January 2000

Hungary Update Memo

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

The principles of the Unified Communication Act, which is planned to come into effect on 1^st January, 2001 according to the intention of the Ministry of Transport, Communications and Water Management (KHVM) and the Ministry of Justice, became known to the government during this autumn.

1. General telecommunications policy

Although the draft of the Hungarian National Information Strategy (http://www.kancellaria.gov.hu/archivum/1997/nis/tartalom.htm) was ready in 1995, its implementation has remained quite fragmentary up to the present day. NIS aims to provide an EU-conform legal environment that supports the increased spreading of tools and methods of informatics, and the consolidation of the everyday routine of information freedom and information privacy. The tools for this are:

• Strengthening the constitutional advancing of basic information rights
• Legal harmonisation of laws in the field of informatics
• Providing legal force to electronic information, mails, archives, and digital signatures
• Regulation of civil cryptography and protection systems
• Regulation of the use of electronic cards in administration
• Regulation regarding copyrights

The most important task is the legal harmonisation of laws in the field of informatics

The present Hungarian Government has also laid down that the closer connection of the proceeding development in communication, and especially telecommunication within this, the integration of services and technology, informatics and telecommunication possesses a key role in the future of the country.

The 1071/1998. (V. 22.) governmental decree on communication policy states that the creation of a regulatory framework that is in conformity with our international liabilities in all aspects, and which establishes the legal framework of the information society is an issue of strategic significance. A unified communication law should be created until the next millennium, which meets the requirements of a smoothly operating market that serves the information society. The law should comprise the fields of telecommunications (including broadcasting and programme signal allotment), frequency management and postal services, and, with the help of a comprehensive regulation, facilitate the establishment of a technological convergence and, based on this, a service convergence built on wide bandwidth networks.

The LXXII. Act of 1992 on telecommunications is suitable for providing a transparent and normative system of conditions for market representatives, together with a modification until the start of the complete liberalisation, that is the enforcement of the unified communication law, and with the LXII. Act of 1993 on frequency management.

The amendment, which has recently come into effect, does not contain elements different from the foregoing regulatory principles, it just includes some corrections and modifications in order to help market representatives in their preparation for the liberalisation period. The most important regulations commanding the widest following are in connection with the establishment of easement, the ban on the creation of parallel infrastructure, and the authorisation for number management.

The amendment 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 ad interim 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 law comes into force, within the period when the telecommunication law 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.

Among the clarifying regulations there is a restriction of some of the rules on subscriber contracts only referring to organisations providing public-purpose telecommunications services.

Regulations regarding subscriber contracts for demanding telecommunications services can be found under the heading "subscriber contracts". The regulations define the conditions of signing or denouncing a contract, and the ways of the approval of business regulations as general conventional terms.

Subsequent to the modifications, some of the regulations included in this will only refer to telecommunications organisations providing public-purpose telecommunications services.

Such regulation, referring only to telephone service providers, is the obligatory classing of claimants, that is the prescription which states that the telephone service provider, simultaneously with the registrar of the claimant, is obliged to give information about the point of time when the subscriber contract was signed.

In case of neglecting to declare the point of time of the signing of the contract, or going beyond the deadline open for accepting the contract terms, or omitting to establish the access point within the stated time, the liability to incur a penalty, according to sense, also refers to the public-purpose telephone service provider only.

Cases of terminating subscriber contracts effective immediately will only refer to contracts signed for providing public-purpose telephone services only because of the technical contents of the regulations.

Examples for contract terminations due to such technical content reasons are the obstruction of the call receiving ability of the equipment or the maintenance operations on the satellite exchanges.

The amendment, among its closing regulations, repealed some regulations that in the meantime have become unnecessary or unreasonable.

In this way, it first of all repealed the institution of concession, which was obligatory based on a municipal proposal, as well as the rule prescribing municipal contribution in case of a new superstructure-to-be-built in favour of telecommunications, which was unnecessary and disturbing in the sense of the law on the protection and shaping of the built environment, and the conciliation of the unified building regulations provides an appropriate guarantee for the local governments.

The shaping of the national telecommunications policy is the Government’s duty adjusted to the Government’s liabilities. Taking this into account, in accordance with the forming and implementation of branch politics, the modification does not make the approval of the telecommunications policy a must for the Parliament.

The principles of the Unified Communication Act, which is planned to come into effect on 1^st January, 2001 according to the intention of the Ministry of Transport, Communications and Water Management (KHVM) and the Ministry of Justice, became known to the government during this autumn. According to that, the law ensures the protection of services, users and data, and states the responsibilities of market representatives by defining the conditions of the providing and demanding of services. The law harmonises the legal sources of the European Union and other international treaties and agreements in the field of telecommunications services (97/33/EC), postal services (97/67/EC), networks, interconnections, network access (97/33/EC), licensing (97/13/EC), determining market representatives (95/62/EC, 98/10/EC etc.)

A cable bill On the Detailed Regulations of Programme Allocation made by the Ministry of Transport, Communications and Water Management, and the Ministry of Justice this October was also introduced to the government in autumn. 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 validation 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.

Expanding the circle of market representatives by expanding the circle of public-purpose telecommunications services, a latest modification in the article 11.§ (2) of the Act LXVI. Of 1999 has also enforced antimonopoly efforts, which is intended to be amplified in the cable act. At the same time, efforts by lobbies representing other market groups’ interests could also be traced in the proposal.

The proposal divides tasks regarding programme allocation between the communication authority and the National Radio and Television Board.

The Communication Authority (HIF) has launched an inner restructuring project in the middle of October. This step was needed because of new tasks, activities in connection with the unified communication act, improved regulatory activities, and the further strengthening of HIF’s quality and market inspection activity. The most important element of the change is that an individual market influencing branch will be established inside HIF, which deals with price regulation, HIF’s strategy, and regulation in general, etc. A new, unnamed vice president coming from the competition sphere will direct this branch.

2. International connections and agreements

Staff members of HIF carried on negotiations on the international conciliation of frequency management with Romanian, Slovakian and Ukrainian experts in frequency management. As a result of this, the allocation of the 900 MHz GSM band was complemented in the Slovakian-Ukrainian-Hungarian, and the Ukrainian-Romanian-Hungarian border regions. Hungary has a valid agreement with Austria, Croatia, Slovakia and Slovenia in the field of the international co-ordination of frequencies for civil Tetra and DCS 1800 services; the so-called preferred frequency allotment. This has now been expanded to Romanian and Ukrainian border regions.

3. Changes underway in the regulatory framework

3.1 New areas for the liberalisation of telecommunication and development

In terms of the European opening of the markets, the Internet can also be used for voice transmission (Internet telephony) since the end of July, according to defined conditions. In conformity with the EU’s current regulations, the Communication Authority (HIF) cannot see any objection to the providing of IP -based services offering voice transmission. In case this happens through a modem connecting to a telephone line with the help of a computer, it does not require any special regulation, and the service providers have not been obliged to go through an authorisation process up to the present.

In case of services substituting for traditional telephone, the exclusiveness of public-purpose telephone service concessions of Matáv Rt. (Hungarian Telecommunications Company Ltd.), and local telephone companies has to be respected. (It is presumably due to be in this way until the end of 2001, so HIF assumes that there will not be any opportunities to maximally utilise the rapidly improving technical potentialities and to improve quality to the level of public-purpose telephone services until that time.) In case of offering such an Internet-telephone service package, it forces the service provider to clearly and unambiguously call the users’ attention that the quality of this service is poorer than normal telephone, and these quality specifications has to be included in the ’venture conditions’.

PanTel Rt. got the first license for providing Internet-based telephone services, which it launched in autumn. Those contracting with them can make their domestic and international calls 20-40% cheaper than before. Currently, economic associations with a considerable number of international calls use their services. Negotiations between PanTel and local telephone companies are being carried on about Internet telephony and traditional data transmission services scheduled to start at the beginning of next year. PanTel will start selling services that are directly available for traditional telephone and mobile telephone owners only later on.

There are two mobile telephone service providers who started to provide voice transmission over the Internet instead of Matáv’s lines in the case of international calls. Pannon GSM and Westel900 introduced the new telephone service on 15th November and 1st December respectively, which is considerably cheaper than ever before.

Cable television companies have for some months been expending a lot on the up-to-dating of their networks. One reason why it became necessary is because a law prescribes that networks should be modernised, made star point until 2003. On the other hand, the networks in this way will be capable of two-way data transmission besides television. The bigger firms are promising to launch the providing of Internet services through television cable from the first part of next year. Television cable is also suitable for voice transmission, which will gain its real importance from the first day of 2002, the day when Matáv’s monopoly is over.

Representatives from KHVM signed the concession contract of Hungary’s fourth radiotelephone service provider, Primatel (Vodafone) at the beginning of October. Primatel launched its services in November as for both the 900 and the 1800 MHz frequency band. At the same time, the contracts of Pannon GSM Rt. and Westel 900 Rt. were also modified, based on which these two firms will be entitled to provide DCS 1800 services.

3.2 New laws and provisions in the preparatory phase

A professional study embracing the field of the Determinant factors, authentication, auditing in the protection of data handling in the framework of a contract by the Information Office of the Ministry of Transport, Communications and Water Management and the Conciliatory Forum for Informatics has recently been issued. It contains the chapters:

Teleworking, tele-services: Topical investigation of projects, experience and system requirements (individual communication, teleworking, telemedicine, teleorders, telegames, etc.) for EU projects targeting to employ tele-services.

• Factors determining data protection, data privacy, data quality, and authentication methods and auditing
• Liabilities and responsibilities of data transmitters and content providers
  • Issues concerning Internet content responsibilities and content classification, possible ways of fighting against illegal content
  • Issues regarding the balance of state and self-regulation
  • Issues regarding data processing and lawfulness
• Liabilities of personnel responsible for data processing, lawfulness of data processing, fair and honest ways of data collection and supervision, protection of data of natural persons during processing.
• Regulation of online data protection
  • The revelation of those areas where data protection needs a new approach from the point of view of online services.
• Informatics, state, institutions
  • Framing the system of state institutions, supervisory authorities.

According to the intention of the party passing the order, the proposals outlined in the study serve as guidance for legislators and the administration in establishing the framework for the domestic development of the information society.

Telephone charges will be changing from the beginning of next year. As far as proposals of wired telecommunications service providers on the rising of charges are concerned the Ministry of Transport, Communications and Water Management will make a final decision in December. KHVM is going to permit such rises, which brings the Hungarian system of tariff structure closer to the one valid in the member states of the European Union. In accordance with its instructions, monthly subscription rates will rise considerably, while call prices, the tariffs for local, long-distance and international calls will presumably be reduced. The telecommunication charges will impose a huge burden on the Hungarian population: while in the other countries of the region, only 1-2% of the total expenditure of households was spent on telecommunication, Hungarian households in 1996, in 1997, and in the first quarter of 1998 spent 2.5, 3.3, then 4.2 percent respectively of their expenses on telecommunication charges.

The KHVM decree number 29/1999. on the licensing method of building, published at the beginning of October, unambiguously and substantially regulates not only the licensing method for building cable networks, but the one concerning antennas and antenna bracing structures as well. The decree makes the previously quite ambiguous situation clear in several aspects.

Another very important decree is the decree number 31/1999. issued in co-operation by GM-KHVM dealing with electromagnetic compatibility (EMC). This is the first decree that fully regulates EMC conditions in connection with putting domestic equipment on the market.

The decree number 22/1999. published by KHVM deals with the assignment of quality control organisations. According to this, from April 2000, only organisations appointed by an appointing body set up by the communication department will be entitled to carry on quality inspection in Hungary.

One article of the criminal code that is to be revised will make the approbation of illegal watching of coded cable channels, the so called signal-stealing, possible. According to the new copyright law, which is valid since September, the realisation and use of such technical equipment that enable the reception of coded channels without subscription is illegal. The criminal code, having been adjusted to the provision of law, narrows the gap between the domestic regulation and the international norms. It has been estimated that the number of illegal cable television watchers is almost equal to the number of subscribers.

4. Media and telecommunications markets: privatisation, foreign investment, mergers, buy ups

The Hungarian Telecommunications Company Ltd. (MATÁV) 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. (MATÁV currently holds 51-51 percent of these two firms as owner.)

MediaOne sells a part of its mobile portfolio to Deutsche Telekom. Representatives of Deutsche Telekom and MediaOne signed the contract on this at the end of October, which also includes the agreement on the assignment of the two Westel firms’ 49-49 percent portion of property. At the same time, MATÁV and Deutsche Telekom concluded an agreement that MATÁV possesses a call option as far as the block of shares of the two companies are concerned, for which it will pay $885 million. During the 15-month period from 1 July, 2000, MATÁV can purchase the 49-49 percent portion of property of the two firms whenever it chooses.

During the time period when the 49-49 percent block of shares is owned by Deutsche Telekom, MATÁV will have a nearly total operational, leadership and voting control over Westel 900 GSM Mobile Telecommunications Company Ltd. and Westel Radiotelephone Company Ltd. According to the agreement, Deutsche Telekom reserves certain rights of the minority shareholder. The contract between Deutsche Telekom and MediaOne, depending on different official licenses, will presumably become valid at the beginning of 2000.

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 it takes second place behind Matáv in the capital city in this regard.