Hungary’s Orban makes digital U-turn

Hungary’s Orban makes digital U-turn
By Olesia Oleshko November 20, 2015

A year after an unsuccessful attempt to tax the internet that caused huge street protests in October 2014, the Hungarian government has made a U-turn and is considering carpeting the country with cheap, high-speed internet. This initiative could boost both the country’s e-commerce sector and Prime Minister Viktor Orban’s political popularity.

Lowering VAT on internet services from the current 27% to 18%; establishing cheaper rates for basic packages; introducing free Wi-Fi in community centres all over the country, including in the remotest villages; and providing educational institutions with free internet – these are the goals of a new internet strategy that the Hungarian government is currently considering.

The idea of covering Hungary with internet access has been growing since massive public protests erupted in October 2014 over a government announcement that it wanted to raise revenue by introducing additional taxes on internet services. Stung by the protests, Orban stepped back and ordered a look into what actions would calm the situation. One of them was InternetKon – a nationwide consultation asking its citizens what kind of digital future they would like to see.

The survey’s results were fairly predictable: the overwhelming majority of 32,000 respondents and key industry groups expressed a desire to see accessible and affordable internet services that would help develop education and business in the country. “InternetKon will therefore propose [to the government] solutions to all major problems affecting the digital ecosystem, part of which have already been addressed since the beginning of the consultation, such as the exemption of utility taxes of the newly-built sections necessary to enable superfast internet,” an InternetKon representative tells bne IntelliNews.

The expectations of Hungarians have been submitted to the government for final review, and now the ball is in its court. By the end of November, the government has to decide on the financial and political viability of a nationwide internet rollout programme.

The e-business case

Before anything happens, there is still a lot of paperwork to be done. The priorities include steps directed at online protection of children, prevention of internet bullying, black-listing of companies involved in online fraud, among others. But the planned strategy itself looks promising for industry. Hungary with its mushrooming of startups and e-commerce enterprises could reap significant benefits from the spread of the internet over the country, say industry and analysts.

According to the Hungarian E-commerce Association, turnover of the country’s business-to-consumer e-commerce sector grew by 24% to reach €930mn in 2014, which secured Hungary the status of the fastest-growing e-commerce market in Central Europe (though it comes from a lower base). The Association expects this trend to continue on the back of more widespread and faster internet.  

Another step envisaged by the initiative is reducing the telecommunications tax or the utilities tax on broadband networks, which according to InternetKon curator Fidesz MEP Tamas Deutsch could be implemented as soon as in early 2016.

UPC, one of Hungary’s largest internet providers, tells bne IntelliNews that, “by reducing the telco sector special tax and offering communal tax exemption for those investing, the government is offering a good incentive for service providers to invest into rural and other infrastructurally less-developed areas.”

“In the long run, this means a more extensive and more robust network with a continuously increasing number of subscribers joining the digital society – and hopefully, at the end of the day, also increasing company revenue,” UPC says.

While the benefits for businesses and internet-savvy youth are obvious, the potential for the digital inclusion of socially vulnerable people is more doubtful. Theoretically, it could serve as a good incentive for those to join the digital age, but that segment of the population, as well as stagnating rural areas, need more viable employment or economic revitalization programmes, which can’t be substituted with affordable broadband.

Tibor Dessewffy, internet sociology professor and head of the Social Psychology Department at Budapest’s Eötvös Loránd University, says that the internet spread initiative is quite a populist gesture, something the government can afford at quite a cheap price despite the logistical challenges. “Orban badly needs to shed the image of a guy who eats pork sausages and drinks palinka, so he is trying on a suit of a modern internet-savvy person,” Dessewffy tells bne IntelliNews. “Free Wi-Fi in every village is a peanut compared to what needs to be done.”

Yet it’s a positive peanut for sure and better to have good internet access than none at all. But it’s not the key to solving the worsening economic problems of rural areas or helping vulnerable social groups, Dessewffy concludes.