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

2. IDATE Conference 2004 Nov.Schmideg2 Telecomm market evolution 1  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

3. IDATE Conference 2004 Nov.Schmideg3 Telecomm market evolution 2  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 agreements25 years –Exclusive rights in telephonytill: international & long distance2001. Dec. local in 31 areas2001. Dec. local in 6 areas2002. May local in 17 areas 2002. Nov.

4. IDATE Conference 2004 Nov.Schmideg4 Telecomm market evolution 3  1999 –3 rd provider (Vodafon) launches GSM 900/1800, the 2 incumbents GSM 1800 service –alternative service providers launch data services –VoIP allowed

5. IDATE Conference 2004 Nov.Schmideg5 Evolution of legal background  2001-2002 –Act XL of 2001 on Telecommunications (23 December 2001) EU 1998 regulatory framework (liberalisation Directives) implemented legally liberalised market

6. IDATE Conference 2004 Nov.Schmideg6 Strength of 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

7. IDATE Conference 2004 Nov.Schmideg7 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,

8. IDATE Conference 2004 Nov.Schmideg8  Interconnection remained a problem area  Unsatisfactory treatment 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

9. IDATE Conference 2004 Nov.Schmideg9 Resulting telecom market  Moderately developed fixed line infrastructure –8 significant market players 5 geographical monopolist  Developed mobile infrastructure –3 significant market players

10. IDATE Conference 2004 Nov.Schmideg10 PSTN service providers MATÁV INVITEL HUNGAROTEL EMITEL MONORTEL

11. IDATE Conference 2004 Nov.Schmideg11 Resulting owner structure

12. IDATE Conference 2004 Nov.Schmideg12 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

13. IDATE Conference 2004 Nov.Schmideg13 Telephone main lines HU and EU

14. IDATE Conference 2004 Nov.Schmideg14 Distribution of connected lines

15. IDATE Conference 2004 Nov.Schmideg15 Mobile subscribers HU and EU

16. IDATE Conference 2004 Nov.Schmideg16 Hirschman-Herfindahl index

17. IDATE Conference 2004 Nov.Schmideg17 Internet subscribers HU and EU

18. IDATE Conference 2004 Nov.Schmideg18 Distribution of Internet access

19. IDATE Conference 2004 Nov.Schmideg19 Broad-band Internet users AU, B, DK, FI, NL, SW EL, IRL, IT, L, P, UK

20. IDATE Conference 2004 Nov.Schmideg20 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

21. IDATE Conference 2004 Nov.Schmideg21 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,

22. IDATE Conference 2004 Nov.Schmideg22 Strength and weaknesses  Only 9 month elapsed difficult 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

23. IDATE Conference 2004 Nov.Schmideg23 Steps of harmonisation  Questionnaire (597 Addressees) decision by the Board to issue 2 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. Accepted by the Board 30 July 2004

24. IDATE Conference 2004 Nov.Schmideg24 Steps of harmonisation  Market 15 notified 31 August 2004 CION accepted 5 October  Market 16 notified 22 September CION accepted 15 October  Markets 7, 8, 10, 14 draft decision notification ~ November  Markets 1, 2, 3, 4, 5, 6 Waiting for final comments of NCA notification ~ in 2004  Markets 9, 11, 12, 13,18 Open consultation, notification 1stQ 2005  Market 17 IRG/ERG Questionnaire notification ~ end 2004

25. IDATE Conference 2004 Nov.Schmideg25