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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.
Page 1 and 2:
1 1 The Hungarian Communications Ma
Page 3 and 4: CONTENTS Contents 1. NHH’s role i
Page 5 and 6: 02 03 years. This year one of NHH
Page 7 and 8: 04 05 NHH’s role in the regulatio
Page 9 and 10: 06 07 affected parties have failed
Page 11 and 12: 08 09 Figure 1.1: NHH’s regulator
Page 13 and 14: 10 11 Key areas of regulation for t
Page 15 and 16: 12 13 2.1 Changes in institutional
Page 17 and 18: 14 15 Market analysis decisions of
Page 19 and 20: 16 17 Decision Round 1 Year Round 2
Page 21 and 22: 18 19 purposes of WMAN, which was c
Page 23 and 24: 20 21 sional knowledge but also for
Page 25 and 26: 22 23 There is the possibility of p
Page 27 and 28: 24 25 lution is well demonstrated b
Page 29 and 30: 26 27 surveillance activity. Servic
Page 31 and 32: 28 29 a member of the Council of Ad
Page 33 and 34: 30 31 Electronic communications is
Page 35 and 36: 32 33 Figure 3.5: Monthly average t
Page 37 and 38: 34 35 Fixed location services In Hu
Page 39 and 40: 36 37 Figure 3.11: Changes in the n
Page 41 and 42: 38 39 Figure 3.15: Changes in the n
Page 43 and 44: 40 41 Figure 3.18: Cable television
Page 45 and 46: 42 43 Results and influence of mark
Page 47 and 48: 44 45 hindered on the retail side,
Page 49 and 50: 46 47 Figure 4.2: Voice traffic sha
Page 51 and 52: 48 49 gated price index) above the
Page 53: 50 51 Figure 4.8: Monthly spending
Page 57 and 58: 54 55 Figure 4.10: Sales of ADSL se
Page 59 and 60: 56 57 stimulation regarding the dev
Page 61 and 62: 58 59 Figure 4.14: Broadband penetr
Page 63 and 64: 60 61 The OECD study also contains
Page 65 and 66: 62 63 postponed to the distant futu
Page 67 and 68: 64 65 mately introduced EU level re
Page 69 and 70: 66 67 According to the obligation i
Page 71 and 72: 68 69 4.5 Regulatory means applied
Page 73 and 74: 70 71 The implementation of the reg
Page 75 and 76: 72 73 Epilogue Today, electronic co
Page 77 and 78: 74 75 28 The full unbundled access
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