Does Hungary need a fourth mobile carrier?
The entrance of a fourth mobile carrier could boost the mobile market. But the three incumbent providers could equally well do that by purchasing the remaining frequency blocks.
If you had to name a handful of items that you cannot manage without in the 21st century, mobile phones would definitely rank high among them. Cell phones have become such an essential part of our everyday life that, according to a recent non-representative survey, if left
If you had to name a handful of items that you cannot manage without in the 21st century, mobile phones would definitely rank high among them. Cell phones have become such an essential part of our everyday life that, according to a recent non-representative survey, if left accidentally at home, 70% of Hungarians would rather go back and be late for work than cope without them.
Statistics going back over recent years also reflect our growing dependence on mobile communication. Since 2000, the number of mobile phone subscriptions has quadrupled from 3 million to 12 million. Meanwhile, the number of landline connections has declined to 3 million from 3.8 million.
Hungary also fares well in a regional comparison, with mobile penetration at 120.3 % in 2010, only slightly below the 121.9% EU-27 average. Figures can be tricky though: every fifth Hungarian still does not own a mobile phone, while many may have two or more accounts.
As for mobile voice communication networks, Hungary has nothing be ashamed of. Apart from a few unpopulated high altitude spots, cells can be used anywhere in the country. There are some white spots, however, in terms of broadband communication or internet networks.
To fill in those blanks and shake up the market, the government announced in the beginning of August that it would put the remaining 900 MHz and 1800 MHz frequency blocks, so far used only for voice communication, up for auction – again.
“This tender is well overdue,” claims Róbert Pintér of the Infocommunication Department of Corvinus University in Budapest. “The government has waited too long to invite bids.” In 2008, the swift change in the economic climate made the then-ruling coalition suspend bidding. With a possible double-dip recession looming, the timing is not so great now either, Pintér noted.
Besides being overdue, many experts doubt that the auction of the remaining frequency blocks will bring the desired effects. Competition among existing service providers is already strong, and the chance of a fourth player shaking up the scene is low, at least in the retail sector, Pintér pointed out.
Cleverly, the tender does not state the need for a fourth carrier. “While a serious new contender would be extremely beneficial for the market, it should not be viewed as a failure if a fourth player does not emerge,” the National Media and Infocommunications Authority (NMHH) told the Budapest Business Journal. “Market competition would be boosted in either case, as the winner will be awarded a continuous frequency block for expanding its broadband services.”
There are a number of questions regarding the appearance of a fourth mobile operator. One of them is building a new network: setting up the necessary infrastructure is a costly item for companies mulling a bid. A possible fourth player has to guarantee to establish a highly developed system. However, since the market is so well covered, setting up base stations or even renting them could pose a challenge.
Unsurprisingly, the dominant telecom firm Magyar Telekom would favor a three-player version. “The return on the investment of setting up a new network would be rather questionable, not to mention the fact that the availability of frequencies for broadband development is far from unlimited,” the company’s communications department said. In their view, “the use of the free blocks for satisfying the band expansion needs of current mobile networks as a result of the auction would definitely allow a more efficient spectrum usage than splitting the blocks up among four operators.”
Still, there are some who have set their sights on entering the market. Among the potential bidders is Business Telecom Zrt (BTel), an alternative telecom firm offering mobile communication services, with the exception of mobile voice. The company is currently contemplating how to become a successful candidate: either by entering the voice market as the fourth mobile service provider with its own frequency, or as a Mobile Virtual Network Operator. It is also looking into the option of taking part in a consortium. Due to strict infrastructure requirements, foreign contenders and consortiums in general may stand a better chance of winning. However, a consortium could also possibly lead to an unwanted concentration of capital and create a monopoly on the market, a possibility that even NMHH did not rule out.
Though slightly less publicized, another reason for inviting the tender was to fill gaps in the state budget. “No doubt a tender had to be announced, but the return on the auction is expected to be far lower than the government is hoping to see,” Pintér said. “The tender itself is written correctly and is in line with the administration’s aim of getting the highest possible amount for the assets it owns,” said Gergely Kiss, managing director of GKI eNet Kft.
But will it need a fourth carrier to do that? Not necessarily, says Kiss: “Service providers are still working with wide margins. Clearly, competition can be enhanced further.”
Competition also has its downside. A price war generally hurts innovation and would hamper the establishment of the 4G system. That would go against the aim of the government and the EU, which expect the two non-incumbent mobile operators to strive to counteract the competitive advantage of the winner.
“Even with a 120% penetration there is room for improvement,” Pintér added. “Especially since the actual number is closer to 80%, as 20% of people have no mobile either because they object to it or they cannot afford it, not even a HUF 1,000-2,000 monthly plan.”
With or without a fourth member joining the club, the aim should be to fill the gap as well as create a market environment that most benefits users.
Krisztián Takács, the managing director of BTel, is optimistic. “As a result of the current mobile tender and the distribution of additional frequencies, the Hungarian market will see better servicing capacities and better quality becoming a reality, regardless of the number of bidders and the outcome of the bidding process,” he said.
On August 8, Hungary’s National Media and Infocommunications Authority (NMHH) published a two-round international tender for 15-year frequency licenses in the 900 MHz band.
A 5 MHz ‘A’ frequency block is being offered at a starting price of net HUF 4 billion. 1 MHz ‘B’ frequency blocks are on offer at a starting price of HUF 700 million apiece, and 0.8 MHz ‘C’ frequency blocks are open for bidding at a starting price of HUF 560 million.
Registrations to participate in the tender must be submitted by October 20. The participation fee is HUF 40 million plus VAT.
The tender is expected to be closed on December 12.
SUPPORT THE BUDAPEST BUSINESS JOURNAL
Producing journalism that is worthy of the name is a costly business. For 27 years, the publishers, editors and reporters of the Budapest Business Journal have striven to bring you business news that works, information that you can trust, that is factual, accurate and presented without fear or favor.
Newspaper organizations across the globe have struggled to find a business model that allows them to continue to excel, without compromising their ability to perform. Most recently, some have experimented with the idea of involving their most important stakeholders, their readers.
We would like to offer that same opportunity to our readers. We would like to invite you to help us deliver the quality business journalism you require. Hit our Support the BBJ button and you can choose the how much and how often you send us your contributions.