INTERVIEW: Hungary telecom regulator claims model of genuine competition

By bne IntelliNews April 30, 2007

Robert Smyth in Budapest -

On an abnormally warm spring day, Daniel Pataki, the main man at Hungary's telecommunications watchdog, claims there's also been something of a climate change in the country's telecom sector.

This is more than a case of self congratulation, for his skills have been recognized by his European counterparts, as can be seen in his appointment as chairman of the ERG (European Regulators Group) and IRG (Independent Regulators Group). He will assume these positions in 2008 and will be the first person from a Central and Eastern European country to head these organizations, which between them represent the communications authorities of EU member states, in addition to those of Iceland, Liechtenstein, Norway and Switzerland. Until then, the 35 year old has a chance to warm up, serving as the deputy chairman of both ERG and IRG this year.

His long hair and stubble portrays a rough-and-ready approach that saw him appointed as deputy secretary of state in charge of the Ministry of Information Technology and Communications in 2002. The short-lived ministry may now be defunct, but Pataki was an instrumental figure behind the Electronic Communications Act that entered into force in January 2004. This legislation replaced the remarkably ineffective and watered down Telecom Act that preceded it and had to be replaced within just two years of its entering into force due to its limited impact on the competitive environment.

Experienced enough to command the respect of many of the industry's elders and young enough to be free of any of the shackles of Hungary's monopolistic telecom past, he was then appointed in 2004 for five years as president of National Communications Authority (NHH).

"We want to work like a good football referee with little use of the whistle, without handing out too many red or yellow cards, and free of theatrical scenes," says Pataki about getting market players to accept changes that may be good for competition but not necessarily good for them.

This means transparent operations, public hearings, public debate about the strategy and a consistent fining policy, he asserts.

"Legislation stipulates the maximum amount of the fine and we have the right to weigh up the gravity of the act. We have several points to consider such as whether it's committed for the first time, who suffered from it – whether it's the consumer, the competitor or the authority," says Pataki, adding that the lowest fine is levied in the latter case.

Magic numbers

Three is the magic number for Pataki, one around which he and his colleagues have started to build a model of genuine telecom competition in Hungary.

"We created a vision a few years ago aimed at ensuring availability of the three basic services of voice, broadband and television across the three platforms of fixed-line, cable and mobile – and with as many players offering them as possible," said Pataki, on the strategy of the NHH. "We can see today that the three platforms all provide voice services, and on fixed-line there are several other players in addition to the incumbents."

Competition for voice services between fixed incumbents and mobiles has been going on for years, with the Deutsche Telekom-owned Magyar Telekom group the leader in both the fixed and mobile sectors, with T-Com and T-Mobile respectively.

The mobile market has been fiercely competitive with Telenor-owned Pannon hot on the heels of T-Mobile, while Vodafone entered six years after its competitors and has forced the others to slash prices as it bids for market share.

Magyar Telecom's position in the fixed-line part of the business will face a stronger challenge when number three TDC-backed and American Stock Exchange-listed HTCC buys out the number two Invitel from the financial investors who bought the former Vivendi Telecom Hungary. HTCC earlier snapped up leading alternative provider PanTel from exiting Royal KPN of the Netherlands.

Other companies have also evolved within the fixed-line segment in the last four or five years, such as pan-European alternative operator Tele and Russian-backed alternative GTS, as well as cable TV led by Liberty Global’s UPC Hungary has also come into the picture, he says.

"Last year saw broadband competition between cable TV, fixed-telephony providers and also some successful offers by mobile operators. As of last year, customers wanting voice services can finally choose between many players, and the same goes for broadband in the cities and bigger towns," he says.

Almost 70% of the country now has access to some form of broadband internet, while users can choose between several platforms in roughly half the country. While the number of those actually using broadband is modest, the rate of increase is pretty dramatic.

"We had 6.1% broadband penetration at the end of 2005, while the EU average was 12.8%. This is a problem because we're at around half the EU average," says Pataki. "Despite the EU10 average being only 4.4% at the end of 2005, we still lag far behind the rest of the EU, and something should be done about this."

Figures from December show that broadband penetration has already increased to almost 10%. At the end of the third quarter 2006, Hungary's penetration stood at 8.6% with the EU average at over 15%.

Further steps

On what's to be done, Pataki asserts that the NHH has done most of what it can to secure access and lower prices.

"Our influence on prices is indirect, but we can draw in competition [by bringing Hungarian termination, interconnection, unbundling fees, etc. into line with EU norms]. From the NHH's perspective, broadband is no longer a price issue," he says.

"Also, we have to improve the situation for those who live in smaller towns, where there have been few competitive offers. The introduction of DigiTV, however, has led to better TV and satellite offers, and there are several IPTV [such as from Magyar Telekom’s T-Online and TVNet] offers if you have broadband," he says.

Although he feels that last year's reference unbundling (RUO) offer – where fixed-line players set out conditions and tariffs for shared access to their networks – has worked quite well by, for example, leading to the emergence of Actel (a company offering triple play-based solutions headed by local telecom veteran Pál Horváth and owned by Cyprus’ leading telecom CYTA). Newer, improved offers are likely to follow.

"We have to continue bringing out a new RUO so that other players have competitive terms and will be able to roll out ADSL," he says.

It's not that the NHH's power that has increased over the years but rather its recognition, and this is what's enabling it to get the job done, argues Pataki. "That has given us more efficiency. Our power is guaranteed by the relevant regulations."

In his European role, Pataki also plans to focus on defending consumer interests, and intends to take steps to enhance competitiveness of the European communications sector. He also vows to enter into close cooperation with both the European Commission and Viviane Reding, the commissioner responsible for information society and media affairs, based on a mutual commitment to reduce mobile roaming charges within the EU. This is fast becoming one of the hottest issues in EU regulation.

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