Regulator in Hungary Evaluates Its Telecoms Market Strategy

Hungary's telecoms market is more competitive and there is a wider selection of services, according to the Hungarian regulator (NHH)'s overview of progress during the last year. The NHH introduced its strategy in 2005, which was aimed at ensuring the existence of efficient competition and the fulfilment of consumer interests, which incorporates affordable price, high value and a wide choice of products and services. It also includes the realisation of sector interests reflected by three factors: the level of innovation, investments and financial stability. Effectively, the NHH expects to stimulate competition, while ensuring that voice telephony, broadband and TV services are offered at affordable prices. As a result of the more competitive environment, the prices for telecoms services in Hungary have fallen in the past three years. The NHH’s recent decisions concerning RIOs, RUOs and LLU offers have contributed to stronger competition and lower prices that are the main characteristics of the Hungarian market. The regulator has also set up a special portal that offers price comparisons for fixed-line, broadband, mobile and cable TV services, making the system more transparent to consumers.

Outlook and Implications

Broadband Growth: Broadband internet services are available in Hungary through the ADSL technology over the traditional fixed-line infrastructure, as well as via broadband cable or mobile networks. Magyar Telekom, which is 59.2%-owned by the German telecoms group, Deutsche Telekom, is the dominant broadband provider in both the ADSL and broadband cable markets. The number of ADSL lines in Hungary reached 553,000 at the end of October 2006 while the broadband cable connections reached 265,000. The total number of broadband users stood at 818,000 (see Hungary: 11 December 2006: Hungarian Broadband Users Reach 0.5 Mil. At End-November). Mobile operators have expanded their 3G services to cover not only Budapest, the capital, but also other major cities. The prices for 3G services have also decreased, while speeds have improved (see Central Europe: 25 July 2006: 3G Developments in Central and Eastern Europe).

Triple-Play Services: Telecoms operators have started to embrace the IP TV technology, entering into competition with digital TV providers and cable operators. As the number of high-speed connections in Hungary increases, Hungarian telecoms operators and internet service providers can tap into the broadband growth in a country that sports some 10 million inhabitants. The operators have been exploring new market opportunities with the launch of innovative services, including internet television (IP TV), video on demand (VOD) and internet telephony. The country's leading ISP, T-Online Hungary, part of the incumbent, Magyar Telekom, launched an IP TV service at the beginning of November 2006. It currently offers 46 TV channels. The company is aiming for 50,000 customers in the first year (see Hungary: 19 October 2006: T-Online Hungary Plans IP TV Launch in November). Magyar Telekom expects that IP TV services will provide new revenue streams, enabling the telco to offset its declining fixed-line revenues and capitalise on broadband growth. Magyar Telekom registered 446,000 broadband customers, including ADSL and cable broadband connections, at the end of June 2006, while the number of fixed-line connections was down 4.6% y/y to 1.9 million (see Hungary: 14 August 2006: Magyar Telekom Records 5.4% Y/Y Rise in H1 Revenue).

Outstanding Regulatory Issues: Magyar Telekom is likely to see more pricing pressures in the course of 2006, owing to a toughening regulatory environment at home. The NHH recently introduced a cap on the wholesale broadband prices that the leading operators charge alternative operators (see Hungary: 4 August 2006: Regulator Sets New Wholesale Broadband Prices). Broadband growth is likely to be further accelerated through competition among high-speed ISPs, especially following Magyar Telekom's March 2006 cut for fixed-line interconnection rates. The regulator also seeks to slash the fees that the country's four main fixed-line operators—Magyar Telekom, Magyar subsidiary Emitel, Invitel, and Monortel—are allowed to charge competitors for using local-loop infrastructure. The NHH hopes to give smaller companies easier access to the local loop, something that will in turn open up more options for consumers (see Hungary: 17 July 2006: Unbundling Rates to Be Cut in Hungary and Hungary: 9 August 2006: Hungarotel to Reduce Fees for ULL Access). In addition, the regulator has also taken steps to reduce mobile termination fees by 40-50% by January 2009, which has put more pressure on mobile operators. Its three-year strategy to lower mobile fees is expected to drive retail prices down (see Hungary: 3 July 2006: Hungarian Regulator Proposes New Mobile Termination Fees).

One aspect that can change the future position for the cable TV operators on the Hungarian broadband market is the unresolved infringement procedure against Hungary brought forward by the European Commission (EC) regarding the the country’s legislation on television and radio broadcasting (the Media Act). It limits the reach of cable TV operators to a third of the population, which—according to the EC—creates unfair restrictions on the cablecos. The implementation of this provision of the Media Act was abandoned by the Media Authority last summer, but the infringement procedure is still pending on the basis of the existing Media Act. This would enable the Hungarian cable TV sector to create stronger competition for Hungary’s dominant fixed-line operator, Magyar Telekom (see Hungary: 19 December 2006: European Commission Probes Hungary's Controversial Cable TV Legislation). Hungary’s cable TV market is dominated by UPC Hungary, with 730,000 households subscribing to its services, which represent about one-third of Hungary’s cable TV market. Its rival, Magyar Telekom’s T-Kábel, has 300,000 subscribers, followed by Fibernet with 180,000, EMK TV with about 90,000, and Antenna Digitál with about 50,000 subscribers. The five cablecos control about 80% of the market, while the rest is divided between nearly 500 small operators.