Hungary

Author: | Published: 2 Feb 2000
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By Dr Edina Kastory of Dr Kastory Law Office, Budapest

The general principles for the regulation of telecommunications were laid down in the Telecommunications Act adopted in 1992.

The execution of the Act is provided for by the government and the Minister for Transport, Communications and Water Management by means of issuing decrees. Beside these, the most important legislation in relation to telecommunications comprises the Act of 1993 on frequency management, the government decree of 1994 on the licensing of the individual telecoms services, the decree of 1993 on interconnection, and — with regard to certain telecoms services — the Media Act of 1996.

The telecoms sector is also governed by statutes such as the Act of 1991 on concessions and the Fair Competition Act of 1996.

Responsibility for the direction of the telecommunications sector is borne by the Minister for Transport, Communications and Water Management. The Communication Authority, established in 1993 as an organization under the central budget, is supervised by the Minister and the regional authorities and those of Budapest. Under their supervision the Authority performs its activity of service licensing related to frequency management, the supervision of concession companies and the preparation of sector specific regulations on a lower level. The consulting body for the government in frequency management, telecoms and IT issues is the National Council for Communication and Informatics.

Before 1990 the national post, telephone and telegram services were provided by Magyar Posta, which was divided into three separate units by the Hungarian government in 1990, establishing three service-providers, specialized in postal, telecoms and broadcasting activities respectively, with each of them enjoying a monopolistic position. Matav, the Hungarian telecommunication company was privatized in 1993. Public wireline and mobile telecommunications, national paging and national and regional programme broadcasting and distribution services were subjected to concessions under the 1992 Act on Telecommunications. In 1993, the Minister for Communication divided the country into 54 geographical districts. MagyarCom, a holding owned 50% by Deutsche Telekom and 50% by Ameritech obtained the rights in a tender arrangement for the provision of international and inland long distance telephone services with regard to 29 districts and at the same time obtained a 30.1% share in Matav. Thus, due to the transfer of certain concession rights of the holding to Matav, the concession agreement, effective up to December 22 2001, was established between the Minister and Matav. Pursuant to the agreement, in addition to its concession activities, the company may provide related services that do not fall under any concessions, such as value added and leased line services. However, it is forbidden from cross subsidization. In December 1995 MagyarCom, obtained a further 37.2% share in Matav. In November 1997 the state privatization corporation and MagyarCom sold 26.3% of the share capital of Matav by way of a public offering, with 20.39% subscribed by international and inland institutional investors, and 5.9% subscribed by Hungarian private investors. The shares were listed on the Budapest Stock Exchange, and — for the first time in central and eastern Europe — on the New York Stock Exchange, too.

As to the other 25 districts, Matav obtained concession rights for providing local public wireline services in seven additional districts, while in three other districts it provides services directly through its joint venture affiliates. In the remaining 15 districts the local telephone operators (LTOs), in connection with predominantly international consortia, have obtained the concession rights for providing services with the assets and lines received from Matav. Lacking their own backbone network, the LTOs can only be interconnected through the backbone network of Matav, with a revenue sharing favourable to Matav. The interconnection fee in Hungary today is, for instance, about tenfold of that in England. The decree on interconnection has partially based fees on costs, but the introduction of completely cost-based fees will take place as of 2000.

Hungary was the first country in central and eastern Europe to introduce public mobile telephone services. Westel 450, which is 51% owned by Matav, and 49% owned by Media One (legal successor of US West), started its analogue mobile telephone services in October 1990. Concession rights for national mobile telephone services based on the digital GSM standard were granted in 1993 to Westel 900, established with an ownership structure identical to the previous mobile venture, and to Pannon GSM, with Scandinavian owners bearing interests therein.

Pursuant to the tender for the provision of DCS 1800 services invited in March 1999, the two GSM service providers were granted the rights with the simultaneous amendment of their concession agreements. The third winner of the tender was Vodafone AirTouch, the majority shareholder in Primatel (50% of the shares plus one share), with 20% subscribed by RWE Telliance, 20% subscribed by Antenna Hungaria (which intends to increase its share and to provide network and operation services as well as servicing to the company) and 10% subscribed by Magyar Posta. The company intends to provide commercial services as early as Christmas 1999 instead of the stipulated deadline of February 2000. According to the explicit intentions of the Hungarian government, no further service licence will be granted in the market concerned before 2003.

The domestic GSM companies have signed roaming agreements with a number of foreign GSM service providers on the basis of the GSM MoU of 1987 on the introduction of the Pan-European 900 MHz mobile system. A year ago, Westel Rádiótelefon demonstrated an experimental roaming system in the range of 450 to 1800 MHz, in order to prepare the GSM 400 digital standard together with Ericsson and Nokia, the two leading suppliers of mobile infrastructure in the Hungarian market.

Services not subjected to concessions may be provided by economic associations established to perform telecoms activities, on the basis of a service licence granted by the Communications Authority (HIF). In the summer of 1999 the Communications Authority granted Hungary's first internet-telephone licence to PanTel, a company providing alternative telecommunications services, which can thus realize voice traffic not only using its own lines but also by being connected to the public telephone network. As the determining part of telephone devices is connected to the telephone exchanges of Matav and the LTOs, users may only be connected through this to the Pantel IP network.

Telecommunications services with media content

Provision, broadcasting and distribution of programmes is regulated by the 1996 Act on the Media and the telecommunications and frequency management laws, and, in part, by the concession law. The National Radio and Television Board (ORTT), consisting of members delegated by parties represented in the parliament, is competent in granting the rights for providing programmes in the framework of tenders, in the supervision of programme providers, in making such judgments on the complaints submitted with regard to the programmes as may be contested in front of a court, furthermore in the registration of the providers of programme distribution services. Matav may not obtain directly a right for distributing programmes before December 31 2002, however, it has a stake that does not reach the extent of a controlling share in Magyar RTL, the other national television company acting beside the television company belonging to SBS.

Distribution of television programmes via cable first began 10 years ago in Hungary. Of the 100 or so service providers, only two or three will play a determining role in the market after the turn of the millennium.

The Act on the Media prohibits organizations which have a certain direct or indirect controlling share in the assets ensuring more than 25% of the proprietary or voting rights in a programme distribution company, from obtaining further controlling shares in other programme distributors.

While concession telephone service operators may be indirectly present in the cable television market, the provision of telephone services is forbidden to cable television operators. The chances of preparation for the market liberalization are thus unequal from the outset, in spite of the fact that the Minister has initiated reconciliation on the possible elimination before December 2001 of the exclusivity period guaranteed in the concession agreements of the public telephone operators until the opening up of the market.

A leading role is played by UPC Magyarország, a member of the United Pan-Europe Communications group of companies seated in Amsterdam and present in 13 countries, in the building of modern star point systems suitable for the provision of integrated interactive broad-band telecommunication services, replacing the linear systems used at the beginning. The firm has become the largest distributor of cable programmes in Hungary as a result of a merger involving almost 20 companies and 30 settlements since September 1 1999. The central European team of UPC in Budapest manages the Austrian, Czech, Slovakian and Polish markets. Until September 1999, Matav, the incumbent Hungarian telephone service operator, took part in the cable television business through MatavkabelTV, its exclusively owned subsidiary with about 15,000 subscribers.

However, as a result of the amendment to the Act on Telecommunications, which entered into force at the end of July, telecoms organizations cannot purchase or establish a cable network in parallel with its public telephone network, suitable for distributing programmes in settlements with more than 30,000 inhabitants.

Another restrictive regulation for cable service providers is the limitation of regional coverage, with no similar restrictions imposed by the regulation on other telecoms services being subject to licences. According to the Act on the Media the maximum regional coverage of the cable network must not include more than one-sixth of the country's population. The amendment to the telecommunications law reinforced this rule as it ordered the application of the limit for the aggregate of the geographically separated territories of regional coverage. Regional coverage can obviously only be adequately interpreted in areas where the cable network was actually built in accordance with the service licence; therefore the population has the physical possibility for getting connected to the network.

The period from the adoption of the Act to its entering into force was characterized by acquisitions of small cable television networks and companies whose shares were mostly owned by the local municipalities. As a result the regional coverage of UPC approached the extent prohibited by the Act on the Media, while the number of flats accessible by the network of MatavkabelTV approached 200,000. After the law entered into force, Matav gave up its direct control over MatavkabelTV to further develop its cable network. As the market liberalization opening the possibility of providing telephone services on the cable network is at the bottom of the struggle for obtaining the positions in the cable market, the converting of the monopoly position of Matav may substantially hinder other service providers from making any headway.

The independent law on programme distribution, currently in a draft form and expected to enter into force in the near future, intends to declare that the limitation of regional coverage does not apply to other public telecommunication services performed by the programme distributor, and — in accordance with EU guidelines on competition in the telecoms market — it intends to be committed to remove all limitations related to the supply of transmission capacities provided by cable television networks, with the exception of voice telephony. The communications act entering into force in 2001 will not contain any limitation to services.

Preparation for membership in the Eu

The members of the EU and Hungary concluded in December 1991 an agreement on association which provides for the harmonization of Hungarian legislation with the laws of the EU member states also in the field of telecommunications, in particular for the promulgation of the European standards, the verification systems and the rules and procedures. Hungary, as a member of the Telecommunications Treaty of 1997 by the World Trade Organization has undertaken the obligation to liberate its telecommunication services market; however, it is postponing its implementation. As a function of the implementation schedule for an EU-compliant legal environment for communications, certain transitory provisions may be applicable for Hungary after its admission.

The modernization programmefor communications is determined by the communications policy for the period 1998 to 2005 of the government. It defines as the main task of the comprehensive legislation of communications to be elaborated by 2001 that Hungary may become the central and eastern European information hub by establishing the legal background in compliance with the system of EU requirements. Work aimed at the elaboration of the national strategy for the information society is being carried out by the Prime Minister's Office, wherein it is supported by the National Communications and Informatics Council, following the pattern of the European Information Society Forum, in the form of organizing wide forums.

The communications policy intends to use a comprehensive, easy to review, non-discriminating and market stimulating regulation in building the institutional system of the information society, the convergence of services, the general accessibility of multimedia, thus ensuring the complete, fast, efficient and authentic liberalization. An outstanding objective of legislation is to ensure the safe and secure integration of the networks and systems for domestic and cross-border telecoms, media and information technology services; to implement the sector-specific data and environment protection, consumer protection, the regulations on competition and prices, as well as efficient frequency management.

The procedural order of service licensing in front of independent, impartial national authorities with a unified competence and that for the application of EU-conformed standards, the system of requisites for universal services, the guaranteed frameworks of freedom of information and the autonomy of information must be formed in compliance with the Regulations in the EU. All these call for specific regulations in the telecoms sub-sectors (programme distribution, postal services, etc).

Unified national authority

To comply with the status of an EU national regulatory authority; no radical change is needed in the legal status of the Communications Authority, which attends to tasks of public administration as well as service. However, its procedures related to licensing, the interconnection of networks, setting of tariffs, supervision of competition and frequency management should be simplified, and unbiased and transparent procedures of the authorities should be ensured with a limited supervision by the respective ministry. Upon liberalization the state will enter into a contractual relationship with service providers via the national authority only in the field of the obligation to provide universal services, or in the partial transfer of special rights of the state, while judgments on the legal disputes between the players in the marketplace will be made in the form of a professionally founded public administration resolution that can be contested in front of courts.

Regulating competition

Liberated regulation of the market will be primarily related to the licensing of mergers of companies.

Tariff policy and price regulation

The tariff system based on real costs will be elaborated by methods based on the EU directives and recommended by international organizations, suitable for comparing the different tariffs of the individual countries. Cross-subsidization will be prevented by separate organizations and accounting in the case of enterprises performing network operation or service activities as well as those providing various public services or providing a public service and a telephone service belonging in the competitive markets, while in the transitory period prior to the complete liberalization the costs of public services under concession and those of the non public, value added services will be handled separately.

Limited resources management

Efficient and modern management of resources constituting the exclusive property of the state will continue to be a task of the state. A frequency allocation and usage charge will be asserted for the use of the frequency, in line with the nature of the service and the occupied spectrum. The formation of the numbering plan and the restructuring of the frequency bands will be arranged for by amending the National Allocation Schedule of Frequency Bands.

The usage of territories

It will be necessary to revise the regulation of usage rights and subordinate usage rights in the scope of installing and operating the uniform national telecommunication network and exchange equipment on real estates of own or foreign property. Under the July 1999 amendment to the Telecommunications Act it is possible to establish the right of easement to place the telecoms equipment in the future, while earlier this was only possible for telecommunications equipment serving the public and already placed.

Standards

Elaboration of national standardization is implemented in harmony with EU norms and the recommendations by the European Telecommunications Standards Institute (ETSI), with a view to environment protection aspects. It is an outstanding task to establish the standards of a mandatory character for the technical requirements of the programme signal distribution networks.

The obligation to cooperate, interconnection of networks

After the exclusivity period prevailing now in the public telephone market and in compliance with the ruling principle and the recommendations of the EU Open Network Access (ONP) all the limits to the interconnection of the networks will be lifted, and it will be the task of the operators of the public telecommunications networks to establish the information infrastructure suitable for the integrated transmission and intelligent processing of multimedia data. Legislation will provide the legal background for cooperation with international networks based on bilateral agreements.

Telephone

Liberating the service from under concessions will be implemented in the same way for both newcomers and those already operating in the market. The beginning of 2004 is the deadline for establishing the rules ensuring the portability of numbers among service providers or among the various types of services. Before then, however, the internet should be accessible by telephone from all over the country and the state will reducs the funds it collects by imposing charges on the internet service.

Postal services

In compliance with the EU Directive 97/67 on the Community Postal Services and the Improvement of the Quality of the Services, the new legislation intends to implement the designation of the universal service provider, the separate accounting of services maintained and not maintained, and the formation of a cost-based, transparent tariff system. In order to obtain the qualification as the universal service provider, Magyar Posta will implement the expansion of its equipment park, the development of its processing capacities and delivery system from its own sources, and the contributions from the budget and EU funds, which will be repaid upon the flotation of shares in the public offering following the planned privatization. The outstanding programmes are:

  • the implementation of the integrated postal network, the development of banking and electronic services in the flow of funds; and
  • the development of the telepost house network in the framework of the Front Office Program.
Regulation of the media

The strategy of the introduction and development of digital television and radio broadcasting or programme broadcasting has to be formed by the end of this year. Networks suitable for interactive services of a wide bandwidth should be established by rendering the programme signal service access points suitable for an interactive connection to the network, stimulating thereby the appearance of programme distributors in the traditional public telephone service market.

The future evolution of the market

As services become liberated from under the concessions and the alternative service providers make headway, tariffs will decrease significantly, and the key area of competition among service providers will mainly be constituted by the value added, intelligent network solutions and the service packages tailored to individual needs. As communication via wide bandwidth is undoubtedly limited today to wireline, the wireless players in the market will have as their main competitors the wireline service providers seeking new technologies and searching for new investment opportunities.

Antenna Hungaria, the legal successor of Magyar Posta, specialized in programme broadcasting intends to develop to be a determining alternative service provider and wants to increase the share of its revenues from telecoms from the current 8% to one-third in three years, and it plans to start investment related to the Tetra project. The state plans to ensure the funds required for the developments in the framework of a privatization arrangement with the increase of share capital.

The firm CG Sat Hungary — with French investors — having achieved the second place in the DCS 1800 tender as a member in the consortium with Mannesmann and having the controlling share in five local concession companies, is implementing considerable investments in preparing for the competition starting with the liberalization, and it thinks that acquisitions may be the way to obtain shares in the mobile market.

For the first time in the central and eastern European region, British Telecom, the leading UK telecommunication company, which has been present in the Hungarian market through GTS, its distributor for several years, opened a representative office in Budapest in September. The firm primarily focuses on the market of business communications, international voice and fax forwarding, BT calling cards and various internet based services.

The major telecom companies think in terms of the division of not only the Hungarian but also the whole European market, and they form strategic alliances in tendering for the various projects.

Contact Details:

Dr Kastory Law Office

Buday Laszlo U. 12

1024 Budapest

Hungary

Tel: +36 1 345 4563

Fax: +36 1 345 4564