Another player eyes the mobile market

Competition

The following story originally appeared in the October 17-30 print edition of the Budapest Business Journal. 

When the National Media and Communication Bureau announced the successful bids in its September 29 tender for new mobile frequencies, there was one surprise: Digi, which has up until now only been a cable provider, was one of the winners, alongside the three big incumbent providers, Magyar Telekom, Telenor, and Vodafone. For a price of HUF 10 billion, Digi acquired a significant number of frequencies in the 1800 MHz range.

While the companies themselves are not saying very much, experts in the market who were interviewed say that the most likely scenario would be for Digi to partner with Telenor, creating a mobile voice and internet service that could challenge the dominance of current market leader, Magyar Telekom's T-Mobile.

At the inquiry of newswire HWSW.hu, Zoltán Teszári, head of Digi’s owner RCS/RDS, announced in a low-key communiqué that his company was seriously considering entering the mobile market. According to the October 2 statement, the company is planning to provide voice and data services, that is, mobile phone as well as Internet services using its frequency. This move would be technically impossible without a partner, experts familiar with the mobile market told the Budapest Business Journal.

Teszári said it has been defined as the long-term goal of Digi to develop a national network; an additional aim is the establishment of a 40 mb/sec mobile Internet network based on the freshly gained frequency. Teszári did not disclose the exact date of the launch of the service. “After acquiring the necessary permissions from the authorities, we will immediately start constructing the network,” he said.

“As far as Digi’s expertise is concerned, the thing is not at all implausible,” Péter Kerekes, co-owner of Kerekes and Co. Law Office explained to the BBJ. “Digi is a multinational firm in this region, already operating a mobile phone network in Romania. Using the roaming method, that network could easily be extended to include Hungary.” According to the telecommunication expert, the relatively narrow range of the recently won frequency causes a bottleneck; the second most problematic aspect is capital leverage. “The range is too narrow to provide a basis for voice and Internet data communication simultaneously. Digi has been faced with the same problem in Romania, where the company was only able to use frequencies in the 2.1 GHz UMTS range until 2013. That is why it signed a roaming contract with one of the local incumbent operators, which worked perfectly until 2014; that year, Digi acquired a frequency of its own in the 900 GHz range,” Péter Kerekes explained. He implied that Digi might repeat its strategy used in Romania: that is, it might possibly sign a roaming contract with one of the big mobile providers.

 

LIKELY PARTNERS

So far, all Hungarian mobile providers have been reluctant to say anything concrete about a potential partnership with Digi. “In the past several years, the market shares of the three incumbents have not changed much: T-Mobile has had 45% of the market, Telenor 33%, and Vodafone 22%. Digi’s entrance may significantly transform the market conditions, and the biggest loser of that process might be the market leader, T-Mobile,” a source unwilling to be identified told the BBJ.

At the frequency competition this September, the most new frequencies were won by Vodafone Hungary. That is the company that has the largest amount of free capacities right now. “As far as mobile Internet is concerned, Vodafone has a well-functioning partnership contract with UPC, which we are planning to broaden in the near future,” László Szűcs, technical director of UPC told the BBJ. UPC’s expert thought it highly unlikely that Vodafone would wish to establish a similar partnership with Digi, let alone sign a roaming contract. As far as UPC is concerned, Szűcs refuted the assumption that the company was planning to add mobile services to its already existing network of cable-based Internet.

“We have a partnership contract with Vodafone Hungary for the mediation of mobile Internet services. All that means, however, is that our own cable clients, for reasons of convenience, are offered the opportunity to use Vodafone’s mobile Internet services.” This summer, UPC started its first mobile virtual network (MVNO) in Switzerland. Experts do not think it probable that UPC would soon become a MVNO in Hungary as well, in which its partner would be Vodafone.

Telenor seems to be the likeliest partner for Digi, experts interviewed by the BBJ said unanimously. The lawyer Kerekes emphasized that Telenor and Digi have already signed a partnership contract for the provision of MVNO. What is more, Telenor also serves Digi’s mobile Internet customers. “If Digi and Telenor joined to form an alliance, then, given the 1800 MHz frequency recently given to Digi, 40% of the 1800 MHz range would be concentrated in one place. That would make it extremely easy technically for Telenor to provide roaming together with Digi,” a source wishing to remain anonymous related to the BBJ.

Upon being asked by HWSW newswire, Digi’s leadership explicitly refuted the assumption that the company is planning to establish a roaming partnership with any of the incumbent providers. The company says that its future network will be fully designed, constructed, and operated by it alone.

 

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