Magyar Telekom Rt Business Information, Profile, and History

Company Perspectives

We have reached a major milestone not only in the life of our company but also of domestic telecommunications since Hungary's largest re-branding ever started on May 6, 2005. The Magyar Telekom Group members T-Com, T-Online, T-Mobile, T-Systems and T-Kábel joined their skills to enable you to use the possibilities of communications in a more convenient and simpler way. With the re-branding a unique group of companies was created on the domestic telecommunications market: the T-brand represents the complete telecommunications portfolio. Today there is no telecommunications service in Hungary that this Group cannot provide.

History of Magyar Telekom Rt

Magyar Telekom Rt is Hungary's leading telecommunications provider. The former Hungarian state telecom monopoly has transformed itself into a modern, competitive company providing a full range of fixed-line residential and commercial and mobile telephone services, Internet access, including ADSL-based broadband services, and cable television services. Known as Matav until it changed its name in 2005, Magyar Telekom has also completed a re-branding of its services, adopting the brand of its majority shareholder, Deutsche Telekom. Magyar's T-Mobile Hungary subsidiary provides GSM and 3G mobile telephony services to more than four million customers in Hungary, and its part of the T-Mobile Group, one of the world's largest mobile telephone service providers. The company's T-Com division provides wireline services including the T-Online internet service, wireless internet services, and T-Kabel, the second-largest cable television provider in Hungary. Magyar Telekom's corporate services are developed under its T-Systems unit, which includes telecommunications, IT infrastructure and outsourcing services. In addition to its domestic operations, Magyar Telekom has also been building its own international portfolio, through the acquisitions of Telekom Montenegro, MakTel, based in Macedonia, and Orbitel, a leading wireline and Internet service provider in Bulgaria. In February 2006, the company entered Romania, launching an entirely new service, Eufonika. Magyar Telekom is listed on the Budapest and New York stock exchanges; Deutsche Telekom owns more than 59 percent of the company's shares. Magyar Telekom is led by chairman of the board Elek Staub and posted revenues of EUR 2.5 billion ($3 billion) in 2005.

Austria-Hungary PTT Beginnings in the 19th Century

Magyar Telekom, formerly known as Matav, inherited one of Central Europe's worst-performing telecommunications networks when it was privatized in the early 1990s. Yet Hungary had played a role in the beginnings of the international telecommunications industry in the late 1800s. Indeed, the technology behind the first telephone exchanges was developed by Hungarian inventor and Thomas Edison associate Tivadar Puskás. After installing the first telephone networks in London and Brussels in 1876, Puskás returned to Edison's laboratory in Menlo Park to develop his idea for a telephone exchange, which he completed, but did not patent, in 1877. In 1879, Puskás, joined by brother Ferenc, returned to Hungary with the exclusive rights to install telephone exchanges throughout the Austria-Hungary empire. The brothers at first sought investors in order to build a telephone network in Budapest; unable to find financial backing, the Puskás invested their own funds in the network. By 1881, the Budapest exchange was operational, becoming only the fourth telephone exchange in the world. Puskás later went on to install the first telephone network in Madrid, among other activities.

In 1887, the Austria-Hungarian government began exerting its control over the empire's growing telephone networks. As elsewhere in Europe, telephone and telegraph operations were then placed under the auspices of the post office, forming the empire's PTT. Further legislation passed in 1888 took the next step further, granting the PTT the monopoly over all of the empire's telephone, telegraph and post office operations, including the installation and operation of all telephone networks destined for public use. Development of the empire's telephone network continued under the PTT. In 1890, the capital cities of Vienna and Budapest had been connected by the first trunk line. By the middle of that decade, most of the major cities in the Austria-Hungarian empire had been connected to the telephone network. Nonetheless, penetration of telephone usage lagged far behind most of the empire's European counterparts.

With the breakup of the empire and Hungary's independence at the end of World War I, the new Hungarian Post Office was forced to rebuild its telephone, telegraph and postal networks. During the 1920s, the Hungarian Post installed a new 250-watt radio-telephone tower outside of Budapest and became the country's major radio broadcaster as well.

Following World War II, the Post Office was once again forced to rebuild the country's telephone infrastructure. Radio broadcasting resumed soon after, and in the 1950s, the Post Office became responsible for the country's television broadcasting as well. During the 1960s, the telephone network began adopting new telecommunications technologies. Yet investment in the expansion of the country's telephone network remained minimal, in part because of the Soviet-dominated government's desire to maintain control of the flow of communications both within the country and internationally. The Hungarian telephone network continued to lag behind the rest of Europe, and even most of its Central and Eastern European counterparts. Into the early 1990s, a ten-year waiting list for receiving one's telephone connection was not uncommon. Even as late as 1994, national fixed-line penetration rates had barely passed 15 percent.

The first signs of change appeared in the late 1970s. In 1977, the post office inaugurated the country's first satellite telecommunications capacity. The beginning of economic reforms, designed to liberalize the market and introduce foreign investment in the country, led to the creation of a new, independent authority, the Hungarian Post Centre, in 1983. This proved the first step toward the liberalization and privatization of the country's telecommunications market.

In 1989, the new Hungarian government broke up the Hungarian Post, splitting it into three separate companies. This division was formalized in 1991 when the three former post companies were reincorporated as independent companies. The Post's telecommunications operations then became known as Matav Magyar Tavkozlesi Rt (Matav Hungarian Telecommunications Company).

Privatization in 1994

Matav began to prepare for its privatization. In 1993, the government passed a new Telecommunications Act, which effectively ended the company's telecommunications monopoly. The new legislation also permitted the company to open its shareholding to outside investors. By the end of 1993, the Hungarian government had agreed to sell more than 30 percent of Matav to Magyarcom, a consortium composed of Deutsche Telekom and Ameritech (later SBC), for $875 million. As part of the purchase, Matav received a national concession to operate fixed line telephone services, as well as the continued control over the country's long-distance and international market.

In 1994, Matav's monopoly was officially ended, when the government sold off five regional concessions, establishing as many local telecommunications companies. Matav nonetheless retained control of the country's largest concession, covering more than 70 percent of Hungary's population. During this period, the company invested massively in upgrading and expanding its telephone network. By the end of the decade, Matav had eliminated its waiting list and had largely surpassed its Central European counterparts in terms of market penetration.

The next phase in Matav's privatization came in 1995, when the Magyarcom consortium paid the Hungarian government a further $850 million to raise its stake to more than 67 percent. The total value of the Matav privatization placed it as the largest in Central Europe to that date. Matav in the meantime benefited from Deutsche Telekom's industry-leading technology, allowing Matav to develop a modern telecommunications infrastructure on par with the rest of Europe. By the beginning of the 2000s, Matav had spent more than $1.7 billion upgrading and expanding its infrastructure, boosting national fixed-line penetration past 40 percent, and as high as 53 percent in the Budapest market.

The company also expanded into other services, buying up a 51 percent stake in mobile telephone services provider Westel, the market leader with a 53 percent share at the beginning of the 2000s. Matav also operated its own internet services provider, Axelero, which remained the country's leading ISP into the 2000s.

The Hungarian government completed the privatization of Matav in 1997, when the company listed its shares on the New York and Budapest stock exchanges. The simultaneous offering, which also represented the first listing by a Central European company on the New York Stock Exchange, reduced the government's holding to just 5 percent. In 1999, the Hungarian government sold off this stake as well, retaining only a so-called "golden share" of the company, retaining veto control over major corporate decisions. Magyarcom's holding was then reduced to just over 59.5 percent.

Re-Branding: 2000 and Beyond

In 2000, Deutsche Telekom bought out SBC's share of Matav, paying $2.2 billion to take the majority control of the Hungarian telecom leader. Soon after, Matav took over full control of Westel, and began rolling out a new mobile network based on the GSM standard.

The full liberalization of Hungary's telecommunications market was completed in 2001. While Matav retained a majority share of the market through the middle of the decade, the company began exploring further growth on the international market. This led Matav to Macedonia in 2001, where it acquired the majority stake in that country's former telecom monopoly, Makedonski Telekomunikacii, otherwise known as MakTel. The company also increased its Hungarian position that year, buying up local provider Emitel, which served the South Alfold region.

Matav restructured its operations at the beginning of 2002, establishing four primary business divisions: residential, business, internet and mobile. The company also began rolling out ADSL-based broadband services in the early 2000s and by 2003 had signed up its 100,000th subscriber. Matav's entry into broadband was supported once again by Deutsche Telekom's expertise. Deutsche Telekom's support for Matav went beyond providing technological expertise, however, as the German telecommunications giant also helped Matav develop its financial and accounting operations.

The close relationship with its parent company became still more apparent in 2004, when Matav re-launched the Westel mobile telephone service under the internationally recognized T-Mobile brand. In that year, also, Matav paid EUR 68 million for one of Hungary's three 3G mobile licenses.

The success of the T-Mobile re-branding led Matav to complete a more thorough re-branding in 2005. By May of that year, the company had shed its name--which for many retained negative associations as the former telephone monopoly--and adopted the new name of Magyar Telekom. The T brand was then extended across the group's range of services, including T-kabel, its cable television wing, and T-system, which provided IT services to the business market. Following the re-branding, Magyar Telekom merged with its fixed-line operations with its T-Mobile Hungary subsidiary, in order to achieve operating efficiencies.

Magyar Telekom continued to scout out further international expansion opportunities. The company won its bid for 75 percent of former state-owned monopoly Telekom Montenegro at the beginning of 2005. In November of that year, the group won its bid to acquired Orbitel, based in Bulgaria, one of that country's leading fixed-line and mobile contenders. Returning to Hungary at the end of 2005, the company boosted its IT services component through the purchase of Dataplex Kft. Backed by the mighty Deutsche Telekom, Magyar Telekom turned toward the second half of the 2000s as one of the Central European region's most dynamic telecommunications players.

Principal Subsidiaries

BCN Rendszerház; Cardnet; Emitel; EPT; Integris Rendszerház; InvesTel; MakTel (Makedonski Telekomunikacii) (Macedonia); Telekom Montenegro (Telekom Crne Gore); T-Kábel; T-Mobile Magyarország; T-Online.

Principal Competitors

Vodafone plc; Siemens AG; France Telecom S.A.; Telefon 2000 Sp zoo; Telekomunikacja Polska S.A; Telekom Austria AG; Pannon GSM Rt.

Chronology

• Key Dates
• 1881 The first telephone exchange in Hungary is installed.
• 1888 Austria-Hungarian government establishes a state-owned monopoly over public telecommunications under PTT.
• 1915 Telephone operations are brought under control of the Hungarian Post Office.
• 1990 Post office operations are split into three component parts of broadcasting, postal services, and telecommunications.
• 1991 Matav Magyar Tavkozlesi Rt is formally incorporated.
• 1993 Magyarcom consortium (Deutsche Telekom and Ameritech) acquires 30 percent of Matav.
• 1995 Magyarcom acquires majority control of Matav.
• 1997 Matav goes public with a listing on Budapest and New York stock exchanges.
• 2000 Deutsche Telekom buys out SBC, becoming Matav's majority shareholder.
• 2001 Matav acquires 100 percent control of mobile telephone provider Westel; acquires local telephone provider Emitel; acquires Makedonski Telekomunikacii (MakTel).
• 2004 Company's mobile telephone operations are re-branded as T-Mobile Hungary.
• 2005 Company extends T brand across all services and changes its name to Magyar Telekom.