The Hungarian Communications Market Developments and ...

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