The Hungarian Communications Market Developments and ...

1 1
The Hungarian Communications Market
Developments and Regulation
between 2004 and 2008

The Hungarian Communications Market Developments and Regulation between 2004 and 2008

CONTENTS
Contents
1. NHH’s role in the regulation of the electronic communications market
1.1 The establishment and main activities of NHH
1.2 National and international regulatory environment
1.3 NHH’s strategy: regulatory objectives and principles
2. NHH’s activities during the past five years
2.1 Changes in institutional operation
2.2 Market analysis procedures
2.3 Frequency management
2.4 Measurement service
2.5 Identifier management
2.6 Market surveillance of electronic communications services
2.7 Construction authorisation activities
2.8 Services related to electronic signature
2.9 Postal authority duties
2.10 Representative of Communications Users’ Rights
3. Features of the electronic communications market
3.1 The entire market
3.2 Electronic voice communications markets
3.3 Internet market
3.4 Broadcasting market
4. Results and influence of market regulations
4.1 Regulation of service markets related to fixed telephony
4.2 Regulation of the broadband Internet market
4.3 Regulation of mobile radiotelephony markets
4.4 Regulation of leased line markets
4.5 Regulatory means applied by the Hungarian Authority in an international context
References
05
06
07
08
12
13
14
17
20
21
22
25
26
27
29
30
31
34
38
40
43
44
51
61
66
69
74

The Hungarian Communications Market Developments and Regulation between 2004 and 2008
Dear Reader,
In this publication we are attempting to accomplish the impossible:
to recap the developments in the communications market over a fiveyear
period since the entry into force of the Act on Electronic Communications
and the founding of the National Communications Authority
(NHH). We shall illustrate NHH’s most important decisions regarding
the domestic communications sector, with an unbiased assessment of
what took place in the Hungarian communications market since NHH
was established, at the same time referring to the changes
in the international regulatory environment.
The history of NHH and its predecessors goes back to as early
as 1989. It was then that communications service provider related
activities were separated from authoritative and administrative duties,
and NHH’s legal predecessors, the Postal and Telecommunications
Supervision and the Frequency Management Institute were established.
Meanwhile, significant changes took place on the service provider
side as well. As of 1 January 1990, broadcasting and telephone
services were detached from the Hungarian Post, and the Hungarian
Telecommunications Company, the Hungarian Broadcasting Company
and the Hungarian Post Company were founded. Although in
state ownership, these companies operated independently, facilitating
a changeover to market economy.
In the early 90’s, only the best informed had ever heard of mobile
phones or the Internet, and in fact anyone who owned a phone could
call himself lucky. In just over ten years’ time the number of close to
one million connected fixed lines increased by three and a half times.
At the time the Act on Electronic Communications established NHH
in 2004, we saw more than seven million mobile and 600 thousand
Internet subscribers in the country. By 2008, the Hungarian communications
market made a significant progress. Today the number of
mobile and Internet subscriptions is close to 12 and 2 million, respectively
– most of the latter being broadband! In spite of considerably
greater bandwidths and inflation rates, prices are much lower than
they were five years ago. Fierce market competition resulted in declining
subscription fees even in terms of nominal value, with better and
more diverse services. An utopia has turned into reality: Hungary has
become a country with a developed communications market offering
European level services and value-for-money tariffs.
Today, almost everyone in Hungary uses some kind of communications
service: most people use more than one service, the national
average being two subscriptions per person. Communications,
including fixed and mobile telephones, the Internet and the television,
has become part of our everyday life. Consequently, regulation should
comply with European standards and serve the interest of the public.
Regulation should ensure the conditions of market competition, i.e.
transparency, predictability and financial stability, in order to provide
consumers with value-for-money and advanced services.
Five years ago, aspiring for EU membership, we, for the most part,
only adopted and implemented the regulations of the EU. Today,
however, being full members, we are represented at the table where
the European principles of market regulation are formulated. Through
its international positions, particularly the 2008 ERG/IRG (European
Regulators Group – ERG, Independent Regulators Group – IRG) and
the 2009 RSPG (Radio Spectrum Policy Group) presidency, Hungary
plays a decisive role in devising communications frameworks.
Although the currently effective regulatory framework is successful,
technological development calls for a reform in order to ensure communications
to remain one of the leading sectors of Europe over the
next decade. Today, international and national regulations are in fact
on the same track. There is a shared responsibility and thus, there are
shared results.
As a result of the regulatory activity of previous years, consumers
from almost all regions can now choose from several competing services
and service providers in the television, fixed telephone, mobile
and broadband Internet services market, and opt for the service best
suited to their needs. Thanks to our regulatory policy, in general the
price factor is no longer an obstacle of using the services, and the
required coverage is guaranteed throughout most of the country.
Through continuous fee reductions and the elimination of non-pricerelated
obstacles, market competition is becoming increasingly
efficient. NHH makes every effort to enforce the execution of the provisions
of its decisions and legal regulations. Supervision is performed
based on annually published market surveillance plans, controlling
individual and general terms of contracts, individual markets and
groups of services separately. NHH has continuous consultations with
market players and civil organisations, encourages the instigation of
self-regulation, and even applies penalties when necessary.
NHH was among the first organisations in Europe to launch a website
called TANTUSZ with a service aiming to provide assistance to
consumers in making conscious choices. Consumers are encouraged
to compare the mobile tariffs offered on the market and make their
choices based on their own consumer habits. TANTUSZ has since
been completed, offering a fixed tariff comparison, a broadband and
television services search, and a roaming application feature. There
have been more than five million visits to the website over the past

02 03
years. This year one of NHH’s focus areas is to increase consumer
awareness, which – after revision of the EU regulatory framework – will
become a key issue at a European level, too.
With Hungary’s accession to the EU in 2004, market definition and
market analysis conducted pursuant to the Act on Electronic Communication
and the EU Framework Directive became the very basis
of regulation for NHH. Along precisely defined rules of procedure,
we commenced analyses in 18 markets, mapped market anomalies,
identified service providers with significant market power and established
the commitments to remedy market failures. We have already
conducted two comprehensive market analyses involving the entire
market and in both cases were one of the first European authorities to
complete such analyses. At the end of 2008, we were at the stage of
the first decision regarding a third round of analyses. It is of symbolic
importance that this decision involves the termination rates of mobile
service providers, an item provoking heated debates both in the EU
and ERG of European regulatory authorities.
With its decision aiming to create a predictable situation for three
years, NHH committed itself as early as in 2006 to the symmetry and
significant reduction of termination rates. Mobile termination rates
fell by some 40 percent since 2004 to universally become as low as
HUF 16.84 per minute by 1 January 2009. Our goal is to maintain this
reduction rate also in the years to come. Although our decisions on
termination rates and other key market issues were welcomed by the
market as a whole, they were understandably not always appreciated
by the service providers thus affected. Their objections led, in many
cases, to court procedures. Nevertheless, not a single court decision
of legal effect has been made to date to dispute such decisions of the
Board of NHH.
Perhaps some readers remember the 2004 introduction of third
generation mobile services, also known as the UMTS tender in Hungary.
As a result of the tender procedure administered by NHH, all of the
three former mobile telephone service providers obtained the required
rights to frequency use, with the state making a profit of nearly HUF
60 billion, which was beyond expectations. A few years later, upon
the extension of the GSM concessions in 2007, both Pannon and
T-Mobile/Magyar Telekom undertook broadband development worth
another HUF 20 billion each within two years, in addition to their HUF
10 billion budget payment. The promotion of the spread of broadband
Internet is one of the key issues at authority, state and user levels,
both in Hungary and in the EU. It is of enormous significance for the
competitiveness of individuals, the country and the continent to bridge
the still existing digital divide and to enhance digital literacy.
While third generation mobile services have given boost to the
Hungarian market and a fierce competition has developed in the
market of wireless Internet between the three domestic service
providers, an important reason behind the announcement of the
current tenders is that the intensity of such competition has recently
somewhat declined. Market shares did not change much for months,
and even prices stopped to decline. According to our expectations,
a potential fourth service provider and the introduction of a
new business model would give another boost to the otherwise well
performing mobile market. In addition to enhancing competition in
the mobile market, the promotion of the spread of broadband Internet
is also important. This field is currently characterised by three
competing technologies – traditional DSL, cable modem access and
wireless – which is a favourable situation.
As a result of a number of regulatory measures, there is competition
in the DSL market in the area of all incumbent service providers, with
efficiently operating alternative service providers becoming increasingly
more serious competitors to former providers with monopoly.
Cable television service providers with very high penetration rates in
Hungary have also engaged in this competition and grown to be major
challengers of fixed-line service providers in the field of both voice and
Internet services. Such competition was further strengthened by wireless
service providers, including the three mobile service providers,
with all this leading to a fast increase in Internet coverage and an even
faster reduction of prices. Today, no further significant increase in Internet
penetration is hindered either by coverage or price factors. We
have also taken several regulatory measures to increase the coverage
of the few still unserviced areas.
A tender procedure is aimed at re-introducing the 450 MHz frequency
range to the market, as this range is perfectly suitable for establishing
efficient broadband coverage in sparsely populated areas.
By using the 26 GHz frequency range, we also intend to facilitate the
cost-effective development of service providers’ own infrastructures.
The cooperation between service providers already in the market and
those striving to enter the market must definitely be improved. The
invitation to tender expressly encourages existing service providers to
assist new ones in their entry into the market, which therefore allows
new service providers to submit part of the frequencies awarded
to any incumbent service provider in exchange for the possibility of
domestic roaming. We expect this model to give a new impetus to the
market and to contribute to the efficient and cost-effective utilisation
of the country’s frequency spectrum.
Besides electronic communications, NHH’s activities also extend
to areas such as postal services, IT and, to a certain extent, the
media. In 2008, we were successful in managing the tendering
procedure required for the launch of terrestrial digital free-to-air
broadcasting. Terrestrial digital television and radio services are being
launched these days, with their success becoming measurable

The Hungarian Communications Market Developments and Regulation between 2004 and 2008
as early as in a few years’ time. With the introduction of new services
and the most recent compression technology into the market, we
have taken a very important step. Hungary was among the first
countries in the region to join the digital Europe. This process is
expected to conclude in the EU countries by the end of 2011. Today
at least one million people are affected by the switchover, as roughly
this many persons are watching analogue terrestrial programmes using
indoor or rooftop aerials. However, switchover is important also
for those not directly affected, as the terrestrial digital platform will
hopefully become competitive with other technologies and will contribute
to the quality improvement of television services and concurrently
generate lower prices. The launch of terrestrial digital platform
in fact entails the introduction of a competitive infrastructure, and
this way, in our view, sustainable market competition will be shaped
by the competition of services and infrastructures.
Since 2004, we have been continuously seeking opportunities for
cooperation with market players: we held professional consultations
on our draft decisions, had debates on our regulatory strategy for
the period between 2006 and 2010, and consulted market players
with reference to a number of professional matters. Currently VoIP
and NGN consultations are also on the agenda. VoIP – the Internetbased
voice communications technology – is already used by many,
with the spread of new generation networks just around the corner.
Within a short time, these technologies will fundamentally change both
communications and its regulation. Our goal is to create a regulatory
environment in this field that is not only attractive for investors but
also provides guarantees for sustaining competition and protecting
consumer interests even after the spread of the new technology.
All of these subjects are on the agenda in the work of ERG/IRG
under our presidency in 2008 and are also featured on the agendas of
other EU forums. It is the recognition of NHH’s work, i.e. the regulation
of the Hungarian communications market that resulted in the fact
that Hungary has been awarded with the 2008 presidency of ERG/
IRG. The one-year-long presidency concluding at the end of 2008 was
primarily about seeking consensus and making the work of an organisation
uniting the regulators of 27 Member States more efficient in a
period characterised by issues to be addressed such as the reform of
the European regulatory framework, the protection of European consumer
interests or roaming. The most impressive results were made in
the field of roaming regulation through altering the former unregulated,
non-transparent regime maintaining surrealistic price differences into a
transparent system that is for the benefit of consumers. We managed
to cut down voice roaming tariffs by cutting back unjustifiably high
former profit levels, and chances are high that by summer 2009 SMS
retail prices will also be regulated and will be some 60 percent lower
than today. As for mobile Internet, the first step will be the regulation
of wholesale prices in the summer of 2009, and later hopefully no
intervention will be required in retail prices.
In the debate on the regulatory framework, NHH and ERG/IRG
share the same objectives of protecting and increasing the independence
of regulators, making efforts for European regulation to be faster
and more harmonised and making arrangements for national regulators
to use primarily uniform models throughout the continent while
relying on local knowledge.
In 2009, the ERG/IRG presidency will be followed by another presidency
in RSPG, the European Commission’s advisory group on radio
spectrum policy, which will allow the two professional organisations to
get closer to each other also through my person and NHH. One of the
first RSPG duties will be to formulate proposals for a more effective
future utilisation of European frequency assets with the elimination
of the digital divide featured high on the agenda. Europe’s goal is to
make broadband access available to everyone. This is partly why
Europe needs a wireless broadband strategy, as it is apparent that this
technology will assume a key role in bridging the divide.
National challenges are similar to international ones. We are facing
postal liberalisation, the management of the digital switchover
process, a new media act, the implementation of the amendments of
European regulations in national practice, and of course further fostering
of competition in the communications market. In the past years,
we increasingly strengthened our cooperation with the Hungarian
Competition Authority, the Hungarian Authority for Consumer Protection
and the National Radio and Television Board. We are involved in
the regulation of media infrastructure and are determined to remain
a reliable source of information for consumers, promoting consumer
awareness and assisting information provision with reference to the
communications market.
Below, you will find a detailed presentation of the processes
outlined above. You can have a closer look at what and why we have
done, and how the Hungarian communications market has changed
and developed over the past five years as a result of NHH’s market
regulation activities.
Dániel Pataki
President
National Communications Authority of Hungary

04 05
NHH’s role
in the regulation
of the electronic
communications
market
1

The Hungarian Communications Market Developments and Regulation between 2004 and 2008
1.1 The establishment and main activities
of NHH
In 2002, the European Union adopted a New Regulatory Framework
(NRF) for electronic communications, which was transposed by
Member States in July 2003. In Hungary, the requirements of regulatory
harmonisation were attained by the adoption and implementation
of Act C of 2003 on Electronic Communication (Eht.) and its
implementation decrees.
Eht. defines the multi-player system of institutions in charge of state
responsibilities associated with electronic communications: the Government,
the Minister responsible for communications, the National
Communications Authority of Hungary (NHH), the Hungarian Competition
Authority, and the Hungarian Authority for Consumer Protection.
The legal predecessor of the National Communications Authority,
Communications Supervision was set up in 1993 through the
merger of the Postal and Telecommunications Supervision (PTF) and
the Institute for Frequency Management (FGI). PTF and FGI were
founded in 1989 transforming the Hungarian Post into companies
and separating authority and administrative functions from service
provider activities. The Communications Supervision (HíF) performed
authorisation and supervisory functions as prescribed by law, however,
market regulation was beyond the scope of this authority. In
the case of authorization activities, HíF examined itemized compliance
with the applicable regulations and it verified compliance with
subscriber contracts in the scope of its so-called market surveillance
activities prompted by individual consumer complaints.
According to the new organisational model established by Eht.,
NHH has been operating as a unified public administration body
under the control of a board since 1 January 2004. The Board is in
charge of regulatory tasks significantly influencing market operation
as well as the management of the administration body, while classical
authority functions are managed by the Office.
The Board is comprised of seven members and is presided by its
Chairman. The work of the Chairman is assisted by organisational
units under his direct control, such as the Presidential Cabinet, the
Strategic and International Directorate, the Directorate of Communications,
the Directorate of Security Affairs, the Directorate of Human
Resources and the Department of Internal Control.
Through the implementation of the European Community regulatory
framework, Eht. provides for a set of tools NHH may use to
intervene in market relations. This means that, owing to its considerably
extended scope of authority, the national regulator, as
opposed to its former role of law enforcement agency with limited
decision-making power, has become a legislator making laws in key
areas fundamentally affecting market operation by its decisions. With
regard to the utmost importance of such decisions, the associated
powers have been conferred to a separate organisational unit, the
Board of the National Communications Authority. In addition to
specific decisions concerning market regulation, the Board is also in
charge of the strategic management of the Authority.
The office of the National Communications Authority, managed by
the General Director, has an extensive scope of activity including the
following areas.
The most important tasks of the economics-related administrative
activities are to support the market analysis process and to professionally
prepare the Board’s decisions and resolutions concerning
market analysis. In addition, the Authority performs methodology and
research activities including the operation of the market monitoring
system; reporting activities; management, operation and development
of international data supply; organisation of market research related to
major areas of the electronic communications market; analysis of the
research results and the development of new methodologies.
In addition to the assessment of the technical content of reference offers
incorporated in the Authority’s decisions, the technical activities of
the Office also play an important role in the support of market analysis
processes. The technical activities include a number of other activities:
regulatory and authority duties related to identifiers, the preparation
of decisions concerning spectrum policy and management, the
development of national and international frequency plans, international
frequency coordination, and measurement service activities.
Legal activities extend to preparing legislation concerning the
scope of NHH, providing support to the Board in making resolutions
and decisions concerning legal disputes between service providers,
and representing the Authority in court procedures.
The administrative and surveillance activities of the Office incorporate
several professional areas. The Authority’s services related
to electronic signature extend to activities such as registration of
services, management of records, surveillance of services related to
electronic signature, and the supervision of notified bodies certifying
the compliance of electronic signature products.
In the framework of its authority tasks related to postal regulation,
the Authority is in charge of handling user reports and complaints,
preparing the necessary expert opinions and market surveillance
plans including the methodology of the investigations laid down in
such plans, carrying out such investigations, supervising market
operation, and formulating opinions on professional issues that may
arise concerning the market.
In the framework of its authority tasks related to market surveillance,
the Authority is in charge of monitoring the operation of the
electronic communications market and compliance with the provisions
laid down in applicable regulations, Authority decisions and subscriber
contracts, and making analyses thereof. Authority tasks also extend
to activities such as the supervision of the use of assigned identifiers,
investigations related to subscriber contracts and general terms of
contract, and the control of the sale of telecommunications terminal
equipment, radio equipment, and equipment generating high-frequency
signals or side-effects. Should the Authority determine that the

06 07
affected parties have failed to comply with the call for terminating their
default of law, the Authority may initiate ex officio market surveillance
procedures and impose sanctions as per the applicable law.
Administrative and surveillance activities further include service
reporting and registration, the handling of reports and complaints
addressed to the Authority, and performing construction authorisation
and supervision procedures related to telecommunications structures.
The protection of consumer interests is the primary duty of the
Representative of the Communications Users’ Rights (HFJK). HFJK
shall develop proposals for measures affecting a large number of
consumers and initiate procedures in individual cases of complaints,
should such be justified. In order to assist consumer decisions and
to facilitate consumer satisfaction, another important task of HFJK is
to enable users to obtain information.
The international relations of the Authority are chiefly characterised
by managing obligations arising from Hungary’s EU membership,
close cooperation with neighbouring countries and those with
similar characteristics, and assuming an active role in the work of
international professional organisations. The primary international
strategic efforts of the Authority are to defend Hungarian interests
in the EU and in international professional organisations, to achieve
international recognition for NHH’s professional competence, and to
increase the Authority’s international role.
In order to promote the independence and closer cooperation of
NRAs, the Independent Regulators Group (IRG) was formed in 1997.
In 2002, to be operated with the participation of the European Commission,
the European Regulators Group (ERG) was established in
line with the new regulatory framework. The two organisations share
an increasingly important role in the renewal and harmonization of
regulation across Europe. At the plenary sessions of ERG/IRG, NHH
is represented by its President, with further experts of the Authority
actively participating in Contact Network meetings, which prepare
plenary sessions, and as members of working groups of the two organisations.
NHH is also involved in the work of the IRG Secretariat.
Recognizing the high professional level of NHH’s activity as well
as the personal contribution of the President of NHH to the harmonization
of the regulation, the ERG/IRG elected Mr. Pataki chairman of
the two organisations for 2008.
NHH actively takes part in the work of advisory organizations
operated by the EU Commission, first of all of the Communications
Committee (COCOM) of general competence as well as its sub-committees
convened for specific purposes. The work carried out in the
Telecommunications Conformity Assessment and Market Surveillance
Committee (TCAM) as well as in the Radio Spectrum Committee
(RSC) and the Radio Spectrum Policy Group (RSPG) dealing with
EU level radio frequency issues must also be emphasized. In RSPG,
the President of NHH holds the position of vice-president in 2008 to
be followed by the presidency in 2009. The experts of the Authority
also participate in the work of expert groups such as Digital Innova-
tion through Cooperation in Europe (DICE) in charge of the introduction
of digital terrestrial broadcasting (DVB-T), the Working Group on
Electromagnetic Compatibility (WG EMC) and the Expert Group on
Emergency Access (EGEA).
In addition to the above activities, NHH’s professionals also assist
the work of a number of international telecommunications and
postal associations, including the organisations of ITU (International
Telecommunication Union) and UPU (Universal Postal Union), and,
together with the Ministry in charge of the sector, they are actively
involved in the work of CEPT (Conférence Européenne des Administrations
des Postes et des Télécommunications) handling regulatory
issues across Europe as well as its various member organisations
(Electronic Communications Committee – CEPT/ECC; Comité Européenne
de Réglementation Postale – CEPT/CERP). NHH experts
participate in some twenty CEPT working groups.
1.2 National and international
regulatory environment
The legal sources of current regulation are EU Directives. The
Framework Directive sets forth the bases and methodological principles
of regulation as well as the operational framework of regulatory
institutions 1 . The Authorisation Directive lays down the rules for
entering the market, which, except for certain, particularly justified
cases, is practically free, only subsequent reporting is stipulated 2 .
The Access Directive on network access and interconnection specifies
the most important means of intervention, by which the regulator
may prevent market failures and the distortion of competition 3 . The
Universal Service Directive deals with usage rights associated with
electronic communications networks and services, and particularly
with access to basic services at affordable rates 4 . The Regulation on
the unbundling of local loops 5 defines the conditions under which incumbent
service providers must provide, for other service providers
wishing to enter the market, access to their own subscriber sections
that constitute bottlenecks. The Data Protection Directive 6 provides
for the protection of personal data of users and the handling of communications
data.
In line with changes in EU regulation, Eht. brought about significant
changes as compared to previous legislation with respect to
the rules of defining relevant markets, the conditions for identifying
service providers with significant market power (SMP), and the obligations
of SMP service providers.
In the new framework, the most important decisions of ex ante
regulation are made within the so-called market analysis procedure. The
essential requirements thereof are laid down in Commission recommendations
7 and guidelines 8 , also transposed in Hungarian legislation.
The procedure consists of three steps: In the first step the NRA
defines relevant markets susceptible to ex ante regulation. In the
second step the NRA evaluates competition in such markets in order
to identify players with significant market power. In the third step

The Hungarian Communications Market Developments and Regulation between 2004 and 2008
it imposes one or more obligations on such players to remedy the
identified competition problems.
The Commission set forth three criteria for the definition of markets
susceptible to ex ante regulation. If these criteria are concurrently
met, regulation of the market may be necessary:
• the presence of high and non-transitory – structural, legal and
regulatory – barriers to entry,
• a market structure not supporting effective competition,
• the insufficiency of ex-post competition law for adequately addressing
market failures.
By applying the principles of competition law, the Commission defined
eighteen separate (seven retail and eleven wholesale) markets
that may meet these criteria. In these so-called relevant markets,
ex ante regulation may be warranted, according to the opinion of
the Commission. The review of the regulatory framework started in
2006. As a result, the Commission modified the recommendation in
December 2007, thus reducing the number of relevant markets to
seven (one retail and six wholesale markets).
The significance of market analysis, to be carried out as the second
step of the regulatory procedure, is that the NRA may only intervene
in the operation of various markets if it can prove the absence
of effective competition in the given market (and that effective competition
is not expected to develop in the period under review), i.e.
there are one or more players with significant market power present.
Should the NRA, however, find that a market is an effectively operating
competitive market, no obligations may be imposed in this market.
Moreover, previously applied sector-specific obligations must
also be withdrawn. A service provider has significant market power
if, alone or with others, it has a position of dominance affording it the
power to act, to a considerable extent, independent of competitors,
purchasers and ultimately consumers. Therefore, sectoral regulation
defines significant market power in accordance with the interpretation
of economic dominance by the competition law of the EU.
After the first two phases, if the Authority identifies one or more
SMPs in any of the selected markets, it must remedy actual or
potential competition problems and market distortions by imposing
obligations that are proportionate with the identified market failure,
as laid down in Eht.
In accordance with the new regulatory approach set forth in Eht.,
market failures are best handled using obligations imposed in the
wholesale markets. Obligations to be imposed in the retail markets
may only be applied if an obligation imposed in the wholesale market
fails to effectively address the problem arising in the retail market.
With reference to wholesale markets, Eht. defines obligations
related to transparency, non-discrimination, accounting separation,
access and interconnection, facility sharing as well as price control
and cost orientation. In retail markets, in order to eliminate excessive
prices, predatory prices, undue preference to specific consumers
and unreasonable bundling of services, Eht. allows for the applica-
tion of price control-type obligations. Ultimately, the Authority may
as well initiate the establishment of a ceiling for consumer prices.
Should any of the Board’s decisions – e.g. the identification of a
service provider with SMP or the obligation to be imposed on such a
service provider or the modification of such decisions – affect trade
between the Member States, the draft decision must be notified with
both the Commission and the Member States.
The Board shall carry out market analysis in the relevant markets
regularly, but at least within two years after the completion of any
previous procedure involving market analysis and the imposition of
obligations.
According to Eht., the application of competition law and regulation
play an important role with reference to communications regulation
tools, therefore, it requires the NRA, in each step of market
analysis, to cooperate with the competition authority in competitionrelated
matters. This expresses the intention of Eht. to establish
uniform law enforcement and legal certainty in the course of market
analyses for regulatory purposes. Details of the cooperation with coorganisations,
as specified in Eht., are laid down in the Cooperation
Agreement signed on 25 March 2004.
1.3 NHH’s strategy: regulatory objectives
and principles
In the summer of 2005, the National Communications Authority
started to develop a Regulatory Strategy for the period between
2006 and 2010. The Strategy marks out the main directions and
specific steps for NHH to provide effective help in the development
of electronic communications markets playing an increasingly
important role in the Hungarian economy, thus contributing to the
establishment of the information society and to Hungary’s greater
competitiveness 9 .
The process of strategy development was realised through the
comments and active contribution of sectoral players. By considering
the actual market situation, the Strategy addresses recognizable
trends and correspondingly has developed possible scenarios in
the form of regulatory principles and specific means of intervention.
Using these means, the Authority’s objective is always to direct the
sector towards optimal, effective competition while realizing various
scenarios.

08 09
Figure 1.1: NHH’s regulatory objectives
Consumer’s interests
Price, value, choice
Penetration/usage
In Hungary the only guarantee
of the realisation of consumer
interests is competition
Efficient competition
Competition is only
sustainable and efficient with
a developing and stable sector
Sector interests
Innovation
Investment
Financial
stability
Certain social objectives
(e.g. universal services) relating
to electronic communications
are ensured essentially not
by competition
The Authority has developed the target system underlying the
Regulatory Strategy in harmony with its existing mission 10 and vision.
The framework of such target system is provided by relevant
EU regulations and directives, international commitments and the
Hungarian legal environment, in particular Eht. and other relevant
acts and decrees.
The foremost direct objective is to establish effective competition,
that is a highly intensive competition between market players
in terms of both (access) infrastructure and retail services. In the
case of effective competition no market player, either alone or with
others, is able to significantly influence the dynamics of the market.
The protection of consumer interests is a further element of the
target system, embodied by affordable prices, high-value content of
products/services and a wide range of services on the market. The
third element of the target system is the cross-sector interest characterized
by three factors: innovation, investment and the degree of
financial stability.
The regulator’s ultimate goal is to protect consumer interests, yet its
primary indirect objective remains to be the development of effective
competition. If it comes to controversies between the realization of
individual objectives, it is competition that receives priority over the
rest of the objectives. The Authority, nevertheless, will consider and
compare the advantages and disadvantages of realizing one objective
over another one, along the principle of net usefulness. In the case of
sector-level interests, the Authority will also consider minimum levels
facilitating the sustainability of competition concerning the indices of
financial stability.
Regulatory principles
The principles concerning the application of regulatory instruments
have been formulated in accordance with the regulatory objectives
and various market development trends and scenarios. Besides the
objectives, it is the principles that guarantee permanence of the Strategy,
as the principles are not linked with specific directions of market
development, which thus have the potential to support the Authority’s
decisions irrespective of market development specificities.
The guiding principles mark out the most important principles of
intervention to be followed by the Authority along the three regulatory
objectives (effective competition, consumer interests, sectoral
interests).
Certain inputs in the electronic communications market indispensable
for the provision of services are only available to a limited
extent. Such bottlenecks distort and create barriers to the development
of competition, their presence thus makes ex ante market
regulation necessary. The Authority’s task here is twofold. First, the
Authority’s long-term goal is to eliminate bottlenecks. Second, as
long as these bottlenecks exist, the Authority must keep the “owners”
of such bottlenecks from abusing their dominance resulting
from them. In the short run, major bottlenecks are constituted by the
level of access infrastructure, primarily due to extremely high entry
barriers.
In the long run, the goal of the regulator’s activity is to contribute
to the development of sustainable, effective and “self-supporting”
competition in the telecommunications sector. The establishment of
“self-supporting” competition assumes that the bottlenecks of competition
cease to exist or gradually lose their significance. Should this
be the case, the use of sector-specific regulatory instruments may
be replaced by the promotion of self-regulation of the market and
the use of ex post instruments. In some cases, however, a certain

The Hungarian Communications Market Developments and Regulation between 2004 and 2008
degree of ex ante regulation may be required also in the long run,
e.g. in the case of providing national and EU-level interoperability of
electronic communications systems.
As long as there is not yet effective or infrastructure-related competition,
nonetheless there is a real chance for it to develop, the main
task of the Authority is to ensure competition between the different
platforms. In this respect, facilitating efficient investments along
competing platforms (infrastructures) and providing for the conditions
of competition between the platforms at the highest possible
level should be the very essence of regulatory approach.
If the development of effective competition does not seem possible
through the promotion of natural competition between infrastructures,
however, there is a real chance for it to develop through
competition between services, regulatory approach should focus on
the promotion of gradual investments. One form of this is the development
of an effective investment ladder.
If the possibility of infrastructure-based competition is minimal, the
regulator must establish the conditions for long-term competition of
services, as this allows for the highest level of competition feasible,
thus facilitating the realization of consumer objectives. The basis for
establishing competition of services is the provision of equal access
to value chain elements and bottleneck infrastructure.
The development of competition must definitely contribute to the
protection of consumer interests. Should, however, market structure
not allow for the development of any form of competition or should
wholesale interventions to support the competition of services be
unable to promote the realization of consumer objectives, the Authority
shall resort to retail price control, the prescription of minimum
quality levels and the enforcement of regulation as per Article 109
of Eht., concerning undue preference to specific consumers and the
unreasonable bundling of services, as an ultimate instrument in order
to directly realize consumer interests.
It is a precondition of effective competition that consumers are
able to choose from various offers and are able to switch to any
service provider they prefer. This requires transparency, that is,
consumers should have appropriate, clear and comprehensible
information on the services available, thus enabling them to compare
individual offers. Further precondition of switching are reasonably
short switch periods and the lowest possible costs of switching.
A part of these consumer rights may also be asserted by competition
itself, as competition enforces higher level customer relations as
well as more comfortable and client-friendly conditions. Should, however,
market mechanisms alone fail to guarantee this, it is regulation
that must establish the preconditions of effective selection by consumers
and the ability to switch between service providers/services.
In the course of achieving the third essential regulatory objective,
that is the consideration of sectoral interests, investment level and
financial stability are of particular importance. To this end, the Authority’s
intervention shall be such as not to initiate drastic changes
in the short run at the level of individual market players and to enable
them to react to regulatory changes and to conduct their business
efficiently. Furthermore, the Authority shall monitor financial stability
at a cross-sector level and shall refrain from putting it at risk through
its measures.
In addition to the main guiding principles, the Strategy also lays down
so-called specificity principles describing the degree of possible differentiatedness
of regulatory interventions. Accordingly, the Authority
• regulates without technological preferences, which means that
the Authority is carrying out technology neutral regulation, yet
taking the applied technological features of electronic communications
services into consideration;
• formulates competition, consumer and sector objectives and
principles, which are beyond specific markets and services,
however it may define service-specific regulation at the level of
the actual interventions;
• may apply differentiated regulatory interventions depending
on the relevant market positions of the SMP service providers
operating on non-overlapping but similar markets;
• may apply distinct regulatory interventions taking into consideration
the local geographical peculiarities;
• considers only the launch of new services as emerging markets,
avoiding regulation in the early stage;
• continuously reviews the necessity and extent of specific regulation
of markets relying on market and technological trends also
taking into consideration the EU Directives.
The Authority’s actual regulatory and market surveillance activities
are governed by the implementation principles. Accordingly, the
Authority
• follows the principles of transparency, long-term predictability and
consistency in its regulation. The regulation is based on pre-defined
and communicated objectives, principles and methodology;
• examines the impact of alternative means and ensures the
efficiency of regulation through compliance with the principle of
proportionality and net benefit before intervention decisions are
made. It takes into account the pace of evolution of sustainable
competition and the time and cost requirements of implementing
regulatory interventions;
• intends to cooperate with players involved in the electronic
communications market. Therefore the Authority elaborates
the necessary details of regulation based on the behaviour of
SMP operators and other market players and their commitment
towards the effective competition;
• intends to always act in a predictable and concurrently resolute
manner, being aware of the fact that the basis of effective
regulation lies in enforcement and the applicability of severe
penalties.

10 11
Key areas of regulation for the period between 2008 and 2010
NHH’s strategy has identified two key areas of regulation for the
period between 2008 and 2010: the liberalisation of spectrum usage
and the challenges related to the development of next generation
networks (NGN).
The objective of the liberalisation of spectrum usage is to achieve
a more optimal usage of available frequency bands, which currently
is a scarce resource, and thereby to promote both competition in infrastructure
and market development. The Authority wishes to realize
these goals through the licensing of spectrum trading, i.e. promotion
of the development of secondary trading, as well as through easing
the licensing procedure, opening further license-exempt bands, and
enabling free usage of the technology/service selected in the given
frequency bands.
The regulatory tasks connected the secondary spectrum trading
include definition of ownership rights, meeting the increasing
need for interference management, and the coordination of market
information.
The term Next Generation Networks stands for a currently evolving
packet-switched transmission-based new network system that
enables the support of several simultaneous broadband services of
guaranteed quality, while enabling service provision and transmission
functions independently of each other. It offers unrestricted
access to different service providers for users and, at the same
time, it supports generalized mobility, which extends to all services
requested by users.
NGN may provide a potential drive for increasing competition at
service and application levels, prerequisite of which is, however, that
the NGN owner uses open standards. The Authority’s intention is to
keep supporting this.
The Authority considers to be a critical task to adapt the means for
service competition to the NGN infrastructure. This will be required
since, in the NGN network topology, the location of the last active
equipment in the fixed network will change, which will result in a
change in the possibility of co-location, and thus in the way of meeting
unbundling and interconnection obligations.
A number of other changes forecast the risk of incumbent service
providers’ applying delaying tactics, which may present obstacles to
the practical realisation of service competition for years. Therefore,
the Authority’s goal is to prepare in time for the technical, legal and
financial adaptation of the applicable regulatory instruments with
reference to NGN.
Nevertheless, by laying down the framework of NGN regulation
ahead of time, the Authority’s goal is to minimize the regulatory risk
of investment required for setting up the NGN and to ensure predictability
for market players in general.

2
NHH’s activities
during the past
five years

12 13
2.1 Changes in institutional operation
The institution, as laid down in Eht., was established in 2004 and
regulatory work under a new framework and based on strategic
foundations started.
After the completion of the first market analysis procedure also
recognized at an international level and drawing on the experiences of
the first year of operation, NHH’s goal for 2005 was the rationalization
of the organisation with a view to ensuring more effective operation.
In order to reinforce legal expert activity supporting the Authority’s
operation, the General Legal Directorate was established as a new
organisational unit of the Office.
Regulatory strategies and strategies of various professional areas
provided the foundation for the development of institutional operation.
In view of the fact that the procedures of the Authority, due to their
complexity, often require input from several professional areas (technical,
economic, legal and administrative), at the end of the second
year of operation, a rearrangement took place: different sectors in
the Authority were established uniting professional experiences, information
and expertise in these sectors, as a result of which centres
of professional competence were set up. This constituted a crucial
step towards more transparent and increasingly efficient operation.
To this end, the Economic, the Technical, the Legal, and the Administrative
and Supervisory Sectors were founded.
In the second half of the year, consumer information promotions
as well as the portal called TANTUSZ, facilitating tariff comparison
and services search, were launched.
As of 1st July 2006, Act LVII of 2006 on central state administrative
bodies and on the legal status of Government members and state secretaries
came into effect, qualifying NHH as a government office, an organisation
with duties of key importance, responsible for the implementation
of telecommunications policy. The new status of the Authority as
a government office justified the further development of the organisation
with a view to ensuring flexible responses to new challenges.
One of the events of key importance in the year 2006 was that “regional
directorates” (Budapest, Sopron, Pécs, Szeged, Debrecen, and
Miskolc) emerged into competence centres along their successful operation
on the basis of the principle of task sharing. With respect to the
functions of NHH as a government office and communications regulatory
authority, it became desirable to establish a new organisational unit
within NHH, the Directorate of State Administration Relations.
In 2007, institutional development was concentrated on efficient
and transparent operation. The main focus of the work was electronic
administration of processes. After the organisation “matured”
by the end of the third year of its operation, the strengthening of
the Authority’s domestic and international relations received special
emphasis, which was also necessitated by the international roles of
the Authority and the positions of the Chairman of the Board both in
ERG/IRG and RSPG.
The primary goal, i.e. further quality improvement of the Authority’s
operation, was to build a knowledge management strategy and
system, to facilitate the development of organisational culture, and
to reinforce cost-effectiveness.
In 2008, the key directions for the Authority’s operation included
the harmonisation of regulation and convergence challenges, the improvement
of domestic and international relations, and the development
of efficient and transparent operation.
One of the most decisive elements of the activity of NHH today is
to help raise consumer awareness. The main tasks in this respect are
to reinforce the Authority’s function as a point of reference and to
widely publicize the activity of HFJK. With reference to this work, a
Consumer Awareness Programme was launched, defining the steps
to be taken in the period between 2008 and 2010 with the purpose
of strengthening consumer-centred operation.
The agreements signed with the Hungarian Competition Authority
and the Hungarian Authority for Consumer Protection in 2004 served
the purpose of strengthening cooperation and the uniform application
of law. In 2008, the Authority also signed an agreement of strategic
importance with the National Radio and Television Board (ORTT).
As a result of the Authority’s leading positions both in ERG/IRG
and RSPG, the years 2008 and 2009 are of key importance in terms
of the Authority’s international roles, which will affect the operation
of almost all organisational units of the Authority.
IT development
As a knowledge-based organisation, the National Communications
Authority is relying on a high-quality and complex IT environment when
performing its activities. Over the past five years, developments were
effected to meet present challenges and the increasing demands faced
by the public sector.
Public servants employed by the Authority enjoy modern office environments
and appropriate hardware and software support, including the
possibility of safe remote access. There is a modern video conferencing
system available compatible with both ISDN and IP technologies, which
is used with great efficiency in liaising with other NRAs throughout the
EU. This system helps keeping travel expenses low and reducing time
spent travelling. Previously isolated procedures of the Authority are now
assisted by several complex systems wholly or partly integrated with
each other. The Authority has modernized its Computerized Document
Management System (SZÜR), a system electronically supporting the
internal and external management of files, complete with interfaces
allowing integration. Thus, file management functions are now available
as an automatic service, making certain recording tasks, which previously
required manual work, unnecessary. This system, automatically
directs electronically sent requests to the right organisational units with
the data of such requests forwarded to specialized systems, and, making,
in the case of e-administration, electronic authorisation possible.

The Hungarian Communications Market Developments and Regulation between 2004 and 2008
Observing the EU’s Lisbon Strategy and the e-government objectives,
a complex e-signature infrastructure has been established,
which is able to implement certified e-signature processes to be
used in public administration, including time stamp service and the
handling of withdrawal lists, and is also capable of supporting signature
verification and the display of e-signed documents. We have
supplied users entitled to issue authority documents with electronic
certificates to be used in public administration and software for
creating the signature. Such developments established the technological
preconditions of (public administration) e-business defined
as a government objective, which strengthens the role of NHH as a
customer-friendly and service-centred authority.
In order to promote compliance with data supply obligations prescribed
by the Authority and by taking government efforts and recommendations
into consideration, a uniform data and document interface
(Gateway) for NHH has been developed to facilitate data supply and reporting
(e.g. of licensing requests) on online forms by service providers
registered with the Authority after their identification at the government
client gate or through using e-signature. Besides saving time for clients,
this system is significant in an environmental sense as it eliminates the
need for paper-based information flow.
Efficient frequency management cannot be imagined without complex
calculations of electromagnetic wave propagation, up-to-date 3D
map information, and precise records of technical (licensing) data. All
this is integrated in FMS (Frequency Management System), which is
made up of design modules that even have geographical information
capacities facilitating efficient frequency management, design checks,
area and population coverage calculations and interference analyses.
This system is also used for international frequency coordination,
domestic frequency licensing, monthly billing of frequency usage and
reservation fees, and also functions as an inventory of the complete
range of frequency asset.
SIMON (Spectrum Interference Monitoring) is a monitoring system
(survey, data collection and processing), which consists of fixed and
mobile measuring stations connected through the e-government backbone
network. It measures factual frequency use, detects unlicensed
emissions, and thus maintains interference-free conditions defined in
the licenses. Without this system, the detection of unlicensed frequency
use – putting public service or business objectives at risk – or the elimination
of unintentional sources of disturbance would not be possible.
The Uniform Information System for Measurement (EMIR) is a system
to implement authority processes relating to measurements, in
which measuring, data collection and processing systems previously
carrying out specific tasks in isolation are integrated. As a result
of such integration, the Authority’s business is now smoother and
response times are shorter.
Number portability within Hungary, i.e. retaining the telephone
number when switching from one service provider to another, is made
possible by the Central Reference Database (KRA) developed and oper-
ated by NHH. KRA is a reference database of domestic ported mobile
and fixed telephone numbers, used by all communications service
providers, subject to strict identification, for synchronizing their own
databases via reliable and encrypted data connection. In addition to
handling individual number portability, publication of portability information
with reference to toll-free, local rate and premium rate numbers is
also realised through this system. Operation of this system by NHH is a
duty of national significance.
Telephone numbers, as a limited resource, are managed by means
of a register of allocations and reservations called Identifier Management
Database (AGA). This system registers information, automatically
generates certain authority decisions, and generates billing items within
an integrated structure. CA-SUP, a system in charge of monitoring
electronic signature service, is capable of monitoring the latest PKI
(Public Key Infrastructure) technologies and it automatically checks
compliance with the obligations of certification service providers. For
instance, it monitors the operation of certificate withdrawal and time
stamp services. The duties of the Authority also include the registration
of advanced and qualified certification service providers, managed by
the Authority’s eSIGN system.
The Authority communicates with the public through a web-based
system using a content management system under continuous
development. Our website is used for publishing general information
concerning the operation of the Authority as well as for publishing
records, decisions, other information subject to mandatory publication
and interfaces of electronic data supply.
As stipulated by law, NHH has joined the Public Information Search
System. The daily synchronization of the information of public interest
published on the Authority’s website is also performed automatically.
2.2 Market analysis procedures
Economic regulation of the electronic communications sector is
predominantly related to market analysis procedures. As authorized
by law, NHH identifies relevant markets, analyzes the competition on
these markets and the effectiveness of competition, identifies service
providers with significant market power on the relevant markets, and,
with the purpose of addressing market failures, defines the obligations
conferred upon service providers with significant market power
(Article 10 (f) of Eht.). As a first round, mainly in 2005, the Board of
NHH completed a market analysis and made decisions with reference
to 18 markets in accordance with the 2003 Recommendation of the
European Commission 11 (with the exception of Market 17 – wholesale
roaming services). The Board already made a second round of decisions
with regard to these markets as the provisions of Eht. stipulate
carrying out a market analysis every two years. Such second round
decisions gave similar results to those of the first round market analysis
in terms of SMP designation and obligations.

14 15
Market analysis decisions of the Board and the SMP service
providers defined therein
Markets numbered according to the 2003 Recommendation Round 1 decision Round 2 decision SMP service provider(s)
1. Access to public telephone network at a fixed location for
residential customers
2. Access to public telephone network at a fixed location for
non-residential customers
3. Publicly available local and/or national telephone services
provided at a fixed location for residential customers
4. Publicly available international telephone services provided
at a fixed location for residential customers
5. Publicly available local and/or national telephone services
provided at a fixed location for non-residential customers
6. Publicly available international telephone services provided
at a fixed location for non-residential customers
Retail markets
21/02/2005 13/09/2007
21/02/2005 13/09/2007
21/02/2005 25/04/2007
21/02/2005 25/04/2007
21/02/2005 25/04/2007
21/02/2005 25/04/2007
Magyar Telekom, Invitel,
Hungarotel, Emitel**,
Monor Telefon
7. The minimum set of leased lines 15/06/2005 11/02/2008 Magyar Telekom
Wholesale markets
8. Call origination on public telephone network provided at a
fixed location 18/05/2005 29/12/2007
9. Call termination on individual public telephone networks
provided at a fixed location
10. Transit services in fixed public telephone networks
11. Wholesale unbundled access (including shared access) to
metallic loops and sub-loops for the purpose of providing
broadband and voice services
18/05/2005 29/12/2007
18/05/2005 29/12/2007
12. Wholesale broadband access 21/09/2005 29/12/2007
Magyar Telekom, Invitel,
Hungarotel, Emitel**,
Monor Telefon
SMP service providers specified
on market 8;
PanTel, BT Limited,
GTS-DataNet, eTel*,
UPC*, Dunakanyar Holding*,
DIGI*, FiberNet*,
Tarr Építô*, T-Kábel*,
TvNetWork *
Susceptible market, with no
SMP specified
21/09/2005 29/12/2007 Magyar Telekom
Invitel, Hungarotel
Emitel**, Monor Telefon
13. Wholesale terminating segments of leased lines 14/09/2005 11/02/2008 Magyar Telekom
14. Wholesale trunk segments of leased lines
15. Access and call origination in public mobile telephone
networks
16. Voice call termination in individual mobile networks
17. Wholesale national market for international roaming in
public mobile networks
18. Broadcasting transmission services for delivering
broadcast content to end users
14/09/2005 11/02/2008
21/01/2005 13/04/2007
24/01/2005 04/10/2006
Susceptible market, with no
SMP specified
Susceptible market, with no
SMP specified
Pannon GSM, T-Mobile,
Vodafone
The analysis revealed problems beyond national regulation. After
the European Commission had addressed the problems, the Board
suspended market analysis in this market. Price regulation was carried
out at a European level.
11/02/2008 Antenna Hungária
Notes:
* According to second round decision only
** In the meantime, Emitel merged into Magyar Telekom, thus it is not listed as an SMP service provider in the case of second round decisions.

The Hungarian Communications Market Developments and Regulation between 2004 and 2008
The Authority has already launched the third round of market
analyses, which are being carried out in accordance with the new
Recommendation of the European Commission 12 . The Commission
reduced the number of markets recommended for analysis from
eighteen to seven 13 . Naturally, if the national regulatory authority of
any country deems that regulation is still required in any of the markets
not referred to, it may continue to provide regulation, subject to
a well-founded notification submitted to the Commission.
The Authority’s activity in the field of market analysis is exceptional
even at EU level, as it was the Hungarian regulator that completed the
most market analysis procedures successfully in the Member States,
while also being the first regulator to start the third round of such procedures.
NHH was the second to complete the first round of market
analysis procedures and the first to complete the second round.
Within the framework of, or in connection with, the market analysis
procedures, NHH’ duties are as follows:
• it requests, processes and analyses service providers’ data.
Such analyses serve the basis of the decisions of the Board. In
the market analysis procedures completed so far, the Authority
used the data of hundreds of service providers of the sector as
regards turnover and other data concerning performance and
service conditions;
• after the completion of draft decisions for the individual markets,
the Authority has consultations on drafts, integrates the views
of service providers into the draft decisions or disputes them if
such views are found unacceptable. (Since 2005, NHH has been
holding public consultations with service providers on draft decisions
related to market analyses and on data supply.);
• the Authority consults the representatives of the European Commission
about draft decisions, responds to their remarks and
integrates the views formulated by the Commission into its final
decisions;
• the Authority monitors compliance with the obligations imposed
in its decisions.
With the purpose of regulating SMP service providers identified in
the individual markets, the Board has made a number of decisions
concerning obligations since 2004.
Figure 2.1: Number of market analysis procedures completed in
the EU by September 2008
db
30
25
Number of decisions adopted in the first round of market analysis
Number of decisions adopted in the second round of market analysis
20
15
10
5
0
Hungary
Austria
Slovenia
Finland
United Kingdom
Greece
Slovakia
Czech Republic
Denmark
Estonia
Italy
Lithuania
Spain
Sweden
Cyprus
France
Holland
Portugal
Belgium
Luxembourg
Germany
Malta
Latvia
Poland
Ireland
Romania
Source: Cullen International Market analysis database

16 17
Decision
Round 1
Year
Round 2
Year
2005 2006 2007 2008 2006 2007 2008
Total
Reference interconnection offers (RIO) - 5 5* 1* - - 5 16
Reference unbundling offers (RUO) - 5 5* - - - 6 16
Establishment of wholesale price "Retail minus” (RM) - 6+3* 14* - - - 5 28
Accounting separation - 5 8* 2 - - 2 17
Mobile termination rates 2 1+3* - - 3 - - 9
Prices of terrestrial broadcasting - - - 1 - - - 1
* modification decision
Mandated service providers may have recourse to remedies
against the decisions of NHH as provided by law. This is an option
service providers, in fact, resorted to several times over the past
years. They typically challenged those decisions of NHH that involved
the introduction of some kind of price control, in particular
if this meant an obligation of setting cost-based prices.
In connection with the first round of market analysis, thirteen
claims were submitted to the Budapest Metropolitan Court by service
providers with reference to seven decisions, to be followed by
ten claims against four decisions in the second round.
In all court proceedings completed so far, the court decided in
favour of NHH. The majority of such proceedings ended with the final
decision by the Budapest Metropolitan Court, and the Supreme Court
made a final judgement in favour of NHH in the case of the mobile termination
market. Currently, there are two proceedings underway: one
at the Court of Appeal, as the Budapest Metropolitan Court rejected
the claim of the defendants (Market 16, second round decision) and
another one at the Budapest Metropolitan Court (Market 18).
2.3 Frequency management
Frequency management is a duty performed in order to ensure the
operating conditions of the different civil terrestrial, over-the-air,
satellite, fixed-location and mobile radio services in Hungary as
well as to guarantee undisturbed spectrum usage and environment.
This concurrently involves regulatory, market surveillance, licensing,
record keeping and planning activities. The basic tasks and rules
as regards frequency management are laid down in Eht., and its
associated regulations and the decisions of the European Union. The
Authority performs this work in harmony with the decisions and recommendations
of international organisations of radiocommunication,
in particular the International Telecommunication Union’s Radiocommunication
Sector (ITU-R) and the Electronic Communications
Committee of the European Conference of Postal and Telecommunications
Administrations (CEPT/ECC).
The task of frequency management incorporates the following
main activities:
• licensing
• control
• record keeping
• information provision
• frequency planning
• frequency coordination
• determination of frequency fees
• development and continuous maintenance of the rules for frequency
usage
• monitoring of technological development, preparation of forecasts
for future use of bands
• participation in the legislative process of preparing legal regulations
• participation in the work of international organisations.
Administrative duties related to frequency management
The number of licensing cases (procedures, decisions) was between
8 and 14 thousand per year in the period between 2004 and 2008.
As regards radiocommunication, international frequency coordination
with neighbouring countries resulted in a series of bilateral and
multilateral agreements for 400 MHz, 1800 MHz, 3.5, 26 and 28 GHz
bands. The Authority carried out a review of government allocations
previously coordinated in the frequency band of the Uniform Digital
Radiocommunication System (EDR), investigated the agreement of
preferred allocation and coordinated assignments in the 400 MHz
bands, updated the annexes of service providers’ agreements, and
provided information to domestic end users. With an increase from
6,433 in 2004 to 12,521 in 2007, the number of coordination tasks
almost doubled to surpass 12,000 already in the first half of 2008.
A significant growth is apparent also in market surveillance activities
as regards radiocommunication, particularly in the field of freeto-air
broadcasting. Duties concerning free-to-air broadcasting also
assume a significant role within coordination activities, primarily due
to the introduction of digital free-to-air broadcasting.

The Hungarian Communications Market Developments and Regulation between 2004 and 2008
The Authority is responsible for the implementation of the EU and
international principles related to frequency usage and technical
standards in Hungary’s national plans for frequency usage. To this
end, the Authority is in charge of regularly reviewing the National Table
for Frequency Allocations (FNFT) established by Government decree.
Due to actual changes in the rules for band usage and the modifications
of FNFT by Government decree, the legal regulation required
for the introduction of new technologies and changes in procedural
and technical regulations decisive for band usage, the updating of
the ministerial decree on the rules for the use of frequency bands 14 is
carried out in line with the FNFT.
Following 2004, the Authority contributed to the preparation of the
modification of the decree on the Authority’s procedures of civil frequency
management 15 , the decree on radio equipment and telecommunications
terminal equipment and the mutual recognition of the
conformity of such equipment 16 .
The Authority continuously assesses the Hungarian implementation
of EU recommendations and legal regulations as regards
frequency management and continuously reports to ERO (European
Radiocommunications Office).
As part of its frequency management activities, the Authority
continuously makes technical calculations in connection with telecommunications
and broadcasting satellite networks and stations,
carries out frequency planning, and the assessment of satellite
networks and stations regularly published by ITU.
International activities
It is a key responsibility of frequency management to protect the
country’s interests in international organisations and to represent the
Hungarian administration in international organisations in charge of
the regulation of radiocommunication.
As part of this work, the Authority participates in the COCOM subcommittees
in charge of increasing the effectiveness of frequency
usage and harmonised European radio licensing procedures, and in
the DICE project for speeding up the introduction of digital television
broadcasting and incorporating previous experiences, as well
as in the work of EU working committees (RSPG, RSC) dealing with
frequency management policy.
The Authority represents Hungary in the working groups of ITU
organisations dealing with the fixed-location, land mobile and radio
applications as well as with the survey and regulation of the technical
issues of spectrum management. Since 2004, the support the
Authority provided to the working committees of the International
Civil Aviation Organisation (ICAO), the Danube Committee and to
the organisation ensuring frequencies for international inland water
transportation (RAINWAT Committee) as well as to the forums
promoting the introduction of digital radio (World DAB) and television
(EBU Forecast) has also been of great importance.
The experts of NHH were also among the participants of the Regional
Radiocommunication Conference (RRC-06), a major professional
event of the year 2006, held in Geneva. The importance of the
conference is signified by the fact that it has defined the conditions
for television and radio free-to-air broadcasting for decades to come.
The Geneva achievements mean a total number of eight television
and three radio multiplexes for Hungary. After digital switchover has
been completed, the capacity thus obtained will allow the national
broadcasting of 30 to 40 television and some 20 radio programmes.
In addition to increasing the number of programmes, the frequencies
obtained will facilitate the introduction of new services such as interactive,
high-definition (HDTV) and mobile (DVB-H) television services.
Within the framework of the expert work carried out in CEPT
organisations, the Authority has contributed to the definition of
the technical conditions related to the introduction of new radio
frequency technologies and applications, the establishment of a joint
European frequency information system (WG FM EFIS) as well as to
the efforts of the working groups in charge of preparing the WRC-07
World Radiocommunication Conference and the formulation of a
common European position. One of the topics of WRC-07 also decisive
from a Hungarian point of view was the frequency bands to be
allocated to 3G and beyond-3G mobile systems. This will also have
an impact on the rollout of broadband mobile systems.
Spectrum Strategy
The number of services and applications using radiocommunication
shows a steady rise, generating growing need for spectrum resources.
These facts together with the rapid change in the technologies used
present intensive incentives for flexible and efficient spectrum management.
A modern authority must have a medium term strategy that
guarantees and serves the dynamic development of national radiocommunication
in line with market and professional expectations. NHH
developed its Spectrum Strategy for the period ending in 2010 in view
of the Regulatory Strategy, identifying focus areas such as the development
of public mobile communication, professional radiocommunication,
short-range and long-range broadband wireless data transmission
(WMAN, WiMAX, Wi-Fi) and terrestrial digital broadcasting.
The Authority has contributed to the development of the draft
modification of Dtv. 17 , the National Audiovisual Media Strategy
(NAMS), and the draft regulations concerning digital switchover.
In connection with the NHH strategy and by investigating the
regulatory conditions for flexible frequency use, the Authority has
developed a model system for the simplified licensing of the 76 GHz
broadband data transmission system.
A feasibility study concerning the regulatory conditions for secondary
frequency trading has been presented, together with a codification-level
recommendation for a law modification to facilitate frequency leasing.
In order to facilitate quality broadband data transmission, the
Authority has prepared the use of 5.8 and 3.7 GHz bands for the

18 19
purposes of WMAN, which was completed by a study on the use of
these bands. The Authority has also prepared for the opening of the
3.5 GHz “midband”.
The tender for the UMTS spectrum license took place in 2004.
During the preparation phase, the Authority also took measures
to provide access to GSM, DCS and UMTS bands, which may be
necessary for the operation of a potential fourth mobile service
provider. Although a fourth service provider failed to obtain a license
for frequency use in 2004, in addition to the three GSM/DCS service
providers purchasing the UMTS license at that time, the frequency
remains to be available for a fourth entrant.
In 2007, mobile service providers’ GSM licenses for band usage
starting their operation in 1993 was extended to 2016, subject to the
condition that such service providers pay a one-off fee of net HUF
10 billion and invest net HUF 20 billion in Hungary over the next two
years, in addition to their originally planned developments. Following
such development, mobile broadband services will be available in
every town of a population of 1,000 people or more, representing 90
percent of the territory of Hungary and 98 percent of the population.
On 22 October 2008, invitations to tender to facilitate the market
entry of new service providers were announced with the aim of
boosting competition in the mobile telephone market and increasing
the coverage of broadband Internet services. The two tenders are
to facilitate the market entry of a mobile service provider and a wireless
radiocommunication service provider in the GSM/UMTS range
(900/1800/2100 MHz) and the 450 MHz range, respectively.
Five invitations to tender were announced for the 26 GHz microwave
wideband connections. The entry of new mobile service providers and
the simultaneous opening of the 26 GHz frequency range may significantly
increase competition in the market of mobile and broadband
Internet services, whilst greatly improving Internet coverage in lessfavoured
regions of the country, including sparsely populated areas.
The so-called WAPECS principle 18 is an essential element of the
EU spectrum reform. Along this principle, full technology and service
neutrality of terrestrial radiocommunication is to be ensured in certain
frequency bands. Through the implementation of the WAPECS
principle, broadband Internet access systems may become mobile
to enable the provision of a wide range of services (e.g. broadband
Internet transmission and programme transmission). In order to
implement the WAPECS principle, the Authority made the 3.5 GHz
broadband transmission band accessible by fully guaranteeing technology
neutrality. With this step, the future introduction of mobility
(e.g. mobile WiMAX) has already been prepared.
The most efficient means of selling frequencies is by auctioning.
The multi-player international market expects modern and efficient
market management. An essential procedure of primary spectrum
trade is the so-called “parallel auction”. Within the framework of preparatory
work, the development of auction methodology has started:
the Authority has defined the basic technical specification data for
a multi-purpose electronic remote auction system and prepared the
document describing this system.
Broadcasting
With the purpose of satisfying broadcasting needs and ensuring
undisturbed operation, the Authority continuously performs activities
concerning the planning, international coordination, putting into service,
and tendering of broadcasting stations, as well as the protection
of the broadcasting market, as laid down in Rttv. 19 and Eht.
In connection with the introduction of digital broadcasting, the Authority
has examined the possibilities of implementing the GE’06 20 plan,
identified the locations and channels where switching of channels or
power increase is required, and, if necessary, initiated international coordination
procedures. In order to prepare for T-DAB 21 band allocations,
as laid down in the GE’06 plan, the Authority has elaborated theoretical
assignments in connection with the frequency zones and, in accordance
with the procedural rules of GE’06, started international coordination
as regards the conversion of allocations to assignments.
In order to prepare for the introduction of digital broadcasting in
Hungary, the Authority has held continuous coordinating consultations
with the representatives of foreign organisations falling within the zone
of coordination. As a result of this work, coverage indicators increased
to 94, 82 and 81 percent for the first three multiplexes, respectively.
The plans of the national DVB-T transmission network comprising
some sixty transmitters have been completed. With reference to announcing
the digital broadcasting tender, the Authority has developed
the technical requirements for frequency use.
The tendering procedure as regards national digital television and
radio multiplexes took place in 2008. In the two separate tenders,
Antenna Hungária (AH) acquired the operating license for five television
multiplexes and one radio multiplex for 12 years. Of these multiplexes,
AH will start broadcasting the radio multiplex, television multiplexes “A”
and “C” as well as “B” as part of mobile television service as early as
in 2008, whilst service is scheduled to start in multiplexes “D” and “E”
after the termination of the current analogue terrestrial broadcasting in
2011. After complete rollout of the network, DVB-T television multiplexes
will reach 96 percent of the population, and population coverage
of 94 percent is anticipated in the case of the radio multiplex.
The introduction of terrestrial digital television service is expected
to boost competition and broaden market supply. Simultaneously, it
will contribute to the fact that in the future a higher quality and wider
selection of programmes than today will be available to about 20
to 25 percent of Hungarian households currently having television
transmission through indoor or rooftop aerials.

The Hungarian Communications Market Developments and Regulation between 2004 and 2008
2.4 Measurement service
In order to protect communications services, to guarantee efficient
frequency use free of harmful interferences, and to ensure electromagnetic
compatibility (EMC), the National Communications Authority
operates a radio measurement and radio interference elimination
service, also know as the Measurement Service.
Market surveillance of electronic communications services and
equipment
The market surveillance activity involves on the spot or laboratory
measurements to establish the basic parameters of communications
services, electronic communications equipment as well as electric and
electronic devices producing high-frequency signals or side effects.
Radio inspection, spectrum monitoring
The purpose of monitoring frequency use is to support frequency
management processes in the work associated with frequency assignment,
licensing, planning, and coordination.
The Measurement Service continuously monitors and measures
radio stations and ensures that their operation is in accordance with
legal regulations and the pertaining radio licenses. The purpose of
continuous monitoring is to identify the possible causes of interferences
in time and to leave sufficient time for intervention with a view
to preventing significant damage in the operation of service providers
or services. The prompt recognition of anomalies makes fast and
effective measures possible facilitating the repair of deficiencies.
Obtaining a true picture of the transmitted signal characteristics
of physically disseminated broadcasts of various parameters and
operating in a wide range of frequencies is only possible with the
help of monitoring stations with appropriate area coverage installed
in fixed-locations.
Besides the control of terrestrial broadcasts, the monitoring activity
of the Measurement Service also involves satellite broadcasts
available in Hungary.
Radio monitoring and detection
The Authority also checks compliance with radio licenses in the location
of the installations in order to reveal the technical and operational
characteristics of transmitters and to identify the sources of potential
disturbances or any defective equipment. Moreover, the purpose of
radio monitoring is to detect unauthorized pirate radios.
The basic duty of the Measurement Service is to measure coverage
field strength of services, primarily of broadcasting transmissions.
This duty becomes essential particularly during the introduction
of new services such as the current introduction of digital
television and radio services.
Radio interference assessment
Reception and other radiocommunication disturbances as well as
problems related to electromagnetic compatibility (EMC) are investigated
by the Measurement Service upon request or ex officio, to be
followed by measures taken for the elimination thereof.
Calibration of measuring equipment
The appropriate functioning of the instruments and measuring equipment
used can only be guaranteed through regular supervision. The
calibration of measuring equipment used for measurements with
legal effect is carried out by the accredited calibration laboratory of
the Measurement Service.
Development projects of the Measurement Service
As a result of the technical development projects undertaken in the
period between 2004 and 2008, the Measurement Service of NHH is
now of the highest quality.
The full rollout of the national systems of spectrum/interference
monitoring and radio monitoring was completed by the end of 2004.
Currently, there are 30 monitoring stations of remote operation in the
country, with additional 10 measurement vehicles with special equipment
for the supervision of radio broadcasts.
The objective of the Measurement Service Strategy, accepted in
2006, is to enforce law-abiding frequency use. The main instruments
of such a strategy are Authority controls and the promotion of consumer
awareness. With these goals in mind, an information system
was developed to make measurement results and figures available
to anyone interested in the characteristics of commercially available
electronic equipment as well as in the parameters of, and the coverage
and spectrum use information concerning, radio broadcasts.
There is a global need for the introduction of the newest radio
services, although a growing concern has been experienced over
the last decade as regards the health effects of electromagnetic
radiation. As a consequence of this, the rapid growth of the use of
radio equipment and services is accompanied by increasing public
resistance to new installations. The Authority tries to help resolve this
contradiction by supplying information to the public in this matter,
too. The objective of the Authority’s awareness programme as regards
electromagnetic environmental effects is to create an informative
forum on the website of NHH for the public on the degree and
distribution of electromagnetic power density.
The Measurement Service Strategy was formulated with the aim
of preparing for future challenges, in particular the digital switchover,
and with a view to establishing the goals to be achieved and
the tasks to be performed in order to ensure smooth operation.
The measurement technique used for digital systems marks a true
paradigm change as compared to the methods used in previous
procedures, which is calling not only for the extension of profes-

20 21
sional knowledge but also for the development of new measuring
equipment.
International role of the Measurement Service
The professional requirements, methodology and procedures of
measurement are internationally harmonized, thus the Measurement
Service, being a major partner of several national and international
organisations, has extensive international relations.
2.5 Identifier management
The identifiers required for the provision of communications services,
the operation of communications networks and the interoperability
thereof are a state property. In accordance with Eht., the Government
defines the basic principles and conditions of identifier management;
whilst NHH is in charge of the management of identifiers, including the
assignment and reservation thereof, the modification and withdrawal
of licenses, keeping records of such activities, and the publication of
any related information as laid down by legal regulations.
Regular Authority duties
The number of procedures related to the authorization of identifiers
has been fairly constant since 2004, with a continuous increase in
revenues from the fees for the use of identifiers. The National Plan
for the Allocation of Identifiers (ANFT) is reviewed once in every
three years, as laid down in Eht. Based upon the review in 2005, the
Authority presented a proposal for the fundamental revision of the
government decree on ANFT and identifier management and of the
ministerial decree on the fee for the reservation and use of identifiers.
As a result of the review, in 2008 the Authority recommended
modifications in response to the changes in communications markets
to facilitate the entry of new service providers to the market.
Key Authority projects
Identifier Management Database
In 2005, in accordance with the provisions of legal regulations, the
Authority established an Identifier Management Database to support
identifier management through keeping relevant records, which also
functions (on the website of NHH) as an online information supply
service to customers.
Number portability
Number portability, i.e. the right of subscribers to retain their
numbers when switching service providers, is an essential means
of boosting market competition. The implementation of number portability
was laid down in Directive 2002/22/EC, effective in Hungary
as of the date of the country’s accession to the EU. National regulations
defined the introduction of number portability as a multi-step
procedure: as of 1 January 2004 the portability of geographical
numbers used in fixed-location telephone networks and as of 1 May
2004 that of mobile numbers and numbers for services with special
rates (toll-free, split charge, premium rate) became possible under
EU provisions. In 2007, the previous government decree on the rules
of number portability was modified in accordance with the Authority’s
recommendations. As a result, the number portability procedure
has become faster, with nomadic (or location-independent) numbers
also falling under portability rules as of 1 January 2008.
In cooperation with service providers, NHH has been playing a
crucial role in the technical implementation of number portability,
in preparing the pertaining legislation, and in the establishment and
continuous operation of the Central Reference Database required for
implementation.
Central Reference Database (KRA)
The Central Reference Database is an element of the technical implementation
of number portability, which contains and handles routing
information of all ported numbers and service provider information as
laid down by law. Established by NHH in accordance with legal regulations,
KRA started operating on 1 January 2004, on the date of the
introduction of number portability. 2006 developments also extended
to the interconnection of the number portability Central Reference
Database and the Identifier Management Database, which enables the
control of number portability reports. In 2007, after consultations with
service providers, KRA functions were improved and extended based
upon the modification of number portability rules.
Preparation for the new numbering system
The appearance of a multitude of new technological solutions
and services as well as the convergence of telecommunications,
informatics, and media inevitably call for a review of the Regulatory
Strategy as regards identifiers and for fundamental changes in the
currently applied numbering system. Therefore, in 2008, after carrying
out comprehensive analyses, the Authority developed a strategy
for setting up and introducing a long-term numbering system.
International activities
The Authority also participates in the work of several international
organisations in connection with identifier management on a regular
basis, including ITU (ITU-T SG2), the European Communications
Committee (ECC WG NNA) and the Standardisation Institute (ETSI
TISPAN WG4). The Authority’s contribution is directed towards the
elaboration of European recommendations and reports as well as
the transposition of international regulations.
The transposition of Decision 2007/116/EC on the use of the
national numbering range beginning with 116 was a key event of
the period between 2004 and 2008. Hungary was one of the first
countries in Europe to introduce numbers 116000 (hotline for missing
children) and 116111 (child helpline).

The Hungarian Communications Market Developments and Regulation between 2004 and 2008
2.6 Market surveillance of electronic
communications services
Market surveillance is a special authority duty with the twofold goal
of revealing violations of law, on the one hand, and of gathering
information, facts and data, on the other hand, which the Authority
may rely on for the purpose of efficiently intervening as a public
authority in the market. NHH wishes to achieve that service providers
comply with the provisions of legal regulations and subscriber
contracts by voluntarily abiding by the pertaining law. As of 2007 the
Authority has switched to a fundamentally new system of procedures
in accordance with the new rules of the Act on public administration
procedures 22 . Contrary to previous legislation, the new procedural
model stipulates that if no violation of law can be established in a
given case, the Authority will simply terminate the investigation,
whereas in the case of violation of law it will call the attention of the
service provider concerned to law-abiding conduct. Besides facilitating
voluntary abiding by the law, this solution makes authority work
easier, as it is demonstrated by the 2007 figures: the subsequent
control of the 196 notices issued revealed that 86 percent of service
providers eliminated the deficiencies.
Regular authority duties
The Authority shall ex officio investigate violations of law based
upon the reports received, the experience gathered from previous
controls, and the analyses carried out within the framework of
market surveillance activity with a view to ensuring the protection
of consumers (users, subscribers) at risk in accordance with predefined
plans based on individual requests and reports, which may
either involve an investigation covering the entire activity of a given
service provider or an entire service area (market).
The authority control model in operation since 2008 preclude
cases that service providers fail to meet obligations imposed by the
Authority. Authority control – a follow-up control system – is a market
surveillance procedure based model that guarantees the enforcement
of lawful conduct. The enforcement tool most frequently
used by the Authority so far has been penalty. Contrary to previous
years, in line with the new order of procedure, penalties have been
imposed primarily as part of ex officio procedures.
Figure 2.2: Changes in substantive market surveillance penalties
imposed
Thousand
HUF
80,000
60,000
40,000
20,000
pcs
150
120
90
60
30
0
0
2004
On request
Ex officio
2005
2006
Number of decisions imposing penalties
Total sum of penalties
2004
2005
2006
2007
2007
10.09.2008
10.09.2008
Thousand
HUF
75,000
60,000
45,000
30,000
15,000
0
Source: NHH
As a result of the follow-up control of notices by the Authority, the
number of decisions imposing a penalty has more than tripled as
compared to previous years’ average, principally due to violations of
law concerning individual subscriber contracts and modifications of
the general terms of contract. In addition to penalties, the Authority
may, however, resort to other tools, too. In accordance with Eht., it
may also use other means to raise the attention of consumers and to
develop conscious consumer behaviour.

22 23
There is the possibility of publicly disclosing information related to
the obligations of an unlawful market player: the Authority may make
public any information obtained during fact-finding investigations,
may publish its decision in a national newspaper at the cost of the
party violating the law, and obligate the service provider concerned
to publish a correction. In 2008, some of the above instruments were
occasionally resorted to and as of 2009 the Authority also intends to
use these means in justifiable cases, by drawing on the experience
gathered from imposing penalties in previous years.
Figure 2.3: Changes in the number of consumer complaints
lodged to service providers (per 1000 subscribers)
pcs
300
200
100
0
2007 average:
118
38
Source: NHH
32
Mobile
phone
347
141
Fixed
telephone
Internet
2006
2007
Broadcasting
(cable tv)
The Authority has used publicity as a kind of regulatory tool in
other ways as well. Since 2007, based upon a Government Decree 23
giving authorization to do so, the Authority has published analyses
as regards the quality indicators of subscriber contracts, based upon
data supplied by service providers. In the future the Authority intends
156
235
116
64
to regularly publish such important indicators for informational
purposes. Service provider and authority data demonstrate that
the complaints and problems are mostly related to fixed-location
telephone services rather than to mobile services. (The diagram
showing the distribution of complains submitted only feature those
resulting in authority procedures.)
The decrease in the number of reports submitted to the authority
is attributable to the transformed procedural model, on the one hand
and to the development of customer service, on the other hand.
While earlier almost all consumer complains to the Authority brought
about Authority procedures, today, a part of such complaints can
be handled by means of proper information service, with individual
infringements to be now handled in ex officio procedures.
Between 1 January 2004 and 10 September 2008, the Authority issued
more than 3,500 final decisions and over 300 notices. Experiences
show that in the case of electronic communications services most problems
arise in connection with the general terms of contract (modification,
content and the publication thereof), the bills issued, the handling
of complaints by service providers and individual subscriber contracts.
Furthermore, typical infringement includes the non-performance
of statutory data supply obligations. Although billing problems
frequently occurred, the handling of a considerable part of such
complaints does not fall within the competence of the Authority.
The Authority had to make decisions in several issues over the
past five years. In 2004 and 2005, penalties had to be imposed
on several service providers for not complying with the reporting
obligation towards the Authority as regards the general terms of
contract and the rules of supplying information to subscribers. These
are serious infringements as the general terms of contract are an
obligatory system of contractual terms for the regulation of the legal
relationship between service providers and subscribers, aiming at
guaranteeing the enforcement of the statutory principles as regards
the protection of consumer interests.
Figure 2.4: Complains submitted broken down by service area
pcs
1411
2004
1200
2005
936
919
2006
800
711
621
709
2007
2008
400
342
200
460
405
187
110
456
453
294
253
304
312
151
131
174
222
144
114
68
0
Fixed telephone Mobile Internet Broadcasting Post
Source: NHH

The Hungarian Communications Market Developments and Regulation between 2004 and 2008
Figure 2.5: Changes in the number of consumer complaints
(2004 to 10 September 2008)
pcs
1000
Violation of law
No violation of law
800
600
400
200
0
Quality, mobile
Quality, telephone
Contract, procedure
Use of identifiers
Quality, Internet
Billing
Number portability
Restriction of service
Quality, broadcasting
Data supply
Complaints handling
Residential
subscriber contract
Customer service
General conditions
of contract
Source: NHH
In 2006, the Authority examined service providers that invoice pro
rata temporis and make traffic subject to a limit. Violations of law were
established in five cases out of eleven. Following continuous consultations,
the service providers affected modified their general terms of
contract so as to include the stipulation that the service was subject
to a limit as a kind of service to lower the risk of both parties, and was
handled separately from the legal institutions previously incorrectly
applied (limitation and suspension of service). The success of this so-
Figure 2.6: Infringements in the case of Internet subscriptions
pcs Inadequate Adequate
20
10
0
Source: NHH
Failure report,
account complaint
Modification
of contract
Consumer service
accessibility
Fees, expenses
Termination
of contract
Legal consequences
of breach of contract
Settlement of
legal disputes
Approval of
data handling
Company register number,
bank account number
Service
commencement
Location of subscriber
access point

24 25
lution is well demonstrated by the fact that the number of complaints
and requests of this type has practically dropped to zero.
It was an important lesson learnt of the 2006/2007 investigations
that none of the 101 service providers surveyed had a subscriber
contract complying with all provisions of law. In this respect, the
contracts of Internet service providers proved to be the most problematic.
The Authority started follow-up control in 2008 and imposed
penalties on 20 service providers out of the 48 investigated so far.
Figure 2.8: Distribution of building authority duties
Source: NHH
pcs
Building permit
Occupancy permit
14 000
Continuance permit
Submission of missing documents
12 000
Specialized authority
2.7 Construction authorisation activities
10 000
As a construction authority of first instance, NHH is in charge of authorizing
the construction of track-type communications facilities. The
8 000
construction of networks is subject to building permit, and networks
may be placed in operation only by obtaining an occupancy permit.
6 000
An analysis involving the past five years reveals that the number of
building permits issued has been falling, while the number of occu-
4 000
pancy permits has remained almost unchanged (still with a significant
rise in 2008) due to prolonged or multi-phase construction projects.
Authorization activity involves some 1000 to 1200 decisions is-
2 000
sued per year.
0
Figure 2.7: Permit procedures concerning structures
2004
2005
2006
2007
10.09.2008
pcs
600
400
200
491
342
311
248
213
338
279
331
341
474
2004
2005
2006
2007
1 st half-year of 2008
636
480
640
360
357
0
Construction authorisation Certificate of occupancy Continuance permit Submission of missing
documents
31
23
13
23
17
Source: NHH
Another major area of construction authority duties is to issue
special authority statements, i.e. upon construction of other types of
facilities (sewage, road construction, etc.). If communications networks
are also affected by the construction, it is NHH that approves
or refuses the permit.
A decisive part of the construction authority activities comprises
special authority procedures. For permit procedures, site surveys
are required during both the building and the occupancy permit
procedures minimally once. Thus the number of site surveys per year
is over one thousand. For permit procedures, the Authority has to
take into consideration that in certain cases, as defined by law (e.g.
extension of existing networks if the length of the track is below a
thousand metres), no permit is required as completed facilities must
only subsequently – within 60 days – be reported to the Authority.
Therefore, the drop in the number of construction permits is basically
attributable to the fact that the so-called core networks are already
completed and their modernization or minor extension is not subject
to a previous permit issued by the Authority.
Nevertheless, the construction and authorization of communications
networks are not exclusively about construction-related issues. The

The Hungarian Communications Market Developments and Regulation between 2004 and 2008
roll-out of infrastructure also constitutes an element of competition,
thus in those cases where the networks of service providers
intersect with each other and the affected service providers acting as
public utilities must approve of the construction of the other service
provider’s networks, service providers often try to obstruct or slow
down their competitors’ construction works by imposing unjustified
stipulations or submitting appeals. Another problematic issue is to
obtain the consent of property owners. Such problems frequently
postpone larger projects for as long as several months.
Figure 2.9: The number of building supervision controls
pcs
Adequate
Inadequate
100
80
of such service providers with the requirements laid down in law
as well as in their by-laws and general terms of contract.
• Keeping records of the certification policies related to the public
administration use of electronic signatures and keeping records
of certification service providers applying such policies as well
as the supervision of the compliance with related requirements.
• Keeping records and supervision of organisations designated
by the minister responsible for informatics for the certification of
compliance of electronic signature products to be used for the
provisions of services related to electronic signature and for the
generation and control of electronic signatures. Each year, the
Authority informs the designating minister of the results of such
supervision, who is entitled to make measures as required.
• Keeping records of the electronic signature products certified
by the organisations designated for the certification of compliance
of such products, issuing, extension and withdrawal of the
operating licenses of the experts of services related to electronic
signature, and keeping the register of such experts.
60
40
20
Regular authority duties
In recent years, the electronic signature market has seen a slow
development. The number of service providers has continuously
increased, with the first electronic archiving service provider starting
operation in 2007. According to NHH’s records, in September 2008,
the distribution of service providers is as follows:
0
2004
2005
2006
2007
10.09.2008
Description of
service
Type of service
Number
of service
providers
Certification Non-qualified 6
Source: NHH
In addition to authorization, the Authority continuously monitors
builders’ compliance with the rules during construction work. This
annually means some hundred controls on average on 500 to 600
sites. The Authority found irregularities in two thirds of the construction
projects, which have been corrected by the builders after receiving
notices to that end, in the majority of the cases, without the need
for initiating special authority procedures.
2.8 Services related to electronic
signature
NHH’s activities encompass keeping records and performing the
supervision of services related to electronic signature as follows:
• Keeping records of service providers providing electronic
signature related services to the public with a business premise
or registered office in Hungary and authority supervision of the
services provided in order to ensure compliance of the operation
Qualified 5
Time stamp Non-qualified 4
Placement
of signaturecreation
data
on signaturecreating
device
Electronic
archiving
Qualified 4
Non-qualified 6
Qualified 5
Non-qualified 0
Qualified 1
Since 2004, the use of services has primarily been influenced by
the measures and changes in laws related to electronic government
and public authority functions. A significant rise has been apparent
since 2007, although the total number of customers remained low
throughout the period in question.
This might also explain the low number of customer complaints,
in view of which fact comprehensive controls to check compliance
with the provisions of law have constituted the focal point of NHH’s

26 27
surveillance activity. Service providers generally demonstrated a
law-abiding behaviour, therefore, the Authority was not compelled to
resort to sanctions available to it.
The Public Administration Root Certificate Authority (KGyHSz) was
also established within the framework of the regulation of electronic
public administration. This authority started operation at the end
of 2005. Its duties involve the certification of certification service
providers issuing certificates to be used in electronic public administration.
In accordance with the regulations in effect, the operation
of KGyHSz is the joint responsibility of the minister responsible for
informatics and NHH, with the chairman of KGyHSz being a public
servant of NHH. The KGyHSz Office in charge of the daily operation
of the certificate authority also operates within NHH.
Surveillance procedures as regards unsolicited electronic messages
(SPAM)
Before the end of 2005, NHH’s activity in connection with unsolicited
electronic messages has been limited to its participation as a special
authority in procedures of advertising supervision initiated by the
former Consumer Protection Supervision, as laid down in Act CVIII of
2001 on electronic commerce. In 2005, there was a marked rise in the
number of special authority opinions issued, which signalled an increased
need on the part of consumers for procedures to be initiated
concerning spam and, in general, a change in tolerance to spam.
After becoming aware of these changes, the Authority has started
to develop a complex system of legal, technical, regulatory and
authority tools to address spam. As per the Amendment of the Act
on Electronic Commerce, since 1 January 2006, NHH has been in
charge of acting with reference to unsolicited electronic messages
within its own competence.
The number of complaints tripled to over one thousand in 2007.
Half of the surveillance procedures initiated ended in a conviction,
with the imposition of penalty in fifteen cases. In addition,
the Authority has continued its work on providing information on
unsolicited electronic messages. On the Authority’s website, a guide
on free-to-download anti-spam software has been published. The
Authority has also contributed to the amendment of the Act on Electronic
Commerce regulating electronic messages and the revision of
the law on advertising.
2.9 Postal authority duties
The postal duties of the National Communications Authority are
governed by the Act on Post (Act CI of 2003). Although the regulator
of this area is not the Authority, it is in charge of several important
administrative duties. According the Act, the Authority is in charge of
duties related to:
• notification with reference to postal services,
• authorization of postal services,
• keeping of records,
• market surveillance,
• licensing of postal equipment, and
• the approval of the by-laws of universal postal service providers.
Figure 2.10: Distribution of surveillance procedures as regards
unsolicited electronic messages (2007)
10 2
16
9
3
5
47
5%
47%
0%
8%
3%
16%
9%
10%
2%
Resolution on rejection
Resolution on conviction
Transfer
Cancellation order – failure of submission of missing documents
Cancellation order – withdrawal of application
Cancellation order – unsuccessful presentation of evidence
Cancellation order – other reasons
Information
Cancellation of e-mail address
8
0
Source: NHH

The Hungarian Communications Market Developments and Regulation between 2004 and 2008
Furthermore, the Authority contributes to the preparation of legislation,
provides data supply, performs cost calculation tasks and
controls accounting separation.
The number of postal service providers with reporting obligation
and listed in the Authority’s register more than doubled since 2004.
Within the framework of the postal market surveillance activity, the
Authority initiates five to seven nation-wide investigations each year,
including about 150 to 200 site surveys. During the period between
2004 and 2008, the Authority annually investigated a hundred customer
complaints on average.
Figure 2.11: Changes in the number of postal service providers
pcs
150
100
50
Number of registered service providers
Number of cancelled service providers
173
70
96
111
24
137
49
54
Figure 2.12: Changes in the number of postal service-related
customer complaints
pcs
100
50
0
83
98
84
117
0
0
8
2004
2005
2006
2007
2004
2005
2006
2007
10.09.2008
Source: NHH
Source: NHH
Currently, universal services may only be provided by a single
service provider, with the rest of the sub-markets being multi-player
markets. The introduction of competition has opened a new era also
in the activity of the Authority. Due to the present, special market
situation, while performing authority duties, NHH must concurrently
take into account the needs of players acting within liberalised
market segments and the expectations expressed by the universal
service area protected from competition.
Contrary to the field of electronic communications, the postal
duties of the National Communications Authority are less regulatory
in nature in the present legal environment. What is much more
focalised is the market surveillance duty associated only to a limited
extent with the power of decision to influence the postal market. The
most important duties are as follows:
• temporary relief of the designated universal postal service provider
from fulfilling its door-to-door delivery obligation,
• approval of service providers’ accounting statements, service
quality reports and measurement methodology of waiting time
calculation,
• authority decisions as regards modifications to by-laws,
• authority approvals,
• decisions on prohibiting organisations from unlawfully providing
postal services, and
• substantive decisions as a result of procedures prompted by
individual complaints.
In addition to postal market surveillance duties, the Authority
continuously monitors the operation of the market, evaluates the
situation of postal markets on an annual basis, and reports thereon
to the Government. Furthermore, the Authority contributes to the
preparation of postal legislation, takes part in impact assessments
as well as in various international forums to represent the position of
Hungary on a regular basis.
International activity
Authority duties include tasks related to the work of the European
Commission, thus the supply of country information and professional
contribution to the studies made by the Commission. Over the past
five years, the Commission basically ordered a series of different
European-level studies with the aim of monitoring the compliance
of the Member States with the European postal directive 24 and in
preparation of full liberalisation. The Authority has also contributed to
the preparation of the third postal directive.
Another international and annually recurring task is the collection
of EU postal statistical data. EUROSTAT, the statistical office working
under the General Directorate of the European Commission has
been involving CERP and NRA members including NHH in postal
data collection since 2005.
The Authority is involved in the working and project groups of the
European Committee for Postal Regulation, with active participation
in the work of several working groups.
The Authority is actively involved in the work of the Universal
Postal Union (UPU) as well. During the 9 years of the past two election
periods, Hungarian administration, including NHH, was also

28 29
a member of the Council of Administration and Postal Operations
Council of UPU.
Postal standardisation work became less intense after Hungary’s
EU accession. By now it is limited to the evaluation of publications
on European standards, and, to a lesser extent, to professional
contribution to the development of standards and to the professional
evaluation of the Hungarian translations thereof. It must also
be noted that the Authority continuously participates in drawing up
standardisation draft proposals. The Authority has also played a role
in the publication of the Hungarian language version of the set of
postal standards.
2.10 Representative of Communications
Users’ Rights
This office was founded in the middle of May 2004, to be chaired
by the Representative of Communications Users’ Rights (HFJK).
The basic duty of the HFJK is to identify the anomalies of the communications
market in issues affecting a high number of consumers
as well as to elaborate proposals for measures and to initiate
procedures in cases of well-grounded individual complaints. Anyone
suffering infringements as a result of the activity of a communications
service provider, or exposed to an immediate risk thereof, may
contact the Representative of Communications Users’ Rights.
The HFJK handles about a thousand written complaints and nearly
this many calls each year.
In order to promote conscious decisions on the part of customers
and thus raise their level of satisfaction, the HFJK aims at providing
information to the widest possible circle of customers.
Over recent years, the Authority has taken significant steps
towards increasing customer awareness. In order to publicize
the activity of the HFJK, the Authority has organised nation-wide
road shows, press conferences and presentations, and has been
permanently present in the media. It has also produced information
brochures on questions affecting a large group of consumers, such
as the most important aspects of subscriber contracts, premium rate
services, number portability, fidelity agreements, spam and carrier
selection.
The HFJK also places great emphasis on providing information
through the Internet. Anyone interested in his work should visit
www.hfjk.nhh.hu, and get further useful information on communications
services at the TANTUSZ website at www.tantusz.nhh.hu.
TANTUSZ was launched in 2005 as a mobile tariff comparison
service. Later it was extended with broadband, fixed-line, cable
television and roaming related applications. Then, the mobile search
function was supplemented with video calling and data options, to
be followed by an improved television module. The latest development
is the “more in one” (2-play/3-play) search. Today, the roaming
application features the roaming tariffs of as many as 66 countries.
There is an interactive map on the website of both the Authority and
the HFJK with information on unintended roaming related phenomena
in certain areas near country borders.
Over recent years, the HFJK has signed several cooperation
agreements: with cable television associations on data supply to the
TANTUSZ website, with the National Consumer Protection Association
(OFE) for addressing the problems of communications consumers
and for providing better information to consumers, with Internet
service providers on switching ADSL service providers while being
guaranteed uninterrupted service, and with ADSL service providers
on one-stop switching between Internet service providers. Solutions
to problems related to the dial-up type Internet access have also
been identified in cooperation with service providers.
With the aim of raising consumer awareness, in 2008 the Authority
launched the Consumer Awareness Programme, which defines
further duties for the years ahead.

3
Features of
the electronic
communications
market

30 31
Electronic communications is a rapidly changing field, where, apart
from regulation, the development of technology and services also affect
market processes. If we want to describe and assess the effects of the
regulations applied, it is especially important to separate technological
and market effects from the changes caused by regulations.
The market features independent of (or indirectly dependent on)
the regulation of the Hungarian electronic communications market
are quite similar to market processes observable in other European
markets, yet the Hungarian market has features that differentiate it
from the markets of other Member States.
Figure 3.2: Changes in the telephone service and the consumer
price index
%
Consumer price index of the telephone service
Consumer price index
108
106
104
3.1 The entire market
In 2007, the revenue of the Hungarian telecommunications market
(with wholesale and postal services included) was estimated at
HUF 1,600 billion, which totals approximately 3.5 percent of the
gross domestic product (GDP).
102
100
98
Figure 3.1: Revenue of the communications market
(from 2000 to 2006)
Million HUF
Source: HCSO
2001 2002 2003 2004 2005 2006 2007
1 600 000
1 400 000
1 200 000
Revenue of postal, courier mail services
Revenue resulting from wholesale activity
Revenue resulting from broadcasting
Revenue from cable television services
Revenue from Internet (ISP+Telco)
Total revenue of the telecommunications market (on current price)
1 000 000
800 000
600 000
400 000
200 000
0
2000 2001 2002 2003 2004 2005 2006
Source: NHH
In harmony with international tendencies, the growth of the
electronic communications sector over the last years was primarily
attributable to the expansion of the mobile and Internet markets, yet
with a remarkable decrease of the fixed voice market.
Players of the electronic communications sector invest more than
HUF 100 billion annually, with total investment costs exceeding HUF
500 billion between 2004 and 2007.

The Hungarian Communications Market Developments and Regulation between 2004 and 2008
From the year 2004, the consumer price index has continuously increased,
while the change of prices of electronic communications services
remarkably fell behind. In fact, prices decreased in nominal terms.
As a result, by the end of 2007, in real terms, prices of the electronic
communications services were 25 percent lower than in 2003.
Figure 3.3: Per capita spending on telephone and Internet services
per annum
Thousand
HUF %
50
40
30
20
10
0
Source: HCSO
Telephone and Internet
Proportion among total expenses
2002 2003 2004 2005 2006
In recent years, per capita spending on telephone and Internet
services, according to the calculations of the Hungarian Central Statistical
Office (HCSO), has continuously increased. Thus, spending in
2006 was 73 percent higher in nominal terms and 33 percent higher
7,5
7,0
6,5
6,0
5,5
5,0
4,5
4,0
in real terms than the 2002 figure. The ratio of per capita spending
on telephone and Internet services within total per capita expenditures
also increased to nearly reach as high as 7 percent in 2006.
The reason for the spectacular increase in spending is not an increase
in prices, but a remarkable growth in the volume of consumption.
This is due, on the one hand, to the fact that more and more
people use new communications services, e.g. mobile telephones
and particularly the Internet and, on the other hand, to the increased
usage of services, i.e. the traffic generated by individual costumers.
Increase in the use of services within the different market segments
varies: while demand for fixed voice services is decreasing,
the demand for mobile telephony and especially for Internet services
shows a strong increase.
By analysing the effects of lower prices, it can be established that
between December 2002 and December 2007 it was the spending
of households with a fixed telephone line that has decreased to the
highest degree, nearly by 20 percent. There were only minor fluctuations
in monthly expenditure associated with mobile telephony, with
practically no significant changes until 2006. In 2007, however, they
remarkably decreased, by nearly 7 percent. In 2007, the previous
intensive growth in spending associated with cable television
stopped. Although spending associated with the Internet increased
by 33 percent until 2005, by the year 2007 it fell back to the 2002
level. Nevertheless, that period saw a significant improvement in
both service content and service quality, with the most spectacular
development in the case of Internet. In 2002, Internet service mostly
meant narrowband dial-up connections. Nowadays costumers use
almost only broadband services.
Figure 3.4: Household penetration of telecommunications services
%
80
60
73,3
68,2
65,9
66,4
58,2
63,2
69,7
74,1
78,7
79,3
55,2
56
55,9
57,9
62,2
December 2002
December 2003
June 2005
December 2006
December 2007
40
23,1
33,2
20
15,2
7
11
0
Fixed telephone Mobile phone Cable television Internet
Source: NHH – Tárki 2008 25

32 33
Figure 3.5: Monthly average telecommunications spending
of households in possession of the given facilities
HUF
10 000
8 000
6 000
5 968
6 223
5 426
5 358
4 876
9 939
10 278
9 770
9 958
9 232
December 2002
December 2003
June 2005
December 2006
December 2007
6 094
7 038
8 084
6 491
6 011
4 000
2 000
2 057
2 616
3 239
3 747
3 768
0
Fixed telephone Mobile phone Cable television Internet
Source: NHH – Tárki 2008
Convergence: The appearance of 2-play and 3-play
strategies and offers
In the traditionally model of electronic communications, different
service providers provided different services using specialised
technologies and separate networks. Concurrently with the modernisation
of access networks, an opportunity opened up to use various
types of services of a single service provider at the same subscriber
access point. Consequently, the 2-play and 3-play strategies appeared,
which enable costumers to access two or three services
that have earlier been offered separately in one service-package
and through a single network. In addition to advantages for both
the subscriber (single service provider, single bill) and the service
provider (effects of economies of scope), the appearance of service
providers, earlier operating in different markets, in one another’s
market gives a new impulse to increased competition (particularly to
infrastructure-based competition). The phenomenon of convergence
has also appeared in the Hungarian market in various forms.
Duplex operation of fixed programme distribution networks (cable
television) made it possible to launch through these networks,
concurrently with programme reception, so-called duplex services,
i.e. Internet access and/or telephone service. Using this opportunity,
cable television service providers keep gradually increasing their
share in broadband Internet and fixed voice markets. According to
the January 2008 Tárki-Ithaka survey, nearly one quarter (24 percent)
of subscribers with fixed, cable television and Internet access used
these services within the framework of 3-play service packages.
In the case of adequately short loop length, certain technological
realisations of broadband DSL-access, in addition to normal baseband
telephone and Internet services, also provides broadcasting
(IPTV) and “video on demand” (VoD) services. In the case of optical
access (FTTH), the distance from the centre no longer restricts the
provision of such convergent packages. These solutions (for the time
being DSL-based) also enabled different fixed telephone service providers
to address the challenges posed by cable television service
providers and offer 3-play service-packages.
In the case of mobile radiotelephone services, the introduction
of higher-capacity download and upload (GPRS, EDGE) in secondgeneration
GSM networks made the simultaneous provision of voice
transmission and packet-switched data transmission possible. Voice
and data transmission provided through the same network is already
a basic element of third-generation mobile radiotelephone services.
The introduction of 3G/HSDPA technology resulting in a spectacular
increase in data transmission capacity has opened new opportunities
for national mobile service providers to become serious players
also in the broadband Internet market.
As a new option, “fixed location” was introduced in mobile telephone
services, where the term “fixed location” means the sector
of a specific base-station. Within this sector, the call numbers of
the fixed network can be reached at lower rates. In this case, the
subscriber has a fixed and a mobile call number as well. Through
this solution, mobile service providers entered the traditional market
of fixed telephone services.
For the time being, it seems to be only a matter of time before
the appearance of so-called 4-play offers providing four services
through a single service provider (one bill), including fixed and mobile

The Hungarian Communications Market Developments and Regulation between 2004 and 2008
telephone services, Internet access and browsing as well as digital
television programmes becomes a reality.
3.2 Electronic voice communications
markets
Following 2003, previous tendencies continued in the voice communication
market: a decrease in the fixed market and an increase in
the mobile telephone market. Between 2003 and 2007, the number
of fixed main lines dropped by 300 thousand, while the number of
mobile subscribers increased by more than 3 million to exceed as
many as 11 million.
Traffic initiated from mobile networks showed an even more dynamic
increase by reaching the volume of fixed voice traffic in 2004
to be more than doubled in 2007.
Figure 3.7: Households with fixed and mobile access
%
Only fixed
Only mobile
60
Both
None
50
40
30
20
10
0
2004 2005 2006 2007
Figure 3.6: Changes in fixed and mobile access and traffic
Source: 2005-2007: Tárki, 2004: Szonda Ipsos
Thousand
pcs
12 000
10 000
8 000
Fixed and mobile access
7 945
Fixed main lines
Mobile subscriptions
8 727
9 320
9 966
11 030
Million
minutes
12 000
10 000
8 000
Changes in voice traffic
7 574
6 114
Fixed traffic
Mobile traffic
7 333
7 453
7 508
9 328
7 297
11 840
6 407
13 610
6 000
6 000
4 000
3 603
3 568
3 442
3 381
3 299
4 000
2 000
2 000
0
2003 2004 2005 2006 2007
0
2003 2004 2005 2006 2007
Source: NHH
The drastic change in the proportions of the use of the two technologies
emerged slightly differently in the residential and business
segments. The decrease in the number of fixed lines was almost
exclusively attributable to the return of telephone lines possessed by
the residential segment.
The number of households using exclusively mobile telephone
services increased steadily, with a falling number of those using
fixed telephone services only. Nearly half of all households use both
technologies.

34 35
Fixed location services
In Hungary, service providers provide fixed telephone services according
to primary areas originating from the concession period.
Concession agreements ensuring exclusive rights were cancelled
after 2002 to be replaced by so-called universal service agreements
containing general obligations of service provision. These universal
service agreements continue to reflect the allocation according to
primary areas. After the expiry of the period of exclusive rights for
service provision, the base of the activity is no longer the applicable
concession but solely the notification obligation.
Before 2007, Magyar Telekom provided fixed telephone services
in thirty-six, Invitel in nine, Hungarotel in five, Emitel in three, and
Monortel in one numbering area. As a result of the concentration
process relating to the communication sector, the total number of incumbents
decreased to three in 2007 through the fusion of Invitel and
Hungarotel and the merger of Emitel into Magyar Telekom.
New service providers could enter former concession service
providers’ area only after the liberalization of the market (at the end
of 2001 and the beginning of 2002). Entry into the market can take
place using the same technology as the one used by the incumbents
or a different one. Alternative service providers applying so-called
carrier selection were able to enter the market only by way of wholesale
and retail regulations effecting serious regulatory intervention.
In Hungary, the development of technology, in particular the economical
implementation of the Voice over Internet Protocol (VoIP),
i.e. Internet-protocol-based voice transmission, has established a
context for competition between different infrastructures.
From the end of 2004, UPC introduced VoIP-service through its
own network for Hungarian cable television subscribers, which had
a great effect on the market of residential fixed telephone services.
The second largest player of the cable television market, T-Kábel of
the Magyar Telekom Group launched its IP-based telephone service
Figure 3.8: Areas of activity of incumbent service providers
2001: 5 incumbents
2007: 3 incumbents
Matáv
Invitel
Hungarotel
Emitel
Monortel
Magyar Telekom
Invitel
Monortel
Source: NHH
Regarding market operation, the takeovers carried out by HTCC
(Hungarian Telephone and Cable Corporation) had great importance.
HTCC, one of the former local concession companies (Local Telecom
Operator – LTO) and former owner of Hungarotel, bought out
Pantel, one of the major alternative service providers, then Invitel,
the largest LTO, and finally Tele2, the major alternative residential
service provider. After integration of the service providers thus taken
over, the company continued its service provision activity under the
brand name Invitel Telecom.
in mid-2005. During 2006, other cable service providers also began
to provide IP-based telephone services through their respective
cable television networks. Today, these service providers provide
traditional cable television services as well as Internet and telephone
services in one package within the framework of the 3-play strategy,
with the number of their subscribers showing a steady increase.

The Hungarian Communications Market Developments and Regulation between 2004 and 2008
Figure 3.9: Number of subscribers of voice transmission services
provided through cable network
Thousand
pcs
250
200
150
100
50
0
Source: NHH
Telephony through the Internet became possible also through the
VoIP technology. On the one hand, this meant the use of so-called
peer-to-peer solutions (e.g. Skype) using the computer; on the
other hand, it allowed broadband Internet providers to enter the
fixed voice market. The numbering space provided for such service
providers allowed subscribers to directly initiate calls, made normal
networks accessible, and, thus, telephony became possible even
without computers, through adequate VoIP equipment.
Figure 3.10: Geographical number portability (including number
portability within the same service provider)
Thousand
pcs
300
250
200
78
06/I.
88
06/II.
100
06/III.
116
06/IV.
140
07/I.
173
155
07/II.
168
07/III.
255
197
07/IV.
221
08/I.
302
235
08/II.
The introduction of number portability played a significant role
in switching service providers, an option more and more frequently
resorted to since 2004.
Mobile services
Just like in other EU Member States, the number of mobile subscribers
grows continuously in Hungary, too. By September 2008, the
penetration rate (the number of subscriptions per 100 capita) was
over 117.
Earlier, one of the important “driving forces” of such growth –
apart from the equipment subsidy – was the so-called prepaid plan,
which was introduced by service providers: services were paid for in
advance and no additional monthly fees were charged. Although the
majority of subscribers still have such subscription plans, the ratio
of subscribers with a monthly fee has dynamically been growing in
the past few years (due to service providers’ encouragement). The
ratio of prepaid subscriptions was the highest at the end of the first
quarter of 2003. At that time, more than 79 percent of subscribers
fell into this category. Since then, the share of prepaid subscriptions
has continuously been on the decrease, and by the beginning of
2008 it was a mere 63 percent.
In the Hungarian mobile market three service providers, T-Mobile,
Pannon and Vodafone, all having their own networks, have been
competing for nearly 10 years. After Vodafone entered the market,
market shares were restructured, yet from 2005, the market positions
of the players have been stabilised.
There is intense competition between service providers, which
makes regulatory intervention in the retail market unnecessary. As
for the wholesale market, regulation applies to the termination rates.
Unlike the trends in other European countries, in the Hungarian
market no mobile virtual network operator (MVNO), i.e. one with no
network of its own, operates.
Just like in the case of the fixed market, in line with legal regulations,
as of May 2004 mobile service providers are also obligated to
provide number portability for subscribers. This opportunity makes
it easier for consumers to switch service providers, which intensifies
competition. Since the introduction of number portability, the volume
of ported numbers has annually been growing by 40-50 thousand.
150
124
100
50
48
0
Dec 2004 Dec 2005 Dec 2006 Dec 2007 Aug 2008
Source: NHH

36 37
Figure 3.11: Changes in the number of pre- and post-paid
mobile subscribers
Thousand
pcs
8 000
7 000
Number of the pre-paid subscriptions
Number of the post-paid subscriptions
Proportion of pre-paid subscriptions among total subscriptions
Proportion of post-paid subscriptions among total subscriptions
%
100
90
6 000
5 000
80
70
60
4 000
50
3 000
40
2 000
1 000
30
20
10
0
0
Source: NHH
Figure 3.12: Changes in mobile market shares as reflected
by the number of subscriptions
%
100
Magyar Telekom Pannon Vodafone
90
80
70
60
50
40
30
20
10
0
02/I.
02/II.
02/III.
02/IV.
03/I.
03/II.
03/III.
03/IV.
04/I.
04/II.
04/III.
04/IV.
05/I.
05/II.
05/III.
05/IV.
06/I.
06/II.
06/III.
06/IV.
07/I.
07/II.
07/III.
07/IV.
08/I.
02/I.
02/II.
02/III.
02/IV.
03/I.
03/II.
03/III.
03/IV.
04/I.
04/II.
04/III.
04/IV.
05/I.
05/II.
05/III.
05/IV.
06/I.
06/II.
06/III.
06/IV.
07/I.
07/II.
07/III.
07/IV.
08/I.
08/II.
Source: NHH

The Hungarian Communications Market Developments and Regulation between 2004 and 2008
Figure 3.13: Changes in mobile number portability
Thousand
pcs
250
227
3.3 internet market
The number of Internet subscriptions in Hungary has been dynamically
growing. The number of subscribers by the second quarter of
2008 reached over two millions, as compared to 500 thousand at the
beginning of 2003. Growth rate in 2007 was as high as 42 percent.
200
150
100
50
0
Source: NHH
44
99
Dec 2004 Dec 2005 Dec 2006 Dec 2007 Aug 2008
Figure 3.14: Changes in the number of Internet subscribers
143
194
Competing technologies
In the last four years a remarkable technological realignment took
place in the Internet market. Whereas at the beginning of 2003,
three-quarters of the subscriptions was narrowband, by 2008 these
in practice were replaced by broadband access. By now the ratio of
narrowband subscriptions has decreased to under two percent.
Owing to the development of services, the recent period has seen
an increase in average bandwidth within the broadband category.
While in 2003 download capacity was mostly 384-512 kbps, in 2008
most of the subscribers have connections with a download capacity
of more than 1 Mbps.
In the second quarter of 2008, as many as 415 Internet service
providers were registered with the National Communications Authority,
yet ninety percent of the market is covered by the subscribers of
29 Internet service providers.
pcs
2 500 000
2 000 000
1 500 000
1 000 000
500 000
0
03/I.
03/II.
03/III.
03/IV.
04/I.
04/II.
04/III.
04/IV.
05/I.
05/II.
05/III.
05/IV.
06/I.
06/II.
06/III.
06/IV.
07/I.
07/II.
07/III.
07/IV.
08/I.
08/II.
Source: HCSO

38 39
Figure 3.15: Changes in the number of Internet subscribers
by access technology
pcs
900 000
800 000
700 000
600 000
Analogue, ISDN
DSL
Cable
Wireless
Other*
500 000
400 000
300 000
200 000
100 000
0
03/I.
03/II.
03/III.
03/IV.
04/I.
04/II.
04/III.
04/IV.
05/I.
05/II.
05/III.
05/IV.
06/I.
06/II.
06/III.
06/IV.
07/I.
07/II.
07/III.
07/IV.
08/I.
08/II.
Source: HCSO
*e.g. leased line, LAN
Broadband market
In Hungary, broadband penetration reached 15.7 percent by 2008,
which is 72 percent of the EU average. This puts Hungary in the middle
of the pack among the new EU Member States.
In mid-2007, 87 percent of the towns in Hungary had some kind of
access to broadband service: DSL service and cable-based service
in 80 and 32 percent of the towns, respectively. As uncovered towns
are typically the smallest ones, population coverage exceeds these
Figure 3.16: Broadband Internet penetration in the EU (2008)
%
30
20
10
0
BG
PL
SK
EL
RO
LT
CY
HU
CZ
LV
PT
MT
IT
SI
IE
ES
AT
EU27
EE
FR
DE
LU
BE
UK
SE
NL
FI
DK
Source: COMMUNICATIONS COMMITTEE; based on “Working Document Broadband
access in the EU”

The Hungarian Communications Market Developments and Regulation between 2004 and 2008
ratios: e.g. on 31 December 2006, cable modem Internet service was
available in 60 percent of the households and in mid-2007, mobile
broadband was available for 48 percent of the population.
The two leading technologies of the broadband market across Europe
are ADSL and cable modem Internet. The situation in Hungary
is the same, yet with one difference. Cable infrastructure in Hungary
plays a greater role than in Europe. The comparison of the proportion
of cable modem and ADSL subscribers in the EU 25 states illustrates
well the importance of the role of cable modem Internet in the
Hungarian broadband market. As regards this index, Hungary ranks
far ahead even of countries with traditionally high penetration rates
(Belgium, Netherlands, Austria) as the cable/ADSL ratio in Hungary is
more than 80 percent.
In addition to cable modem access, the number of mobile Internet
users has also increased remarkably since 2007, so mobile technology
appeared in the market as a new competitor of broadband data
transmission technology. According to a residential survey carried
out by NHH in February 2008, six percent of the households had
mobile Internet subscriptions, with narrowband and broadband connections
to the Internet equally distributed among them. The ratio of
fixed wireless (WiFi) access also reached six percent.
The past four years have seen a drastic fall in the prices of
broadband services. While in 2003 the price of the cheapest broadband
package with the leading service providers was HUF 8 to 10
thousand, the same package was available for only HUF 5 thousand
in 2007. In addition, for the 2007-year price subscribers could use
three or four times higher bandwidths than in 2003.
3.4 Broadcasting market
Platforms in the broadcasting market
The most significant platform of the Hungarian broadcasting market
is cable television service available in more than 60 percent of the
households. In the years before 2004, it was the only broadcasting
platform offering multi-channel Hungarian content. However, in the
recent years, in addition to local cable television service providers
and early players of the digital satellite market, a new digital satellite
service provider and several IPTV service providers appeared in
the market. Owing to the fierce competition, digital satellite service
providers acquired a considerable share over the last three years.
IPTV service is not significant, as it has only been operating for two
years, so its market share so far is low. Trends show that notwithstanding
the emergence of new substitutive platforms, the cable
television sector was able to produce further growth. The source
of such growth was mostly attributable to the connection of those
households using terrestrial and/or satellite services that used to be
free in the past. While in 2003 more than 40 percent of the households
had only this type of programme reception, by 2007 their ratio
has dropped to under 30 percent.
Figure 3.17: Use of broadcasting platforms
%
60
50
40
30
20
10
0
Subscription satellite
Bírságok Terrestrial együttes + others
CATV
2003 2005 2006 2007
Source: 2003, 2005, 2006: Market survey by NHH and Szonda Ipsos (“Residential Communications
Information”); 2007: Market survey by NHH and Tárki
Cable television
Hungarian cable television infrastructure, even in international terms,
is considered advanced, with a penetration rate (number of subscribers
as compared to the total number of households) being above
OECD average.

40 41
Figure 3.18: Cable television penetration in the OECD countries
%
80
2002
2005
60
40
20
0
Greece
Italy
New Zealand
Turkey
Spain
Mexico
United Kingdom
France
Czech Republic
Australia
Portugal
Poland
Iceland
Finland
Austria
Ireland
Slovak Republic
Norway
OECD
Denmark
Hungary
Japan
Sweden
Germany
United States
Canada
Korea
Luxembourg
(Wallonia)
Switzerland
Netherlands
Source: OECD Communications Outlook, 2007
According to NHH’s service provider survey (data collected as part of a
market surveillance procedure), cable television service was available for
82 percent of Hungarian households in 2007 (homes passed). The index
is continuously increasing as large development projects took place as
regards the cable networks even in the past few years. Consequently, Internet
service and voice-based (VoIP) service was also available in 74 and
31 percent of households covered by cable network, respectively. The
availability of the VoIP service means that the 3-play service is also available.
The household penetration of Internet service and VoIP service provided
through cable network was 10.5 and 3 percent, respectively. At the
end of 2007, significant service providers, such as UPC and T-Kábel had
123 thousand and 19 thousand 3-play subscribers, respectively. Moreover,
digital cable television service (DVB-C) has also been launched.
According to an NHH survey in June 2005, 19 service providers had,
at least partially, digital networks with around 325 thousand subscribers.
Nevertheless, at the end of 2006, already 26 service providers offered
digital programme reception with digital cable networks reaching as many
as 760 thousand households. In March 2008, the largest cable service
provider also launched its digital cable television service in Budapest and
in four other big cities. During the first three months of the introduction of
the service, 50 thousand UPC subscribers had their analogue servicepackages
replaced by digital ones.
On 31 December 2006, in the multi-player cable television service
market 373 service providers provided cable television services. In spite
of this, the Hungarian market is fairly concentrated, with five major service
providers covering significant share of the households. Their combined
market share according to the number of subscribers was 68 percent
in 2003, which has decreased to 61 percent by 2007. Locally, however,
individual service providers do not really compete with each other in view
of the fact that there are hardly any areas covered with parallel networks.
The cable television market has seen a price increase in the previous
years. As a result of the competition between platforms, this process has
remarkably slowed down and even stopped by 2007. The entry of Digi
Ltd. (Digi TV), a new digital satellite service provider with an aggressive
strategy played a significant role in boosting competition.
Figure 3.19: Average monthly spending on cable television
HUF
4 000
3 000
2 000
1 000
3239
3618
3738
2004
2616
2005
2006
2007
0
Dec 2003 Jun 2005 Nov 2006 Dec 2007
Source: NHH-TÁRKI-Ithaka, “Use of Communications Services”
According to customer surveys, households with cable television
paid about HUF 3,700 on average for this service at the end of
2007, which shows a HUF 1,000 (43 percent) increase in comparison
with 2003 figures. Apart from the increase in prices, higher monthly
spending was attributable to the fact that subscribers have turned

The Hungarian Communications Market Developments and Regulation between 2004 and 2008
to new service packages with more channels and improved quality.
NHH has started gathering information on the price changes of a
standard 25-channel service package at the various service providers
as of 2006. The measurement of such changes is difficult on account
of service providers’ practices of designing service packages
as they show significant variations and are being changed frequently.
Data show that at the two major service providers the prices of
the 25-channel service packages surveyed in fact increased by 10
percent on average between 2006 and 2008.
Terrestrial digital switchover
In the broadcasting market, one of the most significant achievements
of the last four years was the launch of terrestrial digital
switchover. Digital switchover is a process coordinated by the
European Commission envisaging the conclusion thereof by 1 January
2012 at the latest. The planned residential coverage of the digital
television broadcast network (DVB-T) is close to 60 percent in 2008.
In 2009, the network is expected to incorporate eight new sites, with
a coverage of 88 percent to exceed that of the existing analogue
countrywide commercial channels. By the end of 2010, the coverage
of the network shall reach 95 percent.
In 2008, mobile television (DVB-H) service will be launched in
Budapest and its environs, to be extended to further seven major
cities and Lake Balaton by the end of 2009. By 2012, coverage shall
reach 50 percent.
Since 1999, Antenna Hungária has been experimenting on its
terrestrial digital television system using the MPEG-2 type compression
method. However, in its tender it opted for the MPEG-4 coding
method. MPEG-4 technology facilitates the operation of 8 to 12 SD
(Standard Definition) or 3 HD (High Definition) channels per multiplex,
making digital terrestrial transmission a competing platform in the
broadcasting market as early as of this year.
Radio broadcast
In Hungary, countrywide analogue radio broadcast is provided by
Antenna Hungária exclusively. The company broadcasts five radio
programmes of three broadcasters in the ultra short wave (VHF)
band, while two programmes of two broadcasters in the medium
wave band. The coverage of the radios in the VHF band is between
68 and 86 percent, while in the medium wave band the coverage of
the two programmes is 75 and 100 percent, respectively.
Enterprises mostly own and operate those radio transmitters
broadcasting more than 170 local and 23 regional radio programmes,
while, to a lesser extent, Antenna Hungária broadcasts
these programmes through its own transmitters.
Radio broadcasts are also affected by the digital switchover. Here,
the planned date of complete switchover is end of 2014, on condition
that both the coverage of radio networks and the penetration of
digital radio receivers reach the requested level by that time.
In 2008, the National Communications Authority of Hungary announced
a tender on the operation of the terrestrial digital free-toair
radio broadcast network. In the scope of the tender, Antenna
Hungary (AH) obtained the operating license for a radio multiplex for
twelve years. AH chose the up-to-date DAB+ compression method,
through which programmes of as many as 16 to 18 channels can be
broadcast. The service will definitely broadcast the public service
programmes of the Hungarian Radio (MR1, MR2, MR3) and the
programmes of the public programme provider Catholic Radio. The
residential coverage of DAB+ digital radio service is expected to
reach 31 percent already in year 2008 to go up to 44 percent next
year. Complete rollout with 94 percent coverage is expected by 2013
at the latest.
IPTV
IPTV, the newest broadcasting platform using the (DSL) network of
fixed communication service providers also appeared in Hungary.
The first IPTV services in Hungary were launched by T-Online and
TVnet in November 2006. (In 2007, TVnet terminated its service.)
Today, the IPTV service of T-Online is available in more than three
hundred towns. In May 2008, Invitel also announced to launch IPTV
service in some of its service areas. In the first half of 2008, there
were around 20 thousand IPTV subscribers in Hungary, the majority
of them with a subscription at T-Online. According to international
experiences, IPTV services have remarkable market potential, which
in long run may become competitors of traditional platforms.

42 43
Results and influence
of market regulations
4

The Hungarian Communications Market Developments and Regulation between 2004 and 2008
The most important regulatory decisions concerning the communications
sector are made within the framework of market analysis
procedures of the Board. In the new regulatory framework, the identification
of obliged service providers and obligations in legal regulations
were replaced by market analyses-based regulations capable
of flexibly following rapid technological and market changes. This
is to ensure that regulations in fact deal with problematic areas and
with operators having significant market power only and intervention
is always reasonable, proportionate and adequate for the market
problems concerned.
4.1 Regulation of service markets relating
to fixed telephony
Before 2002, fixed telephone services were provided through exclusive
rights by national concession companies (Matáv and local concession
companies, such as Invitel, Hungarotel, Emitel, Monortel).
The liberalisation of the market was realised in line with Act 40 of
2001 on Telecommunications (Hkt.), which gave an opportunity to
alternative service providers to enter the market.
After the liberalisation of the market, the termination of exclusiveness
by itself would not have been enough to create competition,
bearing in mind that local networks were considered bottlenecks in
the market and doubling of local networks (for alternative service
providers using PSTN network) would not economical and thus not
a real option. Therefore, the Hkt. imposed wholesale requirements
for incumbent service providers and former concession companies
through which alternative service providers were able to access
wholesale services needed to enter the market. According to the Hkt.,
retail services of incumbent service providers were also regulated.
There were high expectations in connection with the market
effects of the initial phase of liberalisation, which, however, in the
first years were not realised. The market share of incumbent service
providers has only seen a slight decrease, competition had perceivable
results only in the international calls market and in the business
segment, while practically there were no alternative offers in the
residential market. Although the Hkt., even in the European context,
established a suitable legal framework, incumbent service providers
were able to effectively obstruct competition by unfavourable
wholesale conditions and by setting too high wholesale prices. In
2003, for the purpose of both solving this problem and transposing
the new EU regulation, the Act on Electronic Communications (Eht.)
was established to define the new institutional framework and the
elements of a regulatory system based on market analysis.
According to the Eht., in 2004, the Board of the National Communications
Authority of Hungary initiated a market analysis procedure
relating to the market of fixed (landline) telephone services, which
was concluded in 2005 with various decisions. In line with Annex 1
of Decree No. 16/2004 (IV.24.) IHM of the Ministry of Informatics and
Communications, the market analysis (in harmony with European
Union Recommendation No. 2003/311/EC) identified six retail and
four wholesale markets in connection with these services.
As a result of the market definition procedure, the Board defined
the geographical dimensions of the retail market (1-6), the call origination
market (8) and the market of unbundled access to the local
loop (11) in line with the former concession areas. In the case of market
9, geographical dimension is calculated according to the network
size of the individual service providers, with market 10 constituting a
countrywide market.
The Board pointed out that former concession service providers
had significant market power in regional geographical markets. In
addition, in the call termination market, alternative fixed telephone
service providers having their own access network were also identified
as having significant market power (SMP) 26 . The 2005 market
analysis defined the transit market as a market susceptible to exante
regulation, however, no service provider with significant market
power was identified.
Competition failures and obligations
SMP service providers may abuse their power in many ways, thus
preventing competition in the fixed markets.
Bearing in mind that the duplication of access network based on
copper-wire-pairs (apart from large business clients) generally cannot
be realised in economical ways, alternative service providers 27 can
enter the market through the PSTN-network in two ways: so-called
carrier selection service providers competing only in the traffic market
can enter the market through the use of interconnection services,
while those also competing in the access market, through the use of
unbundled access to the local loop (LLU).
Through the application of loop unbundling, alternative operators
can provide not only telephone but also broadband DSL Internet
services 28 . Moreover, the development of the markets shows that
entering the LLU and the fixed voice access market only intensified,
with reference to almost every country, after the voice service
together with the DSL providing access to the needed broadband
Internet service became economically marketable. Thus, the driving
force behind the spread of LLU is definitely the DSL. This wholesale
service is rarely used exclusively for providing fixed voice services.
The use of LLU and the growing intensity of competition in the voice
access market mostly depend on the developments of the DSL market
and can primarily be expected from service providers competing
with a 2-play (3-play) strategy, for whom DSL is essential and the
fixed telephone service is only of secondary importance.
Service providers having SMP are able to make carrier selection
competition difficult if access to interconnection services, in particular
to call origination and termination services (markets 8 and 9) is
not ensured by means of adequate conditions. Competition can be

44 45
hindered on the retail side, too, if the SMP does not give customers
the opportunity of carrier selection.
Therefore, in its decisions relating to retail markets the Board
stipulated the obligation of ensuring the possibility of carrier selection
(carrier selection on a call-by-call basis and carrier pre-selection)
and, with reference to call origination and termination markets, the
obligation of the provision of wholesale services (obligations relating
to access and interconnection).
If the SMP service provider specifies excessive wholesale prices
for interconnection services and unbundled access to the local loop,
this has a constraining effect on competition, which is equal to the
refusal of access, as this may also result in the complete foreclosure
of competitors. In order to prevent this practice, the Board specified
the obligation of cost-based price regulation in interconnection
markets (8 and 9) (cost-based pricing and price control).
Even in the case of adequate price regulation, the SMP service
provider is able to impair the operation of its competitors by way of
several non-price means, such as undue conditions for interconnection
and access, withholding of information, delaying tactics or quality
discrimination. Consequently, the Board found it also essential to
specify the obligation of transparency.
Within the framework of this obligation, stipulations relating to interconnection
reference offers to be made by service providers were
elaborated, which extend to specifications covering access-related
technical parameters, the applicable standards, and network topology.
Reference offers shall be made on the basis of the principle of
equal opportunities, therefore, this obligation was not specifically
imposed.
The reference offers containing the conditions for the use of
wholesale services and the cost-based prices calculated by service
providers on the basis of a cost-model have been reviewed, accepted
and modified, as required, by the Board within the framework
of a separate procedure.
In addition, the Board also imposed the obligation of accounting
separation to make the following information transparent: incomes
and expenses relating to certain services, the data requested for
the supervision of cross financing and price squeeze, cost-related
information on business sector expenses in connection with the setting
of wholesale prices. Thus, this obligation supports both the supervision
of obligations relating to transparency and the cost-based
setting of prices. Moreover, it facilitates the recognition of additional
price-type competition failures (excessive pricing, cross financing).
Whereas in the wholesale markets the foreclosure of competitors
is the general competition problem, in the retail markets SMP service
providers can directly cause damage to consumers, typically through
excessive pricing.
The Board identified this problem as a real danger in fixed access
markets (markets 1 and 2) and remedied the problem through the
regulation of retail prices.
Relating to fixed traffic markets (3-6), the analysis prepared by the
Board established that the stipulation of ensuring the possibility of
carrier selection, the obligations imposed on wholesale markets as
well as commencing competition together were suitable to constrain
the efforts of SMP service providers to implement price increases,
thus it did not impose obligations other than the statutory carrier
selection obligation.
Changes in regulated wholesale prices
The conditions and prices of the provision of interconnection services
had been regulated by the reference offers made by service
providers and accepted by the Authority already in accordance with
the Hkt. One of the first decisions of the NHH Board, prior to market
analyses decisions in line with Eht., had been the approval of reference
offers submitted in accordance with previous legal regulations.
In many cases the reference offers of SMP service providers have
contained undue requirements and unreasonably excessive prices,
which the Board have modified in order to support competition. In
2004, NHH significantly reduced the prices of fixed wholesale services,
in a number of cases by fifty percent.
Price reductions continued through the consistently rigorous
Board assessment of further reference offers submitted in line with
market analyses decisions. Essentially, this was feasible as, with
reference to mandated service providers, regulations relating to the
calculations of costs became more detailed, allowing for more extensive
control. Upon approval of cost-based prices and in possession
of cost calculations attached to further reference offers, NHH had
an increasing amount of information on the real cost-based prices of
services, with the simultaneous extension of its power to set prices.
After a significant decrease in 2004, interconnection fees have
only seen slight drops in 2006 and 2008, stabilising today at a level
that is typically one quarter of the value defined at the beginning of
liberalisation. (In 2006, NHH remarkably reduced the one-off fees of
interconnection). The fees of Magyar Telekom remained constantly
below those of the other service provider with SMP, which is attributable
to the cost advantages related to the economies of scale.
Nevertheless, differences between the fees of the various service
providers were significantly reduced by 2008.
Peak time fees of local call origination and termination interconnection
services fell by 70 to 80 percent between 2002 and 2008.
In the case of other call origination and termination rates (regional,
countrywide interconnection and in discount periods), the prices followed
the same pattern.

The Hungarian Communications Market Developments and Regulation between 2004 and 2008
Figure 4.1: Interconnection rates (2002-2008)
Local peak-time call termination fees (HUF/min)
10
8
6
Magyar Telekom
Emitel
Invitel
Hungarotel
Monor Telekom
4
2
0
2002 2003 2004 2005 2006 2007 2008
Local peak-time call origination fees (HUF/min)
10
8
6
Magyar Telekom
Emitel
Invitel
Hungarotel
Monor Telekom
4
2
0
2002 2003 2004 2005 2006 2007 2008
Source: NHH
Remark: Emitel and Hungarotel are listed only for the purpose of comparison. Later on, Emitel
has been incorporated into Magyar Telekom and Hungarotel into Invitel.
Market influences
Traffic markets
After moderate results of the 2-year period following liberalisation,
carrier selection competition finally began to considerably develop
in 2004, mainly due to Board’s decisions bringing about a decrease
in interconnection prices. New players appeared in the Hungarian
market, with the most significant one among them being Tele2, one
of the largest European alternative service providers, which targeted
the earlier almost completely unaffected residential markets.
Service providers identified as SMPs in their respective markets
(primarily Invitel and Magyar Telekom) also appeared in each other’s
markets thus expanding the range of alternative offers available for
consumers.

46 47
Figure 4.2: Voice traffic share of carrier selection
Million
minutes %
3500
3000
Carrier selection call traffic
Total voice traffic
Carrier selection/total traffic (%)
21
18
2500
15
2000
12
1500
9
1000
6
500
3
0
0
04/I.
04/II.
04/III.
04/IV.
05/I.
05/II.
05/III.
05/IV.
06/I.
06/II.
06/III.
06/IV.
07/I.
07/II.
07/III.
07/IV.
Source: NHH
Traffic via carrier selection increased dynamically to exceed by
fourteen percent of all fixed traffic by the end of 2005. Later on,
however, such growth has stopped and the market position of those
players competing via carrier selection stabilised at this level.
The effects of competition were remarkably reflected by retail
prices. The average per minute tariffs, in all call directions, significantly
decreased. The most impressive decrease was seen in local
and domestic calls; by 2007 their price level was sixty percent lower
than in 2004. The tariffs of international calls fell near thirty percent,
while the tariffs of fixed-to-mobile calls fell ten percent during those
three years.
By 2004, alternative service providers obtained a significant share
primarily in the business market of international calls. In 2005, however,
competition soared in the residential market, where the share
of incumbent service providers fell by more than twenty percent to
around seventy percent in one year. Then, the loss of market share
of service providers with SMP in the residential traffic market slowed
down slightly. In the business markets, alternative service providers
were able to steadily increase their market share.
Figure 4.3: Per minute revenues of fixed traffic services
HUF
60
50
40
30
20
10
0
Local
Domestic
International
To mobile
2004 2005 2006 2007
Source: NHH

The Hungarian Communications Market Developments and Regulation between 2004 and 2008
Figure 4.4: Revenue market share of incumbent service
providers in the relevant traffic markets
%
100
90
80
70
60
Residential international
Business international
Residential domestic
50
Business domestic
40
2003 2004 2005 2006 2007
Source: NHH
Competition in all geographical areas was intensified, yet with
significant differences between the individual geographical markets.
It was primarily the three largest incumbent service providers that
suffered significant losses of market share, while competition was
much less marked in the geographical markets of the two smallest
SMP service providers. This is partly attributable to the fact that these
markets did not prove to be attractive for alternative service providers
because of the small size of these markets and/or the inadequate
solvent demand. In addition, alternative service providers were to have
concluded separate interconnection contracts with every incumbent
service provider on the basis of slightly different reference offers. It
must also be noted that both smaller service providers are 100 percent
owned by big players active in the fixed market (Magyar Telekom
in the case of Emitel and UPC in the case of Monortel), which, on the
territory of their affiliated companies, obviously do not compete.
The development of competition in the traffic markets is not only
due to the strengthening of carrier selection alternative service providers,
because carrier selection traffic has no longer increased from
the end of 2005, as indicated above. It was at that time that cable
television service providers launched their services, providing fixed telephone
services using VoIP technology through their own infrastructure
with increasing success. Therefore, from 2005 on, the development
of traffic market competition was also increasingly affected by
the competition of service providers using different infrastructures.
Fixed retail access market
As regards the intensification of competition in the access market,
regulation did not produce the same results as in the traffic market.
In spite of the fact that retail offers as regards local loop unbundling
appeared in the market (which essentially brought the DSL service
into the focus) and that the use of local loop unbundling remarkably
increased, its effects on the fixed access market are considered
marginal. By the end of 2007, alternative operators provided fixed retail
services based on loop unbundling using slightly over 0.3 percent
of all fixed (PSTN) lines.
In spite of this, the fixed retail access market has taken a step
toward competition. Instead of local loop unbundling, however,
this was attributable to the launch of alternative technologies and
infrastructures, primarily telephone services provided through cable
television networks.
As a consequence, incumbent service providers began to loose
their original typical market shares of around 100 percent back in
2004. Alternative service providers continuously increased their
market shares to reach ten percent in the residential and business
markets by 2007. However, certain relevant markets have seen
considerable differences also in this respect. The residential access
markets of the two smallest SMP service providers were hardly affected
by competition, probably due to the reasons (small market,
large communications service provider owner) as described with
reference to the traffic markets.
Figure 4.5: Market share of incumbent service providers as per
the number of lines in the retail access markets
Residential access
%
Business access
100
95
90
85
80
75
70
65
60
2003 2004 2005 2006 2007
Source: NHH
Due to the lower intensity of access market competition, an
important task was to enforce compliance of SMP service providers
with the obligation of retail price regulation. In September 2006 the
Board of NHH initiated an official control procedure to investigate
the adequate performance of the obligation relating to the prohibition
on setting unreasonably excessive prices. The investigation
revealed that the service providers only partially fulfilled their obligations
specified in the decisions of the Board. By effecting an extra
increase in the prices of residential subscriber access service (aggre-

48 49
gated price index) above the consumer price index (CPI) established
in 2005, all service providers under review violated their obligation.
After the investigation, the Board published a notice that the service
providers should provide a solution with reference to the methods of
eliminating the violations of law and disclosed also some desirable
principles to follow. Service providers, in turn, undertook to return
such unreasonable extra revenue to those using residential subscriber
services, within the shortest time, but before the end of 2009
at latest, in the form of increasing service prices at a lower rate than
the consumer price index.
Handling of existing and new competition failures in the second
round of market analysis
During the second round of market analysis in the second half
of 2007, the Board made decisions on markets relating to fixed
telephone services. General obligations remained essentially unchanged,
however, their content and details were modified according
to professional experiences and new market developments.
In addition to its previous decision, the Board identified as new
competition failures in the retail access market, the pre-expiration
withdrawal of subscription packages under fixed term contracts
(loyalty contract) by SMP service providers and the obstruction of
changing to a new package by imposing undue requirements that
prevent subscribers from withdrawing from the contract even if the
new one provides a remarkably better alternative offer. Thus, SMP
service providers can obstruct, on the one hand, the entry of new
service providers into the market and, on the other hand, the use of
carrier selection. Subscribers choosing such packages will have an
unreasonable disadvantage as opposed to other subscribers with
subscription packages not requiring long-term commitments.
Therefore, the Board imposed the prohibition of undue discrimination
of consumers as a new obligation in the retail market of residential
and business access. In line with the decision of the Board, the
violation of this obligation can be established if the conditions relating
to the subscription packages are connected to packages to be used
exclusively under a fixed term contract and the service provider fails to
ensure this without a loyalty contract, and if the conditions are linked
to pre-expiration withdrawal or switching to another package, and if
the performance of the conditions by the subscriber is not proportionate
to the service performed until the termination of the contract, or to
the possible expenses or to loss of profit of the service provider.
Results in an international context
Following the European liberalisation of fixed markets at the end of the
20th century, competition first started in traffic markets. In those EU
Member States opening their markets in or before 1998, the market
share of incumbent service providers gradually decreased. At the end
of 2006, the incumbents in several countries owned as low as fifty
percent of the traffic market, with their revenue market share falling to
an average of 64 percent across the EU. On the contrary, Hungary has
seen a very slowly evolving competition in the first three years following
the 2002 liberalisation and the loss of share of incumbent service
providers remained below 5 percent even at the end of 2004. After the
publication of the Eht. implementing the new regulatory framework as
well as due to the effects of the renewed regulation reflected in the
decisions of the Board, the process has accelerated over the next
two years, and by the end of 2006, alternative service providers could
obtain a share of nearly 28 percent of the entire market.
Figure 4.6: Revenue market share of incumbent service providers
in the entire fixed traffic market
%
100
94,3
90
79
80
72
68,7
70
EU average
65,8
60
64,1
HU
PL
50
SK
SL
CZ
40
2004 2005 2006
Source: NHH and EU Implementation Reports 11, 12, 13
Although at the end of 2006, the intensity of the Hungarian market
competition was lower than the European average, its dynamics
exceeded it. In two years, the share of Hungarian alternative service
providers has increased by 20.3 percent, i.e. more than four times
faster than the EU average.
The comparison of the degrees of competition in Hungary and
in other Eastern European countries reveals a mixed picture. In the
Polish market, the initial value shows a significantly better picture
than in Hungary, however such difference disappeared by 2006. In
the Czech Republic, the two available pieces of data show that the
incumbent market share has decreased to the EU average by the
end of 2006. The results of the other two countries are below the
Hungarian indices. Slovenian market competition has been evolving
very slowly and in Slovakia, competition stopped and the share of
incumbent service providers increased in 2006.
We get a similar picture if we investigate the markets of different
call-directions separately. The share of Hungarian incumbent service
providers in all markets is higher than the EU average. However, the

The Hungarian Communications Market Developments and Regulation between 2004 and 2008
growth of the share of alternative service providers in Hungary was
significantly higher than the EU average. On the basis of the above
information, it can be established that the Hungarian traffic market has
dynamically approached the EU average between 2004 and 2006.
The Hungarian indices show that before 2004 incumbent service
providers have managed to delay competition successfully. The
harmful effects of this are observable even today, as it is safe to say
that the later it comes to entry into the market, the less chance there
is for fierce competition to develop.
In the fixed access markets of all EU Member States competition
developed only very slowly. The past few years have, however, brought
about some changes also in this respect. Essentially due to the growth
of the DSL market, fixed access became more attractive for alternative
service providers. In addition, the provision of voice communications
through cable television infrastructure also became economically feasible,
which significantly contributed to the strengthening of competition
in the fixed access markets in those Member States with significant
cable television penetration. In respect of the EU average, the ratio of
consumers using access provided by alternative service providers has
nearly doubled between 2005 and mid-2007.
Figure 4.7: Ratio of consumers using access provided by alternative
service providers
%
14
12
10
8
6
4
2
0
6,1
0,6
EU average
HU
PL
SK
SL
CZ
7,9
3,0
2004 2005 2006
2007
Source: NHH and EU Implementation Reports 11, 12, 13
In this period, Hungary has also seen a dynamic development,
with the hardly noticeable share of alternative service providers in
2004 almost reaching nine percent by 2007. This value was somewhat
higher than EU average growth. Making a regional comparison,
only the Polish index was better than the Hungarian. However, it is
9,5
5,5
13,5
8,8
also noticeable that competition in the retail access market has also
been developing at a notable pace in other countries of the region.
In Hungary, it is mainly the cable television service providers that
generate access market competition. On the contrary, the role of
alternative service providers competing through unbundled access
to the local loop is much less marked than in a number of other
European countries.
In 2007, Teligen dealing with the comparison of communications
prices estimated monthly spending relating to the consumer baskets
(newly) defined by the OECD (three residential and two business
consumer baskets), assuming that in the given consumer structure,
rational consumers opt for the optimal tariff-package of the incumbent
service provider.
The spending of Hungarian consumers with low (600 calls per
year) and medium (1200 calls per year) traffic (in both cases using
Tariff Package “Felezô”) is in nominal terms among the lowest ones
in Europe. The spending of residential consumers with significant
traffic (2400 calls per year) in Hungary, using Tariff Package “Favorit”,
is in the middle of the pack. At the same time it is likely that,
with Tariff Package “Favorit nonstop plusz” introduced meanwhile
by Magyar Telekom for consumers with large traffic, the Hungarian
value of the service would have been significantly lower. Also in the
case of the consumer basket for micro-enterprises, the Hungarian
value is the lowest one in Europe (Package “Grátisz 500”). This offer,
even in the case of small and medium enterprises, is among the
cheaper ones and, in terms of purchasing power parity, the Hungarian
values would be in the middle of the pack or characteristic for
more expensive countries.
Summary
On the basis of the assessment of the effects of regulation, it can be
established that after 2004 positive developments have started also in
fixed traffic markets. The share of alternative service providers began
to dynamically grow, with Hungary’s underdevelopment significantly
diminishing as compared to the EU average. Prices also decreased, thus
making consumers able to experience the advantageous effects of both
lower prices and greater choice. The intensification of competition and
the processes beneficially influencing consumer prosperity are essentially
due to the obligations imposed by the Board in line with the Eht., in particular
to the decrease of interconnection tariffs from the previously high
level to around EU average. NHH has also enforced the improvement
of non-price conditions of interconnection, which facilitated the entry of
alternative service providers into the market.
Indices of the fixed access market investigated are not as bright as in the
case of traffic markets. It is true that the access market competition did
make a forceful start also in Hungary, this was owing to factors beyond
the scope of regulation, primarily the entry of cable service providers into
the market within the framework of the 3-play strategy.

50 51
Figure 4.8: Monthly spending of residential consumers
and micro-enterprises with medium traffic
OECD baskets for PSTN, 2007 Medium usage residential basket
Euro per month
VAT excluded
60
50
Fixed
Usage
40
30
20
10
0
CY
RO
USA CA
EE
SK
MT
BG
LT
SE
HU
SI
USA NY
JP
ES
IT
LU
DE
CZ
EL
DK
NL
AT
LV
UK
PT
FR
PL
BE
FI
IE
OECD baskets for PSTN, 2007 SOHO business basket
Euro per month,
VAT excluded
60
50
Fixed
Usage
40
30
20
10
0
USA CA
HU
RO
USA NY
EE
SI
DE
LT
EL
DK
LU
BG
SK
ES
NL
LV
AT
SE
PL
PT
MT
FI
CZ
BE
IE
JP
FR
CY
IT
UK
Source: EU Implementation Report 13
4.2 Regulation of the broadband Internet
market
Broadband Internet services in Hungary began to spread from the
year of 2000 on. In 2000, Magyar Telekom, the most significant Hungarian
incumbent service provider (at that time MATÁV) launched its
ADSL service in addition to the already existing cable modem serv-
ice. ADSL very soon became the dominant broadband technology,
keeping its leading place in the market up to the present time.
As opposed to numerous Western European markets, competition
appeared in the retail ADSL market already at the very beginning.

The Hungarian Communications Market Developments and Regulation between 2004 and 2008
The most important reason for this was that MATÁV was obligated
by the regulator (the legal predecessor of NHH) to provide broadband
wholesale DSL service at the time of its launching.
This obligation was a general obligation to provide access, with
no specific provisions as to the conditions and prices of wholesale
services. It was yet of great importance as the alternative service
providers were not able to enter the DSL market without wholesale
access, because the technology uses the same copper wire pair as
fixed telephone services, since fixed incumbent service providers
own these local loops which cannot be duplicated economically.
Alternative service providers have fundamentally two options to
develop their own services based on incumbent wholesale services:
either through unbundled access to the local loop or using bitstream
access. The two wholesale services, even if they represent different
relevant markets, correlate with each another. Namely, alternative
service providers have the option to decide which access they
would like to use to enter the broadband market. The business
model based on the unbundled access to the local loop assumes
significant investments and more extended networks on the part of
alternative operators with more freedom for them in respect of both
the specification of product characteristics and pricing. On the contrary,
the business model based on the bitstream access, especially
on IP-level access, allows alternative service providers to enter the
market quickly and with lower investments, which, nevertheless,
leaves less room to manoeuvre in terms of pricing and the specification
of product characteristics.
The two wholesale services may also be interpreted as two rungs
of the so-called “investment ladder”. The first rung is the bitstream
access, through which service providers can enter the market easily.
Then, after stabilising their market position and establishing the
necessary subscriber basis, they can step to a higher rung of the
investment ladder, toward the business model based on the unbundled
access to the local loop.
Regulation of the unbundled access
to the local loop
Competition failures and the implemented regulation
The regulation of the unbundled access to the local loop, the related
competition problems, and the regulatory instruments applied show
a close analogy with the interconnection (call origination and termination)
markets.
Similarly to interconnection markets, the refusal of the unbundled
access to the local loop makes it difficult for alternative service
providers to enter the retail market. Therefore, in its decision of 2005,
Figure 4.9: Prices of full unbundled and shared access to the
local loop in reference offers accepted in 2002, 2004, 2006,
and 2008
HUF
5000
4000
3000
2002
2004
2006
2008
2000
1000
0
Magyar Telekom
full
Magyar Telekom
shared
Emitel
full
Emitel
shared
Invitel
full
Invitel
shared
Hungarotel
full
Hungarotel
shared
Monortel
full
Monortel
shared
Source: NHH
Remark: Emitel and Hungarotel are listed only for the purpose of comparison. Later on, Emitel
has been incorporated into Magyar Telekom and Hungarotel into Invitel.

52 53
the Board imposed the obligation of wholesale access, which established
the essential conditions for the development of competition.
In the decision the obligation of cost-based price regulation
intended to prevent SMP service providers from squeezing out their
competitors with excessive wholesale prices of the unbundled access
to the local loop.
The Board considered also essential to impose the obligation of
transparency, since SMP service providers are able to impair the
operation of their competitors by numerous non-price means even
if there is an effective price regulation. Within the framework of this
obligation, specifications were laid down relating to reference offers
on the unbundled access to the local loop, to be completed by
service providers.
Just like in the case of interconnection services, prices and conditions
of the provision of services of unbundled access to the local
loop had been regulated, in line with the Hkt., by reference offers
accepted by the Authority and developed by the service providers.
Prior to making market analysis decisions, the Board of the NHH
made a decision on the approval of reference offers relating to the
unbundled access to the local loop, submitted on the basis of previous
legal regulations.
The monthly tariff of full unbundled access to the local loop did
not decrease in line with the first decision of the Board in 2004 to
the extent as it did in the case of interconnection services; nonetheless,
the tariffs of shared access to the local loop were significantly
reduced. Notwithstanding, also taking the further decrease in 2006
similarly affecting the two services into account, the tariff of full
unbundling approached the EU average, while the tariff of shared
access remaining far above that level. The prices have undergone
further decrease in 2008.
The decrease in the prices has not only affected the basic services
of loop unbundling but also any related supplementary services. E.g. in
2006 the individual loop measurement price in the case of Magyar Telekom
dropped from HUF 37,644 to HUF 9,364 and in the case of Invitel
from HUF 44,725 to HUF 12,211. In addition, the Board repealed about
twenty one-off tariffs contained in previous reference offers.
Market effects
For the evaluation of the effects of market regulation, we have to
analyse the development of retail offers based on unbundled access
to the local loop of the alternative service providers, as the use of
this wholesale service with regulated prices and conditions gives
new players an opportunity to enter the market. This, however, even
in the most successful European countries, remained only marginal
for a long time. One of the major reasons of the failure of competition
based on unbundled access to the local loop was that the provision
of fixed retail access by itself was not really an attractive business
model for newly entering alternative service providers. The situation
took a major turn as the increased demand for DSL technology
suitable for the provision of broadband Internet services resulted
in the increased importance of unbundled access to the local loop
for alternative service providers. The simultaneous provision of DSL
based on unbundled access to the local loop and telephone services
(2-play strategy) has become economical, which was made even
more attractive through the possibility of offering IPTV services.
In spite of the theoretical possibility available from 2002, loop
unbundling did not take place in the Hungarian market before the
end of 2004. Nevertheless, in the first half of 2005, the first transactions
already realised. In 2006, the use of loop unbundling began to
increase and by the end of the year, the number of full unbundling
increased to 1,345 and that of shared access to 3,070. In 2007, the
proportion of full unbundling and shared access changed in favour of
full unbundling: the number of full unbundling increased to 9,025, the
number of shared access to 4,163 by the end of the year. By September
2008, the number of full unbundling came close to 12,500,
while that of shared access to 5,500.
The dominant part of both full and shared access was realised in
the service area of Magyar Telekom, the largest former concession
fixed telephone service provider. This is where most of the alternative
service providers also appeared. Unbundling also took place
in the service areas of Invitel, the second largest concession fixed
telephone service provider and Hungarotel, yet with no unbundling in
the service area of Monortel.
The second round of market analysis
Recognising that technical and other non-price conditions of loop
unbundling did not prove to be beneficial in several ways with reference
to entitled service providers, the Board paid special attention to
the improvement of such conditions in the second round of market
analysis. In addition to the experiences gathered by the Authority
during the procedures of the approvals of reference offers, the Board
also applied during the decision-making process the results of professional
consultations with market players carried out in the summer
of 2007 on the practical problems of loop unbundling. The new
market analysis decision specified significant changes in respect of
the content of reference offers relating to co-location, individual loop
assessment, service quality level, troubleshooting, and the execution
of contracts.
In addition, the Board imposed non-discrimination as a new
obligation, as it was noticed, that SMP service providers favour their
own retail sales (date of technical realisation, quality features, information)
against entitled service providers.
Relating to the cost model used for the definition of prices, the
new decision concluded that, in comparison with the formerly used
methodology of historical cost-based fully distributed costs (HCA
FDC), the methodology of long-run incremental costs (TD-LRIC) is
more reliable, as this method defines the costs of an efficient service
provider through the application of efficiency corrections.

The Hungarian Communications Market Developments and Regulation between 2004 and 2008
SMP service providers submitted their new reference offers (RUO)
to the Authority based on the new regulations. According to the decision
of the Board of 7 October 2008 on RUOs, all service providers
with significant market power, Invitel, Magyar Telekom and UPC, as
the legal successor of Monortel, were to decrease their monthly tariff
of full loop unbundling by nearly twenty percent, the monthly tariff
of shared access by fifty percent on average. With respect to new
reference offers, the shorter deadlines for execution and fulfilment of
contracts as well as the mitigation of the administrative burdens of
entitled service providers might speed up loop unbundling processes.
In order to facilitate the performance of unbundling obligations
in the way specified and by keeping of deadlines, the contractual
system became more stringent and new elements were introduced.
The wholesale broadband access market
With respect to the fact that competition based on unbundled access
to the local loop did not work out for a long time at all and even
recently has only played a marginal role, competition in the ADSL
market could be ensured by way of bitstream access.
The first round of market analysis
NHH first carried out the analysis of the market “Wholesale Broadband
Access” (market 12) in 2005 in accordance with the respective EU
recommendation and related national regulations, by investigating
bitstream access possibilities of alternative service providers.
The decision of the Board defined five separate geographical markets
in Hungary, which were identical to the service areas of former
concession fixed telephone service providers. In these markets, the
Board identified the incumbent service providers, i.e. Magyar Telekom
(MATÁV), Invitel, Hungarotel, Emitel, and Monortel as having
significant market power.
Just like in the case of fixed telephone markets, the basis of the
market power is the infrastructure owned by service providers that
cannot be economically duplicated, that is, the local loop bottleneck.
In its decision the Board established that a considerable rollout of
new broadband DSL networks accessible to consumers could not
be realised economically on the part of newly entering service providers.
Thus, service providers with significant market power in the
wholesale market were able to squeeze out their competitors from
the related retail market through refusal of access.
The Board imposed access obligation for SMP service providers
in the following two cases: at the local level at DSLAM and at the
countrywide IP level.
Nevertheless, different price regulations were introduced in relation
to wholesale services with two access points.
The prices of local bitstream access services were regulated by
cost-based (FDC) price regulation as there was no real possibility to
duplicate the associated infrastructure element (the local network),
on account of such investment being not realisable economically.
However, in the case of countrywide IP bitstream access services,
a strict cost-based price regulation was not reasonable as new
service providers also have the other infrastructural elements needed
to provide services, consequently such elements can be duplicated.
Moreover, such doubling in many cases has already been completed.
In favour of the intensification of competition and to facilitate entering
the market, the Board stipulated the application of the so-called “retail
minus” pricing method (wholesale prices derived from retail prices).
The main reason for the application of the “retail minus pricing”
method was that in the case of fast developing new markets, where,
through the spread of services and the decrease in average unit costs,
end-user prices were also reduced, there was great danger that,
through keeping the prices of the wholesale services providing the
basis of retail services at a high level, service providers with significant
market power could cause a price-squeeze thus excluding competing
service providers and thereby completely preventing competitors from
entering the retail market. The retail minus regulation is capable of preventing
the realisation of a price-squeeze situation and consequently
ensuring that, if operating in an adequately efficient way, entitled
service providers have the possibility of entering the retail market and
remaining there permanently with competitive offers 29 .
The obligation of transparency primarily entails publication of the
applied tariffs of broadband access services provided by service
providers with significant market power and the detailed conditions
relating to planned changes in tariffs and the use of services. The
requirement of transparency also relates to technical parameters
relating to access, the applied standards, and network topology,
including the geographical location of wholesale access points.
Through the obligation of transparency, the Board’s intention was to
prevent non-price problems and instances of price discrimination.
Through the introduction of the obligation of non-discrimination,
the Board wanted to prevent certain trade practices of service
providers with significant market power, whereby they apply such
discounts in connection with a given wholesale service that can
be mostly utilised only by the largest entitled service providers, in
particular their own retail service providers.
Market effects
Penetration and shares
Already in the years prior to the announcement of broadband
wholesale market decisions (2003-2004), a significant volume of
ADSLs were present in the market. At the end of 2003, 117 thousand
end-points were available for broadband ADSL subscriptions across
the country. At that time, service was provided by the five incumbent
service providers having ADSL infrastructure (themselves or through
their subsidiaries) to more than 62 percent of end-users, with the
remaining 37.4 percent being provided by independent Internet service
providers that used the wholesale bitstream products purchased
from those incumbent operators.

54 55
Figure 4.10: Sales of ADSL services
pcs
600 000
Retail ADSL sales of mandated service providers
Country-wide bitstream
500 000
400 000
300 000
200 000
100 000
0
2003 2004 2005 2006 2007
Source: NHH
During 2004, the sale of ADSL services increased dynamically to
go beyond 240 thousand by the end of the year. The proportion of the
retail customers of ADSL service providers with their own networks
slightly increased over the previous year to exceed 63 percent. At the
same time, the proportion of end-users served by Internet service
providers (ISPs) dropped to 36.8 percent. During 2005, Internet
service providers continued to loose their retail market share to hit
34.3 percent, the lowest level ever, by the end of 2005. Nevertheless,
the entire market continued to undergo a dynamic expansion, with
the total number of ADSL subscriptions increasing to 413 thousand.
Following the trend of the previous two years, the proportion of endusers
served by service providers with own ADSL networks further
increased to 65.7 percent (307 thousand subscribers).
In 2006, the decrease in the ratio of wholesale realisations
stopped: by the end of the year the proportion of sales by ISPs
as compared to total ADSL sales increased to 36.1 percent (162
thousand). The year 2007 saw further improvement of the relative
market positions of Internet service providers, with their share in the
retail market increasing to 37 percent by the end of the period under
review. Then, the number of end-users served by ADSL technology
was 739 thousand, from which 200 thousand end-users were
customers of independent ISPs.
The number of wholesale realisations dynamically increased during
the period under review. Such growth was essentially due to the
expansion of the entire broadband market, rather than exclusively
to the effects imposed by the relevant obligation. Nevertheless, the
proportion of countrywide bitstream sales, namely the market share
of independent ISPs during 2006-2007 was not lower as compared
to the period before imposition of the obligation. Thus the regulation
has partly reached its objective, whereby competitors using wholesale
products were not squeezed out of the retail market. In the
years following the imposition of the obligation, the slow exclusion
of competitors from the retail market has stopped, with their share
again coming closer to 40 percent. It must be noted though, that the
market positions of alternative service providers, as regards their
share, did not effectively improve, so the regulatory objectives aimed
at the intensification of competition were only partly met.
Nevertheless, in certain geographical markets both the development
of the broadband ADSL market and the use of the regulated wholesale
input was attained to different extents. Broadband ADSL access
became available at the various service providers in different times, thus
justifying differences in the development right from the beginning.
In the case of Hungarotel, Monortel and Emitel (the latter has
merged into Magyar Telekom), the development and sale of ADSL
services were launched later than at the two larger market players.
Within the former areas of Hungarotel, ADSL penetration remains
significantly lower than the countrywide average as opposed to the
roughly 25 percent values of other service providers. The reason for
the very high ADSL penetration in the area of Monortel is DSL being
the only fixed residential broadband technology, as cable television
is also the interest of Monortel-owner UPC and broadband service is
not provided through the cable network in this area.
As regards the use of the wholesale input, certain geographical
markets are marked by even more differences. Competition is
most intense in the area of Magyar Telekom, where practically every
third ADSL subscriber is a customer of an independent ISP. In the
case of Invitel, the share of ISPs showed a slow decrease in the last
years, as compared to the earlier nearly ten percent. In the case of
Monortel and Hungarotel, following the imposition of the obligation,
ISPs did appear, yet their market share was significantly lower than
the one-third ratio of Magyar Telekom.
As a result of the regulation, by the end of the period (since 2006), a
retail service provider different from the former incumbent was a real
option in the area of all five services providers having DSL infrastructure.
Before the decision of the Board, alternative Internet service
providers could only be selected in the areas of two service providers
(Magyar Telekom, Invitel). The obligation brought positive changes for
consumers (especially for those living in the areas of these three service
providers) because of the expansion of the supply of retail services.
Before the decision of the Board, two independent ISPs operated
in the service area of Invitel, and 16 in the service area of Magyar
Telekom. After the introduction of the obligation of bitstream provision,
ten ISPs were to choose from the service areas of Hungarotel.
In the case of the service areas of Invitel four, in case of Emitel and
Monortel only one ISP was available for the consumers at the end of
the period under review. By the end of the period, end-users could
select from as many as 25 different service providers in the service
area of Magyar Telekom.

The Hungarian Communications Market Developments and Regulation between 2004 and 2008
Typically, it was the most significant national ISPs that entered
those service areas providing fewer options to select from, in spite of
the fact that higher wholesale prices meant disadvantageous conditions
of return.
Development of wholesale and retail prices
During the period under review, the prices of wholesale products
became regulated. The regulated wholesale price ceiling placed
absolute limits on wholesale pricing, thus facilitating the increase
of penetration, an objective set for broadband markets. Owing to
the obligation, the decrease in retail prices during the period under
review also appeared in the wholesale market, as the regulated
wholesale price was calculated on the basis of the retail prices (retail
minus formula).
In its first decision of 2006 on the definition of prices, the Board
defined the maximum wholesale price at HUF 5,324 for the most
popular 1Mbps package ensuring unlimited data traffic in the case of
Magyar Telekom, while in its sixth decision on the definition of prices
this was only HUF 2,484. In the case of Invitel, the second largest
service provider, the regulated maximum price of the package with
similar parameters, providing 1Mbps download capacity fell from
HUF 5,524 to HUF 3,307 over the same period.
Figure 4.11: ADSL wholesale prices
Internet service providers in most cases generated price competition
with the retail services of the incumbent service providers,
leading to a decrease in retail prices. Incumbent service providers
reduced their retail prices in order to retain their markets. During the
next 6 months, this caused further decrease in wholesale prices due
to the specifities of the retail minus regulation.
In addition to the obligation, price reductions were affected by two
other elements. On the one hand, economies of scale accompanying
the increase of technological development and penetration, together
with the expansion of the bandwidth, made it possible to provide
broadband services at lower price levels, which was partly passed
on by service providers with networks to users. On the other hand,
in addition to the ADSL infrastructure, the dynamically growing cable
networks provided an increasing supply of broadband access to
end-users. Consequently, cable Internet access became an external
barrier of ADSL pricing, which concurrently enforced price reductions
and an increase in the bandwidth provided for consumers.
Figure 4.12: Broadband retail prices
HUF/month
(gross)
14 000
Changes in the maximum monthly wholesale fee of residential
ADSL packages with 1 Mbit/s bandwith
HUF
5000
T-Online
UPC
12 000
10 000
8 000
6 000
4 000
4000
June
2002
UPC
T-Online
2 000
384 kbit/s
3000
2000
August
2008
Speed
1 Mbit/s
1000
Source: NHH
0
Magyar Telekom
Invitel
12 June, 2006
20 March, 2007
31 July, 2006
25 September, 2007
30 October, 2006 29 April, 2008
Source: NHH
*The 2008 value relates to services of 1280 kbit/s bandwidth, while the other values relate
to services of 1024 kbit/s bandwidth (with no data limitation, in the case of a 1-year loyalty
contract)
The prices of the broadband services provided through the two
fixed infrastructures competing with each other show similar tendencies
in the period under review. The prices of the largest cable modem
service provider were historically lower than those of the major
incumbent service provider. By last year this difference disappeared
and in fact, by 2008, the prices of ADSL offers were lower.
Changes in coverage
A frequent counter-argument against the regulation of new services
similar to DSL is that a too strict regulation may cause a counter-

56 57
stimulation regarding the development of infrastructure. Yet, the
quick increase in penetration shows that the regulation carried out
by the Board had no such effect. The growth rate of DSL coverage
did not slow down at all. Moreover, it is presumed that a faster
growth of penetration, which was partly attributable to the sales
of alternative ISPs, provided incumbent service providers with the
advantages of economies of scale.
In 2004, broadband coverage only extended to the environs of
Budapest and typically to towns and more densely populated areas,
making broadband access available for slightly more than half of the
population. During 2005, through the mass-scale spread of broadband
applications and owing to the network developments of service
providers, the proportion of areas with no broadband considerably
decreased and by the end of the year services were not accessible
by only fifteen percent of the population.
By mid-2008, coverage further increased (94 percent), with
the proportion of those areas with no broadband Internet access
becoming marginal. Typically, these areas are situated in rural areas
of small villages with significantly lower effective demand than the
countrywide average. In addition to the spread of fixed access,
mobile broadband access also became available in the majority of
the country by the end of the period under review, which may play
a key role in further increasing the intensity of competition between
independent infrastructures.
Handling of existing and new competition failures in the second
round of market analysis
During the period under review, the bitstream obligation has reached
its goal as to making the entry of alternative service providers and
the access of consumers to alternative offers possible in the entire
territory of the country. Independent ISPs were not squeezed out of
the market. Instead, they could come up with a real alternative to
former incumbent service providers. The competition launched in
the ADSL retail market, however, only produced limited results. In
areas with lower effective demand, alternative service providers did
not rush to convince end-users either, resulting in slower increase
and a differently developing wholesale market in these regions. In
spite of an advantageous regulatory environment, alternative service
providers could not establish strong positions, did not move toward
higher investment levels (use of LLU and local bitstream access), so
with a few exceptions, their business model is continued to be built
essentially on regulated IP level input.
In December 2007, in the second round of market analysis, the
Board made a decision taking also these problems into account. According
to this decision, the scope of general obligations remained
unchanged, however their content and details became significantly
more rigorous.
Figure 4.13: Geographical coverage of broadband access (2007)
No broadband
Only fixed broadband
Only wireless broadband
Fixed and wireless broadband
Source: NHH

The Hungarian Communications Market Developments and Regulation between 2004 and 2008
The publication of the wholesale framework agreement on the
countrywide IP bitstream access service was made part of the
content of the transparency obligation. Accordingly, the mandated
service provider shall publish in advance the service quality parameters
undertaken and the different quality levels, as required by
demand. As a result of such publication, in addition to the terms and
conditions of contract familiar to entitled service providers, further
important parameters are stipulated.
The decision also defines the limits of the quality conditions undertaken
and published by the mandated service providers. Quality
conditions cannot be inferior to those undertaken by the mandated
service provider with reference to its own retail service based on
wholesale service. This is to ensure that the retail service of the mandated
service provider is competing for subscribers with that of the
entitled service providers under the same terms. According to the
decision, the mandated service provider shall in advance stipulate
the penalty for non-performance. So, the consequences of certain
quality problems become calculable for entitled service providers.
As opposed to the previous decision, provisions on migration
have been added to the content of the transparency obligation. The
decision contains two references to migration: first, when the entitled
service provider providing service for the end-user is changed, and
second, when the entitled service provider remains unchanged but it
provides service for the end-user using another wholesale service. In
both cases, the mandated service provider shall publish in advance
the conditions of the procedure applied during the migration and the
detailed justification for the conditions. This provides entitled service
providers with more safety and predictability. Through this obligation,
the Board is to ensure that by making the administrative procedures
faster and simpler, the specified conditions help subscribers
and entitled service providers when switching to another service
provider or using a new wholesale input.
Migration regulations defined in the scope of the transparency
obligation make it possible for the service provider to develop the
access obligations according to the real needs of the entitled service
provider. Under the previous regulations, it was a potential competition
failure that entitled service providers were not able to replace
the existing access service by a more adequate obligation, because
they were afraid that during the migration subscribers would not
tolerate service downtimes due to procedure deadlines. In the same
way, the willingness of the subscriber to switch service providers is
greatly reduced if the change or migration causes long downtimes
due to procedure deadlines not acceptable for the subscriber.
A detailed list of elements has been added to the obligation of
non-discrimination, in the case of which the obligation shall, in any
way, take effect. Such parameters include the issues of service rollout,
technical parameters, quality and capacity parameters, financial
settlement, discounts, and declarations. The listed criteria review
the significant elements of the provision of wholesale services.
Contrary to the previous general obligations, this specific list gives a
further basis for both entitled and mandated service providers. The
unambiguous list facilitates the application and the fulfilment of the
obligation.
As opposed to previous general obligations, now concrete examples
elucidate those technical, quality and financial processes, in
which mandated service providers are required to ensure non-discrimination.
The publication obligation, in particular the part thereof
requiring mandated service providers to publish these parameters
also in relation to its own retail services, ensures that fulfilment of the
obligation can be adjudicated by both the Board and entitled service
providers.
The obligation of non-discrimination has been extended by concrete
examples in order to avoid differences in the flow of information
and in deadlines between the retail businesses of mandated
service providers in the wholesale market and the alternative service
providers.
The Board identified the transfer of market power to associated
markets as a new market failure, as incumbent service providers
have made wholesale DSL sales subject to subscribers having fixed
telephone subscriptions. For the elimination of this practice of competition
restriction, the Board obligated incumbent service providers
to provide so-called “naked” DSL wholesale bitstream access service.
The basis of this obligation is that the mandated service provider
shall not generally limit the use of its wholesale services by entitled
service providers. Consequently, this gave a good opportunity for
the alternative service providers to provide services for subscribers
who do not want to use fixed telephone services. Moreover, the decision
stipulated that the service provider should provide wholesale
bitstream access service using naked DSL in a quality that does
not make it technically impossible for entitled service providers to
provide, with the use of bitstream access service, their own special
services, e.g. Voice over DSL-service.
According to the expectations of the Board, the possibility of
voice over DSL-services, provided through wholesale bitstream access,
gives entitled service providers the opportunity to counterbalance
the transfer of the power of obliged service providers realised
in wholesale markets (market 12) to the market of fixed telephone
services (markets 1 and 2).
Results in an international context
Broadband Internet penetration is dynamically growing in each EU
Member State, with the EU average increasing by three hundred
percent from mid-2004 to the beginning of 2008. Growth in Hungary
has also been rapid, showing a similar rate to the EU average.

58 59
Figure 4.14: Broadband penetration
%
25
20
15
10
5
0
2,2
66,5
EU average
HU
PL
SK
SL
CZ
11,5
5,0
June 2004 October 2005 October 2006 January 2008
Source: EU Implementation Reports 11, 12, and 13
15,7
Hungary shows relatively good performance in comparison to the
member states of the region. It managed to keep its advantage over
Poland and Slovakia, and its lagging behind Slovenia is not increasing
significantly. It was only the Czech Republic with a lower index in
2004 that overtook Hungary, although barely.
In addition to the increase in fixed broadband access, the last
period has seen the use of mobile broadband access significantly
improving in Hungary. By mid-2008, the number of subscribers has
reached 220 thousand.
8,6
20
14,2
The market share of newly entering retail service providers (alternative
DSL and cable television operators independent of incumbent)
slightly exceeded fifty percent with reference to the EU average.
Thanks to the remarkable increase in 2007, the Hungarian figure
exceeded the EU average (55.5 percent) by the beginning of 2008.
In terms of the market share of newly entering service providers,
only the Czech Republic precedes Hungary in the region, owing to the
high ratio of wireless access. The intense competition characteristic
for the entire broadband market is not shown uniformly across the
different markets of technologies in Hungary. The Hungarian figure
is better than EU average primarily owing to alternative technologies,
especially the spread of cable Internet.
In spite of a continuing decrease, the share of incumbent service
providers (71.7 percent in January 2008 30 ) in Hungary’s DSL retail
market exceeds the EU average (56.3 percent). Such difference has
increased considerably since 2004 and then stagnated. In regional
comparison, only Slovenia had a better index at the beginning of
2008, taking into account the share of the DSL retail market. In the
past three years, the indices of many countries of the region have approached
that of Hungary.
Figure 4.16: Infrastructure-based competition in the broadband
market (share of infrastructure-based alternative service providers)*
%
70
60
Figure 4.15: Share of new entrants in the fixed broadband
retail market
%
70
50
40
60
30
50
40
48,0
44,0
50,0
47,0
52,0
49,0
53,2
49,1
55,5
53,7
20
10
CZ
HU
2004 2005 2006
2007
PL
SL
SK
EU27
EU average
30
HU
PL
SK
20
SL
CZ
10
Oct 2004 Oct 2005 Oct 2006 Jan 2007 Jan 2008
Source: EU Implementation Reports 11, 12, and 13
Source: COMMUNICATIONS COMMITTEE; Working Document Broadband Access in the EU
* Share of alternative operators in the entire fixed broadband market providing DSL-service
through their own network or using LLU, or other than DSL access (e.g. cable modem)
It is of great importance whether the broadband retail market is
characterised by service- or infrastructure-based competition. The
importance of infrastructure-based competition comes from the fact
that this is the guarantee for a sustainable competition in the future.
In addition to alternative technologies (e.g. cable modem broadband
access), infrastructure-based competition can be ensured by solutions
based on local loop unbundling. Hungary’s lag in infrastructure-based
competition is insignificant both in regional and EU comparison.

The Hungarian Communications Market Developments and Regulation between 2004 and 2008
The development of infrastructure-based competition in Hungary
is primarily attributable to the broadband developments of cable
television service providers. In this regard, Hungarian competition
significantly differs from tendencies in the EU, where it is the alternative
service providers using unbundling that became the driving force
behind infrastructure-based competition.
Figure 4.17: Share of alternative service providers using cable
modem and LLU in the broadband market
% Cable
Shared access
35
Full LLU
Private lines
30
25
20
15
10
5
One of the reasons for the difference between Hungarian tendencies
and the EU average is that cable television penetration is significantly
higher in Hungary than the EU average. The other reason
is that the unbundling of the local loop in Hungary was effectively
launched only in 2006 as a result of regulatory measures. In many
EU member states, cable penetration has placed constraints on the
spread of cable broadband, whereas Hungary has significant growth
potential, which cable television service providers apparently intend
to exploit.
As regards broadband Internet prices, the OECD collected primary
data 32 , which covered the incumbent service provider, the major
cable television service provider, and at least one alternative service
provider. With respect to the average broadband subscription prices
(nominal USD), Hungary was among the cheapest countries in the
OECD in 2007, as only six countries had lower prices. Even if we disregard
extremely high values, it is safe to say that in many countries
the average price was 30-50 percent higher.
We get an essentially different picture if we compare prices on
the basis of purchasing power parity, which shows what burden
subscription prices present to the consumers in different countries.
According to this comparison, Hungarian prices are among the highest
ones, only four countries, the Czech Republic, Slovakia, Mexico
and Iceland have higher prices than Hungary. The Hungarian figure
exceeds the average subscription prices of the OECD countries
calculated on the basis of purchasing power parity, by almost 20
percent.
0
HU EU27 HU EU27 HU EU27 HU EU27
2004
2005 2006 2007
Source: COMMUNICATIONS COMMITTEE; Working Document Broadband Access in the EU 31
Figure 4.18: Average broadband monthly subscription prices (2007)
USD
100
80
97,3
88,07
60
40
63,13
61,82
61,52
61,30
20
0
Spain
Iceland
Norway
Czech Republic
Ireland
Luxembourg
Slovak Republic
Australia
Austria
Canada
Belgium
New Zealand
United States
Denmark
Mexico
Portugal
Italy
Switzerland
Netherlands
Sweden
France
Finland
Hungary
Greece
Japan
United Kingdom
Germany
Poland
Korea
Turkey
61,14
60,60
59,76
54,84
54,01
53,06
52,88
49,81
48,87
47,25
47,08
46,48
45,22
44,77
43,35
42,34
41,77
41,05
39,67
39,62
39,04
37,81
37,03
Source: OECD Broadband Portal

60 61
The OECD study also contains a comparison relating to the average
bandwidth of the accesses offered by service providers. Although, the
study does not show the bandwidth of products actually used by consumers,
it functions as a good indicator of the level of development of
the broadband infrastructure in the different countries.
Also in terms of the average bandwidth of broadband offers,
Hungary is found in the middle of the pack, thus being ahead of the
countries of the region.
Regulation has also failed to promote alternative ADSL service providers
to move ahead on the investment ladder and build their business
models on infrastructure-based LLU instead of bitstream access.
In Hungary, the number of unbundled local loops is significantly
lower than in many EU member states, even if last year saw a remarkable
development as compared to the previous figure of practically
zero. However, the characteristics of broadband infrastructure
competition in Hungary shall not be disregarded if we are to evaluate
Figure 4.19: Average bandwidth of broadband offers
Download
speed
Mbit/s
50
45
40
35
30
93,7
44,2
43,3
25
20
21,4
15
10
5
0
13,6
13,1
13,0
13,0
12,1
Japan
France
Korea
Sweden
New Zealand**
Italy
Finland
Portugal
Australia
Norway
Luxembourg
United Kingdom
Germany
United States
Canada
Spain
Greece
Hungary
Belgium
Czech Republic
Denmark
Switzerland
Netherlands
Slovak Republic
Austria
Iceland
Poland
Ireland
Mexico
Turkey
11,8
10,7
10,6
9,2
8,9
7,8
6,9
6,6
6,4
6,3
6,0
6,0
5,5
5,3
5,2
4,9
4,9
4,2
3,0
1,7
1,4
Source: OECD Broadband Portal
Summary
In the broadband retail market, the market share of alternative
service providers (including independent cable service providers)
exceeded the EU average. This is a sign of an intense competition in
the Hungarian market. Such positive developments in the retail market
are primarily attributable to the spread of alternative technologies,
including in particular to cable service providers. The significant
increase of infrastructure-based competition in the broadband market
is also due to the dynamic growth of the use of cable broadband.
The regulation of bitstream access has brought about limited
results. Although it prevented the exclusion of independent ADSLbased
Internet service providers from the market and made the
market entry of these service providers possible in all regions, it
could not contribute to further intensification of competition in the
ADSL market.
the situation, i.e. the great importance of cable television networks,
which restricts the room for manoeuvre of service providers that are
to benefit from unbundling.
In the second round of market analysis, the NHH’s Board made
steps toward improving the situation by introducing several new elements
and tightening the obligations in its decisions relating to both
bitstream access and unbundled access to the local loop.
4.3 Regulation of mobile radiotelephony
markets
In connection with mobile services, the EU recommendation defined
three relevant wholesale markets (termination, access and international
roaming). Regulation of the retail market, due to the significant
competition in general, was neither considered in the decision, nor in
the practice of the EU member states.

The Hungarian Communications Market Developments and Regulation between 2004 and 2008
Regulation of mobile call termination
In the market “Voice call termination on individual mobile networks”
(market 16) every authority, including the NHH introduced rigorous
regulations.
The general basic problem relating to call termination is the
consequence of the so-called “calling party pays”-principle (CPPprinciple),
according to which the subscriber originating the call pays
the bill containing all expenses of the call. The CPP-principle takes
effect both in the retail and the wholesale market. The charge of the
call is defined by the subscriber’s service provider, which, upon calling
a mobile telephone, contains, in addition to the expenses relating
to the call, the termination rate payable to the mobile service provider.
As the termination rate is not paid by the party called but the
service provider of the caller, the provider of the termination service
is not pressurised by its own consumers to keep termination rates
low. The wholesale market is similarly affected. In the termination
market, service providers buying call termination services are under
pressure, as they have to terminate the calls of their subscribers.
Analysing the effects of the CPP-principle, the Board established
that the application of this principle makes it possible for mobile
service providers to define their call termination rates for the most
part independently of consumers.
According to the 2005 and 2006 market analysis statements of the
Board, voice call-termination services in the networks of individual
mobile service providers constitute nationwide independent markets.
It means that in respect of termination, every mobile service provider
is in a monopolistic position with reference to its own network, i.e. it
qualifies as a service provider with significant market power.
Before the period under review, certain service providers had
already been subject to regulation. The termination rates of T-Mobile
(Magyar Telekom) were regulated two times (from 1 September 2003
and from 15 July 2004) and the rates of Pannon one time (from 15
July 2004). At the same time, the termination rates of Vodafone had
not been subject to regulation before 2005. As a consequence of the
different regulation of the service providers, which at that time fully
complied with the EU regulatory framework, different termination
rates has been established by 2005: the rates of T-Mobile, the service
provider first undergoing regulation were the lowest, while those
of previously unregulated Vodafone were the highest.
During market analysis, the Board identified two major effects of
market distortion as a consequence of excessive pricing applied in
the wholesale market:
1. High fixed-mobile retail rates.
The unreasonably high call termination rate surfaces as expense
on the part of the fixed service provider originating the call, which
incorporates these expenses in its fixed mobile retail prices. Consequently,
this may cause unreasonably high fixed-to-mobile rates,
with direct effect on the customers of the fixed service provider.
2. Income rearrangement not justified by cost relations between
service providers.
Extreme termination rates may cause unjustified income rearrangement
between fixed and mobile service providers as well as
between call origination and call termination mobile service providers.
Unjustified income-re-arrangements may also come about if
unjustified differences are detected in the call termination rates of
mobile service providers.
Mitigation or elimination of the market distortion effects identified
can be realised by reducing the termination rates to a justifiable
level. Therefore, cost-based price regulation became the primary
obligation of dealing with market failures, to which other obligations
(transparency, non-discrimination, accounting separation, ensuring
access and interconnection) were also added.
For the definition of the cost-based rate level, the Board applied
the internationally accepted and used method of Long Run Incremental
Cost (LRIC). Both decisions obligated service providers to
execute and submit to the NHH for approval a so-called TD-LRIC
cost calculation, to ensure that service providers justify for their
costs themselves. The detailed rules to be applied for the model are
set forth in the decisions.
However, the Authority did not accept the TD-LRIC calculations
submitted by the service providers, as it found that none of them
met the requirements and the rules. Consequently, termination rates
have been established by the NHH itself. In 2005, this was carried
out using the European benchmarks, and upon making the 2006
decision, it was performed by applying the so-called BU-LRIC methodology
developed by the Authority.
The BU-LRIC cost model was prompted by the Authority’s recognition
that the Authority shall have a so-called “gauging line”, a reference
point as regards the specification of the cost-based obligation
to be fulfilled by the service providers with significant market power.
Moreover, NHH continuously confronted with demands arising both
on the part of the service providers and the European Committee,
according to which in its opinion the Authority should declare, in
connection with the cost-based setting of call termination rates and
regarding the current situation of the electronic communications
market, the extent and calculation method of the cost-based call
termination rate as well as the principles and aspects taken into account
for such calculation.
The Board was fully aware of the significant difference between
the average call termination rates previously applied by obliged
service providers, and the results of the BU-LRIC method or any
similar results, therefore, the immediate introduction of the rates so
defined would have caused serious disruption in the operation of
service providers. In addition, the Authority had to remember that the
desired aim, the use of cost-based call termination rates in favour
of ensuring the conditions of effective competition, was not to be

62 63
postponed to the distant future, instead, it was to be reached as
soon as possible.
In consideration of the two aspects mentioned above, the Board
approved a schedule (glide path) based on equal principles relating
to all three mobile service providers, while also considering the initial
differences, which stipulated the way mobile service providers were to
achieve the cost-based call termination rate deemed as a target value.
Service providers opposed the decisions 33 and they applied
the so-called “reservation of rights”, i.e. as the court immediately
refused their proposal for the suspension of the execution of the
decisions, they did execute the rate reductions as specified, but they
declared that if the court repealed the decision of NHH, they would
demand service providers initiating the traffic of mobile termination
to pay for their loss of revenue due to the differences.
According to the decisions of the Board, mobile termination rates
significantly decreased and the rates of service providers came
closer to each other.
Termination rates decreasing and converging to each other as a
result of the regulation caused a drop in revenues for every mobile
service provider in the case of calls originated from fixed networks
and, in the case of mobile-to-mobile calls, they lead to income rearrangement
between service providers.
Although traffic relations do have an influence on the balance of
call termination expenses and revenues relating to mobile-to-mobile
calls, the differences between the incomes of service providers are
primarily attributable to different call termination rates.
One of the key objectives of regulation was the elimination of the
unjustifiable differences in the termination rates of mobile service
providers, which is to be attained by 2009. This means that the unjustified
revenue of service providers applying higher rates by putting
other service providers in a disadvantageous situation should be
terminated, therefore the regulation is to be considered as a means
of rectifying the situation with a view to reaching the required conditions
and not as a means of “punishment”.
Figure 4.20: Changes in regulated termination rates
HUF/min
40
Vodafone
35
Pannon
Magyar Telekom
30
25
20
15
31.12.2003
31.12.2004
25.05.2005
02.02.2007
01.01.2008
01.01.2009
Source: NHH
According to the schedule set forth in the decision, the rates to
be introduced as of 1 January 2009 shall be 50 percent lower than
the termination rates at the end of 2003. According to the schedule,
in 2009, differences between the termination rates of the diverse
service providers will completely disappear.
Market effects
Effects of the decrease in termination rates on mobile service
providers
For mobile service providers, the decrease in mobile termination
rates involves both a decrease in revenues and a decrease in expenses
(because of the decrease in pay-off to other mobile service
providers).
Effects of the decrease in termination rates on fixed-mobile
retail prices
At fixed service providers, the costs of fixed-to-mobile direction calls
comprise of retail expenses, the costs of the fixed call origination (transit
rates, if any), and the mobile call termination rate. Should the latter costelement
decrease, the profit of the fixed service providers grows. This
increases the room for manoeuvre for the service providers in terms of
competition, and may encourage new players to enter the market. As
a result of competition, however, retail prices decrease, which finally
causes lower mobile termination rates to be realised at fixed consumers,
instead of increasing the profit of fixed service providers.
Upon the decrease in mobile termination rates, the decrease in
retail prices of fixed mobile services in the case of universal service
packages is also stipulated by law, in addition to the process based
on market mechanism.
The Office of the National Communications Authority performed
an official control procedure relating to 2005-2006 to investigate
the fulfilment of this obligation. The investigation revealed that in
2005 among the universal service providers T-Com and Invitel did
not pass on the decrease in mobile termination rates to subscribers,
while Hungarotel, Emitel and Monortel did so only partially (either to
residential or to business subscribers exclusively) .
The results of the investigation cannot be generalised for the complete
range of services, as the proportion of the residential subscribers
of universal services was not decisive as compared to all the
subscribers of service providers with significant market power.
Therefore, NHH compared the development of average fixed-tomobile
retail prices with changes in mobile termination rates during
the periods before and after the introduction of regulation (2004-2007).
The traffic per minute price collected by fixed service providers
for fixed-to-mobile direction calls (average price) between 2004

The Hungarian Communications Market Developments and Regulation between 2004 and 2008
Although the actual content of the service shows considerable
diversity, the purpose of the services, either used or provided, is to
enable virtual mobile service providers using the services without
frequency license and network infrastructure (MVNO) to enter the
mobile retail market and provide services for their subscribers.
As, contrary to many European markets, no MVNOs appeared in
the Hungarian market, there were no transactions in connection with
these wholesale services either. The Board stated in its decisions
that the establishment, through administrative means, of the supply
side of the provision of wholesale services was not justified by
the absence of transactions in the wholesale market, in view of the
conditions of the Hungarian mobile market. It would only be justified,
if the intensity of the retail market were in absolute need of improvement.
Nevertheless, the Board came to the conclusion that it could
not be substantiated that the competition in the mobile retail market
was not adequately effective and any market element were to create
an obstacle against effective competition. Accordingly, the Board did
not identify service providers with significant market power in this
relevant market.
Hungarian regulation relating to network access (more precisely,
the shortage of such regulation) complies with the typical approach
of EU regulators. Only four of the member states identified (individual
or common) SMPs. As opposed to the Hungarian market, in many
member states, unregulated and voluntary wholesale transactions
based on mutual economical advantages were carried out between
mobile network operators and virtual service providers, which was
attributable to the fact that the relevant NRAs did not identify any
SMP service providers.
Roaming
As the third market affected by regulation, the market of international
roaming has quite specific characteristics, the Board, similarly to
other European NRAs, suspended the market analysis of this market.
The problem is fundamentally due to the fact that instead of the
customer of the company providing the service, roaming charges
are paid by the customer of a service provider of another country,
travelling abroad. However, the associated competition failure (e.g.
high price) can hardly be solved at the level of national regulation.
The imposition of cost-based payment of domestic roaming charges
is always beneficial only for the foreign subscribers of foreign service
providers. Consequently, the one-sided regulation by the member
states would create a more favourable situation for foreign subscribers
(to the disadvantage of domestic service providers) by excluding
domestic customers in similar situations (abroad) from accessing
comparable (e.g. cost-based) services as a result of this decision.
Therefore, it is no accident that only a few member states carried
out the assessment of this market and no regulation was introduced
even in those countries that did so. Recognising that these problems
point beyond national regulation, the European Commission ultiand
2005 slightly increased in the case of Vodafone, remained
unchanged for Pannon and slightly decreased for T-Mobile. Since
then, such price has relatively evenly decreased with reference to all
mobile service providers.
The average decrease between 2004 and 2005 as well as between
2006 and 2007 (HUF 0.19/min and 2.78/min, respectively) fell behind
the rate of decrease of mobile call termination rates (HUF 2.01/min
and 4.45/min on average, respectively). On the other hand, between
2005 and 2006 (HUF 2.05/min) it exceeded the above value
(HUF 1.62/min). In sum, during three years, the retail average price
decreased by HUF 5.47/min, while mobile call termination rates decreased
by HUF 8.07 /min on average. Fixed service providers have
contributed to these results to a different extent.
The fixed-to-mobile average price of fixed service providers has
significantly dropped, however, such difference remained below
the rate of average decrease in mobile call termination rates. At the
same time, the difference between the prices of service providers
also decreased, as those service providers having begun their activity
with very high prices (Invitel, Hungarotel) realised decreases much
greater than average. Yet, T-Com, where the 2004 figure was by far
the lowest, the average price was reduced to the smallest extent.
Fixed service providers were also prevented by the reservations
of right on the part of mobile service providers from passing on their
wholesale savings resulting from the decrease in mobile call termination
rates to their subscribers “in a more generous way”.
Summary
The regulation of mobile termination rates has essentially brought
about the expected results. As compared to 2003, such rates
decreased by more than fifty percent and the difference between
service providers’ rates will completely disappear by 2009. Thus,
the market failure of unreasonable income rearrangement between
service providers has successfully been remedied.
The decrease in termination rates did appear in fixed-to-mobile retail
call rates, thus also allowing consumers with fixed lines to enjoy
the benefits of regulation.
Owing to the application of the BU-LRIC model developed by the
Authority, the professional appropriateness of regulation significantly
improved. Moreover, apart from increasing the predictability of
regulation, the establishment of the schedule relating to price reduction
(glide path) allowed for the financial effects caused by the price
reduction to mobile service providers to be distributed over time,
thus not causing disruption or sudden shocks in their operation.
Mobile wholesale access
The other relevant market with reference to which the Board made
decisions in 2005 and 2007 is the wholesale market “Access and call
origination on public mobile telephone networks” (market 15).

64 65
mately introduced EU level regulations, i.e. mandatory wholesale and
retail roaming charges relating to voice services, effective for every
mobile service provider of all member states.
In many member states, similarly to the method applied with reference
to termination rates, the regulation of roaming also incorporated
the definition of a glide path schedule relating to price reductions.
The original regulation was to end in 2009, however, the Commission
is expected to prolong it to another 3 years to realise a further significant
reduction of the prices.
Figure 4.21: Regulated prices of roaming services (wholesale,
retail calls initiated and received)
Eurocents/
min
50
40
Original regulation
(‘Roaming I’)
Commission proposal
(‘Roaming II’)
Figure 4.22: Mobile penetration
%
120
100
80
60
40
83,0
81,0
95,0
89,9
June 2004 Oct 2005 Oct 2006 Oct 2007
Source: EU Implementation Reports 11, 12, and 13
103,2
95,1
EU average
HU
111,8
104,3
Figure 4.23: Market shares of mobile service providers
Share of Hungarian mobile service providers based on the number
of subscribers
%
PL
SK
SL
CZ
30
50
46,2
45 44,5 44,0
20
10
Retail – outgoing calls
Wholesale
40
30
33,9 33,2
34,1
35,1
0
Aug. 30,
2007
Retail – incoming calls
Aug. 30,
2008
July 1,
2009
July 1,
2010
July 1,
2011
July 1,
2012
20
19,9
21,8 21,4 20,9
T-Mobile
10
Pannon GSM
Source: Cullen International
Vodafone
Achievements in an international context
In all European countries, mobile penetration is still continuously
growing. By the end of 2007, the EU average exceeded 110 percent.
The Hungarian penetration rate follows, although with a minor lag,
the rate of the most developed EU member states, to exceed as high
as one hundred percent in 2007.
Hungary ranks second after the Czech Republic in the list of
selected countries of the region. The other member states have
somewhat lower indices as compared to Hungary; however, it is
noticeable that countries that had previously greater lags (Slovakia,
Poland) are gradually catching up.
The evaluation of the shares of market players reveals an interesting
picture. Although shares apparently nearly froze as the market
became mature, the relative market positions of market players, as
regards the EU average, remained practically unchanged in the past
three years.
0
04/IV. 05/IV. 06/IV. 07/IV.
EU average mobile operators’ market share
%
50
40,0
39,8 39,4 39,4
40
31,2
32,1 32,0 32,1
30
27,5 28,2 28,6 28,6
20
Leading operator
10
Main competitor
Other competitors
0
04/IV. 05/IV. 06/IV. 07/IV.
Source: EU Implementation Report 13, NHH

The Hungarian Communications Market Developments and Regulation between 2004 and 2008
The situation in Hungary is similar, with T-Mobile realising only
a minimal drop in market share (slightly more than one percentage
point) over the past three years. Vodafone having presented dynamic
growth in the first years of its operation cannot, for the time being,
considerably exceed the twenty percent market share. Moreover,
during the last two years, its share has somewhat decreased. Consequently,
the structure of the Hungarian market and the dynamics
of market shares are very similar to the EU average.
In a European comparison, the prices of Hungarian mobile service
providers were significantly lower in nominal terms in 2007 than the
EU average. Hungarian service providers are cheaper than the EU
average 34 in the case of the small consumer basket (30 calls, 33 SMS
monthly) by more than ten percent, while in the case of the medium
consumer basket (65 calls, 50 SMS) and the large consumer basket
(140 calls, 55 SMS monthly) by twenty percent. This indicates a high
level of competition in the Hungarian market and makes it unlikely
that regulatory problems will arise in the retail market.
4.4 Regulation of leased line markets
Leased line service is the most frequently used service producing
the highest revenue in the domestic data transmission market. In the
market of leased line services, competition started in the early 90’s,
with alternative service providers appearing in the market already at
that time. However, competition intensified in the second half of the
90’s, with lower and lower prices and increasingly larger share of
alternative service providers.
Numerous services can be added to retail leased lines, which the
leased line retail service provider provides for customer on the basis
of the leased line service. These output services for instance include
transmission services using ATM (Asynchronous Transfer Mode)
and Frame Relay, VPN (Virtual Private Network) services or IP-based
services. The conditions of competition in and the regulation of the
leased line market may also influence the sale of these added data
transmission services.
The growth rate of the different segments of the leased line retail
market varies according to the bandwidth of digital services. The
market of services with broader bandwidth showed more dynamic
growth in the past years than that of services with smaller
bandwidth. The retail sales revenue resulting from services with a
bandwidth of more than 2 Mbit/s has seen a sixfold increase from
2004 to 2007, with a growth of fifty percent in the case of services
with a bandwidth of less than 2 Mbit/s in the same period (although
net revenue was still about three times higher than in the higher
bandwidth segment). By 2007, the sales revenue of the whole retail
market reached HUF 20 billion.
In many cases, service providers providing retail services have
only certain own segments of the claimed leased line. Consequently,
for the provision of leased lines offered, such service providers must
also use leased line trunk or termination segments of other service
providers, to be obtained through wholesale transactions.
The leased line trunk segment is a leased line section between
two points of presence of the operator, while the leased line section
expanding from the network end-point situated at the location of
the subscriber to the nearest point of presence of the other service
provider is called the leased line termination segment. The volume of
the service provider sales revenue realised in the wholesale markets
(leased line termination and trunk segment) was close to HUF 17
billion in 2007.
The competition in the different segments of retail leased line services
is different to some extent. In general, in the case of services
with higher bandwidth (above 2 Mbit/s), alternative service providers
provide their retail services through the rollout of individual networks,
so in this market competition is more intense than in the market of
services with lower bandwidth, where alternative service providers
are often forced to use the wholesale services of the incumbent
service provider.
Regulation of leased line markets
In the first and second rounds of market analysis, the Board performed
the analysis of three leased line markets, in accordance with
the relevant Decree of the Ministry of Informatics and Telecommunication
(and in conformity with the recommendation of the European
Union).
In its decisions of 2005 and 2008, the Board identified the trunk
segment market (market 14) as a country-wide market susceptible
to ex-ante regulation and established that no service providers with
significant market power could be identified in this market, therefore,
it did not impose any obligations. Also in 2005 and 2008, the Board
made decisions as regards the country-wide markets susceptible
to ex-ante regulation of retail (market 7) and termination segments
(market 13). Then it established that the competition was ineffective
and Magyar Telekom had significant market power. In order to
restrict its market power, the Board imposed obligations.
Minimum set of leased lines
The analysis of the Board established that in the retail leased line
market it was the SMP service provider that had a network capable
of providing the most extended service. Duplication of this network
in the short term is unrealistic, therefore, there is a risk of the SMP
service provider refusing the provision of services. Taking advantage
of its role as market-leader, the service provider may, in some cases,
provide low quality services for the same prices; consequently, there
is a risk of low-level services and quality reduction.
The main objectives of the Board was to prevent the SMP service
provider from abusing its market power and ensure customers’ access
to an adequate supply and quality of leased line retail services.

66 67
According to the obligation imposed, the service provider with significant
market power (Magyar Telekom) shall offer customers retail
leased line services, at least as per the range of services, interconnection,
interface and quality parameters specified by the decision.
Wholesale termination segment of leased lines
The power of the SMP service provider (Magyar Telekom) is again
attributable to the fact of being the only service provider in the market
with the most extended network that cannot be duplicated economically.
In this way, the SMP service provider is able to prevent
the entry of service providers wishing to compete in the retail market
or squeeze such service providers out of the market by refusing
their access. As the SMP service provider is able to take advantage
of its dominant economic position both in the retail and wholesale
markets, there is danger of excessive or predatory pricing, cross
financing, and price-squeeze.
Through obligations imposed to prevent and terminate the identified
market failures and distorting effects, the Board intended to
ensure that the conditions of the sale (mainly the pricing) of wholesale
termination services facilitate equal opportunities for the entitled
service providers to enter, and provide services in retail markets
based on wholesale leased line termination segments, thus primarily
in the retail leased line market.
As a precondition of this, competitors must have access to leased
line wholesale services and network elements, the wholesale operation
of obliged service providers must be transparent, and service
prices, any changes thereof, and the detailed conditions of using
the services must be publicly available. The obliged service provider
should not make differences between users of wholesale services
according to the counter-value of the services and the conditions of
use. The operation of obliged service providers should be transparent,
facilitating assessment of whether or not they abuse their market
power and apply e.g. cross-financing or predatory pricing.
To achieve these regulatory objectives, the Board imposed the obligations
of transparency, non-dicrimination, accounting separation,
and ensuring access. In addition, the wholesale price of termination
services has been regulated in the case of obliged service providers.
The regulated price is based on the prices of retail leased line
services (according to the so-called retail minus price regulation
mentioned above) with a view to ensuring an adequate margin for
alternative service providers, i.e. preventing pricing from causing a
price-squeeze. Accordingly, the SMP service provider is obliged to
establish the wholesale price of termination services by way of reducing
the retail list price of the given digital leased line services by
a ratio defined in a separate decision of the Board. Price regulation
only relates to digital leased lines with a bandwidth not higher than
2 Mbit/s, as it was not justifiable for services with higher bandwidths
because of the intense competition there.
Effects of the regulation
Effects of the obligations imposed in the retail market
In 2005, NHH inspected the fulfilment of leased line retail obligations
within the framework of a market surveillance procedure. The
inspection established that the general conditions of contracts (GCC)
relating to the retail leased line services of Magyar Telekom basically
comply with those specified by the Board. Nevertheless, as to the
requested level of quality, the service did not comply with the provisions
of the GCC and the legal regulations in effect at the time of the
inspection. NHH drew service providers’ attention to the harmonisation
of the provisions on switch-on and troubleshooting periods of
the GCC with the pertaining legal regulations and to observe switchon
durations undertaken.
The minor deficiencies disclosed in the practice of service providers
with significant market power do not have a significant influence
on market operation. According to the results of the market surveillance
procedure, the service provider amended its GCC to come into
effect in February 2006. In the case of digital services with a bandwidth
of 2 Mbit/s or lower, the values of Magyar Telekom undertaken
in a contract relating to performance improved between 2004 and
2006. The performance period undertaken in the segment above 2
Mbit/s did not change; however, it did so in the case of entitled service
providers and exceeded the value of Magyar Telekom by 2006.
The values undertaken for the troubleshooting period by Magyar
Telekom continuously decreased and remained below the average
of entitled service providers. By the end of the period, the value of
availability undertaken by the entitled service providers improved
and approached the value of Magyar Telekom.
Effects of the obligations imposed in the market of wholesale
termination segments
In 2007, NHH also inspected the performance of obligations relating
to the termination segment. Magyar Telekom complied with the
obligations in connection with non-discrimination, access and interconnection
according to the specifications. Nevertheless, it did not
comply with the obligation of transparency as per the regulations.
The service provider fulfilled its publishing obligations 85 days after
the specified deadline, it published the prices of services and the
conditions of application thereof inadequately, and failed to always
define the contractual penalty to be applied in the case of failure to
meet deadlines.
During the inspection, entitled service providers also expressed
their complaints. The main problem was that the obliged service provider
undertook too long deadlines for the establishment of leased
lines or failed to observe deadlines undertaken, which in many cases
resulted in default of contract.
During the decision-making process in the second round of market
analysis, the Board of NHH took the experiences of the inspec-

The Hungarian Communications Market Developments and Regulation between 2004 and 2008
tions and the regulatory recommendations formulated on basis of
the shortcomings detected into consideration.
Market effects
The main objective of the obligations imposed in the wholesale
market of termination segments is the promotion of the output retail
market competition, with ultimate results also for the consumers.
The effects and success of regulation may be measured by analysing
retail market processes, market shares, and prices.
The revenue market share of the obliged Magyar Telekom in the
retail market of leased lines with a bandwidth lower than 2 Mbit/s
continuously decreased during the period. In the retail market with
a bandwidth above 2 Mbit/s, the service provider had an even lower
share (only below ten percent between 2005 and 2007).
There are many players in the market, with their share, from time
to time, significantly fluctuating. The index indicating the extent of
market concentration (Hirschman-Herfindahl Index featuring the
sum-of-squares of the market share of players) shows a continuous
decrease, i.e. increase in the intensity of competition and decrease
in market concentration.
Figure 4.24: HHI (Hirschman-Herfindahl Index) in the leased line
market with a bandwidth lower than 2 Mbit/s
%
The analysis of retail prices seems to point towards competition in
the retail leased line market. At the same time, the results show different
pictures in the case of services with different bandwidths. The
average prices weighted by the market share of the four largest service
providers of the market (Magyar Telekom, Invitel, Pantel, GTS
Datanet) 35 decreased in real terms with reference to all bandwidth
categories from 2004 to 2006. However, this means constant prices
“only” in nominal terms in the case of services with low bandwidths
(lower than 512 kbit/s). In the case of services with higher bandwidths,
there was a considerable decrease also in nominal terms,
with the average price in 2006 being nearly forty percent lower than
in 2004.
Figure 4.25: Weighted average prices of leased lines
%
110
100
90

68 69
4.5 Regulatory means applied by
the Hungarian Authority in
an international context
The following table summarises important obligations related to
certain markets, typically imposed by the authorities of the member
states. In addition, it lists those means (typically only introduced
in recent years) regulatory authorities may impose to complement
typical means, as being related to stricter than typical regulations.
The table also presents to what extent NHH uses regulatory means
considered typical in the EU in order to facilitate comparison as to
whether the Hungarian regulation is more liberal or stricter than the
EU practice.
Hungarian regulation in the light of European practice
Related market
Frequency of the
application
Regulated service
providers
Fixed telephone Typical means Incumbent service
providers
Additional means
Alternative service
providers
Incumbent service
providers
Regulatory means
Regulation of retail
access price
Regulation of retail traffic
tariffs
Hungarian
regulation
Market
analysis 1
Hungarian
regulation
Market
analysis 2
+ +
– –
Non-discrimination + +
Reference
interconnection offer
(RIO)
Reference unbundling
offer (RUO)
+ +
+ +
Accounting separation + +
Cost-based
interconnection rates
with LRIC method
Cost-based LLU with
LRIC method
+ +
- +
Wholesale line rental – –
Price regulation or
control of interconnection
rates
Preliminary
announcement of retail
price changes
Prohibition of undue
discrimination of
consumers
Prohibition of unjustified
bundling
Prohibition of predatory
pricing
Further control
mechanism on
interconnection rates
– –
– –
– +
– –
– –
– –

The Hungarian Communications Market Developments and Regulation between 2004 and 2008
Related market
Frequency of the
application
Regulated service
providers
Regulatory means
Hungarian
regulation
Market
analysis 1
Hungarian
regulation
Market
analysis 2
Broadband Internet
market
Typical means
Incumbent service
providers
Bitstream access at least
on two network levels
(local, ATM or IP)
+ +
Additional means
Incumbent service
providers
Mobile market Typical means Network service
providers
Additional means
Network service
providers
Bitstream access on
ATM level
Price regulation of bitstream
access
Bitstream access in
the case of alternative
infrastructures
– –
+ +
– –
Naked DSL offer – +
Regulated termination
rates
Establishment of glide
path to reach regulated
MTR
Regulator elaborates its
own cost model
+ +
– +
- +
Accounting separation + +
In the case of fixed telephone services, the Hungarian regulation,
as compared to overall European practise, is less rigorous. From
among the typical regulatory means, NHH does not apply three (the
obligation of wholesale line rental, regulation of retail traffic tariffs,
regulation of wholesale rates of alternative service providers). At
the same time, in the second round of market analysis, regulation
became more rigorous, as indicated by the introduction of the prohibition
relating to the undue discrimination of subscribers and the
switchover from the LLU cost calculation to the LRIC method.
In the case of regulation relating to the broadband market, NHH
applies both typical means: i.e. the specification of the bitstream access
and its price regulation. In addition to fixed telephone services,
the regulation of unbundled access of the local loop also has an
influence on the broadband market. NHH, in this case, also imposed
the typical obligation of cost-based provision of access. Moreover, it
also imposed an additional means, the obligation of ensuring naked
DSL. In sum, it seems that the Hungarian regulation, as compared to
typical European practice, is slightly stricter.
Figure 4.26: Fixed termination rates – local interconnection (2007)
Eurocent/
minute
3.0
2.5
2.0
1.5
1.0
0.5
0.0
UK
CY
DK
IT
EL
EE
DE
FR
IE
EU27
PT
SE
BE
PL
ES
HU
NL
LU
SI
SK
AT
RO
CZ
BG
MT
FI
LT
Source: EU Implementation Report 13

70 71
The implementation of the regulation relating to mobile services in
Hungary may be considered typical. Yet, the regulation of termination
rates in all of Europe follows a homogeneous practice (costbased
and glide path approach), with certain additional elements
(symmetric rates, regulator’s own cost model).
In addition to the selection of the adequate regulatory means, the
application and realisation of the regulation is of key importance for the
operation of the market. In this respect, regulated wholesale prices have
an important role. The obligation of cost-based price regulation is ineffective
if the prices cannot be really pushed down to a cost-based level.
In 2007, the average price of fixed termination rates in the European
Union was 0.57 cent locally, 0.87 cent at a regional level (single transit),
and 1.12 cents in the case of national interconnection. The Hungarian
price is slightly higher in the case of local access (0.71 cent), the
regional price is roughly the same (0.91 cent), and the national interconnection
price is somewhat lower than the average (1.05 cents).
In 2007, the all-inclusive average price of the LLU calculated for
one month in the EU was EUR 11.28 in the case of full unbundled
access and EUR 4.51 in the case of shared access to the local loop.
While prices varied mostly between EUR 8 and 12 for full unbundled
access to the local loop, in the case of shared access, we can find
considerably lower (in Belgium and Netherlands the value is about
EUR 2) and also higher prices, as compared to the average.
The Hungarian prices, in the case of full unbundled access to the
local loop is somewhat below the EU average (EUR 10.5), with the
price of shared access to the local loop being significantly higher
(EUR 6.16). If we take only the monthly price of unbundled access
to the local loop into consideration, in the case of full unbundled access,
the Hungarian price complies with the EU average (EUR 9.54),
but the price of shared access is higher (EUR 6.16 in contrast with
the EU average of EUR 4.5).
Figure 4.27: Fixed termination rates – double transit (2007)
Eurocent/
minute
4
3
2
1
0
SE
UK
CY
DK
NL
IE
EL
HU
BE
EU27
LV
IT
FR
MT
RO
PL
PT
DE
ES
SI
SK
AT
BG
LT
Source: EU Implementation Report 13
Figure 4.28: Aggregated price of full unbundled access
to the local loop for one month (2007)
Euro
20
16
12
8
4
0
EE
IT
NL
EL
LV
DK
PT
SI
CY
RO
HU
FR
SE
MT
EU27
BE
ES
DE
AT
LT
PL
SK
LU
UK
BG
FI
CZ
IE
Source: EU Implementation Report 13

The Hungarian Communications Market Developments and Regulation between 2004 and 2008
Figure 4.29: Aggregated price of shared access to the local loop
for one month (2007)
Euro
12
10
8
6
4
2
0
EE
IT
NL
EL
LV
DK
PT
SI
CY
RO
HU
FR
SE
MT
EU27
BE
ES
DE
AT
LT
PL
SK
LU
UK
BG
FI
CZ
IE
Source: EU Implementation Report 13
In July 2008, the average level of mobile termination rates was 8.7
cents in the EU. The Hungarian rate was practically the same (8.57).
Among the EU member states of the region, the Czech Republic,
Slovakia, and Poland had higher rates (between 10-12 cents), but
Slovenia had a considerably lower one (6.38 cents).
In sum, it can be concluded that the Hungarian regulation fits into the
system of EU regulation. In order to address market failures, it serves
the triple objective laid down in the regulatory strategy (protection of
consumer interests, effective and sustainable competition serving such
interests, and the stabile development of the sector) by applying means
in compliance with the specifities of the Hungarian market.
Figure 4.30: Mobile termination rates in Europe (July 2008)
Euro
0.16
peak
off peak
total
0.12
0.08
0.04
0.00
Austria
Belgium
Denmark
Finland
France
Germany
Greece
Ireland
Italy
Luxembourg
Netherlands
Norway
Portugal
Sweden
Switzerland
Spain
UK
Iceland
Hungary
Bulgaria
Romania
Slovak Rep.
Estonia
Lithuania
Malta
Slovenia
Czech Rep.
Latvia
Poland
Croatia
Cyprus
Average (S)
Average (W)
Source: ERG (08) 41 final MTR Snapshot 081020

72 73
Epilogue
Today, electronic communications offers services essential in all areas
of life as well as increasingly more and better opportunities. In order to
enjoy the benefits of their use by all members of the society, operation
of the electronic communication market shall be well balanced and
advantageous for both customers and market players.
Because of the effects of technological and market factors of the
previous years, the Hungarian communication market underwent great
development, in which the operation and regulatory practice of the
National Communications Authority played an important role. During
our work, we made efforts to ensure the transparency and predictability
of our decision making process, and the obvious advantages
of competition for customers of the communications market. We are
proud of the fact that Hungary has become a country with developed
infrastructure as well as with modern, value-for-money services in the
area of telecommunications.

The Hungarian Communications Market Developments and Regulation between 2004 and 2008
References
1 Directive 2002/21/EC of the European Parliament and of the Council
of 7 March 2002 on a common regulatory framework for electronic
communications network and services [Framework Directive]
2 Directive 2002/20/EC of the European Parliament and of the Council
of 7 March 2002 on the authorisation of electronic communications
networks and services [Authorisation Directive]
13 Markets 3, 4, 5, 6, 7, 10, 14, 15, 17, 18 were removed from among
the recommended markets, while markets 1 and 2 were merged.
14 RAT: Rules relating to the use of frequency bands
15 Decree 6/2004. (IV. 13.) IHM of the Ministry of Informatics and
Telecommunication
3 Directive 2002/19/EC of the European Parliament and of the Council
of 7 March 2002 on access to and interconnection of electronic communications
networks and associated facilities [Access Directive]
4 Directive 2002/22/EC of the European Parliament and of the Council
of 7 March on universal service and users’ rights relating to electronic
communications networks and services [Universal Service Directive]
5 Regulation (EC) No 2887/2000 of the European Parliament and of
the Council of 18 December 2000 on unbundled access to the local
loop
16 Decree 5/2004. (IV. 13.) IHM of the Ministry of Informatics and
Telecommunication
17 Act 74 of 2007 on the rules of Broadcasting and Digital Switchover
18 Wireless Access Platforms for Electronic Communications Services
19 Act 1 of 1996 on radio and television broadcasting
20 Optimised plan for the introduction of DVB-T (Digital Video Broadcasting
– Terrestrial) in the 470-862 MHz band
6 Directive 2002/58/EC of the European Parliament and of the Council
of 12 July 2002 concerning the processing of personal data and the
protection of privacy in the electronic communications sector [Directive
on privacy and electronic communications]
21 Terrestrial free-to-air radio broadcasting
22 Act 140 of 2004 on the general regulation of administrative procedures
and services
7 Commission Recommendation 2003/311/EC on relevant product
and service markets within the electronic communications sector
23 Governmental Decree 345/2004. (XII. 23.) and its replacement
Governmental Decree 229/2008. (IX: 12.).
8 Commission Guidelines on market analysis and the assessment of
significant market power (2002/C 165/03)
9 Accessible on the home page of NHH:
http://www.nhh.hu/dokumentum.phpcid=10753
10 The mission of NHH: NHH, as a modern regulatory authority,
promotes the development of the communication markets, intensifies
market competition and supervises the operation of markets in favour
of ensuring the opportunity for all people in Hungary to obtain the
most up-to-date communication services easily, fast and at reasonable
prices.
11 Recommendation C(2003)497; published as a national legal regulation
in Decree 16/2004 (IV.24.) IHM of the Ministry of Informatics and
Telecommunication
12 2007/879/EC
24 Directive 97/67/EC of the European Parliament and of the Council
of 15 December 1997 on common rules for the development of the
internal market of Community postal services and the improvement of
quality of service, amended by Directives 2002/39/EC and 2008/6/EC
25 Through targeted market research, NHH continuously tracks the
development of consumer patterns in the electronic communications
market. The study on the regulatory overview of the market research
analyses made between 2003 and 2007 and the results of the market
researches are accessible on the home page of NHH.
26 The reasons are essentially similar to the ones described later with
reference to the mobile termination market.
27 The competition is influenced of course by presence of service
providers realising access through other, mainly VoIP technology, in
particular by those players providing voice services through cable television
networks. However, in the first round of market analysis cable
television service providers did not appear with their offers.

74 75
28 The full unbundled access to the local loop makes it possible to
provide both, while the shared access provides only DSL services.
29 It must be noted that the implementation of RM regulation does not
completely solve the problem of price-squeeze, as regulated wholesale
rates will only follow retail prices after a half year.
30 Source: EU Implementation Reports 11, 12, and 13
31 The values relating to cable television service providers only
contain the values of service providers held by non-incumbent service
providers, for this reason T-Kábel does not appear in the Hungarian
index.
32 http://www.oecd.org/sti/ict/broadband
33 NHH won the case in the first instance.
34 Source: EU Implementation Report 13 (The EU average is the
simple average of prices of all surveyed service providers. From every
member state the two largest service providers were examined.)
35 The market share of the four largest service providers represented
82-88 percent of the entire retail market between 2004 and 2006.

The Hungarian Communications Market Developments and Regulation between 2004 and 2008
Imprint:
National Communications Authority
H-1015 Budapest, Ostrom u. 23-25.
Hungary
www.nhh.hu
Manuscript closed on 31 October 2008.
The publication was edited by dr. Emília Nyevrikel, Ferenc Bánhidi,
Sándor Spakievics, Edgár Ludányi, László Tóth, Endre Kovács, Gábor
Péterffy, dr. Zoltán Pápai, and Péter Nagy.
This publication serves the exclusive purpose of providing information.
It is not qualified as an official communication or a performance
of any obligation. NHH acted with the utmost care to ensure the
accuracy and validity of the information contained herein. In many
cases, however, it used data publicly accessible or furnished by others.
Therefore, NHH takes no responsibility for any incorrect data or
faulty conclusions published herein. Furthermore, NHH declines all
responsibility whatsoever for any possible damage or loss incurred by
the user or by any other entity in connection with the use of any part
of the present publication.
Design: © H-artdirectors