November 2000

Hungary Update Memo

The following report outlines new developments in the past three months and the state of on-going developments.

1. The regulatory background

The section heads of the Information Technology Commissioner's Office were appointed effective from August 1. Péter Szemerei heads the Information Society Section, and Anna Dessewffy is the head of the Regulatory Section. Gábor Kleinheincz heads the Electronic Government Section, which is responsible for coordinating government communication and information technology development.

The cabinet nominates Erno Simonyi for the post of chair of the National Telecommunications and Information Technology Council (NHIT), and delegates Zoltán Sík, Gyula Sallai, and József Bajó as members of the body. The eleven-member National Telecommunications and Information Technology Council (NHIT) is the body that gives opinions and proposals to the cabinet in the field of tasks relating to information technology and telecommunications. Three members of the NHIT are delegated each by the cabinet and the National Radio and Television Council (ORTT), and a further one member each by the Cooperative Forum on Telecommunications, the Hungarian Academy of Sciences, the Cooperative Forum on Information Technology, and the Alliance of Technical and Natural Science Societies. The chair of the body is appointed by the President, with the countersignature of the Prime Minister, with a mandate of four years.

The preliminary plan of the law on electronic signatures and documents is expected to come before the cabinet in the beginning of September. The plan, which lays the foundation for the everyday use of electronic documents, in line with EU directives, finds it necessary for the future law to be state that digital signatures have to be accepted. The verification of signatures is not a task for the authorities, but a freely performed market activity, therefore it merely has to be reported to the authorities. Nevertheless, signature verification will be a service subject to licensing. The full extent of the validity of electronic documents as evidence will be laid out in the Code of Civil Procedure, which will therefore have to be amended.

According to experts, electronic signatures can first become general practice in the field of company procedure, since there, in the form of the so-called one-window system – between the courts, the Tax and Financial Inspection Office (APEH), the Central Statistical Office (KSH), and the other authorities – it already exists in part. The amendment of the law regulating companies, planned for next year, can bring progress, if it grants the conditions for the movement of electronic data between clients and the Court of Registration. In company matters, legal counsel is mandatory. And some of the legal counsels are in possession of the necessary computer background for filing petitions directly into the Court’s computer system. This would speed up proceedings. At the same time, the full-scale publicity of company matters would be achieved. Currently, those interested can only access the data of the company registry through their computers, for everything else, they have to request the files from the Court in person. If the preliminary plans are accepted, the draft bill can be completed by the end of the year.

2. Business constraints and the obstacles of entry

Starting in 2001 in Hungary cost-based network connection fees will have to be adopted in the realm of license-obligated telecommunications services. The proposition, the details of which the Telecommunications Authority was empowered to work out, and which is the object of the contractual project between the telecommunications authority and Arthur Andersen Kft., is currently being worked out. According to reports, work is planned to be completed by September-October 2000. The realization of the project is currently under way at three levels (expert committee, project development and supervision committee).

During the course of the project, in several phases, the cost model of the development of cost-based connection fees will be completed, but the telecommunications authority will also consider other factors when giving a proposal - probably in October - for the connection fees for 2001 to the Minister of the Prime Minister's Office (MeH), who is responsible for making the decision. Currently a cost study, or proposal, will only be made for the 2001 connection fees of fixed-line services, the project does not include mobile connection fees (according to reports, those will be worked out during the course of another project).

3. Network operators, service providers, and their ownership structures

The current year brought significant changes in the ownership structure of MATÁV. Deutsche Telekom gained full control of MagyarCom - the mixed holding company established in alliance with SBC - which currently has a 59.49% stake in MATÁV. Since the Hungarian telecom market is expected to be completely liberalized in about 18 months, MATÁV will rely more on the expertise, capacity, and resources of Deutsche Telekom.

The principal shareholders of MATÁV as of June 30, 2000 were The Ministry of Transport, Telecommunications, and Water Management (the holder of the Golden Share) and MagyarCom, owned by Deutsche Telekom AG and SBC (59.49%), while 40.51% of the shares are in public circulation.

Matávnet Kft., owned 100% by Matáv, is turning into a joint stock company. The share capital of the new company is 1.56 billion forints. Although this is only 20 million forints more than the nominal capital of its predecessor, the parent company has allocated a further 809 million forints to fill up the negative profit reserves. The likely background for this step is the strengthening of the competition on the Internet market.

The Market Monitoring Department of the Telecommunications Authority published the latest flash report on the domestic GSM digital mobile phone providers, based on data as of July 2000. According to the report, in July 55.33% of the total active Hungarian GSM phone users were subscribers of Westel Mobil, 39.27% of Pannon GSM, and 5.4% of Vodafone. The latter increased its market share by almost one percentage point compared to June. The number of mobile phone subscribers per 100 people as of the end of July was 22.43 (at the end of June the same figure was 21.24). The flash report also states that, taking the previous month as a base, the number of active GSM subscribers grew by almost the same amount, 5.5%, for the fourth straight month.

Írisz Kft., which also played a pioneer role in the realm of web TV, was recently acquired by EuroWeb Kft. The news was not made public by the parties involved, instead the acquisition of the direct controlling interest - based on a legal obligation - was published in the Official Gazette of Companies by EuroWeb Rt, which is the reason why the papers have not yet reported on the business share transfer which occurred on June 5; the acquisition was first reported as fresh news by the daily Napi Gazdaság. The new owner will not merge with the Internet service provider.

4. Types of network or online services offered by operators

As of July 1, MATÁV has launched its caller identification service in its geographic are of service – 36 of the country’s 56 prime zones. Users who subscribe to the service – if they purchase a phone or a supplement suitable for displaying phone numbers – can see the number of the person calling, if the caller did not have his number classified. Initially the service will be available to 70% of MATÁV subscribers, the clients of the three GSM-based mobile phone companies, and the nationwide ISDN subscribers, but the range will be gradually expanded to include 0660-type mobile phones and the rest of the fixed-line subscribers. The monthly subscription fee for displaying the phone numbers of incoming calls is gross 200 forints. The display of our phone numbers on other people’s phones is free. The fee has to be paid if we want to know who is calling us.

Parallel to the launching of this service, MATÁV has centrally authorized the possibility of displaying phone numbers. The phone number of the caller is displayed even if it was requested to be treated in the phone book or at the directory assistance as a hidden ("secret") number by the customer. Subscribers still have the opportunity, if they wish, to prohibit the display of their phone number before each call (by dialing *31*, or 131 on rotary phones). In this case, the prohibition is valid only for the immediate next call. Clients can generally prohibit the display of their phone numbers at any time, by calling MATÁV Telephone Assistance.

CA IB Securities Rt., in collaboration with the Austrian CAIBON.COM Internet Services AG, has started the online trade of stocks listed on the Budapest Stock Exchange. The fees of electronic broker trading are lower than in conventional trade, the commission is 0.8% instead of CA IB’s 1%. CAIBON’s home page also offers market news and analyses. The page is available in several languages; the security of online trade will be the highest currently possible, with three levels of verification.

The trade of investment funds is planned to start by the end of the year, and the international stocks circulated by CA IB Securities Rt. and the Bank Austria Creditanstalt Group as of 2001 on the system. The online trade of stocks is currently hindered by the fact that the law on online customer recognition has not been accepted yet. Thus, with the acceptance of the encryption procedures, substantial progress is expected in 2001.

Last year three banks started online services, with 10,000 users, this year six banks had 41,100 clients. Estimates for next year say that 15 banks will provide electronic banking services to 112,000 customers.

Antenna Hungária (AH) will rename its AM-mikro service, currently receivable only in Budapest and its vicinity, to AntennaMikro, renewing its content and quality of reception; the service will be available in three months' time, and will be viewable only with a decoder. The company plans to reach at least all of its current official subscribers, about 132,000 people, but hopes to also reach the rest of the estimated 270,000 people now watching AM-mikro. AH will send personalized letters to all its subscribers, terminating the current contract, and also informing them of the expected services the new structure will offer.