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DIGI and Hungary’s mobile frequencies: mystery continues

DIGI now owns 5% of Hungary’s mobile frequencies, yet still has revealed nothing about its true intentions. One of the possible scenarios hints at making it big in the internet of things.

A typical mobile base station. Digi will have to build (or borrow) a nationwide network for its mobile services.

Hungary’s incumbent mobile telephone service providers must have felt a little uncomfortable when Bucharest-based DIGI purchased its first mobile frequency package in this country in the 1,800 MHz range back in September 2014, given that the potential new competitor is well-known for its guerilla pricing. In fact, in the already crowded-looking market for satellite and cable television services, DIGI has now reached a 23% share from scratch, whilst its revenues have soared by 300% in the past seven years. Yet, it took one-and-a-half years from the purchase of that first mobile package until the company showed its specific intention that it does wish to jump into the mobile business after all. Following that long pause of inactivity, DIGI bought a further chunk of frequency in the 3,600-3,800 MHz range in June 2016, which also gave it an excuse to make an announcement. 

“The radio planning of the mobile network exists already, and this year we have started building base stations in several towns. Currently, 200 stations are under construction,” managing director Ryszka Sambor said at the time. Four months have passed since then, but journalists seeking updates on progress still hit solid walls; according to DIGI’s corporate policy, nobody is authorized to say a thing until further notice.

“What I can tell you is that there are huge numbers of staff involved in the construction works,” marketing manager Annamária Kállai tells the Budapest Business Journal. Snippets of information have emerged from local media outlets covering municipalities where DIGI has been erecting its towers, the number of which is growing heavily. Yet, in a bid to make sure no unwanted advantage is given to competitors, no actual figure for the number of towers has been confirmed. There has been no hint as to timing for the launch of service, or the exact nature of it, not to mention marketing strategy or pricing. But this strict secrecy itself would seem to prove that DIGI means business, and that it has shelled out a total HUF 10.248 billion for its frequencies for a reason.

The guesswork goes on

For the moment, pundits can agree on one thing only about DIGIʼs intentions, namely that nobody has a clue what it is up to. According to NMHH, the National Media and Infocommunications Authority, the frequencies DIGI has are free to use. “It is not prescribed by the authorities what to use them for. What is a must, though, is to start using them,” Dr. Janka Aranyosné Börcs, general director of NMHH pointed out after the last tender. Consumers would surely welcome a fourth player in the arena, since mobile services remain notoriously expensive in Hungary. Whereas EUR 20 buys unlimited talk and text in Austria, in Hungary the cheapest flat rate package starts at around EUR 32. Market share has been stable in Hungary for years now, so it would take a new arrival to stir things up.

 Telecommunications expert Bogdán Khell, editor-in-chief of mobilarena.hu, a major telco-themed website, believes that there are two main directions DIGI may choose from. One of the paths would be offering unlimited mobile internet subject to a bandwidth limited to around 10 Mbps per second. DIGI already provides mobile web services as a so-called virtual internet service provider, or VISP, under its own brand but using Telenorʼs network, so it could build on this experience. “Option two is the localization market, where local calls may even be free, whereas calls directed outside of the local cells concerned would be charged,” Khell explains. “This method could work, especially in small communities , and it would result in acquiring a big number of customers fast.”

All about IoT then?

Of the two options, mobile internet seem to hold more promise, especially given the pace the internet of things, or IoT, is developing at. According to a recent study by IDC, an international company researching technology firms, the market is growing by some 25% every quarter, and DIGI might well want to tap into that opportunity. Solutions range from automated agriculture to real-time tracking services, the popularity of which is gaining momentum by the day. Another boost is destined to stem from the use of smart metering, which is projected to follow an exponential growth curve. If the governmentʼs plans are met, tens of thousands of Hungarian households could enjoy the benefits thereof in the not so distant future. The smooth functioning of IoT solutions, however, assumes a powerful 5G network that ensures a quick response time, user security and the simultaneous serving of a large number of customers. “It will be fun to watch how active DIGI is going to be once the 5G frequencies are up for grabs,” Khell notes.

However, some analysts question the potential of DIGIʼs mobile service on the basis of the fact that itʼs extremely difficult and costly to build your own network. There are simply too few available locations for installing stations, and it is equally problematic to find new suitable sites. Incumbents tend to operate 1,400-1,500 towers, a scale of network that takes a long time to build. “However, there is no need to have your own towers all at once,” Khell reminds. “When Vodafone entered the market in 1999, it used the networks of Pannon [now Telenor] and Westel 900 [now T-Mobile] for its voice services for two years. DIGI is entitled to do the same.” He adds, though, that it would be wishful thinking to bank on seeing Austrian mobile rates in Hungary any time soon. The charges authorities set for frequencies are disproportionately high in Hungary compared to Western practice, which places a huge financial burden on domestic providers and, at the end of the day, users must cough up the cash to cover those horrific costs.

No handsets please

What could give hope for lower rates is that DIGI might not want to deal with selling handsets at all. “Lots of costs are related to selling phones – from support, to logistics, to repair services. Providers are starting to realize how much hassle this whole thing is,” Khell says. Relevant statistics show a shift from sales by mobile providers to those by individual consumer electronics players. “The ratio used to be 80%-20% in favor of providers. Now around half of all handsets are bought in regular stores in Hungary.”

DIGI went down a classical evolutionary road in its home market in Romania by starting off with voice-based services, Khell explains. But in Hungary, it would be about to enter a mature market. “Since everything is moving towards the internet, for the reasons above, the chances are high that DIGI could carve out a substantial piece of the mobile pie after all,” the expert adds. And there wouldnʼt be much unusual about it. VoiP calls are on a path towards outnumbering conventional mobile voice calls worldwide, and that trend is only likely to intensify in the future.