New EU Directives
RIOs and the Hungarian Communications Authority
Internet Penetration
Concessions
The new Communications Act (Act 40/2001) came into force on December 23 2001. The act introduced a new regulatory structure with the aim of liberalizing the Hungarian telecommunications market, and established various new institutions. However, less than a year after it took effect, industry players have begun complaining that there are problems with the new regulatory scheme and institutions, and that competition has been slow to develop. Calls are thus being made for the act's revision. This update highlights some of the most relevant issues that will need to be addressed if this revision eventually takes place.
The preparatory work for the Communications Act took place from 2000 to mid-2001. Therefore, the act does not take account of the latest EU directives passed in 2002, including the Framework Directive (2002/21/EC) and the subsequent Access, Authorization and Universal Services Directives. These directives took effect on April 24 2002 and must be implemented in member states as of July 25 2003. Since the new EU directives introduce several important revisions to the existing regulatory system, including a new approach to competition in the telecommunications market, the Communications Act should be updated to reflect these developments. The Hungarian government recently decided to commence the revision process, with the aim of completing the harmonization procedure before Hungary accedes to the European Union.
RIOs and the Hungarian Communications Authority
In line with similar European legislation, telecommunications companies with significant market power (SMP) in Hungary must allow other operators to connect to their networks. In order to facilitate such interconnection, SMP companies must prepare reference interconnection offers (RIOs), which include cost-based pricing schemes, on which the actual interconnection agreements will be based. RIOs must be approved by the Hungarian Communications Authority. In deciding whether to approve a RIO, the Communications Authority must take into account criteria such as the interests of end users and the development of competition.
SMP companies recently finalized their RIOs and the Communications Authority has already approved a large number of such offers. However, according to alternative service providers who compete with the former monopolies, the interconnection pricing schemes and other terms and conditions set out in the RIOs as approved by the Communications Authority are insufficient to promote effective competition, and jeopardize the economic viability of alternative service providers.
Market analysts and experts appear to share this view, arguing that the approvals which the Communications Authority has issued in this regard may be a result of the authority's incompetence. Such accusations of incompetence are supported by the fact that the authority's powers are not clearly defined in the Communications Act, and it lacks the necessary staff and financial support to fulfil its functions effectively. For example, the authority has difficulty verifying the accuracy of the financial data supplied by the SMP companies, on which their cost models are based.
In addition, even though SMP companies must provide separate financial reports for their wholesale and retail business lines, they fall short of providing the required information because the applicable requirements are not defined adequately in the Communications Act. It appears that the duties of SMP companies regarding financial separation and disclosure must be clarified, and the Communications Authority's procedure regarding the verification of the cost models applied by the SMP companies should be reconsidered.
The Hungarian government has expressed concern that the rate of internet penetration in Hungary is far lower than that in other European countries of similar economic status. In Hungary, most residential users access the Internet through modems and telephone lines operated by former monopoly service providers.
The government believes that the primary way to increase the rate of home internet use is to cut dial-up prices set by former monopoly service providers. To this end it recently arranged to assist these providers by subsidizing the introduction of low-cost internet access packages. However, as these arrangements have proved controversial, the issue will likely need to be addressed in the next review of the regulatory regime.
Smaller internet service providers (which are independent from telecommunications providers) also claim that the new revenue-sharing scheme under which dial-up revenues are shared between the internet service provider and the provider of the telephone line, and in particular the practical implementation of this scheme by the telephone operators, jeopardize the viability of the internet access business. As reported in "Disputes Arise over Sharing of Internet Access Revenues", the Communications Conciliation Board recently issued resolutions on the disputes between internet access providers and telephone companies, ruling in favour of the internet service providers and declaring the telephone companies' practices illegal. However, it is likely that some of the telephone companies will bring the issue to court. In order to avoid such disputes in the future, the revenue-sharing mechanism laid out in the Communications Act should also be re-examined.
The new licensing regime introduced by the Communications Act replaced the earlier concession-based regime. As a result of the new regulations, fixed-line and mobile telephony have been liberalized and are no longer subject to concessions. (Prior to the new regulations, voice and mobile telephony services could be provided only by operators that were selected through a government-run tender process.) However, the new regulatory regime fails to regulate how existing concessions should be transformed into licences under the new licensing scheme, and to what extent existing concession agreements remain effective. The potential termination of concession agreements pursuant to the act may prompt existing concession-holders to claim reimbursement for the concession fees they paid for their exclusive concession rights.
For further information on this topic please contact Attila Csikai or Balázs Fazekas at Réczicza Law Firm White & Case LLP by telephone (+ 36 1 488 5200) or by fax (+ 36 1 488 5299) or by email ([email protected] or [email protected]).