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MAGYAR TELEKOM INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS

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

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

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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

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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

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.

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

           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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*

On November 2, 2010, the Company filed a Form 25 with respect to the delisting of its American Depository Shares from the New York Stock Exchange. The delisting became effective on November 12, 2010.

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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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Explanation of abbreviations used throughout the report

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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").

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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.

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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          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.

          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 to ex ante regulation 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:

•

The information obtained by the Audit Committee and its counsel in the course of the investigation "demonstrates intentional misconduct and a lack of commitment to compliance at the most senior levels of Magyar Telekom, TCG, and Makedonski Telekom during the period under investigation."



•

As previously disclosed, with respect to Montenegrin contracts, there is "insufficient evidence to establish that the approximately EUR 7 million in expenditures made pursuant to four

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consultancy contracts . . . were made for legitimate business purposes", and there is "affirmative evidence that these expenditures served improper purposes." These contracts were not appropriately recorded in the books and records of the Company and its relevant subsidiaries. As previously disclosed, the Company has already reclassified, in the Company's financial statements, the accounting treatment relating to certain of these contracts to more accurately account for these expenditures.

•

As previously disclosed, there is evidence that certain former employees intentionally destroyed documents relating to activities undertaken in Macedonia by the Company and its affiliates.



•

Between 2000 and 2006 a small group of former senior executives at the Company and the Company's Macedonian affiliates authorized the expenditure of approximately EUR 24 million through over twenty suspect consultancy, lobbying, and other contracts (including certain contracts between the Company and its subsidiaries on one hand, and affiliates of a Cyprus-based consulting company on the other hand). The Final Report concludes that "the available evidence does not establish that the contracts under which these expenditures were made were legitimate."



•

"The evidence shows that, contrary to their terms, a number of these contracts were undertaken to obtain specific regulatory and other benefits from the government of Macedonia. The Companies generally received the benefits sought and then made expenditures under one or more of the suspect contracts. There is evidence that the remaining contracts were also illegitimate and created a pool of funds available for purposes other than those stated on the face of the agreements."



•

In entering into these contracts and approving expenditures under them, the former senior executives knowingly caused, structured, or approved transactions that shared most or all of the following characteristics:



•

intentional circumvention of internal controls;



•

false and misleading Company documents and records;



•

lack of due diligence concerning, and failure to monitor performance of, contractors and agents in circumstances carrying a high risk of corruption;



•

lack of evidence of performance; and



•

expenditures that were not for the purposes stated in the contracts under which they were made, but rather were intended to obtain benefits for the Companies that could only be conferred by government action.

          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

•

To retain customers of the highest margin segments



•

To secure the largest profit pool for future investments

2.       Reach competitive cost structure

•

To reach competitive cost base



•

Improve Return on Capital Employed ("ROCE"), Operating Expenses to Sales and Capital Expenditures to EBITDA ratios

3.       Secure market leader position in broadband

•

To secure broadband access leadership as basis for all future services



•

To stabilize revenue market share and increase share of high-margin revenues

4.       Achieve market leader position on the TV market

•

To increase TV customer volumes as means to retain high-margin voice and broadband customers



•

To increase number of services per customer (3/4Play)

5.       Stabilize revenues

•

To transform our revenues into a sustainable mix



•

To reverse declining revenue trends, thus easing pressure on cost side



•

To further monetize infrastructure with high-margin 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:

          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:

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:

          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:

          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

Subscribers

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

          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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The increase in the usage of our mobile Internet services played an important role in 2010. The number of subscribers for this service rose by 49.8 percent in 2010.



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In December 2010, Origo, our fully owned media subsidiary, launched a new mobile version of [origo], Hungary's most visited online portal with a very strong brand. Origo mobile replaced "t-zones" and "web'n'walk" as the default mobile home page for all T-Mobile subscribers and it is also available to the subscribers of other service providers. We believe this service will boost the traffic of the default T-Mobile portal significantly and generate mobile advertisement revenues.

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We continued to broaden our mobile-related insurance portfolio in 2010, which is available for our postpaid mobile customers by calling our customer service center. We doubled the number of subscribers for family insurance products and in 2010, we successfully introduced two new services (handset insurance for new devices and travel insurance service for subscribers in mobile roaming situation). Revenues from insurance services grew by 87 percent in 2010.



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In 2010, we extended the Mobile TV streaming service for iPhone users in order to gain more subscribers and revenue.



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Purchases via mobile phones continued to grow in 2010, transaction figures grew by 57 percent and revenues by 27 percent. The main driver of growth in 2010 was the parking service (i.e., when parking tickets can be purchased via mobile phones using SMS or IVR channel). Other popular products purchased by mobile phones are lottery tickets and highway fees, but further smaller partners were also integrated (e.g., travel insurance). In the future, we see potential for the purchase of public and rail transportation tickets by mobile phone.



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AkcióNekem.hu ("OffersForMe.hu") is a webpage, which was launched to build up a mobile marketing database in September 2010. We expect the usage of this database to bring new revenue streams from the advertisers and also to support CRM activities. Mobile subscribers may register for this database for free and receive regular promotional offers, third party advertisements and discount notices. Subscribers have the option to add thematic filters to their profiles and to limit the number of messages per week they are willing to receive.



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We offer free navigation software for iPhone in cooperation with NAVIGON AG with the aim of increasing customer loyalty and iPhone 4 sales volumes in our highest ARPU-generating mobile customer segment. Immediately on the day of launch in August 2010, the T-Mobile branded application became the No.1 downloaded application in the AppStore accessible for Hungarian customers. The positive customer feedback and the activation rate reflect that the project holds extremely high brand-building value.

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.

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T-Home/T-Mobile integrated broadband offer.  This offer provides fixed line and mobile Internet together at a discounted price. The purpose of the promotion is to retain fixed line and mobile customers with a competitive offer and to sell mobile Internet as a complementary service for them.



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FamilyFriend Option.  This option offers flat rate voice traffic to those customers who subscribed to the FamilyFriend Option between their T-Home fixed and T-Mobile postpaid and prepaid numbers. In 2010, we added VoIP technology to fixed lines.



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The Connection Program.  The joint loyalty program of T-Home and T-Mobile offers the opportunity to collect loyalty points for use of fixed line and mobile services, as well as several favorable discounts.



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Paletta.  As part of our integrated company strategy, we introduced a fixed-mobile price plan in June 2010, which was aided with a full advertising campaign in September. This price plan offers mobile and fixed voice, fixed Internet and TV services to residential customers in a single package at a discounted price. The offer is available in two price plans, targeting mid- and advanced-user segments offering a very unique service in the Hungarian market.



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Kombi business discount.  As another element of our integrated company strategy, we introduced a fixed-mobile offers for small businesses in February 2010. This price plan offers mobile voice, fixed voice and fixed Internet plus an optional mobile broadband to small business customers at a discounted price.

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:

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