ESIS extension / Hungary / Alternative Networks / Master Report

Guidelines of the Unified Communication Act prepared by the Ministry of Transport, Communications and Water Management (KHVM), and the Ministry of Justice (IM) in co-operation with civilian experts of the Conciliatory Forum for Informatics (IÉF) was introduced to the Government at the end of 1999. The enactment of this new, unified Act on Communications planned in January 2001 will be an extraordinarily significant step, which will equally adopt the direction of the European law and the related most important international conventions in the field of postal services (97/67/EC), networks, interconnections, network access (97/33/EC), licensing (97/13/EC), defining market representatives (95/62/EC, 98/10/EC etc.) and other conceptual definitions.

A ‘cable’ bill On the Detailed Regulations of Programme Allocation made by the ministries (KHVM and IM) was introduced to the Parliament in January 2000. Its necessity is reasoned by the liabilities contained in the article 121.§ (3) of the Act I. of 1996 (Media or Radio and Television Act), and it is intended to be kept on the books until the enactment of the Unified Communication Act, in which the regulations of programme allocation can be perfectly embedded. Its aim is to amplify, systematise, and stop coherence disturbances, emphasising the transitional feature of the new legislation beyond the multi-level expansion of the regulation of programme allocation. However, it is probably the economic effort of the submitter that lies behind the draft bill, since the determination of the circle of telecommunications services in the concession field has gone under several changes in the past.

Investigation results of the Consumer Protection Authority show that due to the shortcomings of the legal regulation, cable television service providers, who are mostly in a monopolistic position, take an unfair advantage of their superiority. In case of contract modifications initiated on the basis of network up-to-dating, they attempt to enforce a subscription rate much higher the current one. Expanding the circle of market representatives by expanding the circle of public-purpose telecommunications services, a latest modification of the Telecommunications Act in the article 11.§ (2) of the Act LXVI. of 1999., has also enforced antimonopoly efforts, which is intended to be amplified in the above mentioned cable act. At the same time, efforts by lobbies representing other market groups’ interests could also be traced in the proposal - restrictions not involved in the regulations of the European Union, but pushed through in favour of those efforts. The proposal divides tasks regarding programme allocation between the Communication Authority and the National Radio and Television Commission.

According to the Telecommunication Act of 1992 (no. 72), telecommunication services - with four exceptions - can be provided by concession companies established for this purpose, and by state-established corporations.

In other words, anyone can provide public telecommunication services, with the above exceptions.

Concession contract: A concession contract allows a company to pursue telecommunications activities (signal transmission or access) for a fee, based on licenses publicly announced and awarded by the state or telecommunications providers established or owned by the state, with generally defined contract conditions. Concession holders receive exclusive providing rights for 8 years (until January 1. 2002).

Concession requiring services: Any service that can be accessed through the public telephone network for a fee. It includes the ability to initiate local, distant or international calls, to receive and forward calls, to use emergency call services, operator services, telephone registers and public telephone stations.

Concession competitions can be announced by the Ministry of Transport, Telecommunications and Water Management (KHVM). Concession competitions can also be initiated by local governments on their respective territories, if the telecommunication network needs to be expanded or its quality needs to be improved. The minister has 90 days to decide on the competition to be announced, and once the decision is made, he has to announce the conditions within one month.

Setting up a public telephone station can be initiated by anyone. A certain proportion of these stations - a number fixed by the concession contract - should be available for use by disabled or hearing-impaired persons.

Supervisory tasks are carried out by the Communication Authority (HIF) or its local chapters, working under the KHVM.

If the service provider fails to meet its obligations, the HIF can advise the minister to cancel the contract.

Service providers operating under a concession contract have obligations concerning data and privacy protection. If they receive personal data or private communications, they are not allowed to forward it to others. It is also forbidden to purchase, publish or use correspondence that was not meant for public use.

The obligations of the state are carried out by the Cabinet, the ministries, the chief public prosecutor and its authorities.

The modification of the LXXII. Act of 1992 on telecommunications until the start of the complete liberalisation, that is the enforcement of the Unified Communication Act, includes new instructions in order to prevent the creation of natural monopolies of cable television services and to force back the superiority of telecommunications organisations.

It temporarily forbid those telecommunications organisations and such enterprises on which these organisations have considerable direct or indirect influence to own or have the disposal of a wired, cable infrastructure suitable for programme allocation activities parallel with a communication network for public purposes.

This restriction is only reasonable until the time of the complete liberalisation, when the Unified Communication Act comes into force, within the period when the Telecommunication Act is in effect, until which time the volume of investment targeting to establish new infrastructure and providing other new telecommunications services for public purposes will presumably be increased.

During the transitional regulation period until the time of the complete liberalisation, no telecommunications organisation or enterprise on which telecommunications organisations have considerable direct or indirect influence is permitted to create, lease or get the disposal in any ways of a wired, cable infrastructure suitable for programme allocation activities parallel with a communication network for public purposes except for settlements with less than 30.000 inhabitants. .

The regulation does not obstruct the establishment or procurement of an infrastructure; it only restricts it according to location. The restriction refers to settlements with over 30.000 inhabitants, on the one hand, and settlements where a telecommunications organisation provides services through a public-purpose telecommunications network, on the other hand.

Programme allocation can only be carried out, and a service-providing license can only be received if the whole reception area of the service provider does not exceed the limit defined in the act on radio and television broadcasting. Based on the media act, reception area is an area that can be determined by the number of inhabitants.

The number of inhabitants in the area affected by the service cannot exceed the 1/6^th of the population of the country.

In case the number of subscribers (and not the number of inhabitants in the reception area) is more than 5000, starting with the 181^st day of the enforcement of the law (28 July, 1999) programme allocation can only be carried out by such independent corporate economic associations which do not provide telecommunications services that are bound to concession.

This regulation creates a basis for the supervision and registrar of service providers, and at the same time does not force small ventures operating in sparsely populated areas to establish economic associations.

The structure of commercial television in Hungary has considerably been transformed during the previous few months. The broadcasting of two regional channels, Szív Tv and Msat, was terminated by Antenna Hungária Hungarian Broadcasting Company Ltd. because of the accumulated arrears of broadcasting charges. In the meantime, the merger of two similar channels, Tv2 and Tv3 resulted the termination of the Tv3. As the mandate of the former members of the National Radio and Television Commission became end due in March 2000, the new leadership of the body – connected to the FIDESZ, the governing party - can play a determinant role in shaping the future of electronic media.

From 2000, it is likely that television broadcasts transmitted through the AM-micro system of the capital can only be seen for subscribers, since Antenna Hungária wishes to renew this service meeting the requirements of EU prescriptions and copyright regulations. The programme launched in 1987 for foreign hotel guests is actually watched by twice as many people as the number of subscribers. Its implementation is scheduled after the enforcement of the cable law.

1.3 The relationship between network operators, service providers and owners

In Hungary, different telecommunications networks need to be built and operated according to such technical standards that, with the insertion of appropriate units, they can establish connections among themselves and thus create a working system. To ensure cooperation, the minister, having consulted the Telecommunication Engineering Qualification Committee, issues orders to regulate basic technical plans. Telecommunications service providers must cooperate in the course of setting up, operating, modifying and terminating networks in order to ensure a unified public telecommunications network for the country. Their cooperation must include:

Thus, according to the Telecommunications Act, service providers must cooperate; however, reality is somewhat different. Market participants do not take new players very seriously; they often simply purchase startup companies. The situation of cable television providers is an example of a lack of cooperation. Nationwide supply is much bigger than necessary, since service providers do not coordinate their ideas and operations. Obviously, this policy is not profitable; competition instead of cooperation in this case is expensive and unnecessary.

The interests of telephone providers independent from the Hungarian Telecommunications Company (Matáv Rt) are represented by the LTO Alliance, whose members are the following: Monor Telephone Company (MTT); JászTel; Bakonytel; United Telecom Investment (UTI), which includes Dunatel, Egocom and Kisdunacom; Matel/CG Sat, which includes Digitel 2002 and Déltáv; Hungarian Telephone and Cable Corporation (HTCC), comprising Hungarotel, Kelet-Nógrád COM, Rába-Com and Pápatel.

These companies have spent over a billion HUF to improve telecommunications services in areas with poor telephone supply. Their subscribers number well over half a million. Waiting lists have all but disappeared; a number of local providers will launch ISDN and cable television services next year. Even the combined capital resources of these companies are dwarfed by that of Matáv; however, it is worth noting that the owners of concessioned local telephone companies include such American and Western European companies as US-MCG Holding, which owns part of MTT; Citizens Utilities, which owns 15% of HTCC, or Tele Danmark, with a 20% ownership in the same company. JászTel is owned 50-50% by Swiss Telecom and PTT Telecom Netherland; Matel B.V., a Dutch company, has a 92% stake in Digitel 2002 Rt. and a 95% stake in Déltáv Rt; Matel is owned 40% by the French company CG Saté, 25% by General Electric Capital of the US, and 8% by Tal-Giltek, an Israeli company. UTI is a holding comprising of European and American shareholders.

On December 18, 1998 MKM-Tel Kft. and Unisource N.V. signed a shareholders' agreement, governing the operations of a new, united corporation. The company can only start operating after January 1. 2002, the date until which Matáv and its local concession companies have a monopoly on speech transmission. MKM-Tel, which initiated the new company, is a very young organization: it was established on July 3. 1997 with government decree no. 2184/1997 and the approval of the minister. The company was founded by MÁV Rt., (Hungarian Railway Company) with a 75,54% share, KFKI Számítástechnikai Rt. (20,86%) and Mol Rt. (Hungarian Oil Company) with 3,6%, with 27,8 million forints in capital. The goal was to create a service provider by making use of the optical cable network of MÁV - and possibly that of Mol. With its services provided on its own nationwide network, the company aims at the Hungarian corporate market, and aspires to achieve a 20 percent market share. The company plans to do that mainly with managed leased line services, data transmission services (packaged data transmission, frame relay, LAN connections), Internet services and virtual private network services.

According to the data of the Communication Authority, 202 cable television concessions have been issued throughout the country, and 156 licensing processes were in progress. The standard of services provided by them is not included in any provisions of law; nevertheless, star-point user networks have to be established by modernising networks until 2003. It has been calculated that the modernisation of the present network will cost at least HUF50-100 billion, while achieving the favourable 90 percent degree of supply will require approximately HUF300-400 billion.

Not more than a month later had the mother company found a legal wicket getting through which it can practically continue to build its network without restraint than the modification of the telecommunication act stated that the Hungarian Telecommunications Company Ltd., which is in a monopolistic position in wired telephony for the time being, is not permitted to build a cable television network in settlements with more than 30,000 inhabitants. By increasing its capital from HUF50 million to HUF1 billion, Hungária Insurance Company Ltd. obtained a 25-percent business share and a 75-percent voting right in MATÁVcableTV Ltd., it meets the requirements of the new regulation, and at the same time gets the right to remain a determinant player in this rapidly developing part of the market.

In the meantime, the Hungarian concern of the United Pan-Europe Communications NV (UPC), registered in Holland, with American majority ownership and 500,000 subscribers currently, is trying to buy up the already running municipal cable television companies with an aggressive marketing policy. Even the media act setting up a 1/6-market share barrier cannot obstruct UPC.

An association called FiberNet of the investment fund of the American Prudential insurance company wishes to acquire subscribers in 300-400 thousand households in the Hungarian cable television market.

Hungary was the first in Central-Eastern Europe where British Telecom opened an office. Its data transmission network, Concert, has a terminal point in Budapest for many years, which is used by several corporate enterprises as a leased line service.

A French firm purchased 35.5 percent share in the Hungarian Eurotel. A 380-km long optical cable is in the interest of Vivendi Telecom International S.A., which means a second place behind Matáv in the capital city.

Novacom Ltd. got a license for providing countrywide telecommunication services. The firm intends to expand its 1100-km fibreglass network. In the near future, it wishes to rise its subscribed capital from HUF 1 billion to HUF 1,5 billion. The company’s subscribers are electric suppliers belonging to the Hungarian interests of RWE, and the circle of customers in the services or banking sector has recently been expanded by the Prime Ministerial Office.

The Hungarian Telecommunications Company Ltd. (Matáv Rt) concluded an agreement with Deutsche Telekom, according to which Matáv obtained a right of option for purchasing the 49-49 percent portion of property of Westel 900 GSM Mobile Telecommunications Company Ltd. and Westel Radiotelephone Company Ltd.

Dunakábel, the Hungarian industrial plant of Siemens AG Communication Cable’s branch of business, has been taken over by the American Belden.

The American multinational Internet Company, PSINET, has purchased the Elender Information Technology Company Ltd., which is the second biggest domestic Internet Service Provider behind Matáv. Experts have estimated that its purchase price can amount to about HUF 7 billion.

Telecommunications infrastructure in Hungary has been constantly lagging behind demand since the 1950s. It often took years for the construction of networks to start after the telephone lines had been ordered. As a consequence, subscribers had to wait 2-3 years for their telephones to be installed. Not only individual subscribers, but also companies and government offices got fewer lines than needed. Therefore, they often built separate networks to satisfy their urgent needs. Although everyone was aware that setting up many alternative networks cost more than constructing a single high-capacity network, they still managed to get the necessary funds. Magyar Posta (Hungarian Postal Service) had limited funds, but it did not cost them much to set up additional networks - as opposed to Magyar Államvasutak (MÁV - Hungarian State Railway) or the oil industry. In addition, state security authorities set up their own networks, as did the government. These networks were at a certain technical level and did not necessarily develop over time.

The network of Magyar Posta sometimes incorporated the latest technology. In 1968, under a contract with Ericsson, it purchased crossbar-centers and 960/2700 frequency multi-channel equipment. This equipment was also licensed to BHG and Telefongyár. At the same time, a small coaxial cable network was built with SAT cables, while Magyar Kábel Muvek (Hungarian Cable Company) was licensed to produce these cables. These developments, as well as the appearance of digital equipment in the late 1970s and the installment of 15 Ghz microwave systems helped satisfy demands, but the quantity was far from sufficient. There was a much larger demand for telephones than the postal service could meet.

For the above reasons, a development of separate networks followed. The networks of the police, the military, and the ‘K’ network of the government were acceptable, since security concerns meant different requirements. However, these networks often used the buildings, towers and amplifier stations built by Magyar Posta. MÁV developed a separate network along its rail lines. These primarily served as a means of communication between railway stations and, but modern telephone networks between larger railway stations and MÁV headquarters were also developed. Their network operated so efficiently that it was used by the public telephone service when its own network broke down. The telecommunications and safety directors of MÁV installed and operated these systems with remarkable skill.

The network developed by the oil industry along its own pipelines was also significant. This network spawned the whole country; a construction and operation center was established in Siófok. This network could also be utilized as a means of telephone communications among the various company headquarters. A similar network was developed by Magyar Villamos Muvek Tröszt (MVM - Hungarian Electric Company), which included the power plants and headquarters of various electricity providers. An emergency-calling network was built along highways, with emergency phones every two kilometers. A somewhat less significant network was that of the Országos Vízügyi Hivatal (OVH - Water Management Authority), designed primarily to coordinate flood emergency activities. Otherwise it was only used to facilitate communication between dam guards and the management.

Cable television networks were developed in the 80s, but they were only used for one-directional, tree-structure transmission. A central station was connected to the homes in a given district.

Matáv developed fast after being separated from the Magyar Posta. In three years, it built a nationwide high-capacity optical network, and started to install programmed TDMA digital centers. In 1994, Deutsche Telekom and Ameritech purchased a 30% share in Matáv, which was extended to two thirds in 1996. This was followed by the development of a supplier’s market, with new services introduced and with the telephone supply comparing favorably with the GDP (34 users/100 people). Mobile phone providers also launched their services - mobile phone coverage now exceeds 12%.

The network of MÁV is also based upon an optical cable network, with wide bandwidth connection available along major rail lines. At the same time, their safety units and other elements of the network have been updated. MOL was more conservative in implementing development, using mainly copper cables when expanding their system. 1998 saw the establishment of PanTel, as a part of the Dutch company KPN. MÁV and MOL are partial owners, having brought in parts of their networks as apport. This marked the beginning of a second nationwide network, providing large-scale users with Internet-based voice and data services.

MVM did not take part in all of this. Neither did it join a new enterprise that would base its services for Budapest and the neighboring areas on the network of Budapesti Elektromos Muvek (Budapest Electric Company). Together they formed a new communication company, NovaCom, with the help of foreign capital.

There has been a growing demand for cable television networks. Taking information network services, Internet and two-directional services to private homes can be done efficiently through the KTV network. Experiments have been done in this field in Nyíregyháza and around Sopron. The network in Nyíregyháza was met with appreciation from users. An optical cable based cable television network is growing fast in Budapest as well. In addition to smaller companies that already had a license, United Pan-Europe Communications NV (UPC) has been the most significant investor. The Hungarian section of the Dutch-based, mostly American-owned company has half a million subscribers. They are waging a more aggressive marketing campaign than most European companies, and they usually aim to buy local cable networks (owned by local governments) that are already in operation.

Matáv was initially persuaded to develop a cable television network by mayors of various Budapest districts. In 1996, these mayors asked Matáv to consider how a modern cable television network could be developed in their districts. Since there are 160 thousand homes in these six districts, this proved to be a quite large-scale network construction. In three of the six districts (X., XVI., XVII., XVIII., XX., XXIII.) the work is done by Elso Pesti Telefontársaság (First Telephone Corporation of Pest), which also provides telecommunications services in the name of Matáv. The company is building a modern, so called star-node network, with a very large bandwidth, which will mean that the number of channels can be expanded significantly, while the high technical quality will result in better picture quality for viewers.

Roughly one half of all homes are connected to cable television networks. Updating the existing network would cost at least 50-100 billion forints, while achieving a 90% coverage would require an investment of 300-400 billion forints. It seems that the competition is wide open for all potential market players, with the possibility that new players will also emerge (such as Argus Risk Fund and Hungarian-American Enterpreneurship Fund).All these major constructions seem to indicate that this network will provide more than mere entertainment.

It is clear that Antenna Hungaria will also want to play a part in the telecommunications market. An indication of this is that it has a 20% share in PrimaTel, the third mobile service provider. Antenna Hungaria is still state-owned, but there are plans to offer a minority ownership stake to any company with large sums of capital that could help Antenna Hungaria to provide telecommunications services.

Besides telephone and cable television services, Matáv is also present as an Internet provider, having joined the market of Internet services in 1996. As a new provider, it forced the just-emerging market to cut prices radically. This made the Internet, up until then only available for wealthy companies, affordable for households.

MATÁVnet is currently working with a 14 Mbit international connection, which can be expanded according to demand. It is connected directly to American and European end-points, through telecommunications and Internet provider companies such as TeleGlobe, Cable&Wireless, MCI and Deutsche Telecom.

Other significant Internet service providers include DataNet, Elender and EuroWeb.

As of today, the majority of telecommunications services are offered by Matáv. Its transmission and switching units are up-to-date and cover the entire country. They also offer services in areas covered by smaller concession companies. Besides Matáv, the following players are expected to take a major part in the telecom competition:

The country’s third mobile telephone company, Prímatel, the consortium of Vodafone AirTouch and RWE Telliance, offer its services under the trade description Vodafone from December, 1999. It announced that having signed the roaming agreements with the other two service providers, it would offer a complete nation-wide lefedettség to its customers. Within a year, it will rely on its own 1800 network, which makes roaming unnecessary.

In addition to all these, there is a paging service with minimal success, along with three successful mobile providers: Westel 900, Westel 0660 and Pannon. A fourth one, PrimaTel, launched at the end of 1999, offering services primarily in the 1800 MHz range, although the other two companies will also be allowed to operate in the 1800 MHz range, just as PrimaTel will be able to work in the 900 MHz range.

The Internet service providers, in co-operation with PC manufacturers (Elender with HP, GTS-DataNet with Compaq, and MATÁVnet with Albacomp), make efforts in order to make their potential customers’ connection to the Internet easier by offering various access packages. They offer fully equipped computers with programmes or set top boxes supplementing television with a two-year subscription period for a fragment of the commercial price. Users with long-term contracts will still remain in their circle of customers when cable television networks provide offline Internet connectivity through television channels. The main reason for the slow spreading of the domestic Internet use is the high charges that come together with telephone connections through modems. But parallel with the expansion of alternative devices, the market will immediately be restructured.

Please note that this report has been prepared under the sole responsibility of the ESIS II contractors.
It does not necessarily reflect the views of the Commission, nor does the Commission accept responsibility for the accuracy or completeness of information contained herein.
The ESIS Team of contractors welcomes any additional information or corrections.