Welcomed competition
Booming mobile business seen expanding
written by Patrícia Margit and Barbara Vásárhelyi

Hungary’s new telecommunications act, which is currently being debated in Parliament, is expected to further boost competition in the mobile phone market. With three competing mobile phone operators and over 7 million active mobile users, the Hungarian market is probably the toughest in the entire region.

The second year of liberalized telecommunications in Hungary was marked by a decline in the number of fixed-line subscribers, but a persistently growing mobile market. In the first quarter of 2003, the number of mobile subscriptions – including active SIM cards and analogue subscription – rose to over 7 million for the first time, says a telecommunication market quarterly report compiled by the National Communications Authority (HIF). A comparison of 2003’s summer figures with those from the summer of 2002, shows an increase in mobile phone subscriptions of 22%. The numbers illustrate a major trend in the telecommunications sector – in a country of only 10 million inhabitants.
Westel leads the sector with a 47.5% market share, while Pannon GSM ranks second at 36.94%, followed by Vodafone, the smallest player, but one that is quickly growing with a 15.56% share of the market, according to HIF.

Vodafone kicks off competition
While prices increasingly level off, competition speeds up and mobile companies react faster to each other’s steps. Several years ago it took mobile operators almost half a year to counter each other’s marketing actions, but today it is a matter of days.
This type of competition was started by Vodafone, Hungary’s third mobile phone provider, which entered the market in 1999. Initially Vodafone’s prices were some 15-20% lower than anything offered on the market, but in the time since Westel and Pannon have lowered their prices as well. Since March this year, Westel has introduced three new post-paid and Domino packages that offer competitive and unified tariffs on calls made to fixed-line or other mobile networks. Westel’s cheapest offer for subscribers is its ‘Társalgó M’ package, under which users can call within the network for HUF 36.75 per minute in peak hours. Under Pannon’s ‘Horizont’ package, subscribers can choose between three different categories (Bónusz, Plusz, Extra) that offer economical prices for calls made at different times of the day. In the meantime, Vodafone has come forward with its Rock 'n' Roll Csúcs Plusz subscription package, which offers a tariff of HUF 6 per minute for the first 10 minutes of a call made to any network.
Competition is also fierce among mobile operators for pre-paid card users. Although companies believe they will win customers by advertising the lowest prices, many pre-paid packages hide additional charges for calls made after prime time hours. Even after Hungary’s new telecom law takes effect, price competition will continue since there are still significant reserves in pre-paid card rates, analysts say. “I don’t see any reason why competition should slow down any time soon,“ Pannon GSM’s CEO Klaus Rasmussen told Business Hungary. Although mobile operators are extremely careful about detailing their strategies, experts are convinced telephone equipment prices, along with regular subscribers, will remain the main campaign elements in the future. One aspect of the new telecom law states that from May 1, 2004, customers may keep their mobile numbers even if they switch providers. Analysts believe this will greatly rearrange the market, as pre-paid phone customers will probably have to say goodbye to cheap mobile handsets, as it would not be in any company’s interest to give expensive, modern phones cheaply to customers who could change providers at any moment.
Meanwhile, the value of regular subscribers is expected to grow and those customers who sign a long-term contract will be the most important. Pannon GSM, for instance, is not focusing on the SIM card market, but rather on the post-paid customer segment, Rasmussen said. The current price competition, mostly focused on pre-paid card users, is seen spreading to subscribers who would be able to make cheaper calls as well. Vodafone’s Telecom Policy Director Pál Marchart says: “I expect up-to-date, user-friendly regulations from the new law. I hope that the new law will stimulate market competition even in those markets that show monopolistic signs today.” Following an Oct. 14 discussion on the new telecom law in Parliament, some government leaders were less than optimistic – especially members of the opposition. Fidesz MP Antal Rogán stated in Parliament that he did not think the law would reduce prices. MSZP Representative Gyula Molnár argued that the new law was essential because the previous one does not fulfill its function of creating real market competition.

Real market competition?
Analysts believe that prices would radically drop if real market competition existed in the market. This question was first raised by Hungary’s Competition Authority (GVH). The office made headlines recently with its inquiry into the telecommunications services sector, which resulted in imposed fines for Westel and Pannon. Tünde Váczi, director of GVH’s info-communications office, said the sector inquiry enabled GVH to achieve an accurate view of the mobile phone sector. The office found what they termed as “several problems” on the mobile market, mainly with the pricing of calls generated from mobile phones to fixed-line networks. GVH accused mobile operators of having restrictive practices in place to boost mobile use in Hungary. While the inquiry started out by alleging a mobile phone cartel, in the end it accused mobile service providers of little and could not prove such actions were a coordinated effort on the part of mobile operators. GVH could not even prove that call fees to other networks were too high, but rather could only state that some contracts among mobile providers could distort competition. Westel was fined HUF 210 million and Pannon GSM HUF 150 million by GVH. The fine is not substantial, however, and accounts for a mere fraction of mobile operators’ turnover. Westel and Pannon said they will appeal the GVH decision in Hungarian courts. Vodafone did not have to pay fines either, but company executives said in a statement: “it is regrettable that the first large case is about the only market actors of the telecommunications sector where real market competition takes place.”
Mobile companies did agree, however, that fees for calls to other mobile service providers will cost less than calling fixed-line operators.

New players after EU accession?
New operators are expected to enter the Hungarian fixed-line market following Hungary’s EU accession. With the mobile market, the situation is markedly different. Given the considerable number of active mobile phone users in the Hungarian population, a potential new operator would need a robust financial background, as return on the investment would be bound to take a good number of years. “I have never run the math for a fourth operator, however seeing my own financials, I think it would take a very brave company and a very brave bank to take on such a project,” said Vodafone Hungary’s CEO Attila Vitai. The fact that the number of mobile providers is not bound to increase in the future is one issue that all three operators seem to agree on. “It would be tough business for anyone to enter this market. I’m sure that a potential fourth player will have to possess a lot of patient money,” said Pannon’s Rasmussen.