The Competition Council approved the acquisition of control over Emitel Távközlési Rt. (hereinafter Emitel) by Magyar Távközlési Rt. (hereinafter MATÁV).

MATÁV singed an agreement with Aphrodite B.V. to acquire 50 per cent of the shares of Emitel. MATÁV notified the agreement for authorisation to the Competition Office, as their joint control over Emitel would turn into sole control and as the parties` annual turnover reached the threshold laid down in the Competition Act.

The parties concerned

MATÁV provides public wired telephone services and it has control over 20 further undertakings; most of which provide supplementary services for MATÁV. The majority of shares is owned by MagyarCom Holding GmbH that is controlled by Deutsche Telecom AG. The latter has control over 7 undertakings in Hungary. In 1999 the net joint turnover of the above mentioned undertakings was HUF 322,4 billion.

Emitel provides public wired telephone services and was founded by MATÁV and Aphrodite B.V. holding equal shares but Aphrodite`s block contained two more ordinary shares. Its net turnover in 1999 was HUF 5,4 billion. The management is made up of seven members, four is appointed by Aphrodite B.V., three is appointed by MATÁV. Its decisions are made by simple majority except for the three-year strategic plans and modified annual business plans when the support of one member appointed by MATAV is required.
The market

Under concession contracts concluded on the 20th of May 1993 MATÁV acquired the exclusive right of operating long distance domestic and international service as well as operating 36 primer local public telephone services out of 54 for the period of eight years. Under concession contracts concluded on the 20th of May 1994 Emitel acquired the exclusive right of operating primer local public telephone services in three areas for the period of eight years. In the year under review 78.2 per cent of all Hungarian end users, linked to the wired network, subscribed to MATÁV and 2.3 per cent is subscribed to EMITEL. The market is nearly overstocked. The mobile phone service could be considered as a substitute for the wired one as regards the purpose of the service but not in the field of quality and price.
From the date of expiry of exclusivity and the entry into force of the new Telecommunication Act one undertaking will be authorised to provide services to end users on the network of another undertaking, and public telephone service will be available on any network capable of transmitting signals.

The Decision of the Competition Council

The share of MATÁV in the market of long distance domestic and international telephone calls is 100 per cent as well as in the market of 36 local areas. The share of Emitel is also 100 per cent in its three local areas. Considering the above mentioned the notified agreement will not increase the market concentration, since it has not got any negative effects on competition horizontally. MATÁV and Emitel are connected vertically as buyer and seller in the market of long distance and international calls. The agreement has neither any harmful effects on competition, because Emitel has no competitors in the relevant markets. Therefore the Competition Council approved the acquisition of control.

The Competition Council, however, made an examination of the liberalised market period after 2002. The relevant product market to be assessed will be split into parts; of the subscription services provided for the end users and of the accession and connection services provided for other telecommunications operators.

The entry barriers are high in the subscription market, because it is nearly overstocked, but it will not be further strengthened by the concentration. As regards accession services the Competition Council stated that the most harmful types of expansion in the market can be controlled in other ways and the notified agreement has only indirect effects on the entry of other undertakings to the market. The connection service is provided by undertakings to other companies. The agreement will strengthen the concentration, because MATÁV gains 2.3 per cent of the end users, which would generally lead to the prohibition of the acquisition, but in this case it has to be taken into account that MATÁV was one of the controllers of Emitel. Therefore the Competition Council regarded the concentration as having no significant effect on competition in the future.