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Magyar Telekom profit may decline

Magyar Telekom Nyrt, eastern Europe's second-largest phone company, may say second-quarter profit dropped because of costs to absorb businesses it bought in Bulgaria and Hungary. The Budapest-based company, owned by Deutsche Telekom AG, may say net income fell 18% to Ft 19.1 billion ($89.7 million) from Ft 23.4 billion a year ago, according to the median estimate of six analysts surveyed by Bloomberg. Sales probably rose 2.6% to Ft 160.5 billion. Magyar Telekom has expanded with acquisitions to bolster revenue because of competition from Telenor ASA and Vodafone Group Plc. Costs to integrate these companies, as well as expenses for merging its T-Mobile unit, probably hurt earnings, said Pamela Antay, an analyst at KBC Groep NV in Brussels. „It's pretty much a necessary evil,” said Antay. „They needed to invest in these new assets to prepare for the future, and that comes with a cost.” Magyar Telekom in June bought Hungarian software developer KFKI Zrt for as much as Ft 9.7 billion ($45.7 million) and in February began offering fixed-line service in Romania through its local unit there, Combridge SRL. The company paid € 8 million ($10.3 million) for Orbitel, Bulgaria's second-largest phone company in November and bought Dataplex Kft., a Hungarian IT company, in December. „They have forayed into several activities such as the Romanian business, which have rather low margins, but pretty high marketing costs,” said Attila Gyurcsik, an analyst at Concorde Securities in Budapest.

Magyar Telekom, the region's second-largest phone operator behind Telekomunikacja Polska SA, said in September it would merge T-Mobile Magyarország into the company to save as much as Ft 20 billion over four years by cutting management. „We expect the merger to start filtering through starting in the fourth quarter of this year and lift margins by 2007,” Antay said in a note to investors. Revenue growth in the three months ended June 30 probably slowed from 6.7% a year ago, according to the survey. Hungary's mobile market had a 93% saturation level as of April, the country's phone regulator reported. Higher interest charges may also weigh on profit after the central bank raised its benchmark two-week deposit rate twice after keeping it unchanged for 2 1/2 years, according to analysts including Jindrich Svatek of Raiffeisen Zentralbank Oesterreich in Prague.

Magyar Telekom was fined Ft 12 million by Hungary's financial markets regulator late last month after failing to file its 2005 annual report. The document has been delayed by the company's investigation into two consulting contracts at its Montenegrin unit. „This practice of reporting second-quarter before actually approving the previous year's annual report is unheard of among companies of this size,” said Péter Fazakas, an analyst at Buda-Cash Securities in Budapest. (Bloomberg)