INVESTOR PRESENTATION MAGYAR TELEKOM GROUP – JULY 2013 STRATEGY, OUTLOOK AND GUIDANCE OVERVIEW – MAGYAR TELEKOM GROUP AT A GLANCE International presence Overview Czech Republic Slovakia Leading telecommunications operator in Austria Moldova Hungary Slovenia Hungary, Macedonia and Montenegro CroatiaCroatia Romania BiH Serbia Serbia Montenegro Kosovo BulgariaBulgaria MacedoniaMacedonia Albania Majority owned by Deutsche Telekom (59.2%) Greece EUR 1.1.1. 222 bnbnbn market capitalization as at July 201 3 Incumbents in Hungary Stock exchange listings primary listing on the Budapest Stock Exchange Level I ADR program, ADSs traded on the OTC Market Magyar Telekom Invitel UPC Telekom 3 HUNGARIAN ECONOMIC ENVIRONMENT Growth structure and wages Contribution to GDP growth (%) Economic challenges 8 0.2% 6 Continued deleveraging keeps internal 4 demand low 2 GDP performance dependent on export 0 dynamics -2 continued decline in household spending -4 due to the weakening HUF and high -6 unemployment has put pressure on Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4Q1 FY consumption 2010 2011 2012 2013 2013* MT financials strongly correlated with Consumption Net exports Investment trends in domestic demand Inflation GDP y-o-y growth * European Commission May 2013 forecast Tax burdens introduced to reduce budget Additional taxes levied on Magyar Telekom deficit HUF bn special, revenue-based sector tax levied 40 on a temporary basis between 2010-2012 30 8.7 traffic-based permanent telecom tax introduced from July 2012 and increased 20 ca. 25.0 from August 2013 27.0 25.4 24.3 10 permanent tax on utility and telecom 7.3 0 networks levied from 2013 2010 2011 2012 2013F Telecom tax Special tax Utility tax 4 MARKET POSITIONS ON THE HUNGARIAN TELECOMMUNICATION MARKET Mobile voice market shares (based on total SIMs) Mobile broadband market shares (based on total SIMs) Subscribers Subscribers 15,000,000 3,500,000 3,000,000 25.9% 12,000,000 25.9% 2,500,000 23.0% 22.8% 22.7% 9,000,000 Vodafone 28.5% 2,000,000 23.8% 28.3% 32.0% 31.3% 31.0% Telenor 1,500,000 6,000,000 T-Mobile 27.5% 1,000,000 45.6% 3,000,000 46.3% 45.8% 45.0% 45.9% 500,000 48.7% 0 0 2011 2012 Q1 2013 2011 2012 Q1 2013 Fixed broadband market shares* TV market shares* Subscribers Subscribers 2,500,000 4,000,000 2,000,000 27.6% 27.4% Other 3,000,000 30.1% 26.4% 24.7% 24.6% DIGI 1,500,000 13.6% 13.7% 12.6% UPC 2,000,000 23.0% 23.2% 23.1% 1,000,000 20.7% 21.9% 21.9% MT 25.9% 26.7% 26.7% 1,000,000 500,000 36.6% 36.9% 37.0% 24.7% 25.4% 25.6% 0 0 2011 2012 Q1 2013 2011 2012 Q1 2013 *based on the total fixed BB /TV market estimated by the National Media and Infocommunications Authority 5 HUNGARIAN ICT REVENUE TRENDS Hungarian ICT market development (HUF bn) 1.2% 1,189 1,211 1,146 1,167 1,125 1,123 1,131 1,146 ICT market Hungarian ICT market is expected to IT expand moderately CAGR of ca. 1% expected Fixed data between 2012 and 2018 TV growth to be mainly driven by Mobile BB mobile broadband and IT Fixed BB services Mobile voice continued decline in traditional voice revenues Fixed voice 2012 2013 2014 2015 2016 2017 2018 Source: Magyar Telekom and IDC estimates, April-2013 Magyar Telekom’s revenue market share Magyar Telekom has a blended market share of 46% in the retail telco market in Hungary supported by 17% market share in the IT service market 6 MAGYAR TELEKOM’S REVENUE MIX Transformation of Magyar Telekom’s Hungarian revenue mix 100% Revenue turnaround New Significant revenue potential from nonnon----corecore 80% New revenue revenue activities sources sources New ca.30% ca.45% revenue revenues from new services expected 60% sources to surpass traditional voice revenues ca.60% within the next few years 40% demand for our energy service Voice exceeding expectations revenues Voice ca.60% revenues 20% Voice strong growth in equipment sales ca.45% revenues ca.30% revenues 0% further new services to be launched 2007 2012 2017F Other SI/IT Mobile non-voice Mobile voice NonNon----corecore activities positively effect retention Energy TV Fixed BB & data Fixed voice 85% of TV customers are 2Play or Average annual churn level 3Play package subscribers fixed churn decreases further with 20% energy contracts 15% 45% of energy customers have 3Play 10% 14.4% 15% package 8.1% 5% 8% 5.0% 5% 0% 1 Play 2 Play 3 Play 7 OPEX AND CAPEX DEVELOPMENTS Cost structure Capex structure HUF bn HUF bn 15%15%15%14%14%14% 15%15%15% Capex/Sales 250 ---3%-3%3%3% 100 92 92 213 204 203 84 200 22% 75 33% 32% 44% 45% 46% 150 30% 50 33% 36% 100 11% 9% 56% 25 50 55% 54% 10% 37% 25% 22% 0 0 2010 2011 2012 2010 2011 2012*** Employee-related expenses Other opex w/o investigation costs and telecom taxes* Maintenance New services Efficiency Susidiaries Continuous savings Efficiency measures dominate Capex spending TWM (Total Workforce Management) savings**: major part of Capex is spent on network modernization - HUF 3.4 bn in 2012 compared to 2010 internal efficiency projects were accelerated - HUF 5.8 bn in 2013 compared to 2011 HUF 10.7 bn to be paid for a new Macedonian cost efficiency improvements reflected in the decline headquarter in 6 annual installments (accounted for as in other operating expenses book Capex in 2012) *including bad debt expenses (reclassified as direct expense from 2011) ***excluding spectrum license fee **technical changes in the TWM cost structure distort comparability 8 FREE CASH FLOW AND DIVIDENDS Free cash flow* generation Dividend payment HUF bn Net debt ratio** DPS (HUF) 120 50% 80 26 70 100 40% 28 34.1% 34.3% 60 14 32.7% Target 80 30.8% 14 33 12 30% 50 60 40 14 74 20% 30 40 78 69 50 50 50 65 20 48 10% 20 10 0 0% 0 2009 2010 2011 2012 2009 2010 2011 2012 Special&Telecom. taxes Minorities FCF to shareholders Net debt ratio Dividend payment Free cash flow generation Dividend policy FCF declined in 2012 due to a number of exceptional costs: in order to maintain an efficient capital structure, we have - spectrum acquisition (HUF 10.9 bn) a net debt ratio target of 30-40% - DOJ/SEC settlement (HUF 22.1 bn) 12% dividend yield based on the share price of HUF 407 at February 28, 2013) - new telecom tax introduced in July 2012 (HUF 8.7 bn) partially mitigated by proceeds from Pro-M sale (HUF 20 bn) *defined as Operating CF + Investing CF adjusted for proceeds from/payments for other **defined as net debt / total capital financial assets 9 PUBLIC TARGETS FOR 2013 AND Q1 RESULTS 2013 targets Q1 2013 results approximately flat +6.8% Revenue s results pressure on real disposable income to lead to a strong contribution from energy services due further decline in household consumption to heating season spending power in the business sector is higher revenues from SI/IT and fixed and expected to remain limited mobile equipment sales higher energy and equipment sale revenues positive impact of price increases in H2 2012 EBITDA 999---121212 % decline *** -24.3% changing revenue mix with increasing proportion booking the full annual utility tax of HUF *changed from 4-7% of sales made up by lower margin services 7.3bn decline negative direct margin on energy service due to EBITDA decline w/o utility tax is 10.1% cut in the regulated prices agressive price competition in Macedonia ca. 5% decline +29.4% CAPEX** network modernization, LTE roll-out launch of the new CRM system in April **excluding spectrum internal efficiency programs different within-year dynamics license fee 10 Q1 2013 GROUP RESULTS – REVENUES AND EBITDA Group revenues Group EBITDA HUF bn HUF bn 160 60 9.4 0.3 156.6 51.6 6.8 155 50 6.5 150 2.1 39.0 146.6 3.8 2.4 40 1.4 1.7 145 2.8 2.7 0.9 1.0 30 140 20 135 5 10 0 0 Q1 Mobile Fixed Fixed M. non- Mobile Fixed SI/IT Energy Other Q1 Q1 2012 Taxes* Direct Employee- Net other Q1 2013 2012 voice voice data voice equip. equip. 2013 margin related Opex Revenue development EBITDA development Group revenues up by 6.8% yyy-y---oooo----yyyy EBITDA down 24.3% yyy-y---oooo----yyyy strong contribution from energy service revenues HUF 7.3 billion accounted in relation to the utility tax increase in contribution from mobile internet revenues and further erosion of traditional voice and data revenues smartphone sales negative margin of energy services due to the 10% cut in higher fixed equipment revenues thanks to the success of regulated energy prices effective from January TV set and tablet sales lower direct margin contribution of equipment sales and fixed and mobile voice revenue decline reflect depressed SI/IT household consumption and MTR cuts cost cutting measures partly mitigate margin erosion decrease in fixed data revenues primarily due to public sector insourcing *special, telecom and utility taxes 11 Q1 2013 RESULTS TELEKOM HUNGARY – FINANCIAL PERFORMANCE Telekom Hungary revenues +12% HUF million 120,000 116,574 104,510 15,337 Telekom Hungary 5,957 90,000 Fixed line revenues up by 2% 55,023 56,659 higher revenues from equipment sales 60,000 and TV services compensating for voice revenue erosion 30,000 Energy 43,530 44,578 Mobile Mobile revenues increased by 3% Fixed higher non-voice and equipment 0 Q1 2012 Q1 2013 revenues offset the decreasing tariffs and MTR rates EBITDA and margin significantly higher energy retail revenues HUF million increasing number of PODs ---24%-24%24%24% 40,000 40 % 34.2 % Decrease in EBITDA of 24% booking of HUF 6.8bn of utility tax, w/o 30,000 30 % that EBITDA decline is 5% 23.4 % energy service has negative EBITDA 20,000 20 % 35,704 margin due to the 10% cut in regulated 27,267 prices 10,000 10 % cost savings in other opex and