Liberalisation of the Hungarian Telecommunications market

1. Liberalisation of the Hungarian Telecommunications market Dr. Ivan SCHMIDEG National Communications Authority, Hungary schmideg@nhh.hu IDATE Conference 2004.

2. Telecomm market evolution1 • 1992 • 12,6 / 100 main line density(EU 48,0 / 100) • 2,3 / 1000 mobile density(EU 15,2 /1000) • Act LXXII of 1992 on telecommunications • Concession-bound services: • fixed & mobile telephony, paging, broadcasting, • Other services free • data transmission, leased lines • Prices regulated • telephone: price-cap • Hungary divided into 54 primary areas Schmideg

3. Telecomm market evolution2 • 1994 • 2 providers (Westel--> T-Mobile; PGSM) launch GSM 900 service • First phase of privatization of MATÁV • 29 primary areas (incl. the capital) monopoly regions of MATÁV • Tender in 25 primary areas (5 won by MATÁV 2 no bidder: service obligation for MATÁV) • Concession agreements 25 years • Exclusive rights in telephony till: • international & long distance 2001. Dec. • local in 31 areas 2001. Dec. • local in 6 areas 2002. May • local in 17 areas 2002. Nov. Schmideg

4. Telecomm market evolution3 • 1999 • 3rd provider (Vodafon) launches GSM 900/1800, the 2 incumbents GSM 1800 service • alternative service providers launch data services • VoIP allowed Schmideg

5. Evolution of legal background • 2001-2002 • Act XL of 2001 on Telecommunications (23 December 2001) • EU 1998 regulatory framework (liberalisation Directives) implemented • legallyliberalised market Schmideg

6. Strengthof 2002 legislation • Provide legal background for liberalisation • Follow the EU liberalisation directives • Introduction of asymmetric regulation • SMP assignment • Cost based interconnection • Establish Comm. Arbitration Committee • Corporate decision making • Reconciliation based on public hearing Schmideg

7. Weakness of 2002 legislation • Adopt the concept of the 1992 Act (regulating networks through services) • Problems of concession contracts unsolved • Licensing regime survived (disguised into notification) • No real tools for consumer protection • Number portability delayed • Regulator not authorised to collect all relevant data, increasing information asymmetry, Schmideg

8. Interconnection remained a problem area Unsatisfactorytreatment of local acc. deficit Inadequate concept and definition of I/C Ineffective regulation of Internet I/C Lacking regulation of mobile termination Universal service problematic Access not according to social needs Financing, contribution to fund not in conformity with EU directives Weakness of 2002 legislation Schmideg

9. Resulting telecom market • Moderately developed fixed line infrastructure • 8 significant market players • 5 geographical monopolist • Developed mobile infrastructure • 3 significant market players Schmideg

10. PSTN service providers MATÁV INVITEL HUNGAROTEL EMITEL MONORTEL Schmideg

11. Resulting owner structure Schmideg

12. Infrastructure sum up • Fixed line penetration saturated at a rather low level • household penetration is ~69% • The mobile subscriber density is high, • the household penetration is ~69% • pre-paid 22% • The incumbent’s market share is ~78% • The low fixed line penetration may hinder the Internet usage Schmideg

13. Telephone main lines HU and EU Schmideg

14. Distribution of connected lines Schmideg

15. Mobile subscribers HU and EU Schmideg

16. Hirschman-Herfindahl index Schmideg

17. Internet subscribers HU and EU Schmideg

18. Distribution of Internet access Schmideg

19. Broad-band Internet users AU, B, DK, FI, NL, SW EL, IRL, IT, L, P, UK Schmideg

20. Evolution of legal background • 2003-2004 • Act C of 2003 on Electronic Communications(31 December 2003) • EU 2002 regulatory framework (harmonisation Directives) implemented seventh among the EU 25 first among the EU 10 Schmideg

21. Telecomm market evolution • 2004 • Reorganisation of NCAH • Decision by a 7 member Board • Representative of the Communications' Users Rights • UMTS tender (4 frequency bands) • Mix of auction and beauty contest, Schmideg

22. Strength and weaknesses Only 9 month elapseddifficult to judge Competition begun (already two more service providers offer fixed line telphone services) Interconnection prices down to the half (in several steps through the RIOs, already begun in 2002) Mobile terminating fees going down Market analysis in advanced stage Financing of USO not correctly solved Some duties remained with the minister, not withNRA Schmideg

23. Steps of harmonisation • Questionnaire(597 Addressees)decision by the Board to issue2 March 2004(~97% returned) • Methodology applied in the procedure initiated for definition of relevant markets, analysis of competition on the relevant market and its efficiency, designation of operators with significant market power, and imposition of obligations.Acceptedby the Board 30 July 2004 Schmideg

24. Steps of harmonisation • Market 15notified31 August 2004CION accepted5 October • Market 16notified22 SeptemberCION accepted 15 October • Markets 7, 8, 10, 14 draft decisionnotification ~ November • Markets 1, 2, 3, 4, 5, 6Waiting for final comments of NCA notification ~ in 2004 • Markets 9, 11, 12, 13,18Open consultation, notification 1stQ 2005 • Market 17IRG/ERG Questionnairenotification ~ end 2004 Schmideg

25. Thank you for your attention Questions? Schmideg