Interviews with the CEOs of Magyar Telekom Nyrt and T-Systems Magyarország about taxes, the fourth mobile operator and the new structure of T-Systems.
On September 17 2012 a Budapest court ruled that the newly established state-owned mobile operator had unlawfully won the right to build its own network. The court said that, according to the annex of the government decree effective at the time, the frequency that MPVI obtained could not be allocated to a state-owned company. The court also ruled that the three existing mobile telcos – who contested the results of the frequency auction in court – were unlawfully awarded new frequency blocks. We asked Christopher Mattheisen, Chairman and CEO of Magyar Telekom Nyrt about the decision and also about the new telco tax introduced in July.
Q: To partly substitute the so-called “crisis tax” introduced in 2010 for three years to levy the most profitable sectors of Hungarian economy, the government introduced a new telco tax, putting charges on mobile phone calls and text messages. Do you think the new burden is reasonable?
A: We recognized that the country was in a difficult situation and that it is an unorthodox business environment we have to operate in. We understood that the government had to do something, however we had some concerns about its tax policies introduced in recent years. What we did not like in the first crisis tax introduced in 2010 was its discriminatory nature, as it levied only a few specific sectors. Even if it is only a temporary net income levy for three years, it still represents a very high chunk of our net income. As we knew that the crisis tax had a three-year deadline, we were able to handle it by simply reducing our dividend, so it was not threatening our investments. Now, on the other hand, the current “telco tax” has no deadline set whatsoever, so it might extend to perpetuity, and it is also discriminatory. In fact, it is more discriminatory as it goes after only some lines of business within the telecom sector but distorts the whole market. We do not think that is any more sustainable under EU law than the first tax was. We have no problem with the efforts of the government to fight the crisis with unorthodox measures, but these measures are discriminatory and unacceptable.
Q: On September 17, a Hungarian court annulled the results of a tender for the country’s fourth mobile frequency, which was awarded to a consortium of state-owned companies. What is your opinion of the decision?
A: With the court’s decision on September 17, the results of the entire tender have been invalidated and – in my view – with good reason, as the tender had contradictory rules and regulations.
Q: What were the main reasons why the existing operators could not accept the results of the tender?
A: Our biggest issue was that the state claimed for itself a huge chunk of frequencies at a time when existing operators also need them. Mobile broadband growth is going to explode in Hungary. Right now the penetration of smartphones is around 20%. However, our new phone sales are 85% smartphones, and growing smartphone sales mean mobile data growth. So maybe not today, not next month, but in a year or two data traffic will explode. But mobile data should grow only if existing operators have enough frequencies to use. In our opinion, in the tender that has just been invalidated, there were not enough frequencies allocated to existing operators. We welcome the decision of the court from our heart, mostly because it provides a pause when existing operators and the government can rethink their opinions on frequency policy. If a new tender comes up, there is an environment that can create enough room and frequencies for the existing operators, who have existing customers.
Q: Do you think the government will compete again to become a fourth mobile operator in Hungary?
A: I don’t know. We have a challenge right now from the so-called mobile virtual network operators or MVNOs, like Tesco and Lidl, and frankly we do not believe it is the state’s business to use taxpayer money to compete in a challenging market. It would be very difficult to make an acceptable and justifiable business case for any fourth mobile operator that wants to enter a Hungarian market that is otherwise working perfectly.
T-Systems Magyarország Zrt began operations on October 1, 2012 as Hungary’s sole service provider offering a full-scale and comprehensive info-communication technology (ICT) product portfolio. Fully owned by Magyar Telekom Nyrt, the new company was brought to life through the merger of four long-established industry stakeholders in the Hungarian market. Interview with Róbert Budafoki, CEO of T-Systems Hungary.
Q: What was the main reason for merging the businesses: economies of scale, efficiency improvement, cost reduction or something else?
A: The answer is very complex. On the one hand, from the organizational point of view, it is definitely easier to manage one company than four. The aim of the merger was to increase efficiency, but we do not want to use that to cut costs and have fewer employees, providing less to our customers, but rather to give more to clients. This is necessary because of the current economic situation, because the tight IT and telecom budgets of companies let them spend only at reliable partners that can provide a wider range of services. That, in turn, requires that we understand the needs of customers and approach them with relevant knowledge of their respective industries. From this point of view, the merger was absolutely necessary and timely.
Q: What will your customers see as a result of this change?
A: It will simplify their lives as, instead of four people, only one contact person will negotiate with them, and this person will represent and bring in all the necessary IT skills and services.
Q: Did the merger free energies within the company? Is there any market expansion intention behind the move?
A: Yes, a lot of energy has been freed that we want to rotate back to development. We are searching for areas where we might have ground to cover and where we can offer our customers the full extent of the services that they might need. Based on our experiences of the first half of the year, customers seem to appreciate our efforts, as we have been able to grow in a declining market.
Q: How does the transformation affect public contracts?
A: We continue to operate the same way as we always have done throughout our history. The contract with the Hungarian state is an essential part of the IT spending budget, with a historical share of around 25%. Like all other industry players, we also intend to help implement the ideas of such a huge market player.