Enough Room for Fourth Mobile Player in Hungary?

NHH, the Hungarian telecoms authority, held a public hearing, themed "intensifying competition in the Hungarian telecommunications sector and the possibilities of the emergence of new mobile network and virtual operators", on 16 July. The consultation was meant to involve the market's existing operators and other stakeholders, and gave an indication of next regulatory things to come.

NHH is considering doing what its Czech counterpart did, and license a CDMA 450 operator. Paving the way for the rest of the region, the Czech regulator was the first to re-exploit the empty 450 MHz band, granting Mobilkom's U:fon a license to build a CDMA network based on the frequency, previously used for the first generation mobile networks (see Czech Republic: 17 June 2008: U:fon to Offer Mobile Calls on CDMA Network in Czech Republic). In addition, by the end of 2008, NHH can be expected to attempt to tender a set of other wireless licenses, and introduce the market's first MVNO.

Outlook and Implications

• CDMA450 and GSM900 to Close Digital Divide: Compared to networks of higher frequencies, the ones made of 450 MHz cells cover larger geographical areas and allow the operator to provide coverage on substantially lower costs. Above all, the clearest benefit of today's CDMA 450 is that it can accommodate 3G, making it the most economically viable medium to bring mobile broadband to rural and sparsely populated regions, and thus is an exciting option for Central and Eastern European (CEE) regulators who are trying to find ways to narrow the digital divide between urban and rural areas. By the same token, a CDM A450 operator can offer 3G services to customers on lower prices than competitors using GSM. The downside, however, is that CDMA and GSM subscriptions require their own handsets and incompatible SIM cards, and it is GSM which has established itself as the standard. This is the major disincentive for mobile users to adopt CDMA—and something which matters even more in markets as saturated as Hungary or Czech Republic where there are few potential, technology-savvy consumers still not owning a handset device left.
Global Insight's prediction is that, although the possible CDM A450 operator's offering might attract households in rural areas—who would benefit from its superior reach as a mobile broadband provider—as well as to urban lower-income customers—to whose price sensitivity the cheaper package would appeal—it would stand little chance of succeeding as a traditional mass market player. In the enterprise sector, small and medium-sized businesses with high volumes of both voice and non-voice traffic, and therefore a natural drive for cost cutting, comprise another, possibly more lucrative segment. Either way, the new entrant's core product would definitely be its wireless broadband offering, around which it could bundle its mobile and VoIP telephony products. It is plausible to argue that such a solution would mostly affect Hungary's internet market, with a limited impact on mobile telephony.

Alternatively, the broadband gap can be narrowed by providing 3G over the 900 MHz frequency, for which all three of Hungary's existing operators would have their network infrastructure ready. As of July 2008, the European Union (EU) still has not given its formal approval for mobile operators to utilise their 2G frequencies as they see best—revising the decision in 1989 which reserved them for digital telephony—but that is basically only a matter of time and legislative procedure; in anticipation of the green light, national regulators are already allowing operators to enhance their 900 MHz infrastructure with 3G. Recent remarks by Vodafone Hungary indicate that Hungarian cellcos would also be ready to follow the example set by their Western European peers (see Hungary: 9 July 2008: Vodafone Hungary Sees 900 MHz Networks as Vital to Bringing Mobile Broadband to Rural Areas and Finland: 2 November 2007: Government to Open 900 MHz GSM Spectrum to 3G in Finland).

• Enter First MVNO, Fourth GSM/UMTS Operator? Besides covering the countryside with 3G, the NHH has also pronounced its desire to inject more competition into the telecoms market in general. Firstly, Hungary—somewhat of a regional laggard, after the Czech and Polish markets already having theirs—must eventually accommodate its first MVNO. Secondly, the regulator is considering issuing a whole new mobile network license (and has indicated that towards end-2008)—and besides the earlier-mentioned CDMA450 licensing—it may launch a tender for blocks in frequency bands 900, 1800, and 2100 MHz. Furthermore, the NHH has said that a block for 2.3 GHz spectrum, suitable for provision of WiMAX services, will be available during 2009.

The most recent tender, in March 2007, concluded unsuccessfully as the final bids, placed by Sweden's Tele2 and Denmark's TDC were rejected on the grounds of inadequate financing. Later on, the NHH attempted another tender, but had to postpone it due to lack of interest. Since then, little has changed and the industry's response to a new round is likely to remain lacklustre—for Hungary as a market has become even less accessible than what it then was (see Hungary: 17 July 2008: Telekom 4 Hints at Becoming Hungary's First MVNO, and Hungary: 22 March 2007: Hungarian Regulator Postpones Fourth UMTS Licence Tender).

• Saturated Market, Try to Be Different: Global Insight's view is that a fourth mobile player would indeed spur more competition and put pressure on prices, but given Hungary's mature market, it would have a fairly small impact on the overall market environment in mobile telephony. The current penetration rate verges on 120% and with all of the existing three in established positions—T-Mobile being the market leader with its share of 44%, followed by Pannon at 35% and Vodafone at 21%, as of March 2008—so the fourth contestant would have a hard time breaking in to the race.