Mobile technology of the future

Vodafone Hungary CEO György Beck served in the same position at Digital Magyarország (1994-1998), Compaq Computer Magyarország (1998-2002) and Hewlett-Packard Magyarország (2002-2006). BBJ`s Robert Smyth talked with Beck on getting more out of existing frequencies and the battle for mobile broadband.

Q: How would you characterise 2008 concerning mobile market development in Hungary?

A: It was both a challenging and promising year. Some of the positive trends are continuing. The latest data from the Hungarian Central Statistical Office shows that 75% of overall voice calls already originate from a mobile phone, which shows that mobile is clearly taking over the voice market. This game has completed a 15-year journey whereby voice mobile has increased year by year and now dominates the voice market.

Q: So voice is still the key driver behind the mobile story …

A: Absolutely. People like talking much more than reading or doing anything else. So this is something very positive. Even more promising is data and broadband, which had a really good start in 2007 and this year it is definitely proving to be the connecting step to the next phase. We started with voice and it became mobile, and now we can see that sooner or later data will be predominantly mobile as well. My guess is that it won’t take 15 years like it took with voice and that the dominance of mobile broadband will come about more rapidly. Mobile broadband growth is already outgrowing that of the ADSL and cable broadband players.

Q: When we talk about data growth, are we talking about people using traditional devices like laptops or are we talking about handsets?

A: Both. There are two different layers: one is mobile internet (on computers) via modem access and the other one is internet on your mobile phone. Even in the access game, mobile access is increasing much faster than fixed access and in tandem people are using much more data on their mobile phones. The latest announcements and competition concerning data phones like the iPhone (which Vodafone Hungary doesn’t sell yet), Blackberry or those from Nokia, Sony-Ericsson and Samsung (which Vodafone does sell) will help to drive the next round of the utilization. Next year there will be more and more mobile data on our mobiles. Another tendency that we saw on the market in 2008 was that more and more services appeared on the handsets, such as mobile advertisements, movies and other forms of entertainment. People have started to use mobile phones for slightly more than just sending an SMS (ie text messages).

Q: Just slightly more?

A: Yes, this is again a new initiative. It’s really not a revolution, although we started the first mobile advertisement campaign in Hungary this year, plus we’ve introduced services like a music store that gives unlimited access to a huge amount of music for a fixed monthly fee. The multi-media service Vodafone Live is becoming popular, too. People have started to use their phones overall more than before.

Q: Is it fair to say that data growth has been a lot slower than expected?

A: The younger generation will increase the take-up. In Hungary some 5 million inhabitants have never really used the internet or a PC so because of this we couldn’t really have expected a huge demand for Vodafone Live when we launched it several years ago. However, mobile broadband can help fight the digital divide and mobile technology can make it quicker and easier to connect to the internet.
In 2008 there was a big step-up in 3G and HSDPA coverage, although the most modern technology is expensive and we have to find the right business case as sooner or later you have to earn some money. In Hungary the fee for using the frequency, which depends on the utilization, is also very expensive compared to other European countries. This fact slows down the expansion of the new technology. Today 3G and HSDPA work on the 2.1 Mhz frequency but there is another frequency, 900 Mhz, which is much cheaper but today you are only permitted to use this frequency for voice. If we were allowed to use 900 Mhz for data then we would be able to build up cheaper mobile broadband. We tested this idea via a temporary permit from the NHH (National Telecommunications Authority) and we established a mobile data network built on this frequency in the town of Tószeg. It worked perfectly, people liked it. And don’t forget, the cost is some 30-45% of the existing technology. This is something we expect more support from the government for. This technology is the future.

Q: Is it as fast?

A: The speed is the same but you need fewer base stations.

Q: How many mobile internet modem and mobile broadband users do you have and what’s your position compared to the competition?

A: There are definition issues between the market players and the regulators and this is why nobody has announced any numbers. However, we see that our growth in modems is more than 100% year-on-year and the 3G traffic is about seven times bigger than a year ago. Mobile modem growth is much faster than fixed-line ADSL while internet on the handset is experiencing strong growth thanks to moves like “Internet on your mobile” that provides the same high-quality format for internet on your mobile as you have on your desk computer.

Q: Vodafone entered the Hungarian market some six years after T-Mobile Hungary (called Westel at that time) and Pannon. With those two having shared a growing market for so long, market domination was never really a realistic chance for Vodafone in Hungary, at least not in the short term. In the long run are you looking to lead the market or rather to lead in certain segments? If you chose the latter, then which segments do you prefer?

A: I joined Vodafone in January 2007. My original aspiration was to go for second then for the first place. After spending almost two years in this industry, looking around and seeing what is happening, I have to admit that there’s little likelihood of us being able to change our overall market position, although the gap is shrinking. We have a number of different goals. One is that we’d like to earn some money. If you give away three million free SIM cards, then of course you can dominate the market, but we have different priorities. Customer experience is the first priority, followed by profitability, revenue, active market share and then overall market share. Our active market share (people using their SIM cards on a regular basis) is higher than our overall market share, while our ARPU (Average Revenue per User), which is falling like everybody else’s, is still the highest.
We’d like to be the most admired operator, offering the most innovative products at the highest quality, and lead in some of the segments like mobile internet. Last year, I believe, we made a good decision in forming a strategic partnership with Huawei, which employs 50,000 people with 40,000 of them involved in R&D, for both internet access and network development. Now we are the first in Hungary and one of the first firms in Europe to test 14.4 Mbit/s (thus doubling the current mobile maximum speed and quadrupling the standard upper limit), which is much faster than ADSL. We feel a tangible demand for the higher speed and believe it’s the next step. We are also the only company to offer mobile advertising in Hungary.

Q: Is it accurate to describe the Hungarian mobile market as extremely competitive?

A: Definitely, it’s very competitive indeed. The quality of the services is very high compared to other countries. It also helps the mobile players in offering internet access that the level of fixed-line penetration is low compared to Western Europe.

Q: Could there possibly be room for another player and would you be looking to partner a new entrant to help them to become an MVNO (Mobile Virtual Network Operator)?

A: As I mentioned, one of our goals is to earn money but over the last few years the competition has been so strong in this market that prices dropped to very low levels. A fourth operator would want to be able to see a profitable business case and earn money but here the margin levels are very low. Furthermore, even if you’re pursuing a successful business model one day, the European Union can step in and regulate your termination fee or roaming rates the next day. This can have a massive impact on your business overnight. I have doubts as to whether anyone will go for the new licence. Also in light of the credit crunch it will be hard for new players to get investment, especially on a market with 115% penetration.