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Movement expected in the mobile market

The industry was already wondering what DIGI might do with the mobile frequency license it has been sitting on for a year when the government said it would enter the sector too, with its own mobile network.

Above the rest, for now: A Magyar Telekom cellphone tower. (Photo: Jessica Fejos)

Piggybacking to mobile success

Apart from the three main mobile providers, MVNOs, which use the frequency of another company, are also looking to claim a piece of the pie. The latest entrant is cable TV provider UPC, which stepped onto the already crowded mobile stage in March 2015, through an agreement that lets it use frequencies licensed to Vodafone.

Its biggest strength may be its existing market. UPC is the leader in providing television services in Hungary, with a market share of 26.7%, according to the National Media and Telecommunications Authority. That makes more than 900,000 potential customers, and UPC says it is trying to tempt them by “developing special services by which our subscribers can take home their landline services on their UPC mobile”.

One such example is Wi-Free, a free-of-charge social Wi-Fi network that lets you switch on the service via your home modem and surf for free by logging into any available hotspots, of which there are 360,000 in Hungary and millions in Europe.

Another innovative solution is PC Phone. The app enables UPC mobile users to enjoy the rates offered for their home phone.

Magyar Telekom (MT), the largest telecom company in Hungary and its leading mobile provider, says it is ready to face any challenge that might threaten its incumbent position. Yet, at this point, it’s hard to say how competition will ultimately play out.

“We take every competitor seriously, and the intention of DIGI to enter the market is no exception. However, the frequency it purchased is not enough to provide good quality mobile services with nationwide coverage. We expect them to offer some service to their existing clients,” says a statement from MT.

The mobile market has been anticipating big change for a year, ever since DIGI purchased the rights to obtain mobile frequencies. Now the government has added to that speculation, with the announcement that it will develop a state-funded mobile network. The only thing that seems certain is that movement is afoot in Hungary’s mobile sector, but it is hard to judge when the moves will come, or how big they might be.

At present the mobile market is dominated by MT’s T-Mobile brand, which has 46% of the mobile market and a 4G broadband network that reaches 95% of the country. The number two mobile player here is Telenor, with 31% of the market, followed by Vodafone with 22%.

There are also several Mobile Virutal Network Operators (MVNOs) who operate mobile networks without their own frequency, using instead those licensed to another company. Some supermarket chains are into this business in a small fashion, but a bigger player is the country’s leading cable TV firm, UPC. (See box.)

DIGI Kft., which now holds a 23% share in cable TV services and has increased its revenues by 300% in the past seven years, must have bid for a mobile frequency last fall for a reason. But it has not taken any measures to proceed with actual network building. The firm’s spokesman could only tell the Budapest Business Journal that the company is not in the position to comment on the issue.

Waiting for tax cuts?

That does, however, leave room to do some guesswork. Pundits see only a small chance that DIGI would be willing to rent out its frequency to a small MVNO, like Tesco Mobile or Lidl’s Blue Mobile.

According to a more likely scenario, DIGI may be ready to engage in the same kind of aggressive price war that the firm pursued in its home market in Romania. DIGI has dominated that market by undercutting its competitors. But no mass recruitment is under way, and building staff would be a precondition to expanding DIGI’s existing portfolio to offer a quality service.

A fair explanation for the inaction may be that DIGI is waiting for a reduction of taxes on landlines, which is set to enter into force in 2016. Once DIGI sheds that burden on its existing cable business, it would be better positioned to push down consumer prices, a must for gaining market share.

The three main mobile providers say tax cuts are essential for freeing up capacity to achieve the government’s Digital Hungary Agenda, whereby every household should have high-speed broadband by 2018. Magyar Telekom, for that matter, pays so-called sector-specific taxes totaling HUF 30-35 billion a year, and the landline tax is only a small part of that.

Enter government

Events on the mobile services front took another twist recently with the announcement that a state-owned player would be entering the arena. MVM NET Zrt. has been pursuing telecommunications activities for government purposes by operating the National Telco Network (NTN) since 2012. Now mobile services will be added to its portfolio, thanks to cooperation with Chinese telecom equipment maker Huawei.

“The number of clients served by the network will be subject to the types of services and the distribution of users. Its purpose will be restricted to data provision and shall enable essentially usage with closely specified aims,” MVM NET told the BBJ in a statement. “Therefore, the needs and behavior of users can be kept under control and the demand for traffic volumes should be easy to plan.”

The project should reach full operability by March 2016. The network can be ready quickly because it uses LTE450 technology, which allows full nationwide coverage with a lot fewer base stations than in the case of higher frequency ranges. Antenna Hungária Zrt., a firm that owns radio towers and was acquired by the state last year, has been charged with carrying out the work, while Huawei will supply the technology. Both companies were hired for the HUF 12.8 bln project without public procurement.

Huawei knows its way around the Hungarian mobile market as it helps Vodafone with network development and is working together with MT to extend its broadband network. It also has experience developing LTE450 technology for the Brazilian and Russian governments, and for a private firm in Finland.

The involvement of Huawei has raised eyebrows, however, since in the past officials in the U.S., U.K., India, Canada, and Australia have reportedly voiced concerns about the security of Huaweiʼs networks. U.S. officials, apparently tipped off by their own spy networks, have alleged that the company assists the Chinese government in spying on its customers – charges the company denies.

In the case of MVM NET, highly sensitive investment data will be dealt with over the networks. When asked to elaborate on its role, Huawei declined to make a statement.