The Hungarian Communications Market Developments and ...

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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-