Access to the Local Loop
Significant Market Power
Reference Offer
Exceptions
A new Communications Act (Act 40/2001) was enacted by the Hungarian Parliament in June 2001. Certain provisions are already in effect, but most will become effective on December 23 2001. The act provides for, among other things, a general framework for local loop unbundling. The detailed rules regarding unbundling and the agreements related thereto are regulated in Government Decree 175/2001 (IX 26). This update highlights the most significant provisions relating to unbundling.
According to the new act and the decree, telephone service providers with significant market power (SMP providers) are required to grant full or partial access to their local loops at the request of other service providers if the service provider attaches a copy of the bond it has with the consumer subscribing to its services. In case of full access, the incumbent may not continue to provide any services to the subscribers. In case of partial access, the incumbent may continue to provide services pursuant to its existing subscriber contracts while the new service provider may provide additional subscriber services by utilizing the transmission capacity available on the loop of the incumbent.
A special body of the Communications Authority, the Communications Arbitration Committee, is responsible for identifying service providers with significant market power by issue of a formal decision. Service providers with a market share of at least 25% in respect of a particular service in the geographical market in which that service is provided will usually be identified as service providers with significant market power. However, the Communications Arbitration Committee may apply different criteria to identify service providers with significant market power in certain cases. The national carrier (Matáv) and all local telephone operators (LTOs) are, by virtue of the act, identified as service providers with significant market power.
SMP providers must grant access to the local loop to all parties, including their own affiliated companies, in a non-discriminatory manner - that is, they must apply the same technical, legal and financial terms and conditions to all parties.
SMP providers are required to file a reference offer with the Communications Arbitration Committee for approval and publication at least 80 days prior to the expiry of their exclusive right to provide telephone services as granted by their respective concession contracts. The content of the reference offer is generally regulated by the Communications Act, with specific rules set out in the decree. According to the decree, the reference interconnection offer must include, among other things:
- the duration of co-location (which must be at least one year);
- detailed rules regarding the conclusion, modification and expiration of the contract;
- quality requirements; and
- the method for calculating the price, if different from the provisions of the Communications Act. A different method may not be used until two years have elapsed since unbundling. The calculation of the price of unbundling must be transparent and non-discriminatory. In addition, it must be based on the long-run incremental cost pricing scheme, the reasonable coverage of general costs and a reasonable profit of the invested capital.
If the reference offer is not approved, the Communications Arbitration Committee must provide the service provider with the specific reasons for its rejection and must request the service provider to file a new reference offer. If the new reference offer is not filed within 30 days of receiving the request, the Communications Arbitration Committee may impose a fine on the service provider amounting to 0.1% of the service provider's gross turnover, but not exceeding Ft25 million (approximately $87,000). The Communications Arbitration Committee will determine the terms and conditions of the reference offer if the second reference offer filed by the service provider is still not in compliance with the provisions of the act and other relevant regulations.
If more than one service provider requests access to the local loop, the SMP provider that owns the local loop is entitled to accept, in a transparent procedure, the most favourable offer.
The SMP provider does not have to grant access to its local loop if it is technically not feasible or if the other service provider requesting the access also has significant market power and "is in a significantly better position in terms of assets, finances, revenues and influence on the development of the international communications market than the owner of the local loop or the other eligible parties". This latter provision is intended to allow the LTOs to reject Matáv's requests for access to their local loops. However, this provision will probably generate serious debate as it can be argued that Matáv is not in a 'significantly better position' in relation to Vivendi, the second largest LTO in Hungary. On the other hand, one also can argue that Vivendi is in a 'significantly better position' in relation to the other LTOs.
For further information on this topic please contact Attila Csikai or István Réczicza at Réczicza Law Firm White & Case LLP by telephone (+361 488 5200) or by fax (+361 488 5299) or by email ([email protected] or [email protected]).