CHALLENGES OF SETTING AND

IMPLEMENTING REGULATIONS
ON INTERCONNECTION AND
UNIVERSAL SERVICE IN
HUNGARY.

Dr. Ivan Schmideg

Communication Authority, Hungary
schmideg@hif.hu
WTO Services Council Session on Telecoms

Geneva, June 25. 1999

This work was undertaken with support from the European Union’s
Phare ACE programme 1996 (Grant No. P-96-6100R: “Emerging
Liberalised Telecommunications Market: Interconnection and Tariff
Policies in Central European Countries”.)

2 I. Schmideg
Geneva, 1999 June 25.
 1988
STARTING POINT
Hungary
Economic difficulties,
Neglected infrastructure
8,1 main lines / 100 , (EU 40,5 main lines / 100)
5,0 main lines / 100 inhabitants in province,
9% of the main lines connected to manual
switches,
no mobile service, (EU 4,0 subscribers / 1000)
13,17 years of calculated waiting time,
State monopolies

3 I. Schmideg
Geneva, 1999 June 25.
 1992
ACT ON TELECOMMUNICATIONS
concession-bound services :
public telephone service (PSTN),
public mobile radiotelephone services,
nation-wide public paging services,
national and regional distribution and
broadcasting of public radio and television
programs
not concession-bound public service (i.e. data),
other services
to enter into interconnection contract within
3 months providing local telephone service,
6 months for other purposes.
4 I. Schmideg
Geneva, 1999 June 25.
 1994
MARKET STRUCTURE
Public telephone concessions for 25 years, with
exclusivity for 8 years to:
MATÁV in 36 primary areas (incl. the capital)
( till 2001. December 31.) for
local,
international,
nation-wide long distance telephone services
 LTOs in 18 primary areas
(till 2002. November 1) for
local telephone services
5 I. Schmideg
Geneva, 1999 June 25.
 1994
MARKET STRUCTURE
1990 concession to NMT 450 analogue mobile
service
1994 concession to two GSM mobile operators for
15 years, with exclusivity for 8 years
Long distance telephone traffic (fixed or mobile)
should go through MATÁV back-bone network

6 I. Schmideg
Geneva, 1999 June 25.
 Fix and Mobile Density with
approximations
50
DEL density 47.0
R2 = 0.9896
DEL approx. I
45
DEL approx. II
39.6
Mobile density
40
Mobile approx.
subsrcibers / 100 inhabitants

R2 = 0.9931
35
30.5
33.8
30
30.4
25
26.0
20
21.1
10.45
15
16.8 R2 = 0.9861
14.5 6.93
10
12.5 4.63
10.9
8.2 8.8 9.6 2.55
5
0.44 1.02
0.02 0.08 0.23
0
1988 1990 1992 1994 1996 1998 2000 2002 2004 2006

7 I. Schmideg
Geneva, 1999 June 25.
 Implication of Correlation Analysis

Correlation analysis
 is not a market survey,
predicts what would happen if nothing changed.
Reveals that:
Extensive development phase is over,
New market structure needed.

8 I. Schmideg
Geneva, 1999 June 25.
 Issues of the New Market Structure

Liberalised Telecommunications Market

Interconnection
Cost based interconnection fees
Universal Service
“Affordable Prices”

9 I. Schmideg
Geneva, 1999 June 25.
Full Liberalization of the Market
80 - 90% of the telecommunications market
governed by concession-bound services
The liberalization of public voice telephony is
determined by the concession contracts
The EU urges and sets the year 2001 as
preferable for the full liberalization.
The costs of shortening the exclusivity period of
the concession-holders under negotiations.

10 I. Schmideg
Geneva, 1999 June 25.
 1998
Steps to Market Liberalisation
Alternative network operator (PAN-Tel)
Government decision on the principles of a new
Communications Act (telecommunications,
frequency, post, informatics)
to be enacted in 2000,
transposing all the EU directives.

11 I. Schmideg
Geneva, 1999 June 25.
 1999
Steps to Market Liberalisation
Concessions for DCS 1800 service
For the newcomer one 1800 MHz band, and a
900 MHz band
For the two incumbent GSM 900 service
providers one 1800 MHz band each, (the DCS
service to be delayed by one year )
IP telephony free

12 I. Schmideg
Geneva, 1999 June 25.
 Interconnection fee
1994 -1997
For the LTOs yearly fixed according to a
revenue sharing method (after sharing
local services revenue / long distance revenue = 2:1).
For the GSM operators yearly a fixed fee
established.
1998
Fee for interconnection service implemented
1999
New cost accounting system is being
implemented

13 I. Schmideg
Geneva, 1999 June 25.
 Universal Service
Lack of the definition.
The funding possibilities are still under
investigation.

14 I. Schmideg
Geneva, 1999 June 25.
 “Affordable Prices”
Too high prices relative to the income can split the
country into “information rich” and “information
poor.”
Too low prices relative to the costs discourage
investment and provision of up-to-date
infrastructure and services.
Time based (1sec) tariffing implemented enables the
service providers to offer tariff packages.
15 I. Schmideg
Geneva, 1999 June 25.
 1997 OECD basket
Residential Telephone Charges
1000 Usage charge

900 Fixed charge

800

700

600 790
503
PPP $ 500
416
514
400 443 431
309
300
250
200
248 255
100 153 169 156 176 189
90
0
Czech Hungary Poland Greece Portugal Spain USA OECD
R. avg.

16 I. Schmideg
Geneva, 1999 June 25.
 (1997 OECD basket PPP)
Internet hosts vs. residential phone charges
5.0 Ln(internet
hosts) SUO
4.5

4.0

3.5

3.0

L
2.5
F H
2.0 y = 766.88x-0.9384
CZ R2 = 0.618
I
1.5
GR

1.0
PL

0.5

0.0
200 300 400 500 600 700 800 900 1000
Residential phone costs PPP

17 I. Schmideg
Geneva, 1999 June 25.