A boost for telecoms market

The crisis hit the telecommunications sector at a critical time, when it was transitioning from audio-based (voice) to data-based (internet) services. Most affected by the crisis was the lower-end segment of the corporate telecommunications market, and the residential market. Customers disappeared very quickly, regardless of the technology. These negative trends naturally also accelerated the falling off of the mobile market, which followed the gradual decline of the landline telephone market.

However, the market is now showing some signs of revival – and a major boom on the market of data-based services. Market players are convinced that the transition to the era of integrated mobile devices and data transfer will bring a breakthrough. They project that demand for data transfer, storage and access, as well as the number of data connections, will grow exponentially.

“Digitalization in certain sectors such as public administration and healthcare will further intensify growth in this field,” said György Zsembery, the Chief Operating Officer (Corporate and Wholesale Business Unit) of Invitel, which is fourth on the Budapest Business Journal’s list of the biggest telecom service providers. “This trend will spread in the residential market in line with the growth of internet penetration,” Zsembery added.

In the meantime, using IP technology for phone calls in Hungary is growing nowhere near as dynamically as in Western Europe. Among big companies, the technological switch to IP technology happened three to six years ago, while it is spreading more slowly and gradually among SMEs. As for residential customers, around only 10-12% of them use this technology actively. Therefore, this segment is currently stagnating, while there is a decline in the case of landline and mobile audio technologies.

Despite the general slowdown, the telecommunications market is going through constant changes. Tight competition and the economic environment have made survival very difficult for the smallest companies with obsolete infrastructure. “A reasonable proportion of them could disappear from the market,” Krisztián Takács, managing director of Business Telecom commented.

Bigger companies on the other hand, with a wide range of customers, can expand if they have an effective business development strategy. Most used the period of economic setback to carry out investments that will provide the basis for future growth.

Business Telecom, a company ranked eight on the BBJ list, expanded its own microwave network this year and is planning to expand it nationwide, for example. The company has shown solid growth since it was founded in 2006. While it had revenue of HUF 94 million in 2007, it managed to continue growing through the crisis years, and revenue exceeded HUF 1 billion last year. Another player, Telenor, the second biggest mobile service provider in Hungary, started building out a new-generation network in January that will result in better and faster service.

Market players have good reason to make investments since – unlike the mobile voice market – certain segments of telecoms services are showing signs of recovery. “In the segment of non-voice based services such as mobile internet, SMS and MMS, the pace of revenue growth has accelerated recently,” Telenor commented.

Business Telecom also confirmed that the mobile internet market is looking at a prosperous future.  “There has been growing demand for mobile internet services in the last couple of months, and this trend will further continue and accelerate in the next two or three years,” Takács explained. Telenor is of a similar opinion, seeing great potential in mobile internet.

In the meantime, the broadband internet market is stagnating, although there is stable demand for it among both business and residential customers. The same goes for mobile telephone services. With the continued spread of mobile devices, mobile voice services could soon become just another additional service, with data traffic-based packages taking over as the centerpiece of telecom services.