Gergely Kis Evaluation of the Government’s Involvement in Digital Telecommunication Network Development in Hungary E-business Research Centre Supervisor: dr. András Nemeslaki Outside advisor: Pál Horváth Copyright: This research summary is licensed under the Creative Commons Attribution- Noncommercial-No Derivative Works 2.5 Hungary license. You are free to use or distribute this work for private, non-profit and educational purposes under the following conditions: You must give the author credit in the following manner: “Gergely Kis: Evaluation of the Government’s Involvement in Digital Telecommunication Network Development in Hungary.” You may not alter this work: any parts of the text must be cited in the original form. You may, however, add your own writing to the cited text. Doctoral School of Management and Business Administration Evaluation of the Government’s Involvement in Digital Telecommunication Network Development in Hungary Volume I/1. Ph.D. dissertation Gergely Kis Corvinus University of Budapest Hungary, 1093 Budapest, Fővám tér 8. 2010. Table of Contents I. Introduction ..................................................................................................................... 1 I.1. The role of the digital telecommunication network in the national economy ........ 1 I.2. Dissertation structure and research question .......................................................... 6 I.3. Tools for government intervention .......................................................................... 8 I.4. The dissertation in relation to the scientific discipline .......................................... 12 I.5. Research methodology ........................................................................................... 13 I.6. A note on the practical recommendations evoked by the research ...................... 15 II. Effects of broadband infrastructure and broadband services on the national economy .. ................................................................................................................................... 16 III. Development of the digital telecommunication network in Hungary between 2003 and 2008 ................................................................................................................................ 25 III.1. Investigation of hypothesis H1 ................................................................................ 26 III.1.1. Methodology .................................................................................................. 26 III.1.2. Results of the study ........................................................................................ 29 IV. Ownership Structure of the Digital Telecommunication network in Hungary .............. 35 V. The effect of the definition of broadband and the principle of technology neutrality on basic infrastructure development .................................................................................. 39 V.1. The definition of broadband................................................................................... 39 V.2. Development of broadband services in Hungary ................................................... 42 V.3. Basic and multimedia-capable access services ...................................................... 45 V.4. Difference between broadband Internet and broadband infrastructure .............. 48 V.5. The principle of technology neutrality ................................................................... 49 V.6. Testing of the H2 hypothesis ................................................................................... 51 V.6.1. Methodology .................................................................................................. 51 V.6.2. Outcome of the investigation ........................................................................ 52 VI. Utilization of community resources to stimulate basic infrastructure development .... 57 VI.1. Investments driven by demand, risk, and government intervention ..................... 58 VI.2. Ownership structure created by the utilization of community funds .................... 62 VI.3. Service capability vs. infrastructure development approach ................................. 65 VI.3.1. Conceptual approach focusing on the perspective of service capability....... 65 VI.3.2. Conceptual approach focusing on infrastructure development .................... 66 VI.4. Methods to involve community resources aimed at broadband basic infrastructure development ................................................................................... 68 VI.5. Testing of the H3 hypothesis ................................................................................... 69 VI.5.1. Methodology .................................................................................................. 69 VI.5.2. Outcome of the investigation ........................................................................ 69 VII. Promoting infrastructure-based competition by ensuring network access .................. 90 VII.1. Competition on the access network and the wide area network .......................... 91 VII.2. Implementing the principle of open access ........................................................... 98 VII.3. PoPs as key elements of open network access .................................................... 100 VII.4. Open access to wide area networks ..................................................................... 103 VII.5. Investigation of the H4 hypothesis ........................................................................ 105 VII.5.1. Methodology ................................................................................................ 105 VII.5.2. Results of the investigation .......................................................................... 105 VIII. Analysis of Hungarian programs for broadband infrastructure development ............. 125 VIII.1. Analysis of the H5 hypothesis ................................................................................ 128 VIII.1.1. Methodology ................................................................................................ 128 VIII.1.2. The results of the investigation .................................................................... 128 IX. Analysis of Hungary’s wholesale broadband market ................................................... 143 IX.1. Wholesale broadband services and the regulatory framework ........................... 143 IX.1.1. Development of the wholesale broadband market ..................................... 144 IX.1.2. First case of mandating cable bitstream access services ............................. 147 IX.2. The domestic wholesale broadband market ........................................................ 149 IX.3. Investigation of the H6 hypothesis ........................................................................ 152 IX.3.1. Methodology ................................................................................................ 152 IX.3.2. Results of the investigation .......................................................................... 152 X. Summary – The significance of the government’s involvement in broadband infrastructure development in Hungary ....................................................................... 176 X.1. Summary of the results of the hypothesis testing ................................................ 176 X.2. Recent achievements ............................................................................................ 181 X.3. The role of an “activist’ government .................................................................... 185 X.4. Recommendations for development policy makers ............................................. 187 X.4.1. Best practices ............................................................................................... 187 X.4.2. Identification of areas in need of improvement .......................................... 188 XI. Appendix ....................................................................................................................... 193 XI.1. Appendix – An example from economic history to illustrate the dilemmas of Internet access ...................................................................................................... 193 XI.2. Appendix – Description of the model estimate for investigating the first hypothesis ............................................................................................................. 195 XI.3. Appendix – Transcript of the in-depth interviews conducted to test the H2 hypothesis ............................................................................................................. 199 XI.4. Appendix – Broadband Strategy in the Federal Republic of Germany (February 2009) ..................................................................................................................... 205 XI.5. Appendix – Changes in the relevant EU directive on access ................................ 207 XI.5.1. Functional separation ................................................................................... 207 XI.5.2. Voluntary separation by a vertically integrated undertaking ...................... 209 XII. References .................................................................................................................... 210 XIII. List of terms .................................................................................................................. 220 XIII.1. Technology-related