid subscriber


1,890


1,699


1,699


(10.1
)

0.0Ratio of non-voice revenues in ARPU (percent)


17.2


19.4


20.8


n.a.


n.a.Average SAC per gross addition in HUF


7,376


7,851


6,531


6.4


(16.8
)Number of mobile broadband subscriptions


264,026


428,545


624,450


62.3


45.7T-Mobile MacedoniaTotal number of subscribers


1,379,191


1,381,094


1,295,285


0.1


(6.2
)MOU


111


121


135


9.0


11.6ARPU (HUF)


2,586


2,678


2,690


3.6


0.4T-Mobile Crna GoraTotal number of subscribers


506,519


531,457


464,039


4.9


(12.7
)MOU


105


96


105


(8.6
)

9.4ARPU (HUF)


2,886


2,459


2,430


(14.8
)

(1.2
)


Revenues from mobile telecommunications services amounted to HUF 325,996 million for the year ended December 31, 2009
compared to HUF 331,765 million in 2008. The decrease in mobile revenues resulted primarily from significantly lower voice revenues in Hungary, which were largely offset by higher
non-voice revenues at TMH and higher voice revenues at T-Mobile Macedonia, which were strongly affected by favorable currency translation.

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In
2010, mobile revenues decreased by 3.3 percent to HUF 315,173 million, primarily due to lower voice revenues at TMH and also at our foreign subsidiaries, which
were partially offset by increases in non-voice revenues and equipment revenues at TMH.



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 Hungary, the decrease in voice-retail revenues in 2009 compared to 2008
reflected primarily retail tariff erosion due to strong competition. Roaming tariff decreases within the EU also contributed to the decrease. These decreases were partially offset by the increase at
T-Mobile Macedonia, primarily attributable to favorable foreign exchange movements, as well as higher MOU, which was partially offset by a decrease in average per minute fees and lower
subscription fees.

In
2010, the decline in TMH's revenues primarily resulted from lower per minute fees due to strong competition. Lower voice-retail revenues at T-Mobile Macedonia were mainly
driven by decreased average prices per minute, which were partially offset by higher traffic and increased subscriber fee revenues due to a higher number of postpaid subscribers. The decrease in
voice-retail revenues at T-Mobile Crna Gora was due to a decrease in prepaid revenues as a result of a lower customer base and lower prices per minute.

Mobile
penetration at December 31, 2010 reached 120.2 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 NMIA. Within total customer base of TMH, the proportion of postpaid customers increased to 48.2 percent at December 31, 2010 from
38.5 percent at the end of 2008, indicating the migration of prepaid customers to fixed contracts, which we seek to stimulate through price plans, sales commission schemes and loyalty programs.



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

Voice-wholesale
traffic revenues declined by 10.1 percent in 2009 compared to 2008 and by 11.4 percent in 2010 compared to 2009. In Hungary, mobile termination fees were
reduced by the NCA from January 1, 2009 and this reduction together with a decrease in incoming MOU caused significant revenue losses. In 2010, the NMIA decreased the mobile termination rates
by 16 percent from January 2010 and by a further 16 percent from December 2010 leading to further downward pressure on TMH's revenues despite increasing incoming MOU. In 2009, the
negative effects of mobile termination fee reductions in Hungary were partially offset by higher voice-wholesale revenues at T-Mobile Macedonia mainly resulting from the significant
weakening of the HUF against the MKD. In addition to the currency effect, higher MVNO revenues from VIP (the third largest mobile service operator in the Macedonian market) 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 mobile operators.



Voice-visitor revenues (revenues derived from customers of foreign network operators generating traffic within the network of TMH)
declined both in 2009 and 2010, primarily due to the decreased traffic at TMH and also at our foreign subsidiaries.

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Within the mobile telecommunications services, non-voice revenues increased by 10.3 percent in 2009 and by
2.8 percent in 2010. Non-voice revenues consist of Internet, content and data revenues and represented 18.3 percent of our mobile revenues in 2010 compared to
15.4 percent in 2008. Higher non-voice revenues in 2009 and in 2010 reflected higher access revenues supported by the expansion of mobile Internet usage primarily at TMH. In 2010,
the increase was partly offset by lower messaging and content revenues due to decreased usage of television voting games through SMS. TMH maintained its market leader position in the mobile broadband
market with a 47.8 percent market share at the end of 2010, based on number of mobile broadband customers (624,450 mobile broadband customers) according to the report published by NMIA.

Mobile
Internet usage increased also at our foreign mobile subsidiaries throughout the period, although this volume increase only partially offset the decrease in data revenues due to
SMS promotions (price discounts for text messages) as a result of strong competition at T-Mobile Macedonia in 2010.



Mobile equipment revenues increased in 2009 compared to 2008 mainly due to an increase at T-Mobile Macedonia, driven by a
higher number of handsets sold in retention campaigns despite lower average prices for handsets. Declining equipment revenues at TMH mostly offset this increase due to a decreased number of handsets
sold, as a result of poor economic conditions leading to reduced demand, and high mobile penetration in Hungary. The average sales price per handset increased due to high-end offers
(iPhone and multimedia plans), but this increase did not fully offset the decrease in sales volumes.

Mobile
equipment and activation revenues increased in 2010 compared to 2009 mainly due to a higher number of new customers and a higher number of handset upgrades at TMH. The increase
in sales volumes led to higher equipment revenues, despite a decrease in average upgrade handset prices. This increase in revenues was partially offset by lower equipment revenues at
T-Mobile Macedonia, driven by lower average prices for handsets and a decreased number of handsets sold to both new and existing customers.



The decrease in other mobile revenues both in 2009 and 2010 reflected a lower level of TETRA-related revenues at Pro-M
resulting from decreased government spending.

SI/IT Revenues

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

Year ended December 31,

Year ended December 31,2008

2009

2010

2009/2008

2010/2009(in HUF millions)

(percent change)SI and IT revenues


41,396


43,913


44,773


6.1


2.0


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, which were partially offset by lower infrastructure and prime contracting revenues.

SI
and IT revenues increased in 2010 compared to 2009, reflecting an increase in infrastructure revenues at KFKI driven by higher revenues from outside partners than from intercompany
projects in 2010. The inclusion of ISH, our new subsidiary providing software for the health care sector also

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contributed
to the increase. These increases were partially offset by a large one-off sale of assets in a finance lease transaction in 2009.

Operating Expenses

The following table sets forth information regarding our operating expenses:

Year ended December 31,

Year ended December 31,2008

2009

2010

2009/2008

2010/2009(in HUF millions)

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


79,076


71,583


65,247


(9.5
)

(8.9
)Material cost of telecommunications equipment sold


45,061


44,011


41,037


(2.3
)

(6.8
)Payments to agents and other subcontractors


43,421


44,982


51,143


3.6


13.7Expenses directly related to revenues


167,558


160,576


157,427


(4.2
)

(2.0
)Employee-related expenses


100,320


101,918


93,884


1.6


(7.9
)Depreciation and amortization


106,120


101,920


100,872


(4.0
)

(1.0
)Other operating expenses


141,049


135,305


148,750


(4.1
)

9.9Total operating expenses


515,047


499,719


500,933


(3.0
)

0.2




Voice-, data- and Internet-related payments decreased in 2009 compared to 2008. 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 a lower volume of minutes and a lower average SDR settlement rate, partially offset by a higher MKD/SDR exchange rate. Lower traffic together with decreased termination fees resulted in
declining international payments in the case of Crnogorski Telekom.

Voice-,
data- and Internet-related payments decreased by 8.9 percent in 2010 compared to 2009 predominantly resulting from lower voice-related payments to domestic
mobile operators in Hungary driven by lower mobile termination fees applied from January 2010 and December 2010 as well as lower traffic. The payments to international operators also decreased at
Magyar Telekom Plc. due to decreased traffic, lower average settlement fees and a lower average HUF/EUR exchange rate. The decrease in voice-related payments was also attributable to the sale
of Orbitel in January 2010. These decreases were partially offset by higher payments to domestic mobile operators driven by higher volumes of international minutes with higher prices at Makedonski
Telekom and increases also at T-Mobile Macedonia mainly due to the increased volume of traffic in line with the enlarged subscriber base of VIP (the third largest mobile service operator
in the Macedonian market).



The material cost of equipment sold decreased by 2.3 percent in 2009 compared to 2008. The decrease was primarily due to
decreasing costs at Pro-M in line with lower TETRA-related revenues in 2009. The decrease was also attributable to a lower number of handsets sold in the mobile prepaid segment at TMH, and
a lower number of ADSL modems sold on wholesale basis. These decreases were largely counterbalanced by higher material cost of equipment at T-Mobile Macedonia resulting from a higher
number of handsets sold in retention campaigns.

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The
material cost of telecommunications equipment decreased by 6.8 percent in 2010 compared to 2009. The decrease at T-Mobile Macedonia was primarily due to a lower
number of new customers and a decrease in the average cost of handsets, which were partially offset by a higher equipment sales ratio (the proportion of new customers purchasing a handset). A
significantly lower cost of equipment at Pro-M was due to the much lower number of construction projects in 2010 due to cuts in government spending. The lower cost of equipment sold at BBU
was in line with the lower sales volumes of mobile handsets. At Makedonski Telekom, decreased sales volumes of PCs in PC+ADSL offers and lower sales volumes of telecommunications equipment sold within
integrated solutions also contributed to the decrease in cost of equipment.



Payments to agents and other subcontractors include payments made to our subcontractors in SI/IT projects, agents' and dealers'
commissions, content and TV related payments (including broadcast and royalty fees) and other revenue related payments (such as expenses of operators in directory services, cost of the energy sold in
our new retail energy trade).

Payments
to agents and other subcontractors increased by 3.6 percent in 2009 compared to 2008. The increase mainly related to higher SI/IT-related payments at IQSYS
in line with higher outsourcing revenues as well as increased application revenues. The increase was also due to 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.

Payments
to agents and other subcontractors increased in 2010 by 13.7 percent compared to 2009. The increase was primarily due to higher content and TV-related
payments due to broadcast and royalty fees paid by CBU in connection with satellite TV and IPTV services. The increase was also due to increased SI/IT-related payments in line with higher
infrastructure revenues at KFKI and the inclusion of ISH's full year payments in 2010 after its acquisition in December 2009. A further increase was due to higher other revenue-related payments at
Headquarters related to energy costs appearing in line with the launch of retail energy trade in 2010. These increases were partially offset by lower SI/IT-related payments at IQSYS in
line with lower SI/IT revenues.



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

Employee-related
expenses decreased by 7.9 percent in 2010 compared to 2009. The decrease was mainly attributable to a lower Group headcount number, which decreased from 10,828
on December 31, 2009 to 10,258 on December 31, 2010 due to cost savings measures. The decrease was also attributable to a decrease in severance-related expenses due to a lower number of
employees laid off and the reduction in benefits given to employees due to cost cutting measures primarily at Magyar Telekom Plc.
These decreases were partially offset by increased severance payments at Crnogorski Telekom due to the dismissal of employees in 2010 and the inclusion of of ISH's full year expenses in 2010 after its
acquisition in December 2009.

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Depreciation and amortization decreased by 4.0 percent to HUF 101,920 million in 2009, mainly as a result of the
decrease at Magyar Telekom Plc. due to changes in the useful lives 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.

Depreciation
and amortization decreased by 1.0 percent in 2010 compared to 2009, mainly due to the HUF 969 million goodwill impairment booked in June 2009 before
the sale of Orbitel in January 2010.



Other operating expenses include mainly materials and maintenance, marketing, service fees, fees and levies, rental fees, bad debt
expense, energy and consultancy.

Other
operating expenses decreased by 4.1 percent in 2009 compared to 2008. Lower other operating expenses reflected primarily 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 a provision of approximately HUF 1 billion made in 2007 for litigation in connection with the voluntary leave program in the third quarter of 2009
due to the closing of the legal case. Higher consultancy fees in relation to the ongoing investigation at Magyar Telekom Plc. partially offset these decreases in 2009.

Other
operating expenses increased from HUF 135,305 million in 2009 to HUF 148,750 million in 2010. Increased other operating expenses at Magyar
Telekom Plc. related primarily to the HUF 26,970 million special telecommunications tax imposed by the Hungarian government in 2010. This increase was partially offset by the
decline in material and maintenance expenses at Headquarters and Technology driven mainly by lower energy prices and lower fees paid for the maintenance of telecommunications equipment after the
renewal of service contracts. Consultancy fees in relation to the ongoing investigations at Headquarters also decreased. Cost cutting measures resulted in a decrease in marketing expenses at Magyar
Telekom Plc. and at our foreign subsidiaries. Decreased fees and levies at Makedonski Telekom were driven by provisions made in 2009 for various legal cases and the release of a portion of the
legal provisions in 2010 for cases resolved. Other service fees also decreased as a result of a lower number of contracted employees both at BBU and Headquarters.

Magyar
Telekom incurred HUF 5,420 million in expenses relating to the internal investigation of certain contracts in 2008, HUF 6,398 million in 2009 and
HUF 2,313 million in 2010, 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.

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Other Operating Income

The following table sets forth information concerning other operating income:

Year ended December 31,

Year ended December 31,2008

2009

2010

2009/2008

2010/2009(in HUF millions)

(percent change)Gain on sale of PPE, Intangible assets and assets held for sale


2,126


326


327


(84.7
)

0.3Gain on sale of subsidiaries and associates


1,233


1,371





11.2


n.a.Compensation for renaming


676








n.a.


n.a.Other operating income


214


1,166


3,121


444.9


167.7Total other operating income


4,249


2,863


3,448


(32.6
)

20.4


Other operating income decreased by 32.6 percent in 2009 compared to 2008 resulting mainly from a 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. The 20.4 percent increase
in 2010 compared to 2009 related primarily to an increase at Technology due to higher income from ad-hoc works performed on our networks for the orders of external parties in 2010. The
gain realized on the IKO-Telekom Media HoldingM-RTL transaction in 2009 partially offset this increase (as the other operating income in 2009 included this
one-off gainsee Note 5.1.1 to the consolidated financial statements of the 2009 financial year for the details of the transaction).

Operating Profit

Our total operating profit decreased from HUF 162,258 million in 2008 to HUF 147,133 million in 2009 since
the decrease in total revenues exceeded the decrease in operating expenses. In 2010, operating profit decreased to HUF 112,094 million, primarily due to the 5.3 percent decrease
in total revenues and the special telecommunications tax imposed by the Hungarian government in 2010, which amounted to HUF 26,970 million.

Interest income

The following table sets forth information concerning interest income:

Year ended December 31,

Year ended December 31,2008

2009

2010

2009/2008

2010/2009(in HUF millions)

(percent change)Finance lease interest income


1,340


1,390


1,334


3.7


(4.0
)Other interest income


5,887


7,136


3,604


21.2


(49.5
)Total interest income


7,227


8,526


4,938


18.0


(42.1
)


Interest income increased by 18.0 percent in 2009 compared to 2008 primarily due to higher interest income received from banks at Magyar
Telekom Plc. in line with a higher amount of bank deposits. In 2010, bank interest income declined due to lower average interest rates as well as lower amounts of deposits especially at Magyar
Telekom Plc. but also at our Macedonian and Montenegrin subsidiaries.

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Interest expense

The following table sets forth information concerning interest expense:

Year ended December 31,

Year ended December 31,2008

2009

2010

2009/2008

2010/2009(in HUF millions)

(percent change)Interest expense to DT


26,986


27,530


18,397


2.0


(33.2
)Other interest expense


5,742


5,765


4,660


0.4


(19.2
)Finance lease interest expense


648


712


529


9.9


(25.7
)Accretion interest on provisions


70


184


704


162.9


282.6less: borrowing costs capitalized


(258
)

(726
)

(506
)

181.4


(30.3
)Total interest expense


33,188


33,465


23,784


0.8


(28.9
)


While interest expenses remained broadly stable in 2009 compared to 2008, the 28.9 percent decrease in interest expenses in 2010 resulted
mainly from lower interest paid by Magyar Telekom Plc. in line with significantly lower average interest rates and lower average amount of loans received from DT.

Other finance expensenet

The following table sets forth information concerning other finance expensenet:

Year ended December 31,

Year ended
December 31,2008

2009

2010

2009/2008

2010/2009(in HUF millions)

(percent change)Fee expense


4,011


4,068


4,236


1.4


4.1Net foreign exchange losses/(gains)


648


269


2,855


(58.5
)

961.3Losses/(gains) on the subsequent measurement of financial instruments at fair value through profit and loss (derivatives) contracted with related
parties





2,387


(1,410
)

n.a.


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


(789
)

568


998


n.m.


75.7Losses/(gains) on the derecognition of financial instruments at fair value through profit and loss contracted with related parties





441


1,996


n.a.


352.6Losses/(gains) on the derecognition of financial instruments at fair value through profit and loss contracted with third parties


477


141


592


(70.4
)

319.9Losses/(gains) on the derecognition of AFS financial instruments (Reclassifications from Other comprehensive income)











n.a.


n.a.Total other finance expensenet


4,347


7,874


9,267


81.1


17.7


In 2009, the increase in net other finance expenses mainly reflected significant losses related to interest rate derivative transactions the
Group entered into to hedge interest rate risk. This increase was slightly offset by lower net foreign exchange losses reflecting the favorable movement of HUF against EUR.

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In
2010, the increase in net other finance expenses primarily reflected significant net foreign exchange losses driven by the weakening of HUF against EUR. This negative effect was
partially offset by lower losses on derivatives in 2010.

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

Income TaxTotal

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

Year ended December 31,

Year ended
December 31,2008

2009

2010

2009/2008

2010/2009(in HUF millions)

(percent change)Income tax expense


27,698


20,958


6,583


(24.3
)

(68.6
)


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

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

Income
tax expense decreased by 68.6 percent in 2010 compared to 2009. The decrease was mainly due to lower profit before tax and the reduction of the Hungarian corporate tax
rate to ten percent effective from 2013 (enacted in 2010), which resulted in the reversal of significant amounts of deferred tax liabilities. This was partially offset by the recognition of additional
deferred tax liabilities related to the undistributed profits of our Macedonian subsidiaries that became subject to additional withholding tax as a result of the change in the Macedonian tax law in
July 2010.

On
March 1, 2011 the Hungarian Government announced that as part of its long-term effort to reduce the Hungarian budget deficit it intends to amend existing law that
provides for a reduction in corporate tax rates from the current 19 percent to 10 percent starting in 2013. When the law reducing future corporate tax rates was enacted in 2010, the
Group recalculated its deferred tax balances, resulting in the reversal of net deferred tax liabilities of HUF 14.5 billion in the 2010 comprehensive income statement. The recent
announcement of the intended cancellation of the scheduled reduction of the tax rate from 2013 is expected to cause the recognition of a substantially higher amount of net deferred tax liabilities in
2011 and result in a negative impact on deferred tax expense in 2011 equivalent in magnitude to the positive impact on net deferred tax expense in 2010.

OPERATIONS REVIEWBY SEGMENT

We established our 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 (CBU), Business Services Business Unit (BBU), Technology Business Unit
(Technology) and Group Headquarters (Headquarters). In addition, the Group also has operations in Macedonia and Montenegro, which represent two additional reporting segments. The Media Business Unit,
a separate operating segment in 2008 and 2009 (which was not a reportable segment for accounting purposes due to its relatively small size) was reported to the Management Committee as part of the
Group Headquarters in 2010, therefore we have included its numbers in the Headquarters' numbers in all three years presented. In addition to the operating segments, there are a few operations, which
do not qualify as operating or reportable segments. These operations are

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grouped
in "All other" included in the reconciliations of the reportable segments' totals to the Group 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 profit for the year of the Group.

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The
following tables set forth revenues and EBITDA by segment, as reported to the Management Committee of the Company:

Year ended December 31,2008

2009

2010(in HUF millions)RevenuesTotal CBU revenues


341,563


322,336


314,773Less: CBU revenues from other segments


(38,655
)

(33,849
)

(30,066
)CBU revenues from external customers


302,908


288,487


284,707Total BBU revenues


179,174


170,989


159,271Less: BBU revenues from other segments


(16,833
)

(18,861
)

(15,683
)BBU revenues from external customers


162,341


152,128


143,588Total Headquarters revenues


163,905


143,776


123,013Less: Headquarters revenues from other segments


(70,945
)

(62,258
)

(53,184
)Headquarters revenues from external customers


92,960


81,518


69,829Total Technology revenues


11,370


10,556


8,287Less: Technology revenues from other segments


(7,877
)

(7,599
)

(7,142
)Technology revenues from external customers


3,493


2,957


1,145Total Macedonia revenues


76,097


82,312


77,598Less: Macedonia revenues from other segments


(285
)

(214
)

(134
)Macedonia revenues from external customers


75,812


82,098


77,464Total Montenegro revenues


33,148


34,442


32,874Less: Montenegro revenues from other segments


(105
)

(51
)

(44
)Montenegro revenues from external customers


33,043


34,391


32,830All other (net)


2,416


2,426


1Total consolidated revenue of the segments


672,973


644,005


609,564Measurement differences to Group revenues


83


(16
)

15Total revenue of the Group


673,056


643,989


609,579


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Year ended December 31,2008

2009

2010(in HUF millions)Segment results (EBITDA)CBU


193,314


181,920


181,944BBU


90,816


80,307


72,161Headquarters


(15,921
)

(22,888
)

(50,886
)Technology


(49,059
)

(47,485
)

(43,565
)Macedonia


39,132


42,861


40,248Montenegro


10,815


13,736


11,370All other


(169
)

265


11Total EBITDA of the segments


268,928


248,716


211,283Measurement differences to Group EBITDA


(550
)

337


1,683Total EBITDA of the Group


268,378


249,053


212,966Depreciation and amortization of the Group


(106,120
)

(101,920
)

(100,872
)Total Operating profit of the Group


162,258


147,133


112,094Net financial result


(30,308
)

(32,813
)

(28,113
)Share of associates' and joint ventures' profits/(losses)


1,341


(109
)

(27
)Total Profit before income tax of the Group


133,291


114,211


83,954Income tax expense


(27,698
)

(20,958
)

(6,583
)Total Profit for the year of the Group


105,593


93,253


77,371


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 31,2008

2009

2010

2009/2008

2010/2009(in HUF millions)

(percent change)Voice revenues


89,115


77,709


67,071


(12.8
)

(13.7
)Internet revenues


32,582


30,042


29,885


(7.8
)

(0.5
)TV revenues


18,412


21,990


25,159


19.4


14.4Other fixed line and SI/IT revenues


3,520


3,301


3,564


(6.2
)

8.0Total fixed line and SI/IT revenues


143,629


133,042


125,679


(7.4
)

(5.5
)Voice revenues


152,472


142,907


138,002


(6.3
)

(3.4
)Non-voice revenues


27,404


28,555


31,620


4.2


10.7Other mobile revenues


18,058


17,832


19,472


(1.3
)

9.2Total mobile revenues


197,934


189,294


189,094


(4.4
)

(0.1
)Total revenues


341,563


322,336


314,773


(5.6
)

(2.3
)EBITDA


193,314


181,920


181,944


(5.9
)

0.0


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Revenues

Revenues in CBU decreased over the period driven by lower fixed line and mobile voice revenues, which were partially offset by higher
TV and mobile non-voice revenues.

Fixed
line voice-retail revenues experienced a decline both in 2009 and 2010 mainly 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 loss of lines, price discounts and lower usage reflecting unfavorable economic environment, mobile substitution
and also competition with VoIP and VoCable operators. The reversal of a HUF 3,129 million provision booked on F2M termination fees in June 2008 also contributed to the decrease in
voice-retail revenues in 2009.

Internet
revenues decreased both in 2009 and 2010 mainly driven by lower broadband revenues as the effect of lower prices forced by fierce competition mainly from cable and mobile
operators was only
partly offset by the increase in broadband subscriber base. The migration towards double- and triple-play plans also had negative effect on blended ARPU level.

The
decreases in fixed line voice revenues were slightly compensated by higher TV revenues. The successful introduction of satellite TV service in November 2008 led to higher TV
revenues both in 2009 and 2010. 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
254,188 and the number of IPTV customers increased to 124,374 by December 31, 2010. These increases were partly offset by lower cable TV revenues influenced by lower ARPU and decreased customer
numbers.

Mobile
voice revenues decreased in 2009 compared to 2008, while remaining mostly stable in 2010 compared to 2009. Lower voice-wholesale revenues over the period were driven by the
decrease in termination fees from January 2009 continuing also in 2010 (16 percent decrease both from January and December 2010). Lower voice-retail revenues reflected mainly the decrease in
outgoing tariff levels due to strong competition. Lower roaming revenues were due to decreased traffic and also due to the impact of roaming fee regulation in the European Union. Other mobile revenues
decreased as a result of lower sales volumes of mobile handsets despite higher average handset prices in 2009 compared to 2008. These decreases were largely compensated by the increase in
non-voice revenues over the period driven by higher access revenues in line with wider usage of mobile Internet. In 2010, higher equipment revenues due to increased retention also offset
the decreases.

EBITDA

EBITDA of the CBU decreased by 5.9 percent in 2009 compared to 2008 due to lower total revenues, partly offset by declining
voice-related payments and lower other net operating expenses.

In
2010, EBITDA of the CBU remained stable as lower total revenues and higher payments to agents and other subcontractors were offset by declining voice-related payments and
employee-related 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 31,2008

2009

2010

2009/2008

2010/2009(in HUF millions)

(percent change)Voice revenues


32,277


23,492


19,039


(27.2
)

(19.0
)Other fixed line revenues


26,725


25,850


24,245


(3.3
)

(6.2
)Total fixed line revenues


59,002


49,342


43,284


(16.4
)

(12.3
)Voice revenues


48,035


44,055


40,284


(8.3
)

(8.6
)Non-voice revenues


12,463


13,608


14,296


9.2


5.1Other mobile revenues


11,885


10,662


9,027


(10.3
)

(15.3
)Total mobile revenues


72,383


68,325


63,607


(5.6
)

(6.9
)SI/IT revenues


47,789


53,322


52,380


11.6


(1.8
)Total revenues


179,174


170,989


159,271


(4.6
)

(6.9
)EBITDA


90,816


80,307


72,161


(11.6
)

(10.1
)


Revenues

Total revenues of BBU decreased over the period primarily driven by lower fixed line and mobile voice revenues, which were partially
offset by higher mobile non-voice revenues. In 2009, these decreases were also offset by higher SI/IT revenues.

In
2009, fixed line voice-retail revenues decreased due to the reversal of the HUF 5,370 million 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 a decreased average number of fixed lines. Other fixed line revenues decreased as a result of lower fixed line data revenues influenced mainly
by decreased prices due to strong competition and a lower number of subscribers in 2010.

Mobile
voice revenues decreased by 8.3 percent in 2009 and 8.6 percent in 2010 mainly due to lower voice-retail revenues as a result of lower average per minute fee, which
were partially offset by a higher average customer base. Lower voice-wholesale revenues reflected mainly the impact on wholesale interconnection fees of regulations which took effect from January 2009
as well as from January 2010 and December 2010. These decreases were partially 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.

SI/IT
revenues increased in 2009 compared to 2008 resulting primarily from higher outsourcing revenues at IQSYS due to the one-off sale of assets in a finance lease
transaction in the first quarter of 2009. Consequently, the decrease in SI/IT revenues in 2010 resulted mainly from lower outsourcing revenues in 2010 compared to 2009, reflecting the sale in 2009. At
BBU, the decrease in outsourcing revenues was driven mainly by lower fees in relation to certain large government projects due to government cost cutting measures. These decreases were partially
offset by the addition of ISH's revenues after its consolidation within the Group from December 2009 and increased infrastructure revenues at KFKI driven by significantly higher revenues from outside
partners than from intercompany projects in 2010.

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EBITDA

While total revenues of BBU decreased 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 offset by declining voice-related payments and lower material cost of equipment sold.

The
EBITDA for BBU decreased by 10.1 percent in 2010 compared to 2009. Declining total revenues and higher SI/IT-related payments led to decreases in EBITDA, which
were partially offset by lower other operating expenses, decreased voice-related payments and lower material cost of equipment sold.

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 31,2008

2009

2010

2009/2008

2010/2009(in HUF millions)

(percent change)Voice-wholesale revenues


21,445


18,760


15,557


(12.5
)

(17.1
)Other fixed line and SI/IT revenues


47,070


41,003


34,373


(12.9
)

(16.2
)Total fixed line and SI/IT revenues


68,515


59,763


49,930


(12.8
)

(16.5
)Voice-wholesale revenues


78,098


65,668


56,692


(15.9
)

(13.7
)Other mobile revenues


17,292


18,345


16,391


6.1


(10.7
)Total mobile revenues


95,390


84,013


73,083


(11.9
)

(13.0
)Total revenues


163,905


143,776


123,013


(12.3
)

(14.4
)EBITDA


(15,921
)

(22,888
)

(50,886
)

43.8


122.3


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 2009 and 2010 primarily due to lower fixed line and mobile voice-wholesale revenues
as a result of mobile termination fee reductions from January 2009 as well as further fee reductions in January 2010 and December 2010. Lower interconnection fees applied from April 2008 also
contributed to the decrease in 2009.

Other
fixed line revenues include mainly Internet, data, equipment and other revenues. Internet revenues declined due to price decreases of xDSL lines and a lower number of wholesale
DSL customers

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over
the period. In 2009, the decrease in Internet advertisement revenues at Origo reflected weak economic conditions due to the financial crisis. Other fixed line revenues declined also at Combridge
and Novatel EOOD in 2009. In 2010, lower broadband data revenue was mainly the result of the sale of Orbitel in January 2010, after which we recognized no further revenues from Orbitel. The change in
other mobile revenues in 2010 is due to decreased usage of television voting games through SMS.

EBITDA

In 2009, the decrease 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.

EBITDA
for Headquarters segment decreased more than double in 2010 compared to 2009 mainly due to the HUF 26,970 million special telecommunications tax. Lower revenues and
higher employee-related expenses also contributed to the decrease in EBITDA, which were partially offset 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 31,2008

2009

2010

2009/2008

2010/2009(in HUF millions)

(percent change)Total revenues


11,370


10,556


8,287


(7.2
)

(21.5
)EBITDA


(49,059
)

(47,485
)

(43,565
)

(3.2
)

(8.3
)


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 negative EBITDA 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.

In
2009, lower material and maintenance expenses as well as lower other service fees favorably affected EBITDA for the segment, which was partly offset by higher employee-related
expenses. In 2010, improved EBITDA mainly resulted from lower employee-related expenses, lower other operating expenses as well as higher other operating income, partly offset by lower total revenues.

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Macedonia

The following table sets forth information regarding the Macedonian operations:

Year ended December 31,

Year ended
December 31,2008

2009

2010

2009/2008

2010/2009(in HUF millions)

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


36,604


36,802


35,194


0.5


(4.4
)Total mobile revenues


39,493


45,510


42,404


15.2


(6.8
)Total revenues


76,097


82,312


77,598


8.2


(5.7
)EBITDA


39,132


42,861


40,248


9.5


(6.1
)


The results of our Macedonian operations in HUF terms were strongly affected by the weakening of HUF against MKD by an average of
11.7 percent in 2009. The currency translation on the results of our Macedonian operations due to the MKDHUF exchange rate was relatively minimal in 2010, as the HUF strengthened
by 1.5 percent on average against the Macedonian Denar in 2010.

Revenues

Excluding the currency translation effects, fixed line voice revenues decreased over the period mainly as a result of lower
voice-retail revenues reflecting the loss of fixed lines and lower traffic affected by strong competition and mobile substitution. In 2010, this decrease was partially offset by higher voice-wholesale
revenues, primarily as a result of higher international incoming revenues due to a higher volume of traffic and higher termination fees. Higher Internet revenues reflected a higher number of DSL
connections, which were 151,218 at December 31, 2010 compared to 98,866 at the end of December 2008. The increase in TV revenues was due to a larger IPTV subscriber base.

Total
revenues of T-Mobile Macedonia increased in 2009 compared to 2008 mainly due to higher voice-retail revenues driven by an increased average customer base and increased
MOU, partly offset by lower per minute fees and lower subscription fees. Voice-wholesale revenues increased in 2009 as a result of higher international traffic in line with the higher subscriber base
of the Macedonian mobile operators and due to higher MVNO revenues from VIP. Higher non-voice revenues primarily reflected the growing number of mobile Internet subscriptions.

In
2010, mobile revenues for T-Mobile Macedonia decreased primarily due to lower voice-retail revenues reflecting lower per minute fees, which were partially offset by a
higher average postpaid customer base and increased MOU. Non-voice revenues also decreased as lower data revenues due to the lower average prices of SMSs were only partially compensated by
higher mobile Internet revenues resulting from increased usage. Lower equipment revenues were driven by a lower number of handsets sold, as well as a decrease in the average price of handsets.
T-Mobile Macedonia had a 51.3 percent share based on the number of SIM cards in the Macedonian mobile market and mobile penetration was 122.8 percent at the end of December
2010 as published by AEC.

EBITDA

In 2009, the 9.5 percent increase in EBITDA was primarily attributable to higher total revenues and a decrease in
employee-related expenses, which were partially offset by higher material cost of equipment sold and higher other net operating expenses. EBITDA for our Macedonian operations decreased by
6.1 percent in 2010, primarily due to the decrease in total revenues, although expenses remained relatively in line with the previous year.

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Montenegro

The following table sets forth information regarding the Montenegrin operations:

Year ended December 31,

Year ended
December 31,2008

2009

2010

2009/2008

2010/2009(in HUF millions)

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


16,907


18,214


17,666


7.7


(3.0
)Total mobile revenues


16,241


16,228


15,208


(0.1
)

(6.3
)Total revenues


33,148


34,442


32,874


3.9


(4.6
)EBITDA


10,815


13,736


11,370


27.0


(17.2
)


The results of our Montenegrin operations were positively affected by a weaker HUF against the EUR in 2009, while the strengthening of the HUF
against the EUR by 1.5 percent on average in 2010 decreased revenues when translated into HUF.

Revenues

Excluding the currency translation effects, the loss of fixed line customers as a result of mobile substitution resulted in lower
voice-retail revenues both in 2009 and 2010. Lower voice-wholesale revenues relating to a lower volume of terminated and transited international and mobile incoming traffic also contributed to the
decrease in 2010. Higher TV revenues (enlarged IPTV subscriber base) and higher Internet revenues (increased number of DSL connections) had favorable effects on total fixed line and SI/IT revenues
both in 2009 and 2010.

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

In
2010, mobile revenues in EUR for T-Mobile Crna Gora decreased primarily as a result of lower voice-retail revenues due to a decrease in prepaid revenues as a result of
lower customer base and lower prices per minute. Decreasing voice-wholesale revenues reflected lower incoming traffic. Voice-visitor revenues also decreased, reflecting lower volumes of minutes and
higher discounts.

EBITDA

In 2009, EBITDA of our Montenegrin operations improved by 27.0 percent mainly due to higher total revenues, lower net other
operating expenses and lower
employee-related expenses. In 2010, EBITDA decreased mainly due to lower total revenues and higher employee-related expenses due to severance payments, which were partially offset by lower
voice-related payments and decreased material cost of equipment sold.

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LIQUIDITY AND CAPITAL RESOURCES

Cash flow analysis

The following table sets forth information concerning our cashflows:

Year ended December 31,2008

2009

2010(in HUF millions)Net cashflows:From operating activities


210,289


193,795


164,670Used in investing activities


(113,449
)

(130,299
)

(52,848
)Used in financing activities


(79,230
)

(96,560
)

(130,589
)Exchange gains on cash and cash equivalents


1,404


654


338Change in cash and cash equivalents


19,014


(32,410
)

(18,429
)Cash and cash equivalents, beginning of year


47,666


66,680


34,270Cash and cash equivalents, end of year


66,680


34,270


15,841


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

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

Net
cashflows from operating activities decreased by HUF 29,125 million in 2010 compared to 2009. The lower EBITDA and the unfavorable changes in working capital
(primarily due to higher advances, tax receivables and lower cash inventory sales) were partially offset by lower income tax and lower interest payments. Our income tax payments decreased in line with
lower profit before tax and interest payments declined due to falling interest rates and lower loan balances.

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

Net
cash used in investing activities amounted to HUF 130,299 million in 2009, compared to HUF 113,449 million in 2008. The increase in cash outflow was
mainly due to changes in other financial assets, as we increased investments in short-term deposits in 2009.

Net
cash used in investing activities decreased by HUF 77,451 million in 2010 compared to 2009, primarily reflecting changes in other financial assets, as
short-term bank deposits made in 2009 were cashed out in 2010, as well as the effect of lower investments in tangible and intangible assets.

Purchase
of property, plant and equipment and intangible assets totaled HUF 116,039 million in 2008, HUF 110,228 million in 2009 and
HUF 87,300 million in 2010.

The
decrease in net cash used in investing activities also reflected favorable changes in adjustments to cash purchases. Payables to creditors in relation to capital expenditures
("capex creditors"), improved 2010 cash flow by HUF 4,462 million, while decreasing cashflow by HUF 8,362 million in 2009. The difference in trends from 2009 to 2010
reflected our capex spending volumes in December of each year.
Our usual practice is to spend a quarter of our annual capex budget in December of the year; however, in 2009, capital expenditures were distributed more evenly throughout the year. This resulted in
lower capex payables at the end of 2009 compared to the end of 2008, resulting in a HUF 8,362 million cash outflow relating to capex during 2009. In 2010, the year-end capex
creditor balance was higher than the year-end capex creditor balance in 2009, leading to an increase in cash in 2010. Year-end capex creditors increased in 2010 partly due to
our extending payment terms with our suppliers, as one of the measures taken to combat the financial crisis.

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

During
2008, we borrowed HUF 16,113 million net loan. In 2009, we repaid a net HUF 2,920 million loan, resulting in increased net cashflows used in financing
activities in 2009.

Net
cash used in financing activities amounted to HUF 130,589 million in 2010 compared to HUF 96,560 million in 2009, reflecting a higher amount of loan
repayments made in 2010, although the amount of dividends paid remained in line with the previous year.

We
carry indebtedness at a level we consider appropriate based on a number of factors, including cash flow expectations (e.g., 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 2009, we paid dividends in the amount of HUF 74 per share in May 2010 and based on the
results of 2010, the Board of Directors has proposed to the AGM for approval a HUF 50 per share dividend to be paid in May 2011. Our net debt ratio was 32.7 percent at
December 31, 2010. 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 HUF. 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 due to market volatility.
After the improvement in international financial market conditions, the NBH decreased its base rate to 5.25 percent in several steps between November 2008 and April 2010 before increasing the
base rate to 5.75 percent by the end of 2010. In January 2011, the NBH further increased its base rate by 0.25 percentage point to 6.0 percent. At December 31, 2010,
78 percent of our loan portfolio was denominated in HUF, while the remaining 22 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, 2010, 63 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 37 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 used in part to manage our short term cash
obligations and their variable rates are based on the 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.

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 undrawn current account overdrafts at the end of 2010 amounted to HUF 7,032 million. The total committed shelf

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facilities
from the Hungarian market including current account overdrafts amount to HUF 103,911 million, out of which HUF 54,603 million was undrawn at the end of 2010.

Amount of
the facility

Drawn at the
end of 2010

Undrawn at the
end of 2010(in HUF millions)Current account overdrafts


14,900


7,868


7,032Bilateral loans


89,011


41,440


47,571Total credit lines


103,911


49,308


54,603


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 structure2011

2012

2013(in HUF millions)Current account overdrafts


14,900





Bilateral loans


82,706


2,870


3,435Total credit lines


97,606


2,870


3,435


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 33 to our consolidated financial statements. Accrued interest related to
loans is included in Financial liabilities to related parties and Other financial liabilities. Amounts 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.

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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


306,372


72,208


84,710


120,976


28,478Other financial liabilities


55,475


46,647


7,326


904


598Trade payables


88,613


88,613Current income tax payable


661


661Other current liabilities


30,966


30,966Other non current liabilities


1,263





1,020


124


119Total financial liabilities


483,350


239,095


93,056


122,004


29,195Interest on loans and borrowings


61,424


19,926


23,322


16,446


1,730Finance leases


4,462


1,080


1,652


1,012


718Operating leases


42,869


7,711


12,610


8,377


14,171Contractual commitments for capital expenditures


8,951


7,830


1,121Purchase obligations


66,290


26,019


22,488


14,335


3,448Total financial obligations


183,996


62,566


61,193


40,170


20,067Total contractual obligations


667,346


301,661


154,249


162,174


49,262


Purchase commitments for investments

Magyar Telekom signed an agreement to buy 100 percent of Daten Kontor Kft., DK Telecom Zrt. and DK Consulting Zrt. ("DK Group")
on July 20, 2010. The maximum purchase price of HUF 1.4 billion payable under the agreement is dependent on the financial performance of DK Group over the next two years and was
also adjusted with the value of the net debt at the closing of the transaction, which took place on February 28, 2011, when Magyar Telekom paid the initial purchase price of
HUF 900 million. Due to these factors, the exact amount, and the timing of payment, of the outstanding purchase price are uncertain.

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 2010 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 2010 (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 857million as supervisory fee in 2010.

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2.       Number usage fees

Magyar
Telekom Plc. pays a number's 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 Provision of Public Telephone Services". We paid HUF 1,196 million in 2010 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 2010, TMH paid HUF 3,849 million frequency usage fee for
the right to use radio channels in the 2x8 MHz wide Primary 900 MHz band and HUF 280 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 2010, TMH paid HUF 1,583 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 1,132 million in 2010 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 797 million expenses in 2010. We are not able to estimate the expenses we will
incur in 2011 and future years for legal counsel advising these individuals.

Capital expenditures

Our capital expenditures on property, plant and equipment and intangible assets totaled HUF 116,039 million in 2008,
HUF 110,228 million in 2009 and HUF 87,300 million in 2010, 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 32.1.1 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 lines of business. As a result, our actual future capital
expenditures may be significantly different.

RESEARCH AND DEVELOPMENT

In 2009, Magyar Telekom strengthened the strategic alignment of its innovation processes by combining the Corporate Business
Development and Group Strategy Departments into one organization under the leadership of the Chief Strategy and Corporate Development Officer. One of the key responsibilities of this business unit was
to coordinate all R&D-related activities within the whole

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company.
The research and development process is governed by a cross-functional R&D Committee ("the Committee"), which has the mandate 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 Telekom and to avoid overlapping of scopes.

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 2010, the Committee reviewed 94 proposals, out of which 73 have been approved, accounting for a total investment of HUF 737 million (including HUF 679 million
reflected as operating expenses and HUF 58 million reflected as 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 founding 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.

Magyar
Telekom has also participated in international R&D projects, for example the NAPA-WINE project, which started in 2008 and lasted for three years, supported by the
European Union (FP7: Seventh Framework Program) together with established universities (e.g., Politecnico di Torino, Budapest University of Technology and Economics) and other significant
telecommunications companies (e.g. France Telecom, Polish Telecom).

The
following table indicates our research and development expenditures during the last three years:

Year ended December 31,

Year ended
December 31,2008

2009

2010

2009/2008

2010/2009(in HUF millions)

(percent change)R&D Expenditures


641


721


737


12.5


2.2


Some of our research topics from the business units are listed below:

HeadquartersStrategy and Corporate Development



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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 a 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 development in all segments: Access, Transport and Service Platforms.

FTTH
is foreseen as the main direction for development of a fixed access network. In addition to Skopje, FTTH is planned to be implemented in other regions in the country.

The
increasing demand for video and data services requires increasing 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. Additional focus will be put on QoS, increasing network security and network availability.

DWDM
network is a main transport for IP/MPLS and Ethernet traffic. Further network development is in the direction of implementing a new Optical Transport Network.

In
terms of Service Platforms, the main focus will be on development of IPTV with new applications and IMS Platform. IMS Platform will be used:



In
the next development period, the migration towards the NGN IP-based network will continue with increased broadband penetration, followed by implementation of NGOSS.

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

In
cooperation with local partners, T-Mobile Macedonia has developed solutions for handling low balance prepaid customers, as well as developed a solution that will enable
us to offer Unstructured Supplementary Service Data ("USSD") based services.

In
2010, T-Mobile Macedonia was the first operator to offer a 4Play product offering on the Macedonian market, encompassing mobile voice and data, fixed line voice,
broadband Internet and TV within one product.

In
cooperation with its partners, T-Mobile Macedonia has launched Mobile Payment services as well as successfully completed an e-commerce development enabling
residential customers to pay invoices through the T-Mobile Macedonia web site. The next development phase will focus on the e-shop, allowing purchase of products from the
Internet with payment cards.

T-Mobile
Macedonia is working on implementing 3G-based services for their subscribers. The first service implemented in June 2010, was mobile TV.

T-Mobile
Macedonia is implementing the VPN service in its network. The VPN is an Intelligent Network ("IN")-based service, targeting the business subscribers with advanced
services.

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 and have been revised annually. 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 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

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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:



The
Internal Audit Director is a permanent invitee.

Principal
responsibilities of the Disclosure Committee are as follows:



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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 for the General Meeting or for 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, 2010, there were eleven members of the Board of Directors. Eight 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.

On
December 31, 2010, members of the Board of Directors, their principal occupations and the years of their original election were as follows:

Name

Born

Principal Occupation

Member sinceChristopher Mattheisen

1961

Chairman and Chief Executive Officer of Magyar Telekom Plc.

2006Dr. Ferri Abolhassan

1964

Director Production and Member of the Board of Management, T-Systems Int. GmbH, Deutsche Telekom AG

2010Dr. István Földesi

1949

International business consultant

2003Dietmar Frings

1959

Vice President Human Resources Compensation and Benefits and Labor Law, Deutsche Telekom AG

2010Dr. Mihály Gálik

1946

Professor of the Media, Marketing Communication and Telecommunications Department at the Faculty of Business Administration of the Corvinus University of Budapest

2006Guido Kerkhoff

1967

Member of the Board of Management of Deutsche Telekom AG to manage the subsidiaries in Europe

2009Thilo Kusch

1965

Chief Financial Officer of Magyar Telekom Plc.

2006Dr. Klaus Nitschke

1961

Senior Vice President, EU Strategy & Area Management, Magyar Telekom Group, TM-Netherlands, JV-UK, Deutsche Telekom AG

2010Frank Odzuck

1959

Chief Executive Officer of Zwack Unicum Plc.

2006Dr. Ralph Rentschler

1960

Finance Europe, Financial Director Europe, Deutsche Telekom AG

2003Dr. Steffen Roehn

1964

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


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Other Principal Directorships of Members of the Board of Directors

Name

Position held

CompanyChristopher Mattheisen

Member of the Board of Directors

Makedonski TelekomMember of the Board of Directors

T-Mobile MacedoniaDr. Ferri Abolhassan

Member of the Board of Directors

T-Systems International GmbHChairman of the Supervisory Board

T-Systems GEI GmbHChairman of the Management Committee Production

T-Systems International GmbHChairman of the Board of Directors

T-Systems ITC IBERIA, S.A.U.Dr. István Földesi

President

Inter-Access, Inc., USADietmar Frings

NoneDr. Mihály Gálik

NoneGuido Kerkhoff

Member of the Board of Directors

OTE, GreeceMember of the Board of Directors

Deutsche Telekom AGMember of the Supervisory Board

Deutsche Telekom Venture Funds GmbHChairman of the Supervisory Board

HT-Hrvatske telekommunikacije d.d.Member of the Supervisory Board

Polska Telefonia CyfrowaChairman of the Supervisory Board

T-Mobile Austria GmbHChairman of the Supervisory Board

T-Mobile Austria Holding GmbHMember of the Board of Directors

Everything Everywhere Ltd., UKThilo Kusch

NoneDr. Klaus Nitschke

Chairman of the Supervisory Board

T-Mobile NetherlandsMember of the Board of Directors

T-Mobile MacedoniaMember of the Board of Directors

Makedonski TelekomFrank Odzuck

Member of the Board of Directors

Zwack UnicumDr. 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

T-Mobile Netherlands Holding B.V.Dr. 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

Telekom 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. Ferri Abolhassan.Dr. Abolhassan joined IBM in California in 1989 and completed his doctoral work in
Research & Development
in massive parallel computing at Saarland University in Saarbrucken. Between 1992 and 2000, he worked at SAP Retail Solutions as a Sales Director and as a Managing Director. Between 2001 and 2004, he
was Co-Chairman and Chief Executive Officer at IDS Scheer AG. He was a member of top management at SAP AG as Executive Vice President. In 2008, he joined T-Systems
International GmbH and he has been a Member of the Board of Directors of T-Systems and Chief of Systems Integration. From December 1, 2010, Dr. Abolhassan has been
responsible for the New Production Unit as a member of the Executive Board at T-Systems.

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.

Dietmar Frings.Mr. Frings acquired a degree in Business Administration at Federal University for Applied Services in
Mainz in 1982. Between
1982 and 1986, he worked in managing functions in the Regional Office Branches at German Railways and between 1986 and 1989 at the Federal Ministry of Transport, and then as consultant of the
Parliamentary State Secretary. He joined Deutsche Telekom in 1991 as a specialist for human resources issues, responsible for human resources services, recruitment and organizational change at
Deutsche Telekom Headquarters. Subsequently, he has been in several positions within human resources. Between 1998 and 2001, he was responsible for the Labor Relations Management in Germany within the
Human Resources Board Member Support Unit. After that, he was the Vice President and Head of the German Employers Association for eight years, at the same time being in charge of International Labor
Relations. Since April 1, 2010, he has been Vice President Human Resources Compensation & Benefits and Labor Law for DT.

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 of the Media, Marketing-communication and Telecommunications Department of the Corvinus University of Budapest.

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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 July 1, 2010, he has served as a member of the Board of Management of Deutsche Telekom AG to manage the subsidiaries in 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 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.

Dr. Klaus Nitschke.Dr. Nitschke has a degree from the Cologne University in Biochemistry and Molecular Biology.
He acquired a
Bachelor of Arts degree from the Boston University and in 1992, a PhD degree as Doctor rerum naturalium from the Max-Planck Institute in Cologne. His career started in 1992 as a Top
Management Consultant for Dicke & Associates Management Consultants. He participated in 1999 in the decision to sell the company to Deloitte Consulting, where he continued to work for another
year. From 2000 to 2002, he continued his career with Bertelsmann AG as Chief Operating Officer of BOL AG (e-commerce book and CD retailer) and as Vice President, responsible for building
up an MVNO. In 2002, he joined Deutsche Telekom where he has been in various management positions. He was first assigned as Area Manager for the Central European subsidiaries of Deutsche Telekom:
Magyar Telekom, Hrvatski Telekom and Slovak Telekom.
Between 2003 and 2005, he led the Strategy department of Deutsche Telekom's fixed line business in Germany. From 2005 to 2009, he worked as a Managing Director to build up a Product &
Development unit which was later reintegrated into Deutsche Telekom. Currently he is working at Deutsche Telekom's General Headquarters leading the South Eastern European Strategy and is acting as
Area Manager for Magyar Telekom Group.

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. From July 2010, Dr. Rentschler took over the position of the Financial Director Europe.

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

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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 accordance with the annual business plan. On December 31, 2010, the Management Committee consisted of nine chief
officers of Magyar Telekom. The members were as follows:

Name

Born

Current position

Member sinceChristopher Mattheisen

1961

Chairman and Chief Executive Officer

2006Attila Keszég

1966

Chief Sales and Services Officer

2010István Király

1965

Chief Marketing Officer

2010Thilo Kusch

1965

Chief Financial Officer

2006István Maradi

1964

Chief Technology Officer

2007Balázs Máthé

1968

Chief Legal and Corporate Affairs Officer

2010Róbert Pataki

1971

Chief Strategy and Corporate Development Officer

2009Tibor Rékasi

1973

Chief Operating Officer, Business Services Business Unit on an interim basis

2010Éva Somorjai

1966

Chief Human Resources Officer

2007


Other Principal Directorships of Members of Management Committee

Name

Position held

CompanyChristopher Mattheisen

See aboveAttila Keszég

NoneIstván Király

Member of the Board of Directors

IQSYS Informatikai és Tanácsadó Zrt.Member of the Board of Directors

Origo Média és Kommunikációs Szolgáltató Zrt.Thilo Kusch

See aboveIstván Maradi

Managing Director

Centro-plane Ltd.Balázs Máthé

NoneRóbert Pataki

Member of the Supervisory Board

FHB Kereskedelmi Bank Co., Ltd.Member of the Board of Directors

Origo Zrt.Member of the Board of Directors

Telekom New Média Zrt.Member of the Board of Directors

Investel Zrt.Member of the Board of Directors

Cronogorski Telekom


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Name

Position held

CompanyTibor Rékasi

Member of the Board of Directors

IQSYS Informatikai és Tanácsadó Zrt.Member of the Board of Directors

KFKI Zrt.Éva Somorjai

None


Biographies of Chief Officers

Christopher Mattheisen.See "Biographies of Members of the Board of Directors" above.

Attila Keszég.Mr. Keszég graduated from the Budapest University of Technology and Economics as a
qualified
mechanical engineer before attending an MBA course specializing in financial and management studies. He started his career in 1992 at Hemingway Holding, then he worked for Dove Mid Europe. In 1994, he
joined Pepsi Cola Hungary first as Key Accounts Director, then Project Manager, later Unit Manager Central Hungary managing field sales, delivery and warehousing. From 1999, he worked as Sales
Director of Pepsi Cola Hungary and from 2001, as Sales Director for Traditional Trade Central and Eastern Europe responsible for the Hungarian, Polish, Czech and Slovak markets. From 2005, he was the
General Manager of Red Bull Hungary. From September 1, 2010, he has been Chief Sales and Services Officer of Magyar Telekom.

István Király.Mr. Király graduated from the Institute of International Relations in Moscow with
a major in
international economic relations. He received a specialized economics and business English translator and interpreter qualification from the Foreign Trade College Budapest in 1992 and MBA
qualification from Oxford Brookes University in 2000. He joined Magyar Telekom from Pannon in 2004 as a business development manager and he was in charge of Strategy and Marketing Director in the
Business Services Business Unit from 2008. As a result of the organizational changes effective from July 1, 2010, he has been appointed Chief Marketing Officer of Magyar Telekom.

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 Ltd. 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 and core
network planning at Westel 900 Rt. From 2001 to 2006, he worked as Chief Development Officer, Chief Information Officer and Deputy General Manager of T-Mobile Hungary. From 2006 to 2007,
he worked for Cisco CEE as a market analyst in charge of business development support for the local Cisco offices in 17 European countries. From April 1, 2007, he has been Chief
Information Officer of Magyar Telekom and from January 1, 2008, Chief Technology and IT Officer.

Dr. Balázs Máthé.Dr. Máthé received his law degree from
Janus Pannonius University, Pécs in 1995. His previous studies included EU Law Studies at the Università degli Studi di Trento, Italy and a few semesters at the Faculty
of Arts (History and Languages) of Janus Pannonius University. Prior to joining Magyar Telekom, he worked as an attorney at various international law firms for over a decade, including five years at
one of the leading global law firms, Linklaters, where he was a Partner and the Head of the Corporate Department in Budapest. As an attorney, he specialized in cross border mergers and acquisitions
and corporate governance matters. He joined Magyar Telekom as Group Legal Director in 2007. He was appointed Chief Legal and Corporate Affairs Officer of Magyar Telekom as of July 1, 2010.

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 Erasmus in Rotterdam. He started his career as an investment analyst at Project Finance International Ltd.

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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 2009.

Tibor Rékasi.Mr. Rékasi graduated from the Budapest Foreign Trade College. He started his career at
Integra
Kft, as account manager. From 1997, he worked for Unisys Hungary as a relationship manager dealing with financial business partners, and then as Director for Customer Relations. In 2000, he joined
Cisco Systems Hungary, where first he worked as Key Account Manager, and then as the Director of the Large Corporations Business Unit. In February 2007, he was appointed Managing Director of Cisco
Systems Hungary, and in this position he was responsible for the coordination of all sales activities in Hungary in addition to the operating management of the company. He joined the Magyar Telekom
Group on September 15, 2008, as the Managing Director of IQSYS Zrt., a member company of the Services Division, where he was Sales Director in addition to directing the entire company. From
December 1, 2010, he was appointed head of Magyar Telekom Plc's Business Services Division on an interim basis.

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.

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, 2010, the members of the Supervisory Board, their principal occupation and the years of their original election were as follows:

Name

Born

Principal Occupation

Member sinceDr. János Bitó

1936

Chairman of the Thesis and Final Examination Board at Pázmány Péter Catholic University, Information Technology Faculty

2010Attila Bujdosó

1967

President of the Telecommunications Trade Union

2010Dr. János Illéssy

1962

Managing Director, Lebona Kft.

2006Dr. Sándor Kerekes

1948

Director of Institute of Environmental Sciences Corvinus University Budapest

2006Konrad Kreuzer

1948

Chairman of the Board of Directors of E.ON Hungary Zrt.

2006Tamás Lichnovszky

1962

Senior expert, Magyar Telekom Plc.

2010Martin Meffert

1960

Country manager for Hungary, Head office of
T-Home, Deutsche Telekom AG

2009Dr. László Pap

1943

Budapest University of Technology, Professor

1997Dr. Károly Salamon

1954

ChairmanChief Executive Officer of MKB General Insurance Zrt. and MKB Life Insurance Zrt.

2010Zsoltné Varga

1969

Quality Manager, Magyar Telekom Plc.

2008György Varju

1946

Chairman of the Central Workers' Council

2005


The members' mandate lasts until May 31, 2013.

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Other Principal Directorships of Members of the Supervisory Board

Name

Position held

CompanyDr. János Bitó

NoneAttila Bujdosó

NoneDr. János Illéssy

NoneDr. Sándor Kerekes

Chairman of the Advisory Board

Zöld Iránytü AlapítványMember of the Supervisory Board

Tomori Pál FöiskolaChairman of the Advisory Board

Vezetöképzésért AlapítványMember of the Advisory Board

Lélegzet AlapítványMember of the Supervisory Board

Budapesti Közgazdaságtudományi Egyetem AlapítványKonrad Kreuzer

Chairman of the Board of Directors

E.ON SlovenskoChairman 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 Energetika, SlovakiaMember of the Supervisory Board

Budapest Airport Zrt.Tamás Lichnovszky

NoneMartin Meffert

NoneDr. László Pap

Member of the Supervisory Board

Viking Zrt.Dr. Károly Salamon

Member of the Board of Directors

Hungarian Mortgage BankMember of the Presidency

GermanHungarian Chamber of CommerceZsoltné Varga

NoneGyörgy Varju

Member of the Supervisory Board

Dimenzió Insurance and Self-Aid Association


Biographies of Members of the Supervisory Board

Dr. János Bitó.Dr. Bitó graduated from the Faculty of Natural Sciences at
József Attila University of Sciences in 1958, and received a Doctor rerum naturalium in 1960. In 1967, he received a PhD, and in 1971, a Doctor of Science in technical sciences. He has
taught in many Hungarian and foreign universities. Between 1971 and 2002, he worked as a technical, research and development director, managing director or chief officer at a number of companies and
institutions, and as senior advisor to a minister. Between 1965 and 2005, he accomplished considerable achievements in scientific research and development. He is a member of a number of scientific
organizations, including the Committee on Information Science and the Committee on Automation and Computer Science of the Hungarian Academy of Sciences. At present he is the Chairman of the Thesis and
Final Examination Board at Pázmány Péter Catholic University, Information Technology Faculty.

Attila Bujdosó.Mr. Bujdosó holds a degree in electrical engineering from Kandó
Kálmán Technical College of Budapest, Faculty of Electrical Engineering. Since 1985, he has been working at Magyar Telekom and its legal predecessors. Until 1998, he
worked as an exchange maintenance technician, then as

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a
technical coordinator and an administrative operator. He has been a member of various trade unions since 1985: between 1985 and 1990 a member of the Postal Workers' Trade Union, between 1990 and
1993 a member of the Telecommunications Workers' Trade Union, between 1993 and 2004 a member of the Hungarian Telecommunications Branch Trade Union, from 2004 a member, and since July 1, 2008,
the president of the Telecommunications Trade Union. Between 2005 and 2007, he was a member of the Workers' Council and between July 1, 2008 and December 31, 2010 he was a member of the
Presidency of MSZOSZ (National Confederation of Hungarian Trade Unions).

Dr. János Illéssy.Dr. Illéssy is an electrical engineer with a degree from the Budapest
Technical University and has received 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 received a PhD 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.

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.

Tamás Lichnovszky.Mr. Lichnovszky received a Bachelor's degree as licensed signal officer and
telecommunications engineer in
1984 from Zalka Máté Military Technical College and as manager engineer in 2002 from the Budapest Technical College. In 2010, he received a post-graduate
degree in complementary legal studies from the Pázmány Péter Catholic University. He has been working at Magyar Telekom and its legal predecessor in
technical and customer service areas since 1990. He has been an elected member of the Workers' Council since 1998 and is a member of the Central Workers' Council.

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 PhD in 1980 and Doctor of Sciences in 1992. He has been a professor in the Electrical Engineering and Informatics Faculty at Budapest Technical University since 1992.
From

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1992
to 2008 he served as Head of 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.

Dr. Károly Salamon.Dr. Salamon graduated in 1977 from the Kandó Kálmán
Technical College of Budapest
with a bachelor of science of Electrical Engineering, and in 1983 from Eötvös Lóránd University of Sciences with a master of science of
Mathematics. He received an MBA degree at the University of Pittsburgh in 1991 and then he received a PhD from the University of Economics in Budapest in 1993. Between 1977 and 1990, he worked as a
design engineer, then as a development engineer and later as a project leader at different companies. From 1990, he worked for Ernst and Young International Audit and Consulting Company as a partner.
Between 1995 and 2005, he was the Chief Financial Officer, then from 2006 to 2008 the Chairman-Chief Executive Officer of Allianz Hungária Biztosító Zrt.
From 2008, he was the general director of MIS Ltd. He has been the Chairman-Chief Executive Officer of MKB General Insurance Zrt. and MKB Life Insurance Zrt. since July 1, 2010.

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, 2010, 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, 2010, the aggregate compensation of the members of the Supervisory Board in their capacity as Supervisory
Board members was HUF 48.3 million in the following breakdown:

Name

Position held

CompensationAttila Csizmadia

Member of the Supervisory Board (until April 7, 2010)

HUF 0.95 millionDr. János Illéssy

Member of the Supervisory Board

HUF 3.53 millionChairman of the Audit Committee

HUF 4.71 millionDr. Sándor Kerekes

Member of the Supervisory Board

HUF 3.53 millionMember of the Audit Committee

HUF 2.47 millionDr. László Pap

Chairman of the Supervisory Board

HUF 5.38 millionMember of the Audit Committee

HUF 2.27 millionIstván Koszorú

Member of the Supervisory Board (until March 3, 2010)

HUF 0.61 millionKonrad Kreuzer

Member of the Supervisory Board

HUF 3.53 millionZsoltné Varga

Member of the Supervisory Board

HUF 3.53 millionGyörgy Varju

Member of the Supervisory Board

HUF 3.53 millionDr. János Bitó

Member of the Supervisory Board (from April 7, 2010)

HUF 2.59 millionMember of the Audit Committee (from April 7, 2010)

HUF 1.94 millionDr. Károly Salamon

Member of the Supervisory Board (from April 7, 2010)

HUF 2.59 millionMember of the Audit Committee (from April 7, 2010)

HUF 1.94 millionAttila Bujdosó

Member of the Supervisory Board (from April 7, 2010)

HUF 2.59 millionTamás Lichnovszky

Member of the Supervisory Board (from April 7, 2010)

HUF 2.59 million


For the year ended December 31, 2010, the aggregate compensation of the members of the Management Committee ("MC") was
HUF 998 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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For
information about our Mid-term Incentive Plan ("MTIP"), see Note 24.1 to the consolidated financial statements. For further information about the compensation of
key management and Deutsche Telekom's Stock Option Plan, see Note 34.4 to the consolidated financial statements.

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



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Management Committee



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, 2013. 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 7, 2010 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, Dr. Sándor Kerekes, Dr. Károly Salamon and Dr. János Bitó. 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, 2013.

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 and the SEC, as well as the provisions and rules of the U.S. Securities Exchange Act of 1934, as amended (the "Exchange Act").

The
purpose of the Audit Committee is, among others, to oversee:



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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 respect to the fees within the exclusive scope of authority of
the General Meeting, it shall provide the General Meeting with a recommendation. The Audit Committee also reviews and 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 April 21, 2010. The Remuneration Committee meets at least three times a year.

Employees

We had 10,258 employees as of December 31, 2010. 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 31,2008

2009

2010Magyar Telekom Plc.


6,125


6,459


6,076Magyar Telekom Plc. and its consolidated subsidiaries


10,439


10,828


10,258


The following table provides information on the breakdown of Magyar Telekom's employees by segment:

At December 31,2008

2009

2010CBU


2,893


2,937


2,678BBU


1,469


1,709


1,662Headquarters


1,034


1,095


1,513Technology


2,078


2,120


1,893Macedonia


1,738


1,754


1,698Montenegro


868


876


814All other


359


337


0Total


10,439


10,828


10,258


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.

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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 to further improve efficiency and reduce headcount, management started negotiations with the trade unions and reached an
agreement in October 2010.

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 2011. The key elements of the agreement are the following: reduction of headcount by 300 in addition to lay-offs of managers and early retirement packages. The agreement
with the trade unions also sets the increase in remuneration for parent company employees at four percent from July 2011. However, higher paid employees (approximately 520), typically in managerial
positions, will be entitled to an average wage increase of two percent. Related to the wage increase, a
portion of the 2011 regular bonus payment will be dependent on the financial performance of the Company in 2011 and will only be paid if EBITDA surpasses a certain level.

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, and 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, 2010,
three members of the Supervisory Board were employee representatives. These members were Tamás Lichnovszky, Zsoltné Varga and György Varju.

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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 2010,
approximately 83 percent of all employees participated in the pension plan, 58 percent in the self-help plans and 80 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, 2010:

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


1,000Tamás Lichnovszky

Supervisory Board Member


7,790Dr. Károly Salamon

Supervisory Board Member


43,200Zsoltné Varga

Supervisory Board Member


1György Varju

Supervisory Board Member


320Éva Somorjai

Chief Human Resources Officer


2,300Total




77,152


For information about share options, see 24.3 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 24.1 and 34.4 to the consolidated financial statements.

None
of our directors and executive officers held Magyar Telekom options at December 31, 2010.

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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, 2010.

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 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.

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Information
concerning our ownership structure as of December 31, 2010 is set out in the following table:

Shareholder

Number of
shares

Percentage of
share capitalMagyarCom(1)


617,436,759


59.21Publicly traded(2)


424,914,922


40.75Treasury stock


390,862


0.041,042,742,543


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 5,077,942 ADRs, evidencing 25,389,710 shares on its accounts as of
December 31, 2010, for registered holders, such amount representing 2.43 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 77,152 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 and a list of loans outstanding at December 31, 2010 with related parties, see
Notes 16 and 34 to the consolidated financial statements.

The
table below sets out the largest amount outstanding during 2010 for each of the Company's liabilities to Deutsche Telekom International Finance BV. We did not have loans from
any other related parties during 2010.

Date of highest amount of outstanding

Carrying amount
in HUF millions

Currency

Interest
rate (%)

Fixed/
floating

Repayable/repaidApril 30, 2010


54,460


HUF


8.30


fixed


May 2015July 31, 2010


46,122


EUR


4.46


fixed


January 2015April 30, 2010


40,466


HUF


6.83


floating


May 2012June 30, 2010


36,734


HUF


7.21


fixed


July 2011December 31, 2010


28,478


HUF


6.23


fixed


December 2016June 30, 2010


27,000


HUF


5.97


fixed


July 2010September 30, 2010


26,690


HUF


7.25


fixed


October 2013September 30, 2010


25,691


HUF


5.99


floating


April 2011August 31, 2010


22,288


EUR


3.76


fixed


June 2014June 30, 2010


21,636


HUF


7.68


fixed


July 2010January 1, 2010


20,313


HUF


1.35


floating


January 2010June 30, 2010


10,817


HUF


7.67


fixed


July 2010March 31, 2010


9,587


HUF


6.40


floating


January 2011March 31, 2010


9,587


HUF


6.40


floating


January 2012March 31, 2010


9,587


HUF


6.40


floating


January 2013January 1, 2010


9,486


HUF


7.07


floating


January 2010


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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, and are therefore not
disclosed.

The
most significant contingent liabilities of the Company 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 Company, or the amount of the obligation cannot be measured with sufficient reliability.

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 that it is unlikely that the subcontractor will win the court case against T-Mobile Macedonia. The potential loss from the
claim is approximately HUF 4.4 billion. The first instance decision in 2010 was in favor of
T-Mobile Macedonia, but the plaintiff submitted an appeal, therefore the timing of the final resolution is uncertain.

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 AEC a request for dispute resolution with reference to the termination prices. The AEC rejected the requests of Cosmofon as
"ungrounded". This decision of the AEC 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 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.

Employee salary disputes in Montenegro

In July 2010, the Trade Union of Crnogorski Telekom submitted a claim to increase salaries for employees of Crnogorski Telekom by
15.3 percent for the period between September 2009 and September 2010, based on the clause on minimum wage calculation in the Collective Bargaining Agreement (CBA). Management believes that the
Trade Union is not entitled to submit such claim and also disagrees with the calculation methodology. There has not been any hearing yet in this case. The potential exposure is
HUF 0.8 billion.

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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.

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 delivery 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. Further, in relation to certain activities that were the subject of the internal investigation, the Hungarian Central Investigating Chief Prosecutor's Office has
commenced a criminal investigation into alleged corruption with the intention of violating obligations in international relations and other alleged criminal offenses. In addition, the Montenegrin
Supreme State Prosecutor is also investigating the activities of the Company that were the subject of the internal investigation and has requested information from the Company in relation to the
relevant contracts. These governmental investigations are continuing, and the Company continues to cooperate with these investigations.

As
previously disclosed, the Company, through its external legal counsel, is engaged in discussions with the DOJ and the SEC regarding the possibility of resolving their respective
investigations as to the Company through negotiated settlements. The Company has not reached any agreement with either the

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DOJ
or the SEC regarding resolution of their respective investigations, and discussions with both agencies are continuing. We may be unable to reach a negotiated settlement with either agency. Any
resolution of the investigations could result in criminal or civil sanctions, including monetary penalties and/or disgorgement, against the Company or its affiliates, which could have a material
effect on the Company's financial position, results of operations or cash flows, as well as require additional changes to its business practices and compliance programs. The Company cannot predict or
estimate whether or when a resolution of the DOJ or SEC investigations will occur, or the terms, conditions, or other parameters of any such resolution, including the size of any monetary penalties or
disgorgement, the final outcome of these investigations, or any impact such resolution may have on its financial statements or results of operations. Consequently, the Company has not made any
provisions in its financial statements as of December 31, 2010 with respect to the investigations.

Lawsuit by minority shareholdersAGM, April 2010

As previously disclosed in May 2010, two Hungarian minority shareholders filed a lawsuit against the Company, requesting the
Metropolitan Court to render ineffective the resolutions passed by the general meeting on April 7, 2010. These two shareholders have previously
brought lawsuits challenging resolutions passed by Magyar Telekom's shareholders at previous general meetings, as previously disclosed by the Company.

On
October 29, 2010, the Metropolitan Court announced its first instance judgment rejecting the minority shareholders' claim. This first instance judgment is not final and
binding as the plaintiffs submitted an appeal against the judgment.

Magyar
Telekom disagrees with the lawsuit initiated by the minority shareholders and will continue to vigorously defend against the claims. We cannot fully exclude that the Company will
be required to take other corporate actions in connection with the shareholders' suit described above. Also, we cannot provide any assurance that this matter would not have other adverse effects on
the Company that are not currently foreseen.

Dividend Policy

The Board of Directors of the Company proposed a HUF 50 per ordinary share dividend distribution to be approved by the Annual
General Meeting of the Company on April 12, 2011. Based on the Board of Directors proposal the record date for payment of the dividends is May 5, 2011.

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 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

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may
consider relevant. As of December 31, 2010, the reserves available for distribution were HUF 253,793 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 37 to the consolidated financial statements.

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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.

On
October 20, 2010, the Company provided written notice to the New York Stock Exchange ("NYSE") of its intention to delist its ADSs from the NYSE. The Company filed the related
Form 25 with the SEC on November 2, 2010. The delisting of the ADSs from the NYSE became effective on November 12, 2010, from which time the ADSs are no longer listed and traded
on the NYSE.

The
Company's ordinary shares continue to be listed and traded on the Budapest Stock Exchange.

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.$)2006


28.03


17.262007


29.38


23.592008


28.00


11.682009First Quarter


14.31


10.19Second Quarter


16.10


11.25Third Quarter


22.06


14.07Fourth Quarter


23.80


18.502010First Quarter


20.60


16.79Second Quarter


21.48


13.53Third Quarter


16.38


13.78Fourth Quarter (through November 11, 2010)*


16.92


14.222010September


16.38


14.88October


16.92


14.22November (through November 11, 2010)*


15.49


14.25


Source:
Bloomberg *As
described above, the delisting of the Company's ADSs became effective on November 12, 2010, from which time the ADSs are no longer traded on the
NYSE.


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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)2006


1,072


7592007


1,069


8522008


928


5212009First Quarter


598


493Second Quarter


648


504Third Quarter


813


561Fourth Quarter


855


7082010First Quarter


802


677Second Quarter


815


625Third Quarter


708


632Fourth Quarter


664


5112010September


708


666October


664


563November


603


539December


550


5112011January


560


540February


558


526March (through March 23, 2011)


590


552


Source:
Bloomberg


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ITEM 10ADDITIONAL INFORMATION

Share Capital

As of December 31, 2010, 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 24, 2011, the Board of Directors resolved to propose to the General Meeting to provide a new authorization for the
repurchase of ordinary Magyar Telekom shares. The purpose of the authorization is to supplement Magyar Telekom's current shareholder remuneration policy in line with international practice. 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 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 24.3 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 24.1 and 34.4 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

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the
SEC on January 24, 2008 as an exhibit to Post-Effective Amendment No. 1 to our Registration Statement on Form F-6.

We
further amended our Deposit Agreement to change the amounts that are charged by the Depositary to ADR holders in connection with the distribution of dividends to ADR holders and
transfers of ADRs. An administration fee of U.S. $0.05 per ADS per calendar year for services performed by the Depositary in administering the ADRs is also payable by ADR holders pursuant to the
amended Deposit Agreement. The amendment, dated as of February 7, 2011, was filed with the SEC on February 7, 2011 as an exhibit to Post-Effective Amendment No. 2 to
our Registration Statement on Form F-6. See Item 12.D.3 for a description of the fees and charges that a holder of our ADSs may have to pay, either directly or indirectly, to
the Depositary pursuant to the amendments to our Deposit Agreement.

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.

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.

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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, a second General Meeting with the same agenda shall be held after a period of at least ten days following the convocation of the second
General Meeting. 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 for a period of three years 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. 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 member 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 member. 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 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.

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 by the General Meeting for a term of three years
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 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

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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. There is no limitation on the rights of non-resident
or foreign shareholders to hold or exercise voting rights on the ordinary shares.

Transfer of Shares

The acquisition and transfer of the dematerialized share shall only be effected through crediting or debiting the securities account.
The owner of the securityunless the contrary is provedshall be the person on whose account the security is registered. The transfer of registered or Interim Share
Certificates shall be effective with respect to the Company when the name of the new owner of the shares has been entered in the Shareholders' Register. If any request regarding the registration at
the registrar is justified by the appropriate documents, the Company shall, within a period of fifteen (15) days, examine such documents and decide whether the new owner acquired the shares in
accordance with the provisions of these Articles. If the Company establishes that the transfer occurred in violation of the Articles, it shall not register such transfer of shares. The Company shall
promptly notify the new owner of its reasoned decision and the new owner shall have the right to request, within thirty (30) days of the rendering of such decision, the competent court to
review the decision. Those shareholders who wish so, shall not be registered in the Shareholders' Register in addition to those who obtained the shares in violation of laws or Articles regarding the
transfer of shares. The registrar, except in the event set forth in Articles of Association section 2.4. (b) and (c), shall not refuse prompt registry and shall promptly delete such
shareholder who wishes so. 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.

Material contracts

None.

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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:



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. The exact timing of the U.S. ratification procedures is uncertain. 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:

1.       Dividends

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.

Generally,
under the Treaty an individual shareholder will be subject to a 15 percent withholding tax rate on dividends paid by the Company to such individual, provided that such
individual provides the Central Clearing House and Depository Ltd. (KELER Zrt.) with a U.S. tax residency certificate. Additionally, under current Hungarian domestic law in the case of
individuals, a 15 percent treaty rate will also 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 the
Central Clearing House and Depository Ltd. (KELER Zrt.) is provided with a nominee declaration and a U.S. tax residency certificate. Without proper documentation a 16 percent withholding
tax will be deducted from dividends paid to individual shareholders or nominees with respect to individual shareholders. However, an individual shareholder or a nominee can claim a refund from the
Hungarian tax authorities to the extent the amount withheld exceeds the 15 percent rate provided under the Treaty.

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In
the case of individuals, to obtain the refund of the Hungarian withholding tax described above, you must file a claim to the Hungarian tax authorities (Nemzeti
Adó és Vámhivatal, Kiemelt Ügyek Igazgatósága, 1410 Budapest PO Box 137) which must
include:



The
nominee can also fulfill the above procedures.

2.       Capital gains

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.

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, December 18, 2007 and
February 7, 2011, 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, including issuances against deposits of shares and in respect of share distributions, rights and other distributions, and issuances pursuant to a stock dividend, stock split, merger,
exchange of securities or other transaction or event affecting the ADSs or deposited securities

Up to USD 5.00 for each 100 ADSs (or portion thereof), evidenced by the ADRs issued or delivered(b)

receiving or distributing dividends

Distribution of dividends and any other cash distribution

Up to USD 0.04 per ADS(c)

transfers of ADRs

Registration of transfers of ADRs

USD 1.50 per ADR(d)

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)(e)

withdrawing an underlying security

Acceptance of ADRs surrendered for withdrawal of deposited securities or cancelled or reduced for any other reason

USD 5.00 for each 100 ADSs (or portion thereof) evidenced by the ADRs surrendered, cancelled or reduced(f)

general depositary services

Administration of ADRs

An aggregate fee of USD 0.05 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(g)

expenses of the depositary

Expenses incurred on behalf of Holders in connection with:

Expenses payable at the sole discretion of the depositary by ADR

Compliance with foreign exchange control regulations or any law or regulation relating to foreign investment

holders or by deducting charges from one or more cash dividends or other cash distributions

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


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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 2010, the depositary reimbursed us U.S. dollar 113,609. 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 January 20, 2013, 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 2010.

Category of Expenses

Amount Reimbursed
for the Year Ended
December 31, 2010U.S. Securities and Exchange Commission filing fees in relation to Form 20-F filing

$
56,769Listing fees

$
38,000Investor Relations(1)

$
18,840Total

$
113,609


(1)Includes
investor relations servicing, investor related and road show presentation expenses.


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
January 20, 2013, 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, 2010.

Category of Expenses

Amount Waived or Paid
for the Year Ended
December 31, 2010Third-party expenses paid directly

$
0Fees waived

$
390,000Total

$
390,000


The Company has received $49,689.39 in further direct payments from JP Morgan Chase Bank between December 31, 2010 and the date of this
Annual Report.

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.

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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.

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 delivery 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. Further, in relation to certain activities that were the subject of the internal investigation, the Hungarian Central Investigating Chief Prosecutor's Office has
commenced a criminal investigation into alleged corruption with the intention of violating obligations in international relations and other alleged criminal offenses. In addition, the Montenegrin
Supreme State Prosecutor is also investigating the activities of the Company that were the subject of the internal investigation and has requested information from the Company in relation to the
relevant contracts. These governmental investigations are continuing, and the Company continues to cooperate with these investigations.

As
previously disclosed, the Company, through its external legal counsel, is engaged in discussions with the DOJ and the SEC regarding the possibility of resolving their respective
investigations as to the Company through negotiated settlements. The Company has not reached any agreement with either the DOJ or the SEC regarding resolution of their respective investigations, and
discussions with both agencies are continuing. We may be unable to reach a negotiated settlement with either agency. Any resolution of the investigations could result in criminal or civil sanctions,
including monetary penalties and/or disgorgement, against the Company or its affiliates, which could have a material effect on the Company's financial position, results of operations or cash flows, as
well as require additional changes to its business practices and compliance programs. The Company cannot predict or estimate whether or when a resolution of the DOJ or SEC investigations will occur,
or the terms, conditions, or other parameters of any such resolution, including the size of any monetary penalties or disgorgement, the final outcome of these investigations, or any impact such
resolution may have on its financial statements or results of operations.

Evaluation of the Effectiveness of Disclosure Controls and Procedures

As of December 31, 2010 (the "Evaluation Date"), our management, 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.

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(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 preparation of financial statements for external purposes in conformity with IFRS as issued by the International Accounting 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, 2010. 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, 2010, 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, 2010 has been audited by PricewaterhouseCoopers
Könyvvizsgáló és Gazdasági Tanácsadó Kft. ("PwC"), 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

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.telekom.hu.

Our
Financial Code of Ethics for Treasury and Financial Managers is filed as Exhibit 11.2. to this Form 20-F.

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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.telekom.hu.

ITEM 16CPRINCIPAL ACCOUNTANT FEES AND SERVICES

Audit and Non-Audit Fees

The following table sets forth the fees (including expenses) of our independent registered public accounting firm, PwC, related to
2009 and 2010:

For the
year ended
December 31,2009

2010(in HUF millions)Audit Fees


593


527Audit-Related Fees


205


40Tax Fees


0


0All Other Fees


4


4Total


802


571


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 2010 include HUF 40 million (in 2009: HUF 205 million) relating to the investigations.

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.

Audit Committee Pre-Approval Policies and Procedures

The "Rules of Procedure" and the "Pre-approval Policy" of Magyar Telekom Plc.'s Audit Committee were approved on
February 2, 2011. 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.

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ITEM 16EPURCHASES OF EQUITY SECURITIES BY THE ISSUER  AND AFFILIATED PURCHASERS

Not applicable.

ITEM 16FCHANGE IN REGISTRANT'S CERTIFYING ACCOUNTANT

Not applicable.

ITEM 16GCORPORATE GOVERNANCE

Not applicable. On October 20, 2010, the Company provided written notice to the NYSE of its intention to delist its ADSs from
the NYSE. The Company filed the related Form 25 with the SEC on November 2, 2010. The delisting of the ADSs from the NYSE became effective on November 12, 2010, from which time
the ADSs are no longer listed and traded on the NYSE.

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PART III

ITEM 17FINANCIAL STATEMENTS

See pages F-1 through F-103 incorporated herein by reference.

ITEM 18FINANCIAL STATEMENTS

Not applicable.

ITEM 19EXHIBITS

Exhibit No.

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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, 2011

MAGYAR TELEKOM PLC.By:

/s/ CHRISTOPHER MATTHEISENName:

Christopher MattheisenTitle:

Chairman and Chief Executive OfficerBy:

/s/ THILO KUSCHName:

Thilo KuschTitle:

Chief Financial Officer


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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, 2009 and
2010

F-3Consolidated Statements of comprehensive income for the years ended December 31, 2008,
2009 and 2010

F-4Consolidated Statements of cash flows for the years ended December 31, 2008, 2009 and
2010

F-5Consolidated Statements of changes in equity for the years ended December 31, 2008, 2009 and
2010

F-6Notes to the Consolidated financial statements

F-8


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, 2010 and
December 31, 2009, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2010 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, 2010, 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 2010 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, 2011

F-2

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MAGYAR TELEKOM        CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

At December 31,Note

2009

2010

2010 (Note 2.1)(in HUF millions)

(million USD)ASSETSCurrent assetsCash and cash equivalents


6


34,270


15,841


76Trade and other receivables


7


110,353


114,625


549Other current financial assets


8.1


87,611


56,560


271Current income tax receivable


9.1


4,075


1,804


9Inventories


10


9,788


9,592


46Non current assets held for sale


11


3,269


2,152


10Total current assets





249,366


200,574


961Non current assetsProperty, plant and equipment


12


550,745


549,752


2,635Intangible assets


13


335,615


332,993


1,596Investments in associates and joint ventures


14


186


77


Deferred tax assets


9.4


1,890


913


4Other non current financial assets


8.2


27,682


24,033


115Other non current assets


15


893


664


3Total non current assets





917,011


908,432


4,354Total assets





1,166,377


1,109,006


5,315LIABILITIESCurrent liabilitiesFinancial liabilities to related parties


16


70,573


72,208


346Other financial liabilities


17


36,332


46,647


224Trade payables


18


85,874


88,613


425Current income tax payable


9.1


624


661


3Provisions


19


12,692


7,722


37Other current liabilities


20


32,228


30,966


148Total current liabilities





238,323


246,817


1,183Non current liabilitiesFinancial liabilities to related parties


16


266,998


234,164


1,122Other financial liabilities


17


26,221


8,828


42Deferred tax liabilities


9.4


18,594


10,924


52Provisions


19


9,721


12,298


59Other non current liabilities


21


1,100


1,263


6Total non current liabilities





322,634


267,477


1,282Total liabilities





560,957


514,294


2,465EQUITYEquity of the owners of the parentCommon stock





104,275


104,275


500Additional paid in capital





27,379


27,379


131Treasury stock





(1,179
)

(307
)

(1
)Retained earnings





398,250


385,283


1,847Accumulated other comprehensive income





9,755


14,882


71Total Equity of the owners of the parent





538,480


531,512


2,547Non-controlling interests





66,940


63,200


303Total equity





605,420


594,712


2,850Total liabilities and equity





1,166,377


1,109,006


5,315


These consolidated financial statements were approved and signed by the CEO and CFO of the Company on March 24, 2011.

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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MAGYAR TELEKOM        CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

For the year ended December 31,Note

2008

2009

2010

2010
(Note 2.1)(in HUF millions, except per share
amounts)

(million
USD)Revenue


22


673,056


643,989


609,579


2,922Expenses directly related to revenues


23


(167,558
)

(160,576
)

(157,427
)

(755
)Employee related expenses


24


(100,320
)

(101,918
)

(93,884
)

(450
)Depreciation and amortization





(106,120
)

(101,920
)

(100,872
)

(483
)Other operating expenses


25


(141,049
)

(135,305
)

(148,750
)

(713
)Operating expenses





(515,047
)

(499,719
)

(500,933
)

(2,401
)Other operating income


26


4,249


2,863


3,448


17Operating profit





162,258


147,133


112,094


537Interest income


27


7,227


8,526


4,938


24Interest expense


28


(33,188
)

(33,465
)

(23,784
)

(114
)Other finance expensenet


29


(4,347
)

(7,874
)

(9,267
)

(44
)Net financial result





(30,308
)

(32,813
)

(28,113
)

(135
)Share of associates' and joint ventures' profits/(losses)


14


1,341


(109
)

(27
)

Profit before income tax





133,291


114,211


83,954


402Income tax expense


9.2


(27,698
)

(20,958
)

(6,583
)

(32
)Profit for the year





105,593


93,253


77,371


371Exchange differences on translating foreign operations





8,851


6,159


6,617


32Revaluation of available-for-sale financial assets
before tax





(348
)

(6
)

20


Revaluation of available-for-sale financial assets
tax effect





35








Other comprehensive income for the year, net of tax





8,538


6,153


6,637


32Total comprehensive income for the year





114,131


99,406


84,008


403Profit attributable to:Owners of the parent





93,008


77,618


64,378


309Non-controlling interests





12,585


15,635


12,993


62105,593


93,253


77,371


371Total comprehensive income attributable to:Owners of the parent





99,316


81,586


69,505


333Non-controlling interests





14,815


17,820


14,503


70114,131


99,406


84,008


403Earnings per share (EPS) information:Profit attributable to the owners of the Company





93,008


77,618


64,378


309Weighted average number of common stock outstanding (thousands) used for basic and diluted EPS





1,041,242


1,041,241


1,041,290


1,041,290Basic and diluted earnings per share (HUF and USD)





89.32


74.54


61.83


0.30


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

2008

2009

2010

2010
(Note 2.1)(in HUF millions)

(million
USD)Cashflows from operating activitiesProfit for the year





105,593


93,253


77,371


371Depreciation and amortization





106,120


101,920


100,872


483Income tax expense





27,698


20,958


6,583


32Net financial result





30,308


32,813


28,113


135Share of associates' and joint ventures' profits/(losses)





(1,341
)

109


27


Change in assets carried as working capital





1,481


(1,427
)

(8,364
)

(40
)Change in provisions





(10,265
)

(3,918
)

(4,194
)

(20
)Change in liabilities carried as working capital





1,886


(4,231
)

(3,009
)

(14
)Income tax paid





(20,768
)

(16,053
)

(11,419
)

(55
)Dividend received





127


2,149


95


Interest and other financial charges paid





(34,119
)

(38,627
)

(27,426
)

(131
)Interest received





7,923


8,453


4,919


24Other cashflows from operations





(4,354
)

(1,604
)

1,102


5Net cash generated from operating activities





210,289


193,795


164,670


789Cashflows from investing activitiesPurchase of property plant and equipment (PPE) and intangible assets


30


(116,039
)

(110,228
)

(87,300
)

(418
)Purchase of subsidiaries and business units


31


(762
)

(5,193
)

(1,534
)

(7
)Cash acquired through business combinations








460


6


(Payments for)/Proceeds from other financial assets
net





(4,075
)

(18,547
)

34,327


165Proceeds from disposal of subsidiaries and associates


26


1,233


2,074


780


4Proceeds from disposal of PPE and intangible assets





6,194


1,135


873


4Net cash used in investing activities





(113,449
)

(130,299
)

(52,848
)

(253
)Cashflows from financing activitiesDividends paid to shareholders and Non-controlling interest





(95,343
)

(93,640
)

(91,819
)

(440
)Proceeds from loans and other borrowings





143,014


190,617


190,797


914Repayment of loans and other borrowings





(126,901
)

(193,537
)

(229,545
)

(1,100
)Change in Non-Controlling interests











(22
)

Net cash used in financing activities





(79,230
)

(96,560
)

(130,589
)

(626
)Exchange gains on cash and cash equivalents





1,404


654


338


2Change in cash and cash equivalents





19,014


(32,410
)

(18,429
)

(88
)Cash and cash equivalents, beginning of year





47,666


66,680


34,270


164Cash and cash equivalents, end of year


6


66,680


34,270


15,841


76


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

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
Equity(pieces)

(in HUF millions)Balance at December 31, 2007


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


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 (k)


(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


605,420Dividend (i)














(77,053
)










(77,053
)




(77,053
)Dividend declared to Non-controlling interests (j)





























(18,243
)

(18,243
)Share based compensation program (l)











872


(292
)










580





580Total comprehensive income for the year














64,378


5,165


11


(49
)

69,505


14,503


84,008Balance at December 31, 2010


1,042,742,543


104,275


27,379


(307
)

385,283


14,933


(51
)




531,512


63,200


594,712Of which treasury stock


(390,862
)Shares of common stock outstanding at December 31, 2010


1,042,351,681


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 (Continued)

Together with the approval of these financial statements for issue, the Board of the Company proposes a HUF 50 per share dividend distribution (in total
HUF 52,118 million) to be approved by the Annual General Meeting of the Company in April 2011.

The
accompanying notes form an integral part of these consolidated financial statements.

F-7

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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 Telecommunications Public Limited Company (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 stock exchange and its shares are traded on the Budapest Stock Exchange. Magyar Telekom's American Depository Shares (ADSs) each
representing five
ordinary shares were also traded on the New York Stock Exchange until November 12, 2010, when the ADSs were delisted.

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
February 24, 2011, and are to be approved by the annual General Meeting of the Company in April 2011.

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.

1.2     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

F-8

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Table of Contents

MAGYAR TELEKOM

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1.       GENERAL INFORMATION (Continued)

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.

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 delivery 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-9

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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 the internal investigation. Further, in relation to certain activities that were the subject of the internal investigation, the Hungarian Central Investigating Chief Prosecutor's Office has
commenced a criminal investigation into alleged corruption with the intention of violating obligations in international relations and other alleged criminal offenses. In addition, the Montenegrin
Supreme State Prosecutor is also investigating the activities of the Company's Montenegrin subsidiary that were the subject of the internal investigation and has requested information from the
Company's Montenegrin subsidiary in relation to the relevant contracts. These governmental investigations are continuing, and the Company continues to cooperate with these investigations.

F-10

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Table of Contents

MAGYAR TELEKOM

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1.       GENERAL INFORMATION (Continued)

As
previously disclosed, the Company, through its external legal counsel, is engaged in discussions with the DOJ and the SEC regarding the possibility of resolving their respective
investigations as to the Company through negotiated settlements. The Company has not reached any agreement with either the DOJ or the SEC regarding resolution of their respective investigations, and
discussions with both agencies are continuing. We may be unable to reach a negotiated settlement with either agency. Any resolution of the investigations could result in criminal or civil sanctions,
including monetary penalties and/or disgorgement, against the Company or its affiliates, which could have a material effect on the Company's financial position, results of operations or cash flows, as
well as require additional changes to its business practices and compliance programs. The Company cannot predict or estimate whether or when a resolution of the DOJ or SEC investigations will occur,
or the terms, conditions, or other parameters of any such resolution, including the size of any monetary penalties or disgorgement, the final outcome of these investigations, or any impact such
resolution may have on its financial statements or results of operations. Consequently, the Company has not made any provisions in its financial statements as of December 31, 2010 with respect
to the investigations.

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 (hereinafter:
Communications Act), the latest act on the telecommunications sector, came into effect on January 1, 2004. The National Media and Infocommunications Authority of Hungary (NMIAH) is the supreme
supervisory body.

Universal
services are basic communications services (including access to communication services at a fixed location, public payphones, directory and directory enquiry services) that
should be available to all customers at an affordable price. Although Magyar Telekom Plc. was a universal service provider from 2002 to 2008, currently there is no universal service contract in
effect and Magyar Telekom Plc. is not a universal service provider.

In
the electronic communications field Magyar Telekom was designated as an SMP operator (a service provider with significant market power) on certain relevant markets. The current 7
relevant markets include retail and wholesale telephony and broadband services stipulated by the EU (according to the its second recommendation on the relevant markets). In 2008 the NMIAH has started
the third round of market analysis. As a result of the third round market analysis, the NMIAH made a resolution on the Access to the public telephone network at a fixed location for residential and
non-residential customers (Market 1) and published two draft resolutions concerning wholesale (physical) network infrastructure access (Market 4) and wholesale broadband
access (Market 5).

F-11

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Table of Contents

MAGYAR TELEKOM

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1.       GENERAL INFORMATION (Continued)

Magyar
Telekom Plc's retail tariffs are regulated in two ways: 1) there is price cap regulation based on SMP resolutions on retail residential and business markets which
limits price increases of monthly fees and 2) price squeeze is prohibited as well (i.e. retail prices should be set in accordance with wholesale tariffs providing an acceptable level of
retail margins).

Magyar
Telekom is Hungary's leading fixed line broadband service provider in the wholesale market and one of the leading ones in the retail market. In 2005 the NMIAH 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 NMIAH. 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 NMIAH. The pricing of these services has to be cost based
and calculatedaccording to the NMIAH resolution on the market of wholesale unbundled access to metallic loops published at the end of 2009by Long Run Incremental Costs
("LRIC") method as opposed to 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 NMIAH, 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 AD Skopje (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. In December 2010 an update of the
rulebooks was proposed according to the latest changes of the ECL from June 2010. Changes in "Rulebook for content of data

F-12

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Table of Contents

MAGYAR TELEKOM

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1.       GENERAL INFORMATION (Continued)

which
operators of public communication networks and/or providers of public communication services are obliged to publish concerning general conditions for access and usage, prices and tariffs and
parameters for quality of public communication services", and changes in the RUO and RIO rulebooks were also proposed according to changes in ECL and the new BEREC's NGN recommendation (Next
Generation Network recommendation of the Body of European Regulators for Electronic Communications). On October 20, 2010 a new Rulebook for Universal service was enacted. According to the new
rulebook Public call for express of interest was announced on December 1, 2010. MKT sent a letter of interest for all services in the scope of Universal service.

Based
on the AEC analysis for the relevant markets 1-6 related to fixed voice retail services and the program of the Agency for Electronic Communications (Agency) for 2011,
the Agency is planning to impose retail price regulation on MKT. The Agency introduced symmetrical termination rates for fixed operators and designation of Significant Market Power (SMP) for all
alternative operators on market 9 for terminating calls in their networks. In the middle of 2010 the Agency introduced a Guideline for price squeeze testing. With such regulation, the Agency intends
to have bigger impact on retail pricing schemes on all national operators and thus establish some basic rules regarding price squeeze issues. Regarding individual pricing offers, especially tenders,
MKT is facing constant pressure from competitors and is under observation by Competition Authority and the Agency.

MKT
has a cost based price obligation for the Regulated wholesale services, using Long Run Incremental Costs methodology (LRIC). During December 2010, the Agency published results from
its own developed LRIC Bottom-up costing model. If the results from the costing model are implemented at the beginning of 2011, it is possible that the monthly fee for Unbundled Local Loop (ULL) and
interconnection rates (for origination, termination and transit), as well the monthly fees for interconnection links and collocation will have to be reduced.

Changes
in by-law for bit-stream access made on June 7, 2010 resulted in decreased fees for bit-stream access and introduction of technical
specifications for new services (IPTV, VoIP and VoD), therefore wholesale partners are more competitive on broadband market.

Also,
new Rulebook on access and use of specific network assets was published by the Agency on December 7, 2010 according to which MKT has obligation to offer access to ducts and
dark fiber.

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, IPTV, value added services, etc. The telecommunications sector in Montenegro is regulated by the Law on Electronic Communications (the
Law) 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. The Agency for Electronic Communications and
Postal Services identified the relevant telecommunication markets in Montenegro identical to those defined by the EC recommendation 2007/879/EC and completed market analysis process in November 2010.
As a result of the market analysis CT was recognized as an SMP operator at all seven markets, and local loop unbundling, bit stream access ,wholesale leased line and carrier pre-selection
are going to be introduced in

F-13

---



Table of Contents

MAGYAR TELEKOM

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1.       GENERAL INFORMATION (Continued)

Montenegro
not earlier than March 2011. Carrier selection was already implemented by CT in 2008. Number portability will be introduced by the end of August 2011. RIO rates are determined by the
Agency's Resolution based on benchmarks as there is no approved Cost Accounting Methodology prescribed in Montenegro.

In
December 2010 Montenegro obtained EU candidate status. In accordance with the previously signed Stabilization and Association Agreement with the EU, the harmonization of the
telecommunications regulations with the regulatory framework of the EU should be completed within three years of the ratification of the Agreement that is in 2013.

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 until 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 until 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. 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 2004, applicable only in case of other mobile operators.

In
2005 and 2006 the NMIAH 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 NMIAH 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.

F-14

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Table of Contents

MAGYAR TELEKOM

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1.       GENERAL INFORMATION (Continued)

It
is expected that a tender will be issued for the 4th GSM/UMTS spectrum 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 the second half of 2011. EU Member States had
6 months to transpose the modified GSM Directive into their national legislation by May 9, 2010. Due to the fact that Hungary did not implement the revised GSM Directive by the set
deadline, the Commission sent a letter of formal notice on September 20, 2010 to the Hungarian Government calling for the transposition of the Directive.

T-Mobile
HU won a tender for a spectrum usage right license for a 26 GHz block on April 30, 2009.

The
negotiations with the Ministry/NMIAH on the full revision of the frequency usage fees for mobile radiotelephony frequency bands started in August 2010, and ended in September,
aiming at introducing the band fee concept instead of the frequency usage proportional TRX-based frequency usage fees. The official publication of the modification of the frequency fee
decree has not happened yet, but it is expected to be published soon.

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 ("ECL") 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 an additional 20 years in accordance with the ECL.

After
the analysis of the market 16 "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. T-Mobile MK published a RIO
with regulated termination rate effective from August 1, 2008. Second round analysis of Market 16 was concluded on May 14, 2010 and the third mobile operator VIP Operator (subsidiary of
Mobilkom Austria) was designated as SMP on Market 16 on May 18, 2010.

Based
on the second round analysis on Market 16 published by the Agency on May 14, 2010, on July 30, 2010 T-Mobile MK received a Decision for changing the RIO
by which the mobile termination rate (MTR) has been defined with a glide path decrease in a four years' time frame (until 2013). At the same time the Agency regulated the MTR's for ONE and VIP with a
respective 4 year
glide path but introducing asymmetry between all three mobile operators which will lead to equal termination rates in September 2013. In August 2010 T-Mobile MK initiated a procedure
before the Administrative Court to dispute the decision of the Agency arguing against the lowering of the MTR as well as against unjustified asymmetry. The administrative procedure has not started
yet.

On
July 7, 2010 the Agency concluded market analysis on Market 15 (Service for access and call initiation in the public mobile communication networks) and on July 28, 2010
brought a decision by which T-Mobile MK was designated with SMP status on Market 15. As a result of the SMP designation, T-Mobile MK was obliged to prepare and publish Referent
Access Offer ("RAO"). T-Mobile MK submitted the

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1.       GENERAL INFORMATION (Continued)

offer
to the Agency on August 28, 2010 and it was approved on November 29, 2010. On August 30, 2010 T-Mobile MK initiated a procedure before the Administrative Court
challenging this decision of the Agency for designating T-Mobile MK as SMP on Market 15. The administrative procedure has not started yet.

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.

In
December 2010 four bylaws, for General terms, RIO provisions, LRIC calculation for mobile operators and for specific network elements, were published for public debate. The new
provisions in the bylaws are not in favor of T-Mobile MK but they will be subject to public debate and possible revision by the Agency.

In
January 2011 the Agency officially published the draft market analysis for SMS termination.

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 in 2000. The third mobile operator entered the market in 2007.
T-Mobile CG started 3G operations in 2007.

As
a result of the market analysis of the Agency (Note 1.3.3) T-Mobile CG is designated as an SMP in the market of termination of voice calls in its own network.
Interconnect rates have been determined by the Regulator based on benchmarks. Number portability will be introduced by August 2011 also in the mobile the sector.

The
new Mobile Country Code 297 (assigned to Montenegro after independence) has to be introduced by October 1, 2011 and consequently current SIM cards need to be changed.
Montenegrin mobile operators have to register all prepaid customers by June 1, 2011.

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 2010 are also presented in millions of U.S. dollars (USD) translated at a rate of HUF 208.65 to USD 1 (the official rate of the National
Bank of Hungary at December 31, 2010). These translations are 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

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2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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 2010

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2.1.2  Standards, amendments and interpretations effective in 2010 but not relevant for the Group

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2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)



2.1.3  Standards, amendments and interpretations that are not yet effective and have not been early adopted by the Group



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2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)





2.1.4  Standards, amendments and interpretations that are not yet effective and not relevant for the Group's operations

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2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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.

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 acquisition 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 whereby costs directly attributable to the acquisition are expensed for transactions closed after January 1, 2010. 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 operating income).

If
applicable, the Group recognizes 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 is recognized in accordance with other applicable IFRSs, as appropriate rather than as an
adjustment of goodwill for acquisitions concluded after January 1, 2010. For acquisitions concluded before, the difference between the contingent consideration recognized at the acquisition
date and the actual contingent consideration paid was recognized as an adjustment to goodwill.

As
for the measurement of non-controlling interest, from January 1, 2010, the Group may recognize 100% of the goodwill of the acquired entity, not just the Group's
portion of the goodwill. This is elected on a transaction-by-transaction basis. Before that date, the Group could only recognize its own share of the goodwill. The Group
attributes their share of losses to the non-controlling interests even if this results in the non-controlling interests having a deficit balance since January 1, 2010.
Before that date, the balance of the Non controlling interests could not be a negative amount and thus these losses would be allocated to the Group.

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 is
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 fair value of the net asset
acquired and non-controlling interest is recorded at fair value when the Group elects the fair value option.

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 selling owner's accounts, and any gains, losses or differences between the carrying amount and the sale-purchase price are recognized in Retained
earnings.

A
partial disposal of an investment in a subsidiary while control is retained is accounted for as an equity transaction with owners, therefore gain or loss is not recognized in profit
or loss for disposals

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2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

concluded
since January 1, 2010. Before that date, the gain or loss was recognized as a current year income.

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 since January 1, 2010. Before that date, no such re-measurement took place.

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.

At
December 31, 2010 and 2009 the principal operating subsidiaries of the Group were as follows:

Group interest in
capital as at
December 31,Subsidiaries

2009

2010



ActivityIncorporated in Hungary:Dataplex


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%


100.00%



Integrated healthcare IT servicesTelekom New Media


100.00%


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%



Telecom service providerIncorporated in Romania:Combridge


100.00%


100.00%



Wholesale telecommunications service providerIncorporated in Bulgaria:Novatel BG


100.00%


100.00%



Wholesale telecommunications service providerOrbitel


100.00%




(a)

Alternative telecommunications and internet service providerIncorporated in the Ukraine:Novatel UA


100.00%


100.00%



Alternative telecommunications and internet service provider


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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

The Group's interest in the capital of the above subsidiaries equals the voting rights therein.

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.

At
December 31, 2010 and 2009 the Group had no significant associates or joint ventures.

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 (Other finance expensenet).

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
available-for-sale (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

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

to
the Group for similar financial instruments. The carrying amount of floating-rate financial liabilities or those 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 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.

Standard
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 from 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 current assets). No reclassification between categories has 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 and impairment losses or their reversals
are recognized in the Profit for the year (Other finance expensenet) 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 (Other finance expensenet).

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 Other 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.

Should
an impairment on cash and cash equivalents occur, it would be recognized in the Profit for the year (Other finance expensenet).

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

(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.

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 or an other 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).

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2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

(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.

The
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 Interest income, while the prepaid employee benefits are amortized to Employee related expenses evenly over the term of the
loan.

Impairment
losses on Employee loans are recognized in the Profit for the year (Employee related expenses).

(d)    Loans granted to related parties and third parties

Loans granted to related parties and third parties include short term loans and deposits made with DTAG or other trading partners.

Impairment
losses on Loans granted to related parties and third parties are accounted for in the Profit for the year (Other finance expensenet).

2.4.1.3    Available-for-sale (AFS) financial assets

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 (Interest income).
Dividends on available-for-sale equity instruments are recognized in the Profit for the year (Other finance expensenet) 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,

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

and
any remaining difference is also recognized in the Profit for the year (Other finance expensenet). 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 (Other finance expensenet).

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.

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 (Interest expense) 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.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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 (Other finance expensenet).

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.

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.

Impairment
losses on Inventories are recognized in Other operating expenses (Materials, maintenance and service fees).

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

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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 borrowing costs of related loans.

Subsequent
expenditure on an asset 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.

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 overhead. 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.

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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.

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.

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 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 cannot 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 cash generating units or groups of cash generating units, which, in the vast majority of the cases, are determined at the operating segment level. See also Note 4.2. 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

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as
a basis when establishing the need for an impairment of any goodwill allocated to the CGUs or group of CGUs (usually 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.

The
impairment losses of PPE and intangible assets are accounted for in the Depreciation and amortization line of the Statement of comprehensive income.

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 Interest 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 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 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). On

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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 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 these revenues are 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.

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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.

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 (in Expenses directly related to revenues).

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.

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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. When
the share based compensation program is completed, i.e. the shares are transferred to the employees' ownership or the share options have forfeited, the respective reserve is transferred to
Retained earnings. 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 Stock Exchange, 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 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   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.

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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.

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 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 interest income

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so
as to achieve a constant rate of return on the finance receivable balance outstanding. The interest element of the lease receipt is recognized in Interest 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 interest expense 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 (Interest 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.

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

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

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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 down to EBITDA (Earnings before interest, tax, depreciation and amortization) level, which is defined by the Group as Operating
profit without Depreciation and amortization expense.

The
MC does not monitor the assets and liabilities at the segment level.

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 in the Financial statements and the Notes thereto, certain items may have been reclassified
for comparative purposes. Material changes in disclosures, if any, are described in detail in the relevant Notes. In 2010 certain reclassifications impacted the disclosure of the financial results as
described in Notes 27-29. As the changes in the disclosures did not impact the statements of financial position of any year, we did not extend the statements of financial position
to include further comparative years.

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 also
used for this purpose, depending on the risk assessment. Magyar Telekom only hedges the risks that affect the Group's cash

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3.       FINANCIAL RISK MANAGEMENT (Continued)

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 10% in the Group, i.e. the
impact on Profit for the year would be approximately 90% of the pre 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 2009 and 2010 Magyar Telekom fulfilled both criteria; Total Debt to EBITDA ratio of 1.70 in 2010 (2009: 1.61), the allowed maximum of which would be 2.5 and EBITDA to Interest Expense
ratio of 7.58 in 2010, (2009: 7.59), 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, 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 (2010) and the preceding reporting period (2009). 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 significantly. 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.

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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 them 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 to finance general corporate needs 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.

(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, 2010, a 10% weaker functional currency HUF
against the EUR and USD would have caused an unrealized loss of less than HUF 0.1billion on this net balance (2009:

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3.       FINANCIAL RISK MANAGEMENT (Continued)

HUF 0.1 billion
loss). The same amount of gain would have been caused by a 10% stronger functional currency HUF against the EUR and USD. Compared to the spot FX rates as of
December 31, 2010, a 20% weaker functional currency MKD against the EUR and USD would have caused HUF 5.2 billion unrealized gain on this net balance (2009:
HUF 4.4 billion gain). The same amount of loss would have been caused by a 20% stronger functional currency MKD 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
-666 million (liability) as of December 31, 2010 (2009: HUF -502 million (liability)). These positions were opened to hedge the FX risks of future FX
payments exceeding FX incomes. Compared to the spot FX rates as of December 31, 2010, a 10% weaker functional currency HUF against the EUR and USD would have caused
HUF 2.8 billion unrealized gain on this net balance while a 10% stronger HUF against the EUR and USD would have caused HUF 4.2 billion unrealized loss.

As
a result of the volatile international capital and securities markets, even a more than 10% fluctuation of the functional currency HUF and a more than 20% fluctuation of the
functional currency MKD against the EUR and USD 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.

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 had no significant HUF denominated bank deposits at the end of 2010 (2009: HUF 6.5 billion).

The
Group's MKD denominated bank deposits amounted to HUF 15.7 billion at the end of 2010 (2009: HUF 32.7 billion). A 5 percentage point higher
interest rate throughout 2010 (assuming the year-end 2010 balance throughout 2010) would have resulted in HUF 0.8 billion higher interest income in

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3.       FINANCIAL RISK MANAGEMENT (Continued)

2010
(2009: HUF 1.6 billion). The interest income would be lower by a smaller amount as interest rates are usually lower than 5%.

The
Group's EUR denominated bank deposits amounted to HUF 38.0 billion at the end of 2010 (2009: HUF 37.0 billion). A 1 percentage point higher
interest rate throughout 2010 (assuming the year-end 2010 balance throughout 2010) would have resulted in HUF 0.4 billion higher interest income in 2010 (2009:
HUF 0.4 billion). The interest income would be lower by a smaller amount as interest rates are usually lower 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 deposits (see above). Sensitivities have been disclosed for a movement of 5 percentage points for MKD and 1 percentage point for EUR, 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 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 63% of the Group's total debt as of December 31, 2010 (2009: 56%).

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 2010 balance and rating throughout 2010) on top of the pre-fixed amount of interest (2009: HUF 0.2 billion).
On the other hand, such rating upgrades above the level of the credit rating A would have caused HUF 0.2 billion lower interest expense for 2010 (2009: HUF 0.3 billion).

Floating
interest-bearing debts (including loans swapped to floating interest and excluding loans swapped to fixed interest) made up 37% of the Group's total debt as of
December 31, 2010 (2009: 44%). A 1 percentage point higher interest rate throughout 2010 (assuming the year-end 2010 balance throughout 2010) would have resulted in
HUF 1.3 billion higher interest expense in 2010, while the same decrease of interest rates would cause the same decrease in interest payments (2009: HUF 1.7 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 is very limited. See also Note 8.2.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3.       FINANCIAL RISK MANAGEMENT (Continued)

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.

The
following table represents Magyar Telekom's maximum exposure to credit risk as at December 31, 2009 and 2010.

At December 31,2009

2010(in HUF millions)Cash and cash equivalents


34,270


15,841Bank deposits with original maturities over 3 months


50,660


47,798Trade receivables


100,524


106,732Loans to Deutsche Telekom Group companies


29,587


Finance lease receivables


23,531


20,385Employee loans


4,870


4,704Derivative financial instruments


1,285


1,305Trade receivables over one year


1,487


1,524Loans to third parties


580


947Financial assets available for sale


276


296RDC receivables


839


715Other current


1,626


2,400Other non-current


552


519250,087


203,166


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.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3.       FINANCIAL RISK MANAGEMENT (Continued)

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 10.1 billion as at December 31, 2010 (2009: HUF 12.2 billion) and those in Macedonia of HUF 43.7 billion as at December 31, 2010 (2009:
HUF 57.5 billion) 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 customers 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 country of operation.

At December 31,2009

2010(in HUF millions)Hungary


82,333


88,099Macedonia


12,061


12,852Montenegro


4,763


4,792Other


1,367


989100,524


106,732


The
amounts in the table above are shown net of provisions for impairment losses of HUF 34.5 billion as at December 31, 2010 (2009: HUF 29.7 billion).
The annual bad debt expense of the Group had been under 1% of the consolidated revenues before 2009, when it started to increase (1.4% in 2009). In 2010, the ratio reached 1.6%. Further 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 6.1 billion in 2010 (2009: HUF 6.4 billion).

F-46

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3.       FINANCIAL RISK MANAGEMENT (Continued)

Hungary

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 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
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. The Fraud Detecting System monitors extreme usage and fraudulent behavior of customers for mobile, fixed-line and
Internet services. In case of business customers, account managers check if the customer has outstanding debts.

Dunning
procedures are run automatically by the billing systems and include various reminder tools like SMS, telephone calls, reminder letters, restricted service, termination letters
and disconnections. Over a minimum overdue amount we apply varying and customized reminder procedures with specific deadlines to the different customer groups. 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 (reminding and disconnection activities), collaboration with collection agencies and collection after legal relationship as litigation
process, court proceedings and involvement of the executive unit. 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

In Montenegro, receivables management and credit risk control were focus points of the efficiency program in the finance area in 2010.
Through organizational change, Customer Finance department has been formed, with the goal of reducing bad debt expenses. Most of the processes have been changed in 2010: reminder processes were
changed and tuned to different customer segments; additional debt collection agencies have been included into the process, to increase competition, drive provision fees down and to increase their
collection rates; the credit checking processes for new and existing customers have been redesigned. All of these activities resulted in sharp decline of bad debt expenses, despite the economic crisis
in Montenegro.

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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 54.6 billion as at
December 31, 2010 (2009: HUF 50.5 billion), and the Company also had uncommitted credit lines from several Hungarian Banks as at December 31, 2010. In addition to the
above, Deutsche Telekom confirmed its readiness to finance Magyar Telekom Group's budgeted financing needs until the end of June 2012.

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, 2010
and 2009. 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 not be useful, therefore, is not included in the tables below.

December 31, 2010Total

within
1 year

1 to
5 years

after
5 years(in HUF millions)Trade payables


88,613


88,613





Dividend payable


319


319





Financial liabilities to related parties


363,184


87,788


245,188


30,208Bank loans


52,813


46,348


6,465


Finance lease liabilities


4,462


1,080


2,664


718Nonconvertible bonds and debentures


191


70


121


Other financial liabilities


1,243


1,119


123


1Total other financial liabilities


58,709


48,617


9,373


719Total cash flows


510,825


225,337


254,561


30,927Open swap positions' cash flowsGross cash inflow in EUR million


312


25


287


Gross cash inflow in HUF million (at spot rate)


87,089


6,861


80,228


Gross cash outflow in HUF million


100,849


10,037


90,812


Net cash outflow in HUF million


13,760


3,176


10,584


Open forward positions' cash flowsGross cash inflow in EUR million


123


123





Gross cash inflow in USD million


5


5





Total gross cash inflow in HUF million (at spot rate)


35,253


35,253





Gross cash outflow in HUF million


36,395


36,395





Net cash outflow in HUF million


1,142


1,142








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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3.       FINANCIAL RISK MANAGEMENT (Continued)



December 31, 2009Total

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








The
average maturity of Magyar Telekom's debt portfolio was 2.5 years as at December 31, 2010 (2009: 2.6 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, 2010 and 2009.

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 achieved 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

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3.       FINANCIAL RISK MANAGEMENT (Continued)

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
2009 and 2010, 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, 2010 was 32.7% (2009:
31.5%).

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 595 billion on December 31, 2010 (2009: HUF 605 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.

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 (2009:
HUF 10 billion). See Notes 12 and 13 for the changes made to useful lives in 2010.

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 or

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

4.       CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS (Continued)

assets
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 not amortized, but tested for impairment annually or more frequently. The recoverable amounts of the operating segments (or CGUs) are calculated
based on fair value less cost to sell determined by the discounted projected cash flows of the operating segments (or CGUs) 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. We use 10 year cash flow projections as the payback period of our investments in the telecommunications operations often exceeds 5 years.

In
order to determine the recoverable amounts of the operating segments (or CGUs), the Group calculates operating segments (or CGUs) 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.

When
conducting the goodwill impairment tests, goodwill is allocated to the following operating segments of the Group: Consumer Business Unit (CBU), Business Services Business Unit
(BBU), Macedonia, Montenegro and to the Media Business Unit (MBU) CGU of the Group included in the Headquarters operating segment.

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
(except the MBU CGU included in the Headquarters segment) are allocated to the other cash generating operating segments based on the cash generating operating segments' 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
tables below show the WACCs and PGRs used in the fair value calculations of the Group's operating segments and the MBU CGU for the goodwill impairment test conducted in 2010 and
2009. The tables below also include sensitivity analyses that show how much impairment would have been recognized as at December 31, 2010 or 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 increase in the risk free
interest rates by 2 percentage points. 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.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

4.       CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS (Continued)

2010

CBU

BBU

MBU

Macedonia

MontenegroWACCUsed in the calculation


12.36%


12.28%


12.56%


10.96%


10.68%If changed to


14.77%


14.67%


14.97%


13.09%


12.80%Potential impairment (HUF million)











2,069


PGRUsed in the calculation


1.5%


2.0%


2.0%


1.7%


1.2%If changed to


-32.0%


-32.0%


-32.0%


-32.0%


-32.0%Potential impairment (HUF million)








134





Cash flowsIf changed by


-19%


-19%


-19%


-19%


-19%Potential impairment (HUF million)











1,169







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








There
has been certain changes in the operating segment structure of the Group, whereby the Media business unit (MBU) is not an operating segment any more, but part of the Headquarters
operating
segment. Further, the operating segments in Macedonia and Montenegro (fixed line and mobile) are considered as one operating segment by country in 2010.

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 value in use calculations, we also determine the fair value less cost to sell (if determinable), to calculate the

F-52

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Table of Contents

MAGYAR TELEKOM

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

4.       CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS (Continued)

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 NMIAH 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 13.9 billion in 2010
(2009: HUF 17.4 billion), while agent fees amounted to HUF 9.2 billion in 2010 (2009: HUF 9.2 billion). The Group's marketing costs amounted to
HUF 13.4 billion in 2010 (2009: HUF 16.2 billion).

F-53

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Table of Contents

MAGYAR TELEKOM

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

5.       BUSINESS COMBINATIONS

5.1     Acquisitions in 2010

Modultechnika

Magyar Telekom signed a share purchase agreement to acquire 100% of Modultechnika Kft. in July 2010. The purchase price paid in cash
in 2010 was HUF 1,421 million. A maximum additional HUF 143 million is payable in the period until 2015, depending on potential third party and certain authority claims.
The fair value of this amount was recognized as a liability. Modultechnika is a cable TV service provider in Hungary with approximately 13,000 customers and annual revenues of
HUF 500 million. The transaction was closed on July 22, 2010, since when Modultechnika has been a consolidated subsidiary of the Group, included in the CBU operating segment.

The
carrying values as well as the provisional fair values of assets and liabilities acquired through this business combination as well as the consideration transferred are disclosed in
the table below.

Provisional
fair values

Carrying
values(in HUF millions)Purchase price of ownership acquired


1,421Additional estimated purchase price


143Consideration transferred


1,564Net assets acquired


861Goodwill


703Net assets acquired:Cash and cash equivalents


6


6Trade receivables


26


26Inventories


9


9Other receivables


6


6Income tax receivable


2


2Property, plant and equipment


197


178Intangible assets


799


Trade and other payables


(102
)

(102
)Net deferred tax liability


(82
)

861


125


The
initial purchase price was paid in cash in 2010, while the additional purchase price is expected to be paid in the period until 2015.

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.

In
Hungarian GAAP, there is also no goodwill amortization, but in case of impairment, the total amount of goodwill (HUF 1,477 million) recognized is tax deductible
according to the corporate tax law prevailing in 2010.

F-54

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Table of Contents

MAGYAR TELEKOM

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

5.       BUSINESS COMBINATIONS (Continued)

5.2     Acquisitions in 2009

ISH

The only significant acquisition in 2009 was the ISH transaction. 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.

The
purchase price allocation was not completed by the issuance of the 2009 financial statements, but was completed later in 2010, The table below includes the provisional and the final
fair values of assets and liabilities acquired at the time acquisition.

Provisional
fair values

Final fair
values(in HUF millions)Initial purchase price


3,101


3,101Additional estimated purchase price


12


185Additional costs directly attributable to the business combination


45


45Consideration transferred


3,158


3,331Net assets acquired


2,831


2,454Goodwill


327


877Net assets acquired:Cash and cash equivalents


345


495Trade and other receivables


1,285


1,008Income tax receivable


124


67Inventories


67


58Property, plant and equipment


31


45Intangible assets


935


844Other non current financial assets


929


946Other financial liabilities


(198
)

(215
)Trade and other payables


(468
)

(639
)Net deferred tax liability


(219
)

(155
)2,831


2,454


The
initial purchase price and a part of the additional costs in a total amount of HUF 3,131 million was paid in cash in 2009, while HUF 74 million was 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 as an
intangible asset only represents the customers and services rendered to them existing on the acquisition date, while the majority

F-55

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Table of Contents

MAGYAR TELEKOM

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

5.       BUSINESS COMBINATIONS (Continued)

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     Pro forma information on business combinations

The following pro forma information shows the most important financial data of the Group, including the subsidiaries and businesses acquired as if they had been
consolidated from the beginning of 2010, and also how much the business combinations contributed to the reported figures since the acquisition date in the year of acquisition.

2009

2010(in HUF millions)RevenuesReported


643,989


609,579Pro formaif consolidated from beginning of year


647,652


609,825Current year contribution since date of business combination in the year of acquisition


1,185


192Profit for the yearReported


93,253


77,371Pro formaif consolidated from beginning of year


93,724


77,363Current year contribution since date of business combination in the year of acquisition


110


(42
)


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 31,2009

2010(in HUF millions)Cash on hand


175


157Cash in bank (demand deposits)


7,396


9,490Bank deposits with original maturities less than 3 months


26,699


6,19434,270


15,841


F-56

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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 31,2009

2010(in HUF millions)Hungary


12,302


7,945Macedonia


20,313


6,598Montenegro


986


893Other countries


669


405Group


34,270


15,841


7.       TRADE AND OTHER RECEIVABLES

7.1     Trade and other receivablescarrying amounts

At December 31,2009

2010(in HUF millions)Trade receivables from third parties




95,032


99,741Trade receivables from Deutsche Telekom Group companies




5,492


6,991Trade receivables from associates and joint ventures







Total trade receivables

(a)


100,524


106,732Prepayments and advance payments




4,998


4,748Advance dividend paid to Non-controlling interests

(b)


3,166


Other taxes receivable




358


2,056Other




1,307


1,089Total other receivables




9,829


7,893110,353


114,625


F-57

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Table of Contents

MAGYAR TELEKOM

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

7.       TRADE AND OTHER RECEIVABLES (Continued)

(a)    Age profile of Trade receivables

The following tables show the age profile of the Group's trade receivables by country of operation 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
December 31,
2010

Of
which
not past
dueLess
than
30 days

3060 days

6190 days

91180 days

181360 days

Over
360 days(in HUF millions)Hungary


88,099


69,033


9,529


3,091


1,284


2,612


1,167


1,383Macedonia


12,852


8,823


2,017


872


380


357


244


159Montenegro


4,792


2,967


905


320


127


205


201


67Other countries


989


613


95


54


40


26


101


60Total


106,732


81,436


12,546


4,337


1,831


3,200


1,713


1,669




of which past due byCarrying
amount as of
December 31,
2009

Of
which
not past
dueLess
than
30 days

3060 days

6190 days

91180 days

181360 days

Over
360 days(in HUF millions)Hungary


82,333


64,461


10,831


2,220


824


1,477


1,438


1,082Macedonia


12,061


8,699


2,073


496


124


446


162


61Montenegro


4,763


3,263


644


224


143


255


183


51Other countries


1,367


1,026


132


60


42


56


27


24Total


100,524


77,449


13,680


3,000


1,133


2,234


1,810


1,218


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 1.6 months of revenue. As disclosed in Note 3.1.2, the
annual bad debt expense of the
Group is approximately 1.6 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.

The
Group has no collaterals related to its trade receivables.

(b)    Advance dividend paid to Non-controlling interests

At December 31, 2009 this item included the advance dividend paid by Crnogorski Telekom to its minority shareholders during 2009, as approved by an
Extraordinary General Meeting in 2009. There are

F-58

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Table of Contents

MAGYAR TELEKOM

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

7.       TRADE AND OTHER RECEIVABLES (Continued)

legal
uncertainties around the status of an advance dividend paid in Montenegro, therefore, we disclosed these amounts paid as an advance as we would have had the rights to reclaim these payments
should the General Meeting of Crnogorski Telekom in 2010 have decided on a lower final dividend or use this payment to offset the final dividend liability approved by the Annual General Meeting of
Crnogorski Telekom closing the 2009 financial year in 2010. The Annual General Meeting of Crnogorski Telekom in 2010 approved a higher amount of dividend related to the financial year 2009, and also
confirmed the advance dividend payments made in 2009.

7.2     Impairment losses of trade and other receivables

Impairment losses are recognized for Trade and other receivables from third parties. The table below shows the impairment loss and changes therein for 2009 and
2010.

At December 31,2009

2010(in HUF millions)Impairment loss, beginning of period


26,312


29,665Charged to expensenet (included in Other operating expenses)


9,072


9,991Translation difference


404


326Utilized


(6,123
)

(5,496
)Impairment loss, end of period


29,665


34,486


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 2010 for the countries of operation of the Group.

At
December 31,
2009

Charged
to expense

Translation
difference

Utilized

At
December 31,
2010(in HUF millions)Hungary


16,329


8,733





(3,776
)

21,286Macedonia


9,315


663


205


(1,614
)

8,569Montenegro


3,966


518


119


(29
)

4,574Other countries


55


77


2


(77
)

57Group


29,665


9,991


326


(5,496
)

34,486


F-59

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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.

8.1     Other current financial assets

At December 31,2009

2010(in HUF millions)Bank deposits with original maturities over 3 months


(a
)

50,660


47,798Finance lease receivable


(b
)

3,797


4,298Loans and receivables from employees


(c
)

419


542RDC receivable


(d
)

193


199Derivative financial instruments contracted with related parties


(e
)

662


1,004Derivative financial instruments contracted with third parties


(f
)

623


301Loans to Deutsche Telekom Group companies


(g
)

29,587


Other





1,670


2,41887,611


56,560


---

At December 31,2009

2010(in HUF millions)Macedonia


38,418


37,686Montenegro


12,242


10,091Hungary





2150,660


47,798


8.2     Other non current financial assets

At December 31,2009

2010(in HUF millions)Finance lease receivable


(b
)

19,734


16,087Loans and receivables from employees


(c
)

4,492


4,219RDC receivable


(d
)

646


516Trade receivables over one year


(h
)

1,487


1,524Financial assets available for sale


(i
)

276


296Other





1,047


1,39127,682


24,033


---

F-60

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Table of Contents

MAGYAR TELEKOM

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

8.       OTHER FINANCIAL ASSETS (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 31,2008

2009

2010(in HUF millions)Corporate income tax


9,941


5,914


5,158Other income taxes


9,462


7,929


8,237Deferred income taxes


8,295


7,115


(6,812
)Total income tax expense


27,698


20,958


6,583


F-61

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Table of Contents

MAGYAR TELEKOM

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

9.       INCOME TAX (Continued)

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 31,2008

2009

2010(in HUF millions)IFRS profit before income tax





133,291


114,211


83,954Tax at 19%











(15,951
)Tax at 16%





(21,327
)

(18,274
)

Impact of different tax rates


(a
)

(1,512
)

3,730


6,074Tax on items not subject to tax


(b
)

2,278


1,807


1,254Tax on non deductible items


(c
)

(2,134
)

(1,251
)

(745
)Other income taxes


(d
)

(9,462
)

(7,929
)

(8,237
)Impact of tax deductibility of other income taxes


(e
)

2,883


2,559


1,565Withholding tax on dividends


(f
)

(1,111
)

(1,128
)

(2,370
)(De)/recognized deferred tax on tax losses


(g
)

1,436





Broadband tax credit accretion


(h
)

1,251


1,476


1,473Changes in the Macedonian tax regime


(i
)




417


(4,172
)Change in the Hungarian corporate tax rate


(j
)




(2,365
)

14,526Income tax expense





(27,698
)

(20,958
)

(6,583
)Effective tax rate





20.8
%

18.4
%

7.8
%


(a)    Impact of different tax rates

The corporate tax rate in Hungary was 19% in 2010 and 16% in 2009 and 2008. As of September 1, 2006 a so called Solidarity tax was introduced in Hungary,
which was 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 Solidarity tax was abolished from January 1, 2010, with a parallel increase of the corporate tax rate from 16% to 19%. The tax rate reconciliation includes 16% for 2008 and
2009 while the difference arising due to the Solidarity tax is included in this line of the reconciliation. Further, in 2010, an amendment was made to the corporate tax law, introducing a lower rate
of corporate tax (10%) as of July 1, 2010 for the first HUF 500 million tax base (on an annual basis) of the legal entities, above which the regular rate of 19% applies. The
impact of the lower tax rate applicable to the Hungarian legal entities of the Group is also 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 10% in 2008, while the tax rate in 2009 and 2010 for
undistributed profits was 0%. The corporate tax rate is 9% in Montenegro, 16% in Romania, 10% in Bulgaria, and 25% in the Ukraine in all the reported years. This line of the reconciliation includes
the tax impacts of the above differences compared to the 16% (2008 and 2009) and 19% (2010) theoretical tax rates applied to the profit before tax.

F-62

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Table of Contents

MAGYAR TELEKOM

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

9.       INCOME TAX (Continued)

(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 positive tax impact of
the above items.

(c)     Tax on non deductible items

This line of the reconciliation shows the negative tax impact of the non deductible expenses, including primarily the 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 2008 and 2009.

(f)     Withholding tax

Macedonia and Montenegro levy a 5% withholding tax on dividend distribution to Hungary. In addition, according to the Macedonian tax law changes in 2010,
Macedonian companies have to pay "corporate income tax" on their annual profits if they distribute those profits as dividends to foreign companies (or Macedonian individuals) at 10%. We assess that
the Macedonian corporate tax in 2010 is in fact a withholding tax that is levied at the dividend distributions from Macedonia to Hungary, which imposes additional tax expenses for the Group related to
the 2010 profits of the Macedonian subsidiaries.

The
reconciliation includes the amount of withholding tax accruing on the current year's profits to be distributed from the foreign subsidiaries to the Company. Dividends received by
the Hungarian parent companies (from Macedonia and Montenegro as well) are eliminated on consolidation, therefore, the Group's profit before tax excludes these dividends. As these dividends are not
subject to corporate tax in Hungary, the reconciliation includes the withholding tax burden on such dividends as a separate line.

(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.

F-63

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Table of Contents

MAGYAR TELEKOM

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

9.       INCOME TAX (Continued)

(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 in 2009 we reversed the year-end 2008 deferred tax assets and liabilities of our Macedonian
subsidiaries, and recognized no deferred tax assets or liabilities in 2009. In addition, the further change in the tax law in 2010 resulting in the transformation of the Macedonian corporate tax (10%)
to an additional withholding tax. In 2010, we recognized an additional deferred tax liability on the accumulated undistributed profits of our Macedonian subsidiaries expected to be distributed as
dividends to Hungary. In the 2010 number of the reconciliation we include the impact of the change of the corporate tax to withholding tax. As the undistributed corporate tax rate in 2009 was 0%, no
deferred tax was recognized for the accumulated profit of 2009, while the change in 2010 resulted in a withholding tax to be recognized at 10% (+5%) for 2009. See also subnotes (a) and
(f) of this Note.

(j)     Change in tax rate

The 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 were recalculated accordingly, the impact of which was included in this line of the reconciliation for 2009.

Further,
in 2010, an amendment was made to the corporate tax law, introducing a lower rate of corporate tax (10%) as of July 1, 2010 for the first HUF 500 million
tax base of the legal entities (HUF 250 million in 2010), above which the regular rate of 19% applies. A further amendment was made to the Hungarian tax law in 2010, which states that
the corporate tax rate from January 1, 2013 will be 10%. Deferred tax balances were recalculated accordingly, the impact of which is included in this line of the reconciliation for 2010.

F-64

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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
December 31,
2008

Effect
on profit

Other
movements

Balance at
December 31,
2009

Effect
on profit

Other
movements

Balance at
December 31,
2010(in HUF millions)Deferred tax assets and (liabilities)Investment tax credits


15,811


547


428


16,786


(751
)

(3
)

16,032Net operating loss carry-forward


1,282


507





1,789


(794
)




995Investments in subsidiaries


(1,425
)

99





(1,326
)

392





(934
)Withholding tax


(3,238
)

139





(3,099
)

(3,206
)




(6,305
)Other financial assets


(181
)

529





348


(30
)




318Impairment of receivables and inventory


958


1,105





2,063


780





2,843Property, plant and equipment and intangible assets


(19,078
)

(8,080
)

(536
)

(27,694
)

8,137


(116
)

(19,673
)Goodwill


(8,289
)

(1,563
)




(9,852
)

3,626





(6,226
)Trade and other payables


128


(8
)




120


(62
)




58Loans and other borrowings


562


(205
)




357


(236
)




121Deferred revenue


824


(954
)




(130
)

(220
)




(350
)Provisions for liabilities and charges


3,165


769





3,934


(824
)




3,110Total net deferred tax asset/(liability)


(9,481
)

(7,115
)

(108
)

(16,704
)

6,812


(119
)

(10,011
)Of which deferred tax liability after netting


(11,071
)







(18,594
)







(10,924
)Of which deferred tax asset after netting


1,590








1,890








913Items included in other movementsInvestment tax credit recognized/
(derecognized) against cost of PPE








428








(3
)Currency translation adjustment arising on consolidation








(38
)







(68
)Arising on business combinations








(498
)







(48
)(108
)







(119
)


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 10,011 million which includes a high amount of individual deferred tax asset and liability items (see in the above
table). Of these items, approximately

F-65

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Table of Contents

MAGYAR TELEKOM

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

9.       INCOME TAX (Continued)

HUF 5,984 million
net deferred tax is expected to reverse in 2011 (deferred tax asset of HUF 6,360 million and deferred tax liability of HUF 376 million). The
above items exclude deferred tax items expected to arise in 2011.

Deferred
tax arising on investment tax credits are recognized against the cost of the related investment.

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 10,484 million at December 31, 2010 (2009: net liability of HUF 8,716 million).

If
the Group's Macedonian and Montenegrin subsidiaries distribute their distributable reserves in the form of a dividend, the amounts paid to Hungary are subject to withholding tax. We
recognize a deferred tax liability for the total amount of reserves distributable to the Company, considering our share of ownership.

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 2011 for
which a deferred tax asset has been recognized. As of December 31, 2010, the balance of recognized tax losses is HUF 9,944 million of which no tax loss is subject to statutory
limitations (2009: HUF 10,702 million of which HUF 9,475 million was not subject to statutory limitations). The Group recognized deferred tax asset for the total amount of
the tax losses as at December 31, 2010. In 2009 for tax losses in an amount of HUF 1,285 million no deferred tax asset was recognized.

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 investment tax credit against a reduction in the deferred
tax expense.

F-66

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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,
20102003


6,194


2,592


1,132


(3,724
)

2004


6,876


2,985


1,771


(3,792
)

9642005


13,925


5,598


1,800


(2,082
)

5,3162006


15,132


4,406


1,566


(473
)

5,4992007


11,167


2,989


811


(88
)

3,7122008


2,206


461


80





541Total


55,500


19,031


7,160


(10,159
)

16,032


Expires in year 2015














6,2802016














5,4992017














3,7122018














54116,032


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. The most important requirement is that the relevant assets have to be operated for at least 5 years. 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.

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-67

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Table of Contents

MAGYAR TELEKOM

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

10.     INVENTORIES

At December 31,2009

2010(in HUF
millions)Inventory for resale


7,619


6,901Other inventory and advances


2,492


2,880Subtotal


10,111


9,781Less allowances for obsolete inventory


(323
)

(189
)9,788


9,592


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 included the non current assets of Orbitel, the Group's consolidated subsidiary, for which
the Company signed a sale-purchase agreement in November 2009. The sale transaction was closed in January 2010.

F-68

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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, 2009Cost


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
)550,745Carrying amountJanuary 1, 2010


5,567


99,630


425,615


22,723


553,535Exchange differences


35


445


1,727


184


2,391Additions due to business combinations





11


188


9


208Additions due to and revisions of asset retirement obligations





616


(4
)




612Investments


1


2,117


62,674


7,697


72,489Disposals


(21
)

(77
)

(168
)

(246
)

(512
)Decrease due to sale of subsidiary








(487
)

(59
)

(546
)Depreciation charge


(115
)

(4,080
)

(64,344
)

(7,734
)

(76,273
)Reclassifications


643


(643
)







Carrying amountDecember 31, 2010


6,110


98,019


425,201


22,574


551,904At December 31, 2010Cost


7,979


137,403


1,204,746


102,834


1,452,962Accumulated depreciation


(1,869
)

(39,384
)

(779,545
)

(80,260
)

(901,058
)Carrying amount


6,110


98,019


425,201


22,574


551,904Of which held for sale














(2,152
)549,752


F-69

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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 42,670 million as at December 31, 2010
(2009: HUF 30,664 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. Differences between the
preliminary and the final purchase price allocation are also included in this line.

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 (see also Note 19.4).

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 2010 and 2009.

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, 2010 the gross book value of the leased back assets is
HUF 1,706 million (2009: HUF 2,706 million) and the net book value is HUF 668 million (2009: HUF 1,172 million).

Included
mainly in buildings and telecom equipment are assets leased under finance lease conditions (other than sale and lease back). At December 31, 2010 the gross book value of
the finance leased assets is HUF 1,642 million (2009: HUF 2,150) and the net book value is HUF 780 million (2009: HUF 1,237 million).

Included
in telecommunications equipment at December 31, 2010 are assets leased under operating lease contracts to customers with a gross book value of
HUF 1,120 million (2009: HUF 1,698 million) and net book value of HUF 78 million (2009: HUF 155 million). The future minimum lease payments
receivable under these contracts are disclosed in Note 33.4.

HUF 1,448 million
of PPE has restricted titles as at December 31, 2010 (2009: HUF 2,409 million), which are included in our assets as finance leases.

The
reviews of the useful lives of property, plant and equipment during 2010 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 .

2010

2011

2012

2013

After 2013(in HUF millions)(Decrease)/increase in depreciation expense


(846
)

(2,277
)

455


737


1,931


F-70

---





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

Software

Concessions
and licenses

Other

Total(in HUF millions)At January 1, 2009Cost


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


247,109


164,668


52,134


25,906


489,817Accumulated amortization





(118,058
)

(18,289
)

(16,407
)

(152,754
)Accumulated goodwill impairment


(969
)










(969
)Carrying amount


246,140


46,610


33,845


9,499


336,094Of which held for sale














(479
)335,615Carrying amountJanuary 1, 2010


246,140


46,610


33,845


9,499


336,094Exchange differences


200


214


154


107


675Additions due to business combinations


1,227








763


1,990Investments





18,760


117


396


19,273Disposals





(23
)




(10
)

(33
)Decrease due to sale of subsidiary


(74
)




(333
)




(407
)Impairment














Amortization charge





(18,064
)

(4,301
)

(2,234
)

(24,599
)Reclassifications








(838
)

838


Carrying amountDecember 31, 2010


247,493


47,497


28,644


9,359


332,993


F-71

---



Table of Contents

MAGYAR TELEKOM

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

13.     INTANGIBLE ASSETS (Continued)

Goodwill

Software

Concessions
and licenses

Other

Total(in HUF millions)At December 31, 2010Cost


247,493


182,250


50,357


27,520


507,620Accumulated amortization





(134,753
)

(21,713
)

(18,161
)

(174,627
)Accumulated goodwill impairment














Carrying amount


247,493


47,497


28,644


9,359


332,993Of which held for sale














332,993


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. Differences between the preliminary and the final purchase price allocation are also included in this line.

Investments
represent the regular investing activity in intangible assets.

The
amortization expense as well as the impairment losses of intangible assets including also 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 2010 did not have a material impact.

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 (or CGUs) of the Group as follows.

As at December 31,2009

2010(in HUF millions)CBU


139,743


140,474BBU


45,220


45,770Macedonia


51,343


51,379Montenegro


5,612


5,776Other


4,222


4,094Total goodwill


246,140


247,493


F-72

---



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. During the annual impairment test conducted in the last quarter of 2010 no
goodwill impairment was established for any goodwill of the Group.

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 (included in the "Other" line in
the table above). 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.

In
2008 we established that the carrying amount of goodwill did not suffer impairment.

Besides
goodwill, the most significant individual intangible assets are listed in the table below.

As at
December 31,2009

2010(in HUF millions)Hungarian GSM license


13,028


10,747Hungarian UMTS license


11,890


10,699Macedonian UMTS license


2,576


2,342Other


6,351


4,856Total concessions and licenses


33,845


28,644


The
Group has no intangible assets with restricted title or pledged as security as at December 31, 2010 or December 31, 2009.

14.     INVESTMENTS IN ASSOCIATES AND JOINT VENTURES

For the year
ended
December 31,2009

2010(in HUF
millions)Opening balance


4,136


186Dividends


(102
)

(81
)Share of associates' and joint ventures' profits/(losses)


(109
)

(27
)Liquidation of Netrekész Kft.





(1
)Disposal of ITMH


(382
)

Disposal of M-RTL


(3,357
)

Closing balance


186


77


The
owners of Hunsat decided on the voluntary liquidation of the company, which discontinued its commercial operations in 2010. The following table shows the total assets and
liabilities as at December 31, 2009 and 2010, and revenues and profit for the year ended December 31, 2009 and 2010 of Hunsat, the

F-73

---



Table of Contents

MAGYAR TELEKOM

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

14.     INVESTMENTS IN ASSOCIATES AND JOINT VENTURES (Continued)

single
remaining joint venture of the Group, representing the majority of the balance of the Group's associates and joint ventures.

Hunsat 2009

Hunsat 2010(in HUF millions)Current assets


1,017


127Non current assets


2


1Current liabilities


(728
)

(20
)Non current liabilities





Revenues


3,448


59Profit for the year


190


(15
)


There
are no material contingent liabilities of our associates and joint ventures as of December 31, 2009 or 2010. 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.

16.     FINANCIAL LIABILITIES TO RELATED PARTIES

Financial liabilities to related parties include HUF and EUR denominated loans taken from DT Group. In addition, 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, 2010 and 2009.

December 31, 2010

Carrying
amount

Currency

Interest
rate

Fixed/
floating

Repayable(in HUF
millions)



(%)9,579

HUF


5.72

floating


Jan 201125,323

HUF


6.02

floating


Apr 201135,324

HUF


7.21

fixed


Jul 2011Due within 1 year


70,226Derivatives


1,982Total current


72,208


F-74

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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, 2010

Carrying
amount

Currency

Interest
rate

Fixed/
floating

Repayable(in HUF
millions)



(%)9,579

HUF


5.72

floating


Jan 201240,225

HUF


6.39

floating


May 20129,579

HUF


5.72

floating


Jan 201325,327

HUF


7.26

fixed


Oct 201321,896

EUR


3.76

fixed


Jun 201446,046

EUR


4.46

fixed


Jan 201553,034

HUF


8.30

fixed


May 201528,478

HUF


6.23

fixed


Dec 2016Total non current


234,164




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


Accrued
interest as at December 31, 2009 included the nominal interest earned that is paid quarterly, semi-annually or annually, consequently, the carrying amounts of
the loans did not include the accrued interest. In 2010, the accrued interest is included in the carrying amounts of the loan payable, rather than as a separate line in the table above.

F-75

---



Table of Contents

MAGYAR TELEKOM

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

16.     FINANCIAL LIABILITIES TO RELATED PARTIES (Continued)

The
table below shows the carrying amounts and fair values of the related party loans.

At December 31,2009

2010Book value

Fair value

Book value

Fair value(in HUF millions)HUF denominated loansAt fixed rate


160,677


169,877


142,163


143,880At floating rate


102,944


102,945


94,285


94,285263,621


272,822


236,448


238,165EUR denominated loansAt fixed rate


42,912


47,157


67,942


72,928At floating rate


20,313


20,313





63,225


67,470


67,942


72,928Accrued interest


7,675


7,675





Swaps


3,050


3,050


1,982


1,982Total related party financial liabilities


337,571


351,017


306,372


313,075


The
weighted average interest rate on related party loans was 6.30% in 2010 (6.75% in 2009). The fixed interest rate loans are exposed to fair value risk as it can be seen in the table
above. Any decrease of market interest rates will result in an increase of the fair value of the fixed interest rate liabilities.

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 and to cover FX needs of expected future foreign currency outflows.

There
were no defaults and breaches in connection with the financial liabilities to related parties.

17.     OTHER FINANCIAL LIABILITIES

At December 31,2009

2010(in HUF millions)Bank loans


(a
)

32,810


43,924Finance lease payable (Note 33.1)





763


605Accrued interest





1,139


60Third party derivatives


(b
)

179


869Other





1,441


1,189Total other financial liabilitiescurrent





36,332


46,647Bank loans


(a
)

23,316


6,199Finance lease payable (Note 33.1)





2,660


2,254Other





245


375Total other financial liabilitiesnon current





26,221


8,828


F-76

---



Table of Contents

MAGYAR TELEKOM

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

17.     OTHER FINANCIAL LIABILITIES (Continued)

Accrued
interest as at December 31, 2009 included the nominal interest earned that is paid quarterly, semi-annually or annually, consequently, the carrying amounts of
the loans did not include the accrued interest. In 2010, the vast majority of the accrued interest is included in the carrying amounts of the loan payable, rather than as a separate line in the table
above.

(a)    Bank loans

As at
December 31,2009

2010(in HUF millions)Due within 1 year


32,810


43,924Due in 1-2 years


17,316


2,788Due in 2-3 years


6,000


3,411Due after 3 years





Total bank loans


56,126


50,123


Loans
totaling HUF 15,761 million at December 31, 2010 are revolving loans (2009: HUF 9,997 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 5.74% in 2010 (7.92% in 2009).

The
following table compares the carrying values and the fair values of the Group's bank loans.

At December 31,2009

2010Book value

Fair value

Book value

Fair value(in HUF millions)HUF denominated bank loansAt fixed rate


11,000


12,090


11,850


12,150At floating rate


38,215


38,215


27,135


27,13549,215


50,305


38,985


39,285EUR denominated bank loansAt fixed rate


5,164


5,316


8,128


8,198At floating rate


1,747


1,747


3,010


3,0106,911


7,063


11,138


11,208Total bank loans


56,126


57,368


50,123


50,493


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.

F-77

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Table of Contents

MAGYAR TELEKOM

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

17.     OTHER FINANCIAL LIABILITIES (Continued)

(b)    Third party derivatives

Third party derivatives included FX forward and cross currency interest rate swaps.

(c)     Credit facilities

At December 31, 2010, Magyar Telekom had un-drawn committed credit facilities of HUF 54,603 million (2009:
HUF 50,479 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.

18.     TRADE PAYABLES

At December 31,2009

2010(in HUF millions)Payable to DT Group companies


5,169


7,103Payable to associates and joint ventures


7


7Other trade payables


80,698


81,50385,874


88,613


19.    PROVISIONS

Severance

MTIP

Employee-
related
Subtotal

Legal
cases

ARO

Other

Total(in HUF millions)January 1, 2009


9,764


236


10,000


6,913


4,656


4,322


25,891Amounts utilized


(7,832
)

(277
)

(8,109
)

(1,887
)

(63
)

(2,519
)

(12,578
)Amounts reversed


(1,532
)




(1,532
)

(1,298
)

(26
)




(2,856
)Exchange rate difference


43





43


189





11


243Accretion














184





184Additions


8,304


397


8,701


1,733


259


836


11,529December 31, 2009


8,747


356


9,103


5,650


5,010


2,650


22,413Of which current


8,295





8,295


3,471


175


751


12,692Of which non current


452


356


808


2,179


4,835


1,899


9,721December 31, 2009


8,747


356


9,103


5,650


5,010


2,650


22,413Amounts utilized


(5,427
)

(411
)

(5,838
)

(551
)

(110
)

(1,314
)

(7,813
)Amounts reversed


(1,005
)




(1,005
)

(1,574
)

(8
)

(347
)

(2,934
)Exchange rate difference


3


1


4


103





5


112Accretion











477


174


53


704Additions


3,892


127


4,019


2,196


620


703


7,538December 31, 2010


6,210


73


6,283


6,301


5,686


1,750


20,020Of which current


4,982





4,982


2,136


136


468


7,722Of which non current


1,228


73


1,301


4,165


5,550


1,282


12,298


F-78

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Table of Contents

MAGYAR TELEKOM

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

19.    PROVISIONS (Continued)

Magyar Telekom does not expect any reimbursement with regards to the provisions recognized, therefore, no related assets have been recognized in
the financial statements.

19.1   Severance

The majority of the provision for severance as at December 31, 2010 relates to the stand-by-pool and the employee terminations in
2011 in relation to the further efficiency improvement 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 of services. The majority of the provision for severance as at December 31, 2009
related to the stand-by-pool and the employee terminations in 2010 in relation to the further organizational changes in Magyar Telekom Plc.

552
employees were dismissed in 2010 (2009: 961) at Group level, related to which severance payments were made. The balance of provision as at December 31, 2010 relates to 669
employees and former employees in the stand-by-pool (2009: 569) working in various functions of the Group.

The
total payments made in relation to employee termination in 2010 amounted to HUF 8,505 million, of which HUF 5,427 million was charged against the
provision as at December 31, 2009, while the rest was recognized as employee related expense in 2010.

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 amounts of the reversal of provision in 2009 and 2010 are 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.).

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. For certain legal
cases information required under IAS 37 is not disclosed, if we have concluded that the disclosure can be expected to seriously prejudice the outcome of the proceedings.

19.3   MTIP

For more details on the Mid-term Incentive Plan see Note 24.1.

19.4   Asset retirement obligations (ARO)

Asset retirement obligations primarily exist in case of the telecommunications structures constructed on third parties' properties. The Group carries out a
revision of the necessary provisions every year.

In
2010, the primary reasons for changes in estimates were the changes in cashflow estimates of the remediation of rented spaces for offices and shops as well as the increased real
discount rates (difference

F-79

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Table of Contents

MAGYAR TELEKOM

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

19.    PROVISIONS (Continued)

between
the expected future inflation and risk free interest rates). In 2009, the primary reason for changes in estimates was the increased real discount rates.

19.5   Other provisions

Other provisions include guarantee obligations and further other individually small items.

20.     OTHER CURRENT LIABILITIES

At December 31,2009

2010(in HUF millions)Deferred revenue and advances received


12,131


11,273Other taxes and social security


8,838


10,833Salaries and wages


8,652


6,458Dividend payable to Non-controlling interests


303


319Other liabilities


2,304


2,08332,228


30,966


21.     OTHER NON CURRENT LIABILITIES

Other non current liabilities primarily include deferred revenues related to long term projects and customer loyalty programs.

F-80

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Table of Contents

MAGYAR TELEKOM

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

22.     REVENUE

For the year ended December 31,2008

2009

2010(in HUF millions)Fixed line revenuesVoice retail


151,033


128,133


106,623Voice wholesale


21,494


21,322


21,317Internet


59,823


55,089


53,755Data


28,839


30,762


27,710TV


18,830


23,753


28,549Equipment


7,058


4,745


4,091Other fixed line revenues


12,818


10,276


7,588Total Fixed line revenue


299,895


274,080


249,633Mobile revenuesVoice retail


196,983


192,704


185,967Voice wholesale


46,241


41,563


36,815Voice visitor


5,995


4,959


4,217Non voice


50,936


56,188


57,789Equipment


21,169


21,320


22,691Other mobile revenues


10,441


9,262


7,694Total Mobile revenue


331,765


325,996


315,173System integration and IT revenue


41,396


43,913


44,773Total revenue


673,056


643,989


609,579


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 31,2008

2009

2010(in HUF millions)Voice, data and internet related payments


79,076


71,583


65,247Material cost of equipment sold


45,061


44,011


41,037Payments to agents and other subcontractors


43,421


44,982


51,143167,558


160,576


157,427


F-81

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Table of Contents

MAGYAR TELEKOM

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

24.    EMPLOYEE RELATED EXPENSES

For the year ended December 31,2008

2009

2010(in HUF millions)Short term benefits


96,407


100,425


93,992Share based payments (MTIPNote 24.1)


356


397


127Share based payments (ex-CEONote 24.2)








(49
)Share based payments (Share bonus to employeesNote 24.3)








580Termination benefits (Note 19.1)


8,510


7,640


5,965Total before capitalization


105,273


108,462


100,615Expenses capitalized


(4,953
)

(6,544
)

(6,731
)100,320


101,918


93,884Total costs expensed in relation to defined contribution plans (including social security)


23,376


23,690


20,361Closing number of employees


10,438


10,828


10,258


24.1   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 and 2010, Magyar Telekom decided to prolong the original program by one additional year respectively, 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. This

F-82

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Table of Contents

MAGYAR TELEKOM

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

24.    EMPLOYEE RELATED EXPENSES (Continued)

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

Only relative target met6

January 1, 2009December 31, 2011


561

7

January 1, 2010December 31, 2012


725




The
provision for the payments in relation to the MTIP program and the movements thereof are disclosed in Note 19.

24.2   The former CEO's share option plan

The former CEO of Magyar Telekom was granted share options in the past, out of which the options granted in 2000 remained unexercised until 2010, when they
lapsed. The lapse of these share options resulted in the release of the total balance of the Reserve for equity settled share based transactions.

24.3   Shares allocated to employees

The Board of Directors of Magyar Telekom approved a share allocation program under which Magyar Telekom shares were awarded to the Company's best performing
employees in December 2010. In total, 1,112,679 treasury shares were granted to employees for free. The amount recognized as an expense includes the grant date fair value of the shares. The program
awarded the participants based on their past performance without any further service commitments made by either the employees or the employer. Consequently, the total cost of the share based
compensation program was recognized in 2010.

F-83

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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 31,2008

2009

2010(in HUF millions)Materials, maintenance and service fees





72,858


71,650


63,373Hungarian telecommunications and other crisis taxes


(a
)







26,970Marketing





22,065


16,180


13,437Rental and operating lease





9,947


11,153


12,981Fees and levies





16,000


14,712


12,276Bad debt expense





4,353


9,072


9,991Consulting, audit and other expert fees


(b
)

10,960


11,230


7,825Other expenses





4,866


1,308


1,897141,049


135,305


148,750


(a)    Hungarian telecommunications and other crisis taxes

On October 18, 2010 the Hungarian Parliament passed an act imposing special "crisis" taxes on telecommunications services, retail sales and energy sales
as of January 1, 2010. These taxes were enacted for a defined period of 2010-2012.

Although
Magyar Telekom is also engaged in energy and retail sales, the tax burden on those are either not applicable to the Group (energy) or not material (retail). The vast majority
of the amount included in the table above relates to the revenues earned from electronic telecommunications services provided by the Hungarian members of the Group in 2010. The tax is defined as a
certain percentage of the revenue generated from the services defined as electronic telecommunications. The tax is progressive, i.e. the more revenue is generated a higher tax rate is
applicable. Due to the high amount of revenues generated by the Group, the vast majority of the Group's Hungarian revenues are in the highest tax band subject to a tax rate of 6.5%.

The
classification of these taxes requires judgment. Management believes that these taxes are not taxes on consumption of services by end customers but rather taxes on entities
operating in selected industries. This is supported by the fact that these taxes were levied retrospectively in 2010, the taxes are calculated on the combined revenues of groups using graduated tax
rates and the calculation ignores whether the revenues are collected from end customers or not. Therefore management believes that there are strong indicators supporting that these taxes are not sales
taxes collected on behalf of the government, but rather taxes on the operations of the companies, and consequently these taxes are classified as operating expense in the consolidated financial
statements.

F-84

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Table of Contents

MAGYAR TELEKOM

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

25.     OTHER OPERATING EXPENSES (Continued)

(b)    Audit costs included in Consulting, audit and other expert fees

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 31,2008

2009

2010(in HUF millions)Audit of the financial statements


500


593


527Other audit related fees


108


205


40Other non audit related fees





4


4Total expenses payable to PwC


608


802


571


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 2010 included HUF 40 million (2009: HUF 205 million) incurred relating to the investigations (Note 1.2).

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.

26.     OTHER OPERATING INCOME

For the year ended
December 31,2008

2009

2010(in HUF millions)Gain on sale of PPE, Intangible assets and assets held for sale





2,126


326


327Gain on sale of subsidiaries and associates


(a
)

1,233


1,371


Compensation for renaming (Note 34.1)





676





Other operating income





214


1,166


3,1214,249


2,863


3,448


(a)    Gain on sale of subsidiaries and associates

All the subsidiaries sold in the reported years conducted non-core operations and were insignificant to the Group, therefore they did not constitute
discontinued operations. The results on the disposals of subsidiaries and associates are recognized as Other operating income in the years of disposal. All disposals impacted the total ownership in
the subsidiaries and associates sold. No income or loss was incurred on the

F-85

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Table of Contents

MAGYAR TELEKOM

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

26.     OTHER OPERATING INCOME (Continued)

sale
of Orbitel in 2010 after the impairment loss of the Orbitel goodwill recognized in 2009. The proceeds from the disposal included in the Consolidated statement of cash flows are disclosed net of
the cash balances of the subsidiaries at date of disposal. These cash balances were not significant.

27.     INTEREST INCOME

For the year ended
December 31,2008

2009

2010(in HUF millions)Finance lease interest income


1,340


1,390


1,334Other interest income


5,887


7,136


3,6047,227


8,526


4,938


The
Group has changed the disclosure of its financial results compared to the previously issued financial statements. Previous year's comparative items have been reclassified to be
comparable to the current year's presentation. The items included in the table above were included in the Finance income caption of the previous years' financial statements.

28.     INTEREST EXPENSE

For the year ended
December 31,2008

2009

2010(in HUF millions)Interest expense to DT


26,986


27,530


18,397Other interest expense


5,742


5,765


4,660Finance lease interest expense


648


712


529Accretion interest on provisions


70


184


704less: borrowing costs capitalized


(258
)

(726
)

(506
)33,188


33,465


23,784


The
Group has changed the disclosure of its financial results compared to the previously issued financial statements. Previous year's comparative items have been reclassified to be
comparable to the current year's presentation. The items included in the table above were included in the Finance expenses caption of the previous years' financial statements.

When
calculating the borrowing costs capitalized, other financial expenses (included in Note 29) are also considered, however, for disclosure purposes, we included the borrowing
costs capitalized in the table above.

F-86

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Table of Contents

MAGYAR TELEKOM

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

29.     OTHER FINANCE EXPENSENET

For the year ended
December 31,2008

2009

2010(in HUF millions)Fee expense


4,011


4,068


4,236Net foreign exchange losses/(gains)


648


269


2,855Losses/(gains) on the subsequent measurement of financial instruments at fair value through profit and loss (derivatives) contracted with related
parties





2,387


(1,410
)Losses/(gains) on the subsequent measurement of financial instruments at fair value through profit and loss (derivatives) contracted with third
parties


(789
)

568


998Losses/(gains) on the derecognition of financial instruments at fair value through profit and loss contracted with related parties





441


1,996Losses/(gains) on the derecognition of financial instruments at fair value through profit and loss contracted with third parties


477


141


592Losses/(gains) on the derecognition of AFS financial instruments (Reclassifications from Other comprehensive income)








4,347


7,874


9,267


The
Group has changed the disclosure of its financial results compared to the previously issued financial statements. Previous year's comparative items have been reclassified to be
comparable to the current year's presentation. The majority of the items included in the table above were included in the Finance income caption of the previous years' financial statements, while Fee
expense was included in Finance expense.

30.     PURCHASE OF PROPERTY, PLANT AND EQUIPMENT AND INTANGIBLE ASSETS

For the year ended December 31,2008

2009

2010(in HUF millions)Investments in property, plant and equipment (Note 12)


85,489


81,786


72,489Investments in intangible assets (Note 13)


22,460


20,080


19,273Total investments in PPE and intangible assets


107,949


101,866


91,762Recognition/(Derecognition) of investment tax credit (Note 9.4)


350


428


(3
)Change in payables relating to capital expenditures


7,740


7,934


(4,459
)Cash payments for purchases of PPE and intangible assets


116,039


110,228


87,300


F-87

---



Table of Contents

MAGYAR TELEKOM

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

30.     PURCHASE OF PROPERTY, PLANT AND EQUIPMENT AND INTANGIBLE ASSETS (Continued)

The
Group had no significant non cash transactions in any of the reported years.

31.     PURCHASE OF SUBSIDIARIES AND BUSINESS UNITS

For the year ended
December 31,2008

2009

2010(in HUF millions)Modultechnika (Note 5.1)








1,421ISH (Note 5.2)





3,131


74Cable TV networks


687


1,745


39KFKI Direkt





317


M-Factorycontingent consideration


75





Cash payments for purchases of subsidiaries and business units


762


5,193


1,534


32.     REPORTABLE SEGMENTS AND INFORMATION ABOUT GEOGRAPHICAL AREAS

32.1   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, Technology Business Unit and Group Headquarters. In addition, the
Group also has operations in Macedonia and Montenegro, which represent two additional operating segments. The Media business unit, a separate operating segment in 2008 and 2009 is reported to the MC
as part of the Group Headquarters in 2010, therefore we have included its numbers in the Headquarters' numbers in all 3 years presented.

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 and also includes the operations of the Media business unit, considered as a
separate operating
segment in 2008 and 2009 in Hungary. Headquarters 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.

F-88

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Table of Contents

MAGYAR TELEKOM

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

32.     REPORTABLE SEGMENTS AND INFORMATION ABOUT GEOGRAPHICAL AREAS (Continued)

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 operating segments of the
Group.

In
addition to the operating segments described above, there are a few operations, which do not qualify as operating or reportable segments. These operations are grouped in "All other"
included in the reconciliations of the reportable segments' totals to the Group totals.

32.1.1    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 31,2008

2009

2010(in HUF millions)RevenuesTotal CBU revenues


341,563


322,336


314,773Less: CBU revenues from other segments


(38,655
)

(33,849
)

(30,066
)CBU revenues from external customers


302,908


288,487


284,707Total BBU revenues


179,174


170,989


159,271Less: BBU revenues from other segments


(16,833
)

(18,861
)

(15,683
)BBU revenues from external customers


162,341


152,128


143,588Total Headquarters revenues


163,905


143,776


123,013Less: Headquarters revenues from other segments


(70,945
)

(62,258
)

(53,184
)Headquarters revenues from external customers


92,960


81,518


69,829Total Technology revenues


11,370


10,556


8,287Less: Technology revenues from other segments


(7,877
)

(7,599
)

(7,142
)Technology revenues from external customers


3,493


2,957


1,145Total Macedonia revenues


76,097


82,312


77,598Less: Macedonia revenues from other segments


(285
)

(214
)

(134
)Macedonia revenues from external customers


75,812


82,098


77,464Total Montenegro revenues


33,148


34,442


32,874Less: Montenegro revenues from other segments


(105
)

(51
)

(44
)Montenegro revenues from external customers


33,043


34,391


32,830All other (net)


2,416


2,426


1Total consolidated revenue of the segments


672,973


644,005


609,564Measurement differences to Group revenue


83


(16
)

15Total revenue of the Group


673,056


643,989


609,579


F-89

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Table of Contents

MAGYAR TELEKOM

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

32.     REPORTABLE SEGMENTS AND INFORMATION ABOUT GEOGRAPHICAL AREAS (Continued)



For the year ended December 31,2008

2009

2010(in HUF millions)Segment results (EBITDA)CBU


193,314


181,920


181,944BBU


90,816


80,307


72,161Headquarters


(15,921
)

(22,888
)

(50,886
)Technology


(49,059
)

(47,485
)

(43,565
)Macedonia


39,132


42,861


40,248Montenegro


10,815


13,736


11,370All other


(169
)

265


11Total EBITDA of the segments


268,928


248,716


211,283Measurement differences to Group EBITDA


(550
)

337


1,683Total EBITDA of the Group


268,378


249,053


212,966Depreciation and amortization of the Group


(106,120
)

(101,920
)

(100,872
)Total Operating profit of the Group


162,258


147,133


112,094Net financial result


(30,308
)

(32,813
)

(28,113
)Share of associates' and joint ventures' profits/(losses)


1,341


(109
)

(27
)Total Profit before income tax of the Group


133,291


114,211


83,954Income tax expense


(27,698
)

(20,958
)

(6,583
)Total Profit for the year of the Group


105,593


93,253


77,371


F-90

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Table of Contents

MAGYAR TELEKOM

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

32.     REPORTABLE SEGMENTS AND INFORMATION ABOUT GEOGRAPHICAL AREAS (Continued)

The significantly higher negative results of the Headquarters segment in 2010 is due to the inclusion of the Hungarian telecommunications tax introduced in 2010 (Note 25) in the
Headquarters segment.

For the year ended December 31,2008

2009

2010(in HUF millions)Capital expenditure (Capex) on PPE and Intangible assetsCBU


13,540


23,774


18,212BBU


7,493


2,905


3,314Headquarters


9,112


5,888


6,379Technology


58,716


48,989


44,049Macedonia


15,709


15,320


15,208Montenegro


3,751


4,913


4,639All other


105


65


Total capital expenditure of the segments


108,426


101,854


91,801Measurement differences to capital expenditure of the Group


(477
)

12


(39
)Total investments of the Group in PPE and Intangible assets


107,949


101,866


91,762


Total
investments of the Group in PPE and Intangible assets correspond to the "Investments" lines disclosed in Notes 12, 13 and 30.

32.2   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 31,2008

2009

2010(in HUF millions)RevenuesHungary


554,747


520,584


495,385Macedonia


75,956


82,098


77,464Montenegro


33,043


34,391


32,830Romania


5,244


3,636


2,958Bulgaria


3,933


3,151


922Ukraine


133


129


20Total revenue of the Group


673,056


643,989


609,579


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 operating segments or CGUs operating in these
countries) and the

F-91

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Table of Contents

MAGYAR TELEKOM

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

32.     REPORTABLE SEGMENTS AND INFORMATION ABOUT GEOGRAPHICAL AREAS (Continued)

reconciliation
to the total Non current assets of the Group, using the same measurement principles as for the corresponding Group numbers.

As at December 31,2009

2010(in HUF millions)Non current assetsHungary


709,525


703,783Macedonia


129,943


132,510Montenegro


42,408


41,734Bulgaria


3,013


3,165Romania


2,531


2,281Ukraine


19


13Total excluding Other non current financial assets and Deferred tax assets


887,439


883,486Other non current financial assets (Note 8.2)


27,682


24,033Deferred tax assets (Note 9.4)


1,890


913Total Non current assets of the Group


917,011


908,432


33.     LEASES AND OTHER COMMITMENTS

33.1   Finance leaseGroup as lessee

Finance leases in 2009 and 2010 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.

Future
lease payments under finance leases related to sale and lease back transactions at December 31, 2009 and 2010 are as follows:

At December 31, 2009

At December 31, 2010Present
value

Interest
component

Minimum
lease
payment

Present
value

Interest
component

Minimum
lease
payment(in HUF millions)Within 1 year


291


389


680


277


344


6211-5 years


1,067


1,012


2,079


1,064


812


1,876After 5 years


505


172


677


276


62


338Total


1,863


1,573


3,436


1,617


1,218


2,835


Finance
leases other than sale and lease back in 2009 and 2010 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.

F-92

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Table of Contents

MAGYAR TELEKOM

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

33.     LEASES AND OTHER COMMITMENTS (Continued)

Future
lease payments under finance leases other than sale and lease back transactions at December 31, 2009 and 2010 are as follows:

At December 31, 2009

At December 31, 2010Present
value

Interest
component

Minimum
lease
payment

Present
value

Interest
component

Minimum
lease
payment(in HUF millions)Within 1 year


472


208


680


328


131


4591-5 years


473


295


768


593


195


788After 5 years


615


187


802


321


59


380Total


1,560


690


2,250


1,242


385


1,627


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.

33.2   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 31,2009

2010(in HUF millions)Within 1 year


7,541


7,7111-5 years


20,897


20,987After 5 years


16,131


14,171Total


44,569


42,869


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.

33.3   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.

F-93

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Table of Contents

MAGYAR TELEKOM

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

33.     LEASES AND OTHER COMMITMENTS (Continued)

Future
lease receivables under finance leases at December 31, 2009 and 2010 are as follows:

At December 31, 2009

At December 31, 2010Present
value

Interest
component

Minimum
lease
receipt

Present
value

Interest
component

Minimum
lease
receipt(in HUF millions)Within 1 year


3,797


1,641


5,438


4,298


1,403


5,7011-5 years


15,270


3,810


19,080


15,809


3,102


18,911After 5 years


4,464


286


4,750


278


74


352Total


23,531


5,737


29,268


20,385


4,579


24,964


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 (Interest income).

The
unguaranteed residual values accruing to the benefit of the Group are insignificant.

33.4   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 31,2009

2010(in HUF
millions)Within 1 year


1,210


1,1651-5 years


1,943


2,755After 5 years


1,115


1,072Total


4,268


4,992


33.5   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 31,2009

2010(in HUF
millions)Property, plant and equipment


4,407


5,951Intangible assets


1,788


3,000Total


6,195


8,951


F-94

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Table of Contents

MAGYAR TELEKOM

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

33.     LEASES AND OTHER COMMITMENTS (Continued)

33.6   Purchase commitments for investments

Magyar Telekom signed an agreement to buy 100% of Daten Kontor Kft., DK Telecom Zrt. and DK Consulting Zrt. (DK Group) on July 20,
2010. The maximum purchase price of HUF 1.4 billion is dependent on the next two years' financial performance and was also adjusted with the value of the net debt at the closing of the
transaction, which took place on February 28, 2011, when Magyar Telekom paid the initial purchase price of HUF 900 million.

34.     RELATED PARTY TRANSACTIONS

34.1   Deutsche Telekom Group

Deutsche Telekom AG (DTAG) 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).

The
table below summarizes the above related party transactions with DT group.

2008

2009

2010(in HUF millions)Revenues from telecom services provided to DT Group


16,035


22,059


22,395Costs of services provided by DT Group


(20,759
)

(16,819
)

(16,497
)Other income from DTAG


676





Interest expense to DTIF


(26,986
)

(27,530
)

(18,397
)Dividend paid to MagyarCom GmbH


(45,690
)

(45,690
)

(45,690
)Accounts receivable from DT Group companies


5,903


5,492


6,991Accounts payable to DT Group companies


(5,850
)

(5,169
)

(7,103
)Loans receivable from DTAG





29,587


Accrued interests payable to DT Group companies


(8,845
)

(7,675
)

Loans payable to DT Group companies


(330,583
)

(326,846
)

(304,390
)Fair value of swap agreements with DTAGasset





662


1,004Fair value of swap agreements with DTAGliability





(3,050
)

(1,982
)


Deutsche
Telekom has pledged its support for Magyar Telekom's financing needs through to June 30, 2012.

F-95

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Table of Contents

MAGYAR TELEKOM

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

34.     RELATED PARTY TRANSACTIONS (Continued)

34.2   Associates and joint ventures

Hunsat is a joint venture founded by the Company (50%) and Antenna Hungária (50%). The revenues of Hunsat included commissions received from
Hungarian telecommunications companies for the use of services of international satellite agencies. The operational transactions and balances with Hunsat have been insignificant. Dividends received
from Hunsat amounted to HUF 73 million in 2010 (2009: HUF 93 million, 2008: HUF 89 million). The owners of Hunsat decided on the voluntary liquidation of
Hunsat in 2010, which is in progress at the end of 2010.

The
Group has no other significant associates or joint ventures and the transactions with them are also insignificant.

34.3   Board and supervisory board members

The remuneration of the members of the Company's Board of Directors amounted to HUF 13 million in 2010 (2009: HUF 13 million, 2008:
HUF 13 million). The remuneration of the members of the Company's Supervisory Board amounted to HUF 48 million in 2010 (2009: HUF 42 million, 2008:
HUF 46 million).

34.4   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 31,2008

2009

2010(in HUF millions)Salaries and other short-term employee benefits


1,063


1,377


1,335Contractual termination expense





248


497Share based compensation (Note 24.1)


80


131


451,143


1,756


1,877


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, 2010. 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

F-96

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Table of Contents

MAGYAR TELEKOM

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

34.     RELATED PARTY TRANSACTIONS (Continued)

presented
years as these options are not in the scope of IFRS 2 and IFRIC 11 according to the transitional rules.

35.     ADDITIONAL DISCLOSURES ON FINANCIAL INSTRUMENTS

35.1   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, 2010 and 2009.

The
Group classifies fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy has the
following levels:



The
level in the fair value hierarchy within which the fair value measurement is categorized in its entirety is determined on the basis of the lowest level input that is significant to
the fair value measurement in its entirety. The significance of an input is assessed against the fair value measurement in its entirety.

There
was no transfer between Level 1 and Level 2 financial instruments. Loans and receivables and most of the financial liabilities are measured at amortized cost, but
fair value information is also provided for these. The fair values of these assets and liabilities were determined using level 3 type information. There are no assets or liabilities carried at
fair value where the fair value was determined using level 3 type information.

F-97

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Table of Contents

MAGYAR TELEKOM

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

35.     ADDITIONAL DISCLOSURES ON FINANCIAL INSTRUMENTS (Continued)

35.1.1    Financial assetsCarrying amounts and fair values

Carrying amountLoans and
receivables

Held-to-
maturity

Available-
for-sale
(Level 1)

Held for
trading
(Level 2)

Total

Fair
value(in HUF millions)December 31, 2010Cash and cash equivalents


15,841











15,841


15,841Bank deposits with original maturities over 3 months


47,798











47,798


47,798Trade receivables


106,732











106,732


106,732Trade receivables over one year


1,524











1,524


1,609Employee loans


4,704











4,704


4,849Derivative financial instruments contracted with related parties











1,004


1,004


1,004Derivative financial instruments contracted with third parties











301


301


301Loans to third parties


947











947


947RDC receivables


715











715


689Financial assets AFS








296





296


296Other current


2,400











2,400


2,400Other non current


519











519


519Total


181,180





296


1,305


182,781


182,985


F-98

---



Table of Contents

MAGYAR TELEKOM

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

35.     ADDITIONAL DISCLOSURES ON FINANCIAL INSTRUMENTS (Continued)



Carrying amountLoans and
receivables

Held-to-
maturity

Available-
for-sale
(Level 1)

Held for
trading
(Level 2)

Total

Fair
value(in HUF millions)December 31, 2009Cash 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


795Financial 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


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, 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 insignificant investment in equity instruments, all measured at fair value.

Finance
lease receivables 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 33.3.

F-99

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Table of Contents

MAGYAR TELEKOM

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

35.     ADDITIONAL DISCLOSURES ON FINANCIAL INSTRUMENTS (Continued)

35.1.2    Financial liabilitiesCarrying amounts and fair values

Carrying amountMeasured at
amortized cost

Held for
trading
(Level 2)

Total

Fair value(in HUF millions)December 31, 2010Financial liabilities to related parties (including accrued interest)


304,390


1,982


306,372


313,075Bank loans (including accrued interest)


50,183





50,183


50,553Trade payables


88,613





88,613


88,613Dividend payable


319





319


319Nonconvertible bonds and debentures


191





191


168Derivative financial instruments contracted with third parties





869


869


869Other current


1,024





1,024


1,024Other


210





210


210Total


444,930


2,851


447,781


454,831




Carrying amountMeasured at
amortized cost

Held for
trading
(Level 2)

Total

Fair value(in HUF millions)December 31, 2009Financial 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


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 33.1.

F-100

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Table of Contents

MAGYAR TELEKOM

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

35.     ADDITIONAL DISCLOSURES ON FINANCIAL INSTRUMENTS (Continued)

35.2   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 2010 and 2009.

From subsequent measurementFrom
interest

At fair
value

Currency
translation

Impairment
loss

From
derecognition

From fee
expense

Total net
gain/(loss)(in HUF millions)2010Available-for-sale financial assets (Level 1)





20














20Financial instruments held for trading (Level 2)





412








(2,588
)




(2,176
)Loans and receivables


3,597





749


(9,991
)




(4,076
)

(9,721
)Held-to-maturity investments




















Financial liabilities measured at amortized cost


(21,772
)




(3,364
)







(160
)

(25,296
)Net gain/(loss) of financial instruments under the scope of IAS 39


(18,175
)

432


(2,615
)

(9,991
)

(2,588
)

(4,236
)

(37,173
)




From subsequent measurementFrom
interest

At fair
value

Currency
translation

Impairment
loss

From
derecognition

From fee
expense

Total net
gain/(loss)(in HUF millions)2009Available-for-sale financial assets (Level 1)





(6
)













(6
)Financial instruments held for trading (Level 2)





(2,955
)







(582
)




(3,537
)Loans and receivables


7,048





(82
)

(9,072
)




(4,054
)

(6,160
)Held-to-maturity investments




















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


(9,072
)

(582
)

(4,068
)

(41,928
)


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.

F-101

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Table of Contents

MAGYAR TELEKOM

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

35.     ADDITIONAL DISCLOSURES ON FINANCIAL INSTRUMENTS (Continued)

35.3   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 14.1 billion as
at December 31, 2010 (2009: HUF 16.4 billion). These guarantees were issued by Hungarian banks on behalf of Magyar Telekom as collateral 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.

36.     CONTINGENT ASSETS AND LIABILITIES

36.1   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. These assets are not recognized in the statement of financial position. The Group has no such contingencies where the inflow of economic benefits would be probable and
material.

36.2   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, or the amount of the obligation cannot be measured with sufficient
reliability. For certain cases described or referred to in this Note information required under IAS 37 is not disclosed, if we have concluded that the disclosure can be expected to seriously
prejudice the outcome of the proceedings.

36.2.1    Macedonia

36.2.1.1 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 4.4 billion. The
first instance decision in 2010 was in favor of T-Mobile MK, but the plaintiff submitted an appeal, therefore the timing of the final resolution is uncertain.

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Table of Contents

MAGYAR TELEKOM

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

36.     CONTINGENT ASSETS AND LIABILITIES (Continued)

36.2.1.2    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, ONE,
submitted to the Agency a request for dispute resolution with reference to the termination prices. The Agency rejected the requests of ONE as "ungrounded". This decision of the Agency was appealed by
ONE 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.

36.2.2    Montenegro

36.2.2.1    Employee salary disputes in Montenegro

In July 2010, the Trade Union of Crnogorski Telekom submitted a claim to increase the salaries by 15.3% for the period between
September 2009 and September 2010, based on the clause on minimum wage calculation in the Collective Bargaining Agreement (CBA). Management believes that the Trade Union is not entitled to submit such
claim and also disagrees to
the calculation methodology. There has not been any hearing yet in this case. The potential exposure is HUF 0.8 billion.

36.2.3    Hungary

36.2.3.1 Investigation

Please see Note 1.2.

36.2.3.2    Guarantees

Magyar Telekom Plc. is exposed to risks that arise from the possible drawdown of guarantees for which see more details in
Note 35.3.

37.     EVENTS AFTER THE REPORTING PERIOD

37.1   Announcement of the Hungarian Government on intended withdrawal of tax reduction from 2013

On March 1, 2011 the Hungarian Government announced that as part of its long-term effort to reduce the Hungarian budget deficit it intends to
amend existing law that provides for a reduction in corporate tax rates from the current 19% to 10% starting in 2013. When the law reducing future corporate tax rates was enacted in 2010, the Group
recalculated its deferred tax balances, resulting in the reversal of net deferred tax liabilities of HUF 14.5 billion (see Note 9.3) in the 2010 income statement of comprehensive
income. The recent announcement of the intended cancellation of the scheduled reduction of the tax rate from 2013 is expected to cause the recognition of a substantially higher amount of net deferred
tax liabilities in 2011 and result in a negative impact on deferred tax expense in 2011 equivalent in magnitude to the positive impact on net deferred tax expense in 2010.

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