The Hungarian Communications Market Developments and ...

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.