The Hungarian Communications Market Developments and ...

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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 In addition, the Board repealed about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.