Budapest Business Journal 20/23

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1992-2012

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VOL. 20, NUMBER 23 NOV 29, 2012 – DEC 13, 2012

Budapest Business Journal

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The Budapest Business Journal celebrates its 20th year of existence in November. In this anniversary issue of the paper, former publisher Stephen O’Connor looks back on the early ’90s and how it all begun. 08-09

NEWS

Losing momentum Communication trick or long-term business?

The government has announced a series of strategic partnerships with multinational companies.

The BBJ takes a closer look to figure out the intentions behind the deals.

PAGE 11

An agreement between Hungary’s government and international lending organizations is drifting farther beyond the horizon by the week. The absence of any deal and the strings attached have several implications for the Orbán administration and the economic future of the country.

10

SOCIALITE

Striving for balance Soldiering on with their nonprofit causes in a competitive environment, the shorlisted women of this year’s Women of Excellence Award agree that passion and balance are as much inevitable components of success as dedication and hard work.

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1 News Government finds more ways to tax finance BBJ

BI-WEEKLY NEWS

The recent extension of the financial transaction tax and a new element of it have raised concerns among investment service providers, who say that the new tax puts Hungary’s capital markets at risk.

0.3% for cash withdrawals and 0.2% for other financial transactions. Should a client not accept this, the contract can be terminated, free of charge, until the end of this year.

Based on the announcements so far, some banks aim the pass on all the costs associated with the new tax to the end-customers, while others will transfer only part of them, István Binder, spokesman of financial authority PSzÁF, told the Budapest Business Jour-

nal. In response to inquiries by both banks and their customers regarding the possibility of making modifications to existing bank contracts, the PSzÁF issued a statement on November 13, stating that the Act on Credit Institutions does not prohibit banks from making unilateral changes to contracts; however, there are certain restrictions.

According to Binder, there are two significant legal constraints. A financial institu-

S&P lowers Hungary rating to BB, outlook stable

04

Energy tax changes and MOL

07

tion is not allowed to introduce new fees or costs and cannot change the calculation method of existing fees if it is unfavorable for the customer. However, the act does not provide a definition for calculation method. Binder noted that besides legal considerations, market competition would also restrict banks in passing on the costs of the financial transactions duty to their customers. He added that such changes have to be published 60 days before they come into effect.

The various financial institutions in the Hungarian banking sector offer about 650 different forint-denominated bank account products, typically with about 19-20 different bank charges per account, said Binder. These vary from account-keeping fees to those for cash withdrawals. In order to make these products and charges more transparent, the PSzÁF will publish a bank account comparison on its website at the end of this year.

TAXING GROWTH AWAY Hungarian capital market players immediately expressed their concern over the extension of the financial trans-

The government has managed to find new ways to tax Hungary’s already overtaxed financial sector. According to the latest regulations, the general Financial Transaction Tax (FTT) rate is doubled to 0.2% with a HUF 6,000 cap per transaction, while cash withdrawals are taxed at 0.3%, effective from January 1, 2013. A new element of the law is the extension of the FTT to securities and derivatives transactions as of 2014. Parliament passed a bill on November 19 to modify the law on the FTT, which had been approved in July.

WHO’S PAYING? Customers’ worries that they will ultimately pay the increased tax are not unfounded. MKB, owned

by Germany’s BayernLB, informed its customers in a letter dated October 30 that it would increase its fees by

INCHING TOWARDS A HARMONIZED FTT IN THE EU In September 2011, the European Commission published a proposal for a common system of financial transactions tax within the 27 member states of the EU by 2014. It soon became clear that unanimity would not be reached within a reasonable period. As a result, in September 2012, eleven member states including Belgium, Germany, Estonia, Greece, Spain, France, Italy, Austria, Portugal, Slovenia and Slovakia decided to pursue enhanced cooperation in the establishment of a common FTT system.

According to the EC’s original proposal, the rate of the tax would be 0.1% on shares and bonds and 0.01% on derivatives contracts. The FTT is expected to deliver €57 billion in revenues each year with a loss of 0.53% of EU GDP. The drop in GDP takes into account a predicted 70% decrease in volumes of derivative transactions and a 10% fall in securities transactions. Exempt from the FTT are the issuance of loans, making deposits, cash transactions, spot currency and commodity transactions and insurance contracts.

The harmonized FTT’s would be collected nationally and spent by the individual countries. “A common FTT can raise billions of euros of much-needed revenue for member states in these difficult times,” said the president of the European Commission José Manuel Barroso. “This is about fairness: we need to ensure the costs of the crisis are shared by the financial sector instead of shouldered by ordinary citizens,” he added.

“There are EU-wide benefits to a common FTT, even if it is not applied EU-wide,” said Algirdas Šemeta, Commissioner for Taxation. “Those member states that have signed up for this tax will have the added bonus of new revenues and fairer tax systems that respond to citizens’ demands,” he added.

FINANCIAL TAXES IN THE WORLD Some sort of financial taxes have already been introduced in several countries, as a means of raising revenues or curbing financial market excesses. These are typically 10-50 basis points taxes on share trade. According to a 2011 IMF working paper, these taxes tend to raise less than 0.5% of GDP in the G-20 countries. The paper points out that the general trend in securities taxes has been downwards over the past two decades, “as governments seek to lower capital costs and boost the competitiveness of domestic financial markets in the face of globalization.”

The UK Stamp Duty Reserve Tax is considered to be a successful example, because it consistently raises an average of £3.3 billion per year, or almost 0. 3% of GDP, since 2000, the paper says. France, for instance, passed unilateral FTT legislation in February 2012 modeled on the UK’s stamp duty reserve tax. The tax became effective in August 2012.

However, the FTT has not always worked. The best known negative experience is that of Sweden. Sweden started taxing financial transactions in 1984 with a 0.5% tax on a purchase or sale of an equities. As a result, Swedish investors routed their purchases primarily through London. In 1991 the tax was abolished due to disappointing revenues.

Other failed attempts include Italy, Japan, Denmark, the Netherlands and Portugal.

action tax to securities and derivatives. According to a joint statement of the Budapest Stock Exchange and the Association of Investment Service Providers (BSzSz) published on November 13, the introduction of the tax ahead of anything similar for other members of the EU threatens both the future of Hungary’s capital markets and the internal financing ability of its economy. The European Commission (EC) has been – very slowly – pushing ahead with a European harmonized FTT since 2011.

While the BSE and the BSzSz acknowledged the importance of the government’s aim of achieving fiscal balance, they said that the early launch of the tax could hurt the competitiveness of Hungary’s capital market and the attractiveness of the Hungarian economy to investors.

The statement stressed that a unilateral introduction could easily drive investors away in a market where it only takes a couple of clicks to route trades to the financial center with the lowest transaction costs, taxes and regulation level. As a result, actual tax revenues

could be much lower than expected. According to Erste analysts, the tax could raise no more than HUF 10 to 50 billion per year.

The European Commission also strongly favors a common approach to the FTT over a ‘patchwork’ approach to avoid complexity and added burdens for businesses and investors. According to the EC, “the coexistence of various national forms of FTT currently applicable or likely to be applied in the foreseeable future in some member states implies a fragmentation of the market.” This could result in distortions of competition due to tax arbitrage, deflections of trade both between products and geographical areas, incentives for operators to avoid taxation through operations with little economic value as well as extra costs borne by them due to the complexities inherent in such situations. “This is of particular relevance in the financial sector where the tax bases are highly mobile by nature and choices depend often on the level of transaction costs and where the risk of a costdriven relocation is very high,” the Commission notes. GL

04 1 News BBJ

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bi-weekly

QUOTE OF THE WEEK

I’ve had this feeling for a while now, that Hungary is, and always will be my homeland, but it is not my world. I also felt that I essentially don’t belong there. The events of recent weeks have strongly confirmed this belief of mine.

NEWS FOR THESE PAGES IS TAKEN FROM THE BUDAPEST BUSINESS JOURNAL’S DAILY BRIEFING, HUNGARY A.M.

PÉTER RÓNA AFTER RESIGNING AS CO-CHAIRMAN OF THE LIBERAL LMP PARTY

Stars of David in the Hungarian Parliament

ECONOMY MNB RATE-SETTERS CONTINUE EASING CYCLE The National Bank of Hungary’s rate-setting Monetary Council decided to continue an easing cycle at a meeting on November 27, reducing the central bank’s key rate by 25bp to 6%. The 25bp cut – the fourth one in a row – was in line with market expectations. At the previous three monthly rate-setting meetings, the Council’s three internal members wanted to keep rates on hold in light of high inf lation, but they were outvoted by the four external members, who argued inf lation was contained and lower borrowing costs would support economic growth. Speaking at a press conference after the meeting, MNB Governor András Simor said the Council voted on two options: one to keep the rate on hold and the other to cut it by 25bp.

The latter proposal was supported by a “narrow majority”, he said.

S&P LOWERS HUNGARY RATING TO BB, OUTLOOK STABLE International credit rating agency Standard & Poor’s Ratings Services lowered its long-term foreign and local currency sovereign credit ratings on Hungary to BB from BB+ on November 23. S&P affi rmed the foreign and local currency short-term ratings at B. The outlook is stable. A press release by S&P said that the predictability of Hungary’s policy framework continues to weaken, which could affect the country’s medium-term growth prospects.

“The downgrade reflects our opinion that the government’s unorthodox policies, including exceptional measures applied to the financial sector, could erode the country’s medium-term growth potential”, and consequently the government’s efforts to sustainably reduce state debt. The government is likely to meet its fiscal targets in the short term, but the expected protracted weak growth will make this increasingly difficult on the longer run, the press release, cited by Dow Jones, explained. In assigning a stable outlook, S&P

Photo: MTI / Noémi Bruzák

MPs István Kolber, Ágnes Vadai and László Varju wear yellow Stars of David in the Parliament on November 27, in protest at Jobbik MP Márton Gyöngyösi’s words the previous day. The extreme rightist politician said that the biggest threat to the world peace was Israel, and “it would be high time to size up the number of Jewish people in Hungary, in the Hungarian Parliament and in the government, and to measure the national security risks these people pose to Hungary”.

His words were followed by a country-wide uproar, many people protesting by wearing the Star of David, either as a sign their origins or of solidarity. took into account the government’s success in reducing the fiscal deficit below 3% and the continued current account surpluses as against still-high fiscal and external debt and “the recurrent use of unorthodox, and possibly unsustainable, economic policies”.

NET EU TRANSFERS TO HUNGARY DROP IN Q3 Net transfers from the European Union to Hungary reached €600 million in the third quarter of 2012 and €2.1 billion in Q1-Q3, both down from the respective periods a year earlier, cash flow-based figures in the National Bank of Hungary’s (MNB) interim report on Q3 developments show.

The Q3 net inflow from the EU was down from an outstanding €1.1 billion one year earlier and was the lowest quarterly inflow since €530 million in Q2 2011. The Q1-Q3 transfers dropped by €570 million from last year. The net transfers were €720 million in the fi rst quarter of this year and €780 million in the second quarter. Except for a low figure in Q2 2011, each of the quarterly trans-

fers exceeded €1 billion last year. Fourth-quarter net transfers could be higher, however, considering the HUF 193.5 billion (€680 million) gross inflow the MNB reported recently as a main item lift ing its foreign assets in October. The net transfers arriving from the EU reached a quarterly peak at €1.7 billion in Q4 last year, and pushed the cash flow-based annual net EU transfers to a record high of €4.37 billion in 2011. The previous peak, of €2.73 billion, was posted in 2009, in the aftermath of the fi nancial crisis. In the preceding three years net transfers varied between €1 billion and €1.3 billion.

TEN-MONTH GEN GOV’T DEFICIT 114.2% OF YEARLY TARGET Hungary had a cash flowbased general government deficit, excluding local councils, of HUF 658.1 billion in the fi rst ten months of 2012, equaling to 114.2% of the full-year target, the National Economy Ministry said in a second reading.

The general government, excluding local councils, posted a HUF 112.3 billion deficit in October alone.

The figures are unchanged from preliminary data published on November 7.

Ten-month central budget revenue reached 77.5% of the annual target, with revenues from companies and individuals falling more behind the 83.3% pro-rata target than consumptionrelated taxes. Expenditure reached 80.2%, also below the pro-rata figure. The ratio would have been less – 78.9% – without paying HUF 134.8 billion in wages and family support due in November already in October because of the fourday holiday at the start of November, Econews calculated. The ministry noted again that the November budget position will improve by the same amount, and that without these transfers, the central government would have posted an October surplus of HUF 22.5 billion. Central budget revenues in the fi rst ten months totaled HUF 7,403.9 billion and central budget expenditure totaled HUF 8,133.4 billion, resulting in a deficit of HUF 729.4 billion. Ten-month revenues from companies reached HUF 820 billion or

58.5% of the annual target as against a 74.2% ratio one year earlier.

BUSINESS SECTOR EMPLOYMENT DOWN 1.9% YR/YR IN SEPT The number of employees in Hungary’s business sector, which includes private as well as state-owned companies employing at least five people, fell 1.9% in the 12 months to September, dropping for the 10th month in a row, data published by the Central Statistics Office (KSH) shows. The 12-month drop slowed from 2.4% in August although part of the slowdown could reflect base effects. The number of business sector employees fell by 36,300 from a year earlier to 1,829,100 in September, and was up a slight 1,100 from August. Business sector employment started to decline yr/yr in December 2011 after a steady year-on-year increase between May 2010 and November 2011. January-September employment in the sector was down also by 1.9% from a year earlier.

Business sector employment rose 1.3% last year and rose 0.3% in 2010, after falling 6.7% on the economic crisis in 2009.

1 News 05

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BUSINESS HUNGARIAN BANKING SECTOR RECORDS HUF 8.4 BLN LOSS IN Q3 The Hungarian banking sector recorded a HUF 8.4 billion loss in the third quarter and had an aftertax loss of 1.1 billion in the fi rst three quarters of 2012, fi nancial market watchdog PSzÁF reported. The sector recorded losses for the second quarter in a row, though losses fell from HUF 30.4 billion in the second quarter. The sector made a HUF 37.7 billion profit in the fi rst quarter.

Within the sector, banks operating as joint-stock companies recorded an after-tax loss of HUF 10.5 billion in Q3, branches of foreign parents operating in Hungary had combined pre-tax losses of 391 million. The only profitable segment in Q3 was that of savings cooperatives which recorded HUF 7.7 billion in the quarter. The data excludes the Hungarian Development Bank (MFB), the Hungarian Export-Import Bank and clearing house KELER. The contraction of net interest income of the overall sector has halted, with the Q3 figure only slightly off from the Q2 one. Non-interest income as well as extraordinary income worsened compared to Q2 but net write-offs and provisioning dropped, the report said. The sector’s performance reflected the polarized position of big banks, PSzÁF said. Five big banks produced fourfi ft hs of the profits at banks that fi nished the quarter in the black in Q3, and ninetenths of the gross losses reflected the massive losses of three big banks.

GOV’T EXPECTS BANK LEVY TO BRING IN HUF 80 BLN THIS YEAR

The government expects HUF 80 billion in revenue from the extraordinary bank levy in 2012, as banks had written off HUF 101 billion of the tax so far this year, National Economy Ministry Deputy State Secretary Péter Benő Banai said in response to a question during an online press conference. Revenue from the bank levy is planned at about HUF 144 billion in 2013. That is below this year’s originally planned HUF 155 billion because insurance companies will no longer pay the levy, but will pay a new insurance tax, Banai said. The deputy state secretary said that the government will submit the amendments related to the 2013 budget bill in line with legislation and Hungary will have an approved 2013 central budget by mid-December. The government approved the main figures of the 2013 budget bill as early as in July, but suspended budget discussions in the fall, citing a planned agreement with the IMF/ EU that could affect next year’s figures. Parliament amended the law on general government to accommodate the delay.

HUNGARY INVESTMENT FUND ASSETS INCREASE 3.1% IN OCTOBER Assets in investment funds managed by members of the Association of Hungarian Investment Fund and Asset Management Companies (BAMOSz) rose 3.1% to HUF 3,280 billion in October from the same month a year earlier, BAMOSz said. Assets in money market funds climbed 2.5% to HUF 982 billion. Bond fund assets increased 4.6% to HUF 361 billion. Assets in share funds rose 1.1% to HUF 247 billion. Assets of property funds edged down 0.2% to HUF 354 billion.

MOL UNAFFECTED BY HUNGARY DOWNGRADE, S&P SAYS The corporate credit ratings of Hungarian oil and gas company MOL are not affected by Standard and Poor’s downgrade of Hungary’s sovereign rating last week, the credit rating agency said in London.

S&P also maintained an unchanged stable outlook for MOL. The credit rating agency said high upstream prices, liquidity and access to long-term credit lines support MOL’s rating. They also expect its fi nancial policies to remain prudent.

S&P noted that the rating could come under pressure if it lowered its sovereign ratings on Hungary or Croatia (where MOL is present through INA), or if it revised its Transfer & Convertibility assessment on Hungary to below BB+. The rating agency added that it continues to consider MOL a government-related entity (GRE) because of the Hungarian government’s stated intention to keep its stake and influence in MOL. The Hungarian state holds a 24.61% share in the oil and gas company

BILL WOULD SCRAP EXEMPTION FROM UTILITIES TAX FOR MVM, MOL NETWORKS A bill submitted to Parliament by the national economy minister on November 23 would eliminate an exemption from the utilities tax for networks owned by Mavir, the transmission system operator of stateowned Hungarian Electricity Works (MVM), as well as for FGSz Földgázszállító, the transmission operator of oil and gas company MOL. “Although these utility lines... are of strategic significance, their owners are capable of paying the tax. On the principle of the proportional sharing of the public burden, it follows

that these taxpayers should not be entitled to these exemptions,” says the amendment. Parliament approved the tax – HUF 125 per meter of utility line – last Tuesday. The tax was originally set at HUF 100 per meter, but the amount was raised before the fi nal vote to ensure it generates the targeted revenue of HUF 30 billion. If MPs vote to end the exemptions enjoyed by the MVM and MOL units, revenue from the tax is likely to be higher.

OTP BANK PRIVATE PENSION FUND COULD WIND UP The board of OTP Bank’s private pension fund has proposed winding it up, business weekly HVG said on its website. The proposal is on the agenda at a general meeting slated for December 10. The proposal does not detail the timeframe for the move. According to the fund, just 1,200 of its 13,500 members are paying their monthly HUF 5,000 membership fee. The fund is the second-largest in Hungary after ING’s.

Almost all private pension fund members in Hungary have transferred – together with their assets – to the state pension pillar under a government initiative.

RAIFFEISEN REVIEWS STRATEGY AFTER HUNGARY TAX CHANGES Tax changes announced in the past weeks affecting Hungary’s banking sector are forcing the management of Raiffeisen Bank to reassess the situation and review their strategy, Raiffeisen Bank International CEO Herbert Stepic said in an interview in the Borsen Zeitung. Hungary’s government is treating the country’s banks like a “selfservice shop”, Stepic said.

However, he added that the bank was not planning to withdraw from Hungary

or any other countries in the region. Hungary’s government recently decided to make permanent a bank levy it introduced as a temporary measure in 2010.

an A-category issuer at the Budapest Stock Exchange.

AUDI COULD EXPAND HUNGARY BASE FURTHER FROM 2015

CONSTRUCTION AUTHORITY TO TAKE OVER DUTIES OF BUILDING HERITAGE AUTHORITY

German carmaker Audi will start production at a big expansion at its base in Győr next year, and the company’s man in charge of vehicle development has confi rmed capacity could grow even further from 2015. “The opportunities in Győr are wonderful, the quality is outstanding; it would be ridiculous to say that we will wind up developments with [the expansion to be completed in 2013],” Heinz Hollerweger told Hungarian automotive industry website Autopro.

VW head Martin Winterkorn said at a presentation at the Budapest University of Technology and Economics a few weeks earlier that the company’s capacity in Hungary could reach 300,000 vehicles a year, double the capacity after the expansion at the Audi plant starts up next year, Autopro noted.

CIG PANNÓNIA INJECTS HUF 250 MLN INTO NON-LIFE INSURANCE UNIT CIG Pannónia Life Insurance will inject HUF 250 million into its non-life-insurance unit CIG Pannónia First Hungarian General Insurance, CIG Pannónia Life Insurance announced.

The capital injection was necessary because of the unit’s quicker than expected expansion. CIG Pannónia Life Insurance said it would raise the registered capital of the unit by HUF 5 million through the private issue of new shares and would place an additional HUF 245 million in the unit’s capital reserves. CIG Pannónia Life Insurance is

DOMESTIC Hungary’s construction authority would assume the duties of the current building heritage authority beginning at the start of next year, a draft decree published on the government’s website reveals.

The authority – operating as departments of the regional or county government offices – will also oversee archeological heritage protection and the protection of listed buildings. Justifying the plan the government said the decision would cut the time and administration required at present to seek out authorization from the building heritage authority in construction matters.

WITH F-1 CONTRACT UP FOR RENEWAL, HUNGARORING TO UNDERGO IMPROVEMENTS The circuit of the Hungaroring Formula 1 race track in Mogyoród, near Budapest, must be changed and infrastructure improved to ensure Hungary can renew its F1 contract for 2017-2021, Zsolt Gyulay, who heads the track’s operator, told a parliamentary committee. “We must get them to renew the contract with us now, because if F1 head Bernie Ecclestone doesn’t continue to work for some reason, and money is the only thing that matters to the new management, then we will never be able to get an extension,” Gyulay said. “We have to renovate the tribunes [stands] and the press center, and we must rebuild the entire low-voltage network, to say nothing about building a modern structure for the medical treatment center,” he added. ■

06 1 News BBJ

energy BP could play role in Nord Stream gas line A director for BP in Russia said the company was in talks to work with gas company Gazprom on a possible British expansion of the Nord Stream pipeline. The Daily Mail newspaper in London reported on November 24 that BP was in “secret talks” with Gazprom to expand the twin Nord Stream pipeline to Britain. It quotes BP director for Russia David Peattie as saying talks were in the “early stage”. Gazprom said in June that it was considering a possible role for BP in the Nord Stream network.

The Daily Mail said that a 966 km (600 miles) extension for Nord Stream could be completed by 2014. The British government is said to favor a deal that would make Gazprom the second-largest natural gas supplier in the country.

Poland to invest $31 bln in energy by 2020 Poland will invest as much as PLN 100 billion (approximately $31.4 bln) in the energy sector, including nuclear, Prime Minister Donald Tusk announced on November 21. Overall, new power blocks slated to be built at state-controlled energy pro-

regional EU budget talks break down European Union president Herman Van Rompuy said on November 23 that a EU budget deal was within reach for early next year after a two-day summit collapsed without agreement, media reported. “Constructive discussion” by EU leaders showed “a sufficient degree of potential convergence to make an agreement possible at the beginning of next year,” Van Rompuy said, playing down the fact that the summit had ended without agreement on a budget for 2014-20. British Prime Minister David Cameron headed a group of austerity-driven nations demanding cuts in the next seven-year budget to match belt-tightening measures at home. Divisions between have and have-not nations on how to spend the EU’s billions caused further disagreements, AFP wrote.

Greek household incomes down 15% in Q2 Household incomes in Greece dropped by 15% in the

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viders by 2020 should create a total output of 7,000 megawatts, with a planned total net investment cost of around PLN 30 bln. According to data provided by the government, investments in nuclear power will cost another PLN 40 bln, the development of the natural gas infrastructure around PLN 18 bln, while projects in the crude oil sector are estimated to come in at PLN 1.8 bln. Poland currently relies on its vast coal reserves to produce about 90% of its electricity. Annual natural gas consumption stands at around 14 billion cubic meters, a third of which is supplied by Russia.

Norway challenges Russia with new gas pricing in Europe Norway’s Statoil has signed a 10-year gas supply deal with Germany’s Wintershall, based on spot prices that challenged Russian gas export monopoly Gazprom, which insists on oil-linked prices. Statoil said it would deliver 45 billion cubic meters of gas worth $17.4 billion at current prices to Wintershall. Statoil said the gas would be shipped to Germany through existing infrastructure and be priced “on com-

petitive terms”. The European Commission launched an investigation earlier this year, focusing on suspicions Gazprom was hindering the free flow of gas across the EU’s 27 countries, preventing supply diversification and imposing unfair prices on its customers. European power and gas suppliers have to sell the gas on to customers at retail prices linked to the freely traded spot market, which can be lower than the price paid to Gazprom.

EC dismisses claims it aims to cap first-generation biofuels use The European Commission does not plan to “cap the production and consumption” of first-generation biofuels as it moves to overhaul its biofuels policies, but it will “cap the incentives” for their production, Hans van Steen of the EC’s Directorate-General for Energy said on November 20 at an industry event in London, Platts reported. His comments came on the heels of an EC proposal released in October that would reduce the use of first-generation biofuels to 5% of all energy used in transportation by 2020.

The original goal set in 2009 allowed for a maximum of 10%

use of first-generation renewable fuel. The proposal, which is unlikely to be voted on and fully implemented before 2015, would also eliminate subsidies for food-based biofuels after 2020.

Europe must accept shale gas, OMV CEO says Shale gas is a necessary part of a sustainable European energy mix, the chief executive of OMV AG told The Wall Streets Journal in an interview.

Gerhard Roiss, head of the Austrian oil and gas company, said European Union agencies “should start a communication campaign to show the impact for Europe if we don’t go into shale gas”. Without such a move, he says, energy-intensive industries, such as the petrochemical industry, may soon begin to leave Europe for the United States because of the abundance of cheap energy there. According to Roiss, for industries looking for investment opportunities, “this is a big impact and it’s happening now”. The irony, said Roiss, is that, while exploitation of shale gas using hydraulic fracturing, or “fracking”, is widely opposed in Europe, an energy shortage has resulted in the

importation of coal – a much more polluting fossil fuel – from the States.

Hungary boosts tax on energy firms Hungary will boost the tax on energy utility companies to help hold down the budget deficit to 2.7% next year, the National Economy Ministry said in a statement on November 16. The tax on energy utilities is set to rise to 50%. They can reduce their tax via investments, though not beyond the level of the 19% general corporate tax rate. That is part of measures to save HUF 60 billion ($268 million) and cut the deficit by 0.2 percentage points, while also raising reserves by a further HUF 30 bln in case the new measures prompt a cut in the European Commission’s economic growth forecast for Hungary, the ministry said.

rope, media reported. Bulgaria also signed a new long-term gas-supply contract, which involves a 20% price cut from January 1, Prime Minister Boyko Borissov told reporters in Sofia on November 15. Gazprom kept the link between oil and gas prices in the contract and will ship 2.9 billion cubic meters of the fuel a year, the Moscow-based company said in a statement.

Russia, Bulgaria ink deal on South Stream pipeline stretch Bulgaria has signed an investment agreement with Gazprom, Russia’s gas export monopoly, to build the South Stream pipeline, which will ship natural gas across the Black Sea and Bulgaria to Eu-

Gazprom and Slovenia sign final investment decision on South Stream Russia’s giant Gazprom and Slovenian company Plinovodi d.o.o. signed a final deal to build the Slovenian stretch of the South Stream gas pipeline on November 13, the Moscow-based gas company said in a statement. According to Gazprom CEO Alexei Miller, the Slovenian stretch will be 266 kilometers with two compressor stations. Gazprom has previously signed similar deals with Hungary and Serbia. The building of the South Stream gas pipeline will start on December 7 on the Russian coast of the Black Sea, Leonid Chugunov, head of Gazprom’s project management department said on November 8. ■

violence towards the group is more frowned upon, according to the latest survey by the STEM agency.

Seventy-one percent of the respondents expressed some level of dislike for Romani people, only 4% less than in April 2011. Yet, 69% of people are opposed to violence against the Roma, which is a third more than at the

same time last year. Those supporting violence make up 16% of the respondents, while a year ago it was also 25%. According to the survey, almost a quarter of the population has no opinion about or views members of the Romani community the same as any other, while 5% have a good or very good opinion of the minority. ■

NEWS FOR THIS SECTION IS TAKEN FROM THE BUDAPEST BUSINESS JOURNAL’S DAILY BRIEFING, REGIONAL TODAY NEWSLETTER AT WWW.BBJ.HU/STORE/NEWSLETTER-PACKAGE

second quarter, compared to the same period a year earlier, Kathimerini reported citing data from the Hellenic Statistical Authority. Welfare benefits went down by 9.5% over the same period, data showed while indicating a 7.3% reduction in consumption. At the same time, Greek households were hit by a 37% increase in taxes, according to the statistics agency.

Households are estimated to have lost €5.4 bln in disposable income.

EBRD will help Romania access EU funds The European Bank for Reconstruction and Development and the Romanian government have signed a framework agreement to help the country make good use of the funds allocated by the European Union for projects that aim to boost the country’s economic and social development, the Londonbased lender said in a statement. The framework signed on November 21 in Bucharest paves the way for the EBRD to support sector reforms

and help define operational priorities in the areas of energy efficiency, development of municipal services and projects, and support for attracting private resources and introducing alternative financing mechanisms for infrastructure.

Anti-Roma and antiSemitic sentiments commonplace in Slovakia According to a survey conducted by the Faculty of Social Sciences of the University of Ss Cyril and Methodius in Trnava, Slovakia, showed that many Slovaks are sympathetic to extremist ideas and policies, the SME daily reported. The survey polled the opinions of 761 people, and found that 71% of them agreed with at least one of 17 opinions, defined as “radical”. The statements included opinions such as: top state positions should be given only to native Slovaks, and that Slovakia’s interests should stand above those of the European Union (a combination of 77% agreed with at least one). The police and the courts should

treat Roma stricter than nonRoma (66% agreed); and Jews have too big an influence on the economy and administration of Slovakia (41% agreed).

More Czechs disapprove of violence against Roma Negative attitudes among Czechs towards the Roma minority have stayed the same since last October, but

1 News 07

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Energy tax changes only moderately weigh on MOL, analysts say MOL investors worry over the impact of tax changes and the corruption case in Croatia.

BBJ GABRIELLA LOVAS

The stock price of oil and gas company MOL has primarily been driven by external factors, such as the worries over the European debt crisis and now the United States’ socalled “fiscal cliff”. According to Buda-Cash analyst Bálint Török, this can temporarily change due to an important piece of corporate news or a tax change. Currently, investors are focusing on the increased political risks in Croatia and the acts of the Hungarian government. Török stressed that an important domestic risk is that the government can surprise investors both as a regulator and as a shareholder.

He added that a good example is the increase of the Robin Hood tax on energy suppliers, which only weighs on MOL to a moderate degree.

At the operating level, 2013 will not be as good as this year for MOL, KBC Securities analyst Péter Császár said at a press briefing. MOL’s production is expected to decline, as new projects cannot offset the natural depletion of onshore fields in Hungary and Croatia.

However, at the net profit level, the company’s performance is expected to remain similar to that in 2012. Despite the increase of the Robin Hood tax, MOL’s overall tax burden could even be less than this year, as the extraordinary sectoral tax, which reached about HUF 30 billion per year, will be scrapped in 2013.

The story of the Robin Hood tax in Hungary is almost as gripping as that of the legend of Sherwood. The tax was introduced as a temporary measure by Gordon Bajnai’s government for twoyears in 2009-2010. However, the tax remained in place, and the Orbán government threatened to increase its rate from the original 8% to 16%, although eventually it was set

OIL PRICE TRENDS The good news is that the derivatives markets indicate a significant $20 drop in Brent crude oil prices by 2018.

Next year, oil prices are expected to move in a trading range of $95-110. Since the beginning of 2011, Brent prices have been driven by supply shocks such from the tension in Egypt, through a loss in Libyan output to the conflicts in Iran, Syria and the Ghaza strip. In 2013, KBC Securities expects a tug-of-war between weaker fundamentals and supply anxiety.

In the OECD countries, supply and demand is now in balance, Császár said. However, investors are still concerned over spare capacities, which have shown a steadily declining trend during the past 18 months.

The problem is that with a low level of spare capacities, unforeseen oil production outages can quickly boost oil prices.

Although both the market and the International Energy Agency (IEA) expect a slight increase in spare capacities, the agency foresees an increase in oil prices in real terms. The IEA’s 2035 oil price target of $125 per barrel is significantly higher than the price indicated by derivative markets. The market consensus is $108/bbl for next year and $107/bbl for 2014. Oil prices are expected to remain well over $100/ bbl in 2015, too.

According to the IEA’s latest oil market report, oil futures prices fell to four-month lows in late October and early November amid mounting pessimism over the global economic outlook. Prices fell further after the U.S. Presidential election on worries over the ‘fiscal cliff’ looming at end-year, with Brent last trading at $109.25/bbl and WTI at $86/bbl.

at 11%. According to the government’s third package of austerity measures released this autumn, the rate of the Robin Hood tax will be 31% as of 2013. Thus, the corporate income tax rate of energy service providers will reach 50%, but taxpayers will be able to deduct their capital expenditures from the tax payable up to 50% of the tax paid above the 19% rate. Császár pointed out that with the deductions, the effective tax rate would be only 15.5% or even lower, as the tax base of the Robin Hood tax is different from that of the corporate income tax.

However, according to a last-minute modification to the law, only investments that create new jobs will be deductible, said Császár. He pointed out that the problem is that MOL’s investments in Hungary are primarily related to maintenance, which result in relatively few new jobs. He added that the impact of the

modification couldn’t be estimated until the details are published. Analysts agree that the increase in the utility tax does not affect MOL, or only insignificantly.

CORRUPTION CASE IN CROATIA Croatia’s former prime minister Ivo Sanader was sentenced to ten years in prison in a first instance ruling of a court in Zagreb on charges of accepting a bribe of millions of euros to give MOL full management rights in Croatian state oil company INA. Both MOL and Hungarian analysts consider this case a political rather than a business issue.

Finance Minister Slavko Linic reportedly said that the corruption verdict against Sanader might help the nation change INA’s shareholding agreement with MOL. “Regardless of the verdict, the government is dissatisfied with

the shareholders agreement, and I think that it will be subject to supplements and amendments,” Linic was quoted by MTI as saying on state radio. “An agreement could be signed that is satisfactory for both sides,” he added. Linic also said negotiations between the government and Budapest-based MOL are under way, adding they are “not easy.”

MOL, which owns 49.1% of INA, won control of the company in a 2009 shareholding agreement. Croatia, which has 44.84% share, has tried to increase its influence in the company during the past two years.

Following the sentence, MOL issued a statement saying that the company continues to reject categorically the accusations made

against MOL as part of the case against the former prime minister of Croatia.

MOL raised concerns over some of the statements by the court, as they “made factual misconceptions in support of this initial ruling.”

MOL stated that as the largest foreign investor in Croatia it reserves its rights to take action internationally if this should be necessary. ■

1992-2012

BBJ

20

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Anniversary

YEARS

IN BUSINESS

“I loved every single sleepless second” Twenty years ago, on November 9, 1992, the first issue of a new weekly newspaper, the Budapest Business Journal hit the streets of the capital. Only a little more than a year later, an adventurous American, Stephen O’Connor bought the paper from its founder – those who have been faithful readers of the BBJ for the past 20 years tend to remember him as the man behind the strong BBJ brand. O’Connor now resides in Moscow with his family and works as an advisor for the government of Tatarstan, but when asked by us, he happily recalled the old days back in the early ’90s when the paper was established. As he puts it, he loved every single sleepless second of those days.

Q: WHAT COMES TO YOUR MIND WHEN YOU THINK OF BUDAPEST IN THE EARLY ’90S? A: Budapest was all the rage in America 20 years ago and I happily confess I was an early victim of the enthusiasm.

Media reports documented the Soviet troops leaving through 1991 and foreign capital pouring into Hungary (the majority of which was from Germany and America) and despite other glowing reports here and there about Prague etc, Budapest really was the place to go for real transformative growth and business opportunities due to the country’s heritage of “Goulash Communism” and its’ storied past of heroic revolt against Soviet tanks.

In fact, Hungary received the lion’s share of all foreign investment over all other Eastern European countries combined (including Russia) from 1989 until approximately 1995 – quite impressive for a country with just 10 million people.

After traveling and living abroad as a schoolboy, I had

always dreamt of living and working in Europe as an adult and I finally came to a point in my life that I was going to act on it or forever kick myself for not at least giving it shot.

Interestingly, although I tried, no company in America would simply hire you and then send you abroad if your stated goal was to work in Europe. Finally, I realized that I had to take matters fully into my own hands.

Q: WHY HUNGARY? A: Another part of the world almost got me – South America, specifically Suriname, on the northeast corner of the continent, which in the early ’90s had many positive indicators.

Plus, my uncle had recently returned from there telling me he saw signs of encouragement. But he also said the same about Budapest.

After reading so much about the changes in Hungary, but still not sure which direction to go in, I happened to see a stirring TV commercial by General Electric early one Sunday morning on the

national talk show “Meet The Press”. It was called “The Lights Are Back On In Budapest” and was beautifully shot, showing the lighting of the Chain Bridge while the Hungarian Rhapsody played in the background. The ad was featuring GE’s latest investment in the great Tungsram Lighting Company. It also displayed beautiful Hungarian women dancing the waltz in the pre-redeveloped New York Coffee House.

Well, that was all I really needed to see and I booked a 30-day round trip ticket the next day to Budapest!

Q: HOW WERE THOSE FIRST DAYS IN BUDAPEST? A: A few weeks later I landed on a Sunday in mid-September 1992. I was 29 years old and I was on a mission to find a job and an adventure. I had $500, seemingly the only dark suit and tie with black socks in the whole country, and a batch of my CVs highlighting my commercial real estate and former copier sales background. I also had a contact name to one person in the

country my uncle happened to know, who said I could stay in her hospitalized mother’s flat for 30 days for $100. I thought that was convenient because that’ s how long my round trip ticket lasted.

Monday morning I took the metro from Moszkva tér down to Pest in my suit (attracting much staring from my new countrymen) and eventually came upon the East-West Business Center. I entered the building and took the elevator to the top floor and proceeded to cold-

call every office in the building. I walked into each office trying to pronounce my best Jónapot kívánok and asked to speak to the manager. Amazingly I met almost every one of them, mostly because I spoke English. I handed them my CV and told them I was looking for a job.

Q: HOW DID YOU END UP AT THE BBJ? A: I made many new friends that day and was quickly invited to several interviews and even a party at the Fészek

Artist Club on Thursday of that week. It was here I met someone who told me about a man who wanted to launch an American-style Business Journal. I instantly knew how valuable something like that could be in Budapest as these same types of local business papers were essential for me when I was in business in the States. I quickly asked to be connected to this fellow who was endeavoring to do this.

The next morning at 8 am I met a man named Mike Stone for breakfast at the new

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McDonald’s on Blaha Lujza tér. He was a former lawyer who loved writing and journalism, and had worked his way up to be the former editor of the Orange County California Business Journal. He told me he and his lawyer wife Patrica had recently moved to Budapest for an editorial job at the fledgling Budapest Post and realized the potential for a Business Journal.

They pooled their resources – much of it coming out of Patricia’s retirement account if I remember correctly – and founded a company with approximately $70,000.

I immediately joined him in his enthusiasm for it, explaining how helpful these products were to me in the past when I was in the commercial real estate industry and office equipment sales. Stone hired me on the spot (for $300 a month) to be a journalist of all things and write the first commercial real estate article for the first issue of the Budapest Business Journal, which he wanted to bring out as soon as possible.

By that Friday I was working with Stone and his wife

and the managing editor, another American, John Callan, who had worked for Mike in California. The BBJ’s first office was in two rooms with three phone lines (which did not work when it rained) out in Buda on Táragató út in an old run-down Soviet style worker’s hotel. I believe that building is now the home of The International Business School of Budapest, which seems fitting.

Other key members early on were Zoltán Bogáthy (now the owner of the Gourmet shops in Budapest called Culinaris) who

was our guide to all things in post-communist Budapest and our “Jack Of All Trades”. The two of us bounded pretty quickly along with other great people and new friends like Hungarian-American Frank Marton who was there as our first ad director – along with two young recent graduates from Cornell University who would be our first two staff journalists: Robert Williams and Jill Wiseman. They joined us a few weeks after I arrived and

these two especially did a lot of the early heavy editorial lifting, with Mike driving them to produce upwards of five full stories a week each. Alexandra Hendrickson who was a former executive in New York at American Express then joined us. She wrote our finance pieces. And for the political sphere Tibor Vidos contributed a weekly “Parliament Watch”. To top it all off there was the wonderful old lawyer, Dr. Imre Móra, who began a weekly legal column (and whom I later convinced to write a his-

tory column instead). Móra would effectively become a surrogate grandfather to me and my wife and first-born daughter through much of our time in Eastern Europe.

Many may also remember we published a beautiful book years later of all his compiled articles called Budapest Then & Now. Q: WHAT WAS YOUR FIRST JOB AT THE PAPER? A: I had not touched a typewriter since third grade (let alone a computer), but I did

my best and turned in my very first article. Stone moved me out of journalism faster than a New York City second and made me the head of the soon to be very popular “The List”. And a few weeks later I became the advertising director when Frank took a job with the famous Ed Bush at AHICO. I was now in the perfect position for my skill set.

All of us in these two small rooms were in an MBA-like situation learning the newspaper business, along with the beauty of the Chinese wall known as the separation of editorial and advertising. We were also learning by osmosis all things business from shareholder rights to the differences between equity and debt. Plus we quickly learned how important it was to bring in revenue as fast as possible or we would not survive another week. We became a band of brothers and sisters and I loved every single sleepless second.

Stone was a brilliant, volatile editor who seemed to be right out of central casting: hard charging, hard drinking, curious and just, mentor-like one minute and drill instructor the next. We all wanted to kill him half the time and loved him at the same time.

We were all in it together and we knew we were producing something not seen in this part of the world for more than 75 years.

Investigative journalism mixed with a pro-business mission statement was simply unheard of east of the Elbe River until that moment and the laws of the land did not even support our right to do what we were doing.

But we charged forward because there was no one telling us to stop. Everyone basically learned, or tried to learn, each other’s jobs in order that we could survive another day and finally come out with the paper.

Q: LAUNCHING A PAPER IS ONE THING BUT KEEPING IT AFLOAT IS ANOTHER. HOW DID YOU DO IT? A: The first editions hit the streets on November 9, 1992. I then proceeded to cold call every single business in Budapest with a copy of the first BBJ under my arm door to door to door. In those days no one even knew where anybody was located and when it rained (as I mentioned) the phones went dead because Budapest was still using the Wehrmacht telephone system built in World War II.

There was no choice: I (and the reporters) had to hit the streets. I can confidently say that between 1992 and 1994 I walked up and down every körút and utca in Central Pest and Buda in order to sell advertising. I was literally knocking on ever single door in the city that had lights on if it appeared to have office workers in them resulting in impromptu Unicum shots, heel spurs and, thankfully, ad sales!

Twelve months went by fast and the Stones (with a young son in tow) began to say they wanted to go home and could not commit very much longer to Hungary. Mike said he wanted to either shut the paper down or sell it. Meanwhile, I had fallen in love with the city, its people, the paper, and the entire business – simultaneously becoming the face of the paper across town even selling ads in places like the old Fregatt Bar on Molnár utca late into night, always with the paper and a rate card under my arm.

So, I decided I wanted to own the paper and run it myself. I negotiated to buy the paper for effectively one times cash flow – which was about $275,000. I really was not sure how I was going to do this just yet, but my enthusiasm and belief in the future of the paper and the trajectory of the economy – along with the inability of imagining doing anything else – drove me to “just do it!”

I spent a few weeks going to the heads of some of the biggest Western companies and advertising agencies, asking them to bet on me if I became the publisher with their 1994 budgets. Amazingly many said yes, and even signed advance contracts, some for as high as $30,000 where previously I was only signing contracts averaging $600 to $1,200!

With a few of these advance contracts, I flew home for Christmas and was able to raise $70,000 from a few old buddies and I returned with a cashiers check made out to Stone for that amount – equal to the money they had put in a year previously.

Stone told me he would not agree to sell unless I signed a personal guarantee for the full $275,000. My lawyer friend Adam Dickstein at Arent Fox came to my help and was my advisor and stated if the deal went through I would owe them for his time at 30% on the dollar. If the deal did not go through I would owe them

nothing. He told me under no circumstances should I sign that agreement because the risk was too high and no matter what happened “I would be chased around the world for the full amount for the rest of my life.”

I hesitated for about one minute before I signed it, because I believed deep in my gut that through sheer force of will, somehow it was all going to work no matter what.

Q: WHAT WAS THE NEXT PHASE OF DEVELOPMENT? A: Knowing that I could not sell everything going forward if I was also going to have to figure out how to manage a paper, I looked high and low for Hungarians who could sell, which at the time was practically impossible. I then found two young people, an American English teacher Doug Wheeler (now COO of internet company Personal in Washington DC) and a spunky Irish woman, Margaret Ann Dowling (now managing director of Marquard media in Hungary), who was working for the Avonemore Milk Company in eastern Hungary at the time, where she said she was “shoveling curds and whey”.

I taught them the basics of selling that I had learned, and let them loose. The three of us then proceeded to sell $970,000 in advertising over the next 12 months.

I would then take $15,000 of cash flow out of the bank each month to pay Stone further down, with a balloon payment at the end of the year. We therefore bought the whole business almost entirely out of cash flow.

I even understand that in 1994, with just 5,000 weekly BBJ copies on the street, we outsold in advertising the national daily Népszabadság, which had 700,000 copies across the country per day!

And that is how the BBJ came to be and made it through the ordeal of the early changes after the fall of the wall. And within a year, we launched the Warsaw and Prague Business Journals.

But I guess the rest of the story should finally go into a book, as memory of Hungary is rich. It is a place that welcomed me with open arms, giving me the chance to make the place just a little bit better, being a part of something bigger than myself and allowing me to even experience the American dream.

Budapest was the best decision of my life. ■

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Hungary’s drive for IMF deal continues to lose momentum A deal between Hungary’s government and international lending organizations is drifting farther beyond the horizon by the week. The absence of any deal and the strings attached, the same strings the government never really wanted, have several implications for the Orbán administration and the economic future of the country.

When Hungary’s top negotiator Mihály Varga conceded to public media that there might well not be an agreement in place with the International Monetary Fund this year, it was anything but a shock to anyone who kept an eye on the events unfolding over the past year.

The presence of the IMF and the European Commission is a shackle that the government never really wanted, but saw fit to dangle as a prospect in the public domain to buy some time.

In that respect, they have succeeded to the extent that the “Turkey game” may well be renamed in future economy textbooks.

But the costs of this adventure are still due and the day is fast approaching when it will be time to pay up.

The Hungarian state has an issuance plan of €4 billion to finance rollover debt this year that the state debt management agency ÁKK has been putting off, expecting to reap the rewards of the boosted investor confidence and lower yields from an IMF deal in place.

If formal as well as informal government communication is to be believed, the takers are ready to spring at the first sign that a foreign currency issuance will take place and gobble up the bonds. Deputy chief executive of ÁKK Sándor Borbély said the entire process can be orchestrated in a matter of weeks once the favorable terms are in place, i.e. an IMF deal has been concluded. In the meantime, the ÁKK continues to push ahead with its scheduled forint auctions, which are

seeing heightened demand weekly, with the debt manager already well above its annual target in terms of forint-based issuance.

The main problem is that the view is short-term, survivalist even.

The government has several implications to consider if it wants to dodge the bullet and go without the IMF and state the fact on record.

WEIGHING PROS AND CONS The economy has already sustained several smaller shocks from the tug-of-war going on between the organizations, sometimes big ones.

While Orbán is coming down hard on the socialist MSzP for surrendering to the terms of the IMF in 2008, he in fact did the same thing. A senior government official confirmed off record that when the “brokers came back from their holidays” in January, as spokeswoman of the governing Fidesz party Gabriella Selmeczi put it, alarm bells were ringing left and right.

This was the month when the forint weakened to historic lows of 324 against the euro and government bond yields were at 10% on the secondary market. Just after Parliament passed a central bank law it was explicitly advised not to, and Prime Minister Orbán stated that an IMF deal would be nice but we are OK without it.

Shortly afterwards, head negotiator at the time Tamás Fellegi basically pleaded to be shown a dotted line to sign to avoid what was rapidly panning out to be a major economic disaster.

WEAKNESS AS A VIRTUE Being the exposed and vulnerable economy that it is, Hungary’s pains are only compounded whenever there is a negative turn in international sentiment, like the U.S. economy producing negative figures or concerns mounting about Greece’s departure from the eurozone.

The country could and has benefited from favorable messages, such as quantitative easing decisions reached by the U.S. Federal Reserve and unwavering commitment from the European Central Bank to do everything in its power to protect the common currency. The advantages of this merriness have allowed the forint to make gains against the euro, nowadays hovering around 285, while government bond yields are also lower, at 6-7%.

The conditions are now ideal for sealing an IMF agreement which could then fulfill its intended purpose of functioning as a safety net against the impact of external effects and could lead to additional currency strengthening and give strong support to the hawkish majority at the central bank’s Monetary Council to continue with the rate-cutting cycle started in September.

A FOND FAREWELL But, more than ever, the government is likely seeing the reasons to back out of a deal stacking up.

A strong forint has many advantages, but given the conditions, the ability to fuel the economy is not one of them.

Almost entirely reliant on exports and the state of affairs in its biggest trading partner,

Germany, Hungary and major businesses operating in the country are actually interested in depreciation. As business magnate and head of the industrialist umbrella organization Sándor Demján told the Wall Street Journal earlier this year, ideally, a euro should be able to buy around 310 forints.

The government has constantly argued for a stronger currency to support the large groups of households that are indebted in foreign currency policies, where installments have skyrocketed whenever the macroeconomic environment worsened. One of the main goals of the already introduced relief efforts, such as the early repayment scheme, was to free up disposable income that regularly went to paying off debt, with the hope it would appear in the economy.

So far, this idea hasn’t come to fruition if the annual 1.5% of GDP contraction seen in the third quarter is any indication.

Mihály Varga has expressed high hopes of the household sector recover-

ing and playing a bigger role next year (through his often mocked comments about the population going out to buy the refrigerators that they did not dare purchase earlier seeing the shaky state of their finances).

LOOKING AHEAD In terms of Hungary’s debates with the European Commission, which could see the country lose some HUF 1 trillion in sorely needed development funding, the government is also facing political pressure.

While the latest Commission forecasts show that the massive correction package compiled by the Economy Ministry in October, amounting to some 2.5% of GDP, will be sufficient to keep next year’s budget gap below the 3% tolerance threshold, it projects the gap will widen again to 3.5% of GDP in 2014 because of feasibility concerns.

What this would mean for the government is that the ongoing excessive deficit procedure in effect against Hun-

gary since its accession to the bloc in 2004 would likely not be lifted next year as hoped.

Orbán said the government sees that “no matter what we do, it’s never enough” and suggested further tax increases on the business sector to cover whatever hole Brussels sees in the future finances.

However, that will not be an option under the watchful eye of the IMF, which has already denounced the onthe-fly taxing policies of the government and urged structural reforms instead. Ones that would ultimately affect the general population, which is the line in the sand Orbán said could not be crossed.

IMF control and the pressure to implement further changes that are set to eat into the pockets of the voting public translate into one thing: the government having no choice but to introduce de facto austerity measures for an election year.

That is as good an argument as anyone in power could want to wave farewell to the international lenders and hope no one notices. GR

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In strategy we believe The Hungarian Government doesn’t exactly have a reputation of being fond of multinational companies. The freedom-fighter terminology of Prime Minister Viktor Orbán and his staff is often aimed directly at the players and the mechanisms of traditional market economy, and much of the burdens of recent austerity measures are directed against these corporations. While the government’s actions, along with the unpredictable economic policies, make Hungary a rather hostile environment for most MNCs, a series of strategic partnerships have been announced with a privileged few over recent weeks.

Although the rumors around these deals are rather controversial, the BBJ have collected what we know about these partnerships to see whether these contracts are a flash in a pan, all show, or if real business is being made.

BBJ ZSOLT BALLA

“It’s not necessarily, and definitely not only, a communication tool, I think that is an unjustified approach,” says Zsuzsanna Beke, head of PR and government relations at Hungary’s pharmaceutical giant, Richter Gedeon Nyrt. She says she can speak for Richter, and not for the other companies, especially not for those whose nego-

tiations may still be underway (deals are announced publicly only when they are signed by both the government and the company, so it is unclear if any more negotiations are in progress and if any more contracts are likely), but for her company, the document contains various, crucially important and specific points.

“What was of the highest priority for Richter were the details on research and development funds,” she says. According to the treaty, Richter Gedeon will be able to subtract the cost of R&D investments from its regular corporate tax, which counts as a huge achievement in an environment where taxes are becoming higher and benefits are becoming fewer by the day. Although the deal doesn’t highlight a deadline or an exact timeframe for this regulation, it states that the government intends to keep this undertaking “in the long run”. Richter, in return, undertook to invest at least 8% of its revenues in Hungary-based R&D projects, to employ at least 800 fulltime equivalents in its research and development department, and to involve as many Hungarian universities and research centers in these projects as possible.

The second important step for Richter was an undertaking by the government that states, although in a rather obscure manner, that whatever actions or austerities may come in the framework of its Széll Kálmán 2.0 action plan, regulations concerning the health budget will not harm the competitiveness of Hungarian pharmaceutical producers. Or at least, the government will pay close attention that they should not do so. Or at least, the government will intend to pay close attention to it.

And while market players have a good reason to be doubtful of such vague promises, Beke is optimistic: “what is important for us after the regulations and austerities of the last year and a half, is that it should not get any worse than this,” she says. “As such, we definitely consider this deal a positive devel-

opment, and I can say that the contract was a result of a real dialogue between the government and the company, which is also of huge importance. It wasn’t a case of a ready-made proposal and a ‘take it or leave it’ attitude, but after the government’s inquiry we had a chance to discuss both the areas and the actual agreements the contract will cover,” Beke explains.

‘I think it is a case where the government has realized that there are only a few Hungarian companies whose successes are clear on both a domestic and an international level, and, like every normal government, it decided to help a few of these companies with these partnership agreements,” she opines.

Richter, as one strategic partner of the government have a good reason to stay on the positive side, although market analysts, all of whom preferred to remain anonymous, are more doubtful about the intentions of the recently announced treaties, and highlight questions that remained unanswered among the celebratory statements of the recent deals.

The first of these questions concerns the government’s priorities and methodology in choosing the companies it intends to negotiate and sign a deal with. So far we know of six multinational companies who have already signed an agreement: Coca Cola, Daimler AG, Alcoa Köfém, Richter Gedeon, Suzuki and Hankook Tires, but it remains unclear how these companies were chosen and whether there are any more to come in the near future. Statements on behalf of the government such as “not all multinational companies take their profits abroad”, only make it more difficult to understand why and how a government that uses such anti-globalization jargon could partner up with certain companies and lash out at others.

“I strongly believe that these strategic partnership contracts are mostly communication tools used to offset the reputation of

the government as being against multinational companies,” one analyst notes.

“Also, they intend to show that however ad hoc and unorthodox the government’s economic policies are, there is room in this environment to sign longterm, strategic deals, and that the government can be counted on as a serious, predictable and reliable partner,” he adds.

Although this approach may seem less favorable and definitely more pessimistic, the content of the contract between the government and Suzuki looks a lot less like Richter’s hardnegotiated, clear-cut treaty.

The five-page document in Suzuki’s case doesn’t contain any specific details and stays on a very general level of Suzuki “aiming to maintain its high standard production activities” in Hun-

gary and the government “expresses its intentions to improve the economic environment” in return. Lacking any tangible results or undertakings by both parties, it is difficult to see any reason of having it, other than the celebration and the press releases that followed the announcement.

Market rumors around the six contracts are also controversial. Although it is unknown whether there are any other deals under discussion or not, some analysts suggest that companies are queuing to be considered as a strategic partners, in the hope of gaining some extra benefits, similar to those Richter managed to negotiate in a largely unfavorable environment. Contrary to this, others believe that companies try to avoid such deals at all costs,

as they don’t necessarily want to be associated with the current government, and fall into the dubious category of “governmentfriendly companies”.

“I think that’s a completely wrong understanding of the situation,” says Zsuzsanna Beke. “The Hungarian State has a 25% share in Richter, but it doesn’t make Richter a government-friendly company in the sense this term is used by the media. What this treaty provides us with is most importantly a reference point in our future relationship and in our future discussions with the government. In light of the recent economic changes it is difficult to see how much it will be worth in actual negotiations, but in about six months we will definitely have an answer for that,” she concludes. ■

12 2 Business BBJ

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2 BusinessTrends 13

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Careless users

November rain

Shop stop

Cardholders ignore basic security

Domestic economic expectations remain pessimistic

Negative sentiment on Hungary’s retail market

1-2-3-4

-22.4%

APPROXIMATELY 1/10TH OF HUNGARIAN CREDIT CARD PIN CODES Every tenth cardholder who changes his card’s PIN code chooses the combination 1-2-3-4, recent research

by Data Genetics showed. Every six people out of 100 entrust their money to 1-1-1-1 and two in 100 use 0-0-0-0.

The top four codes on the combination list covers 20% of all the PIN codes used by bank cardholders.

Even if four-digit PIN codes offer 10,000 different combinations to choose from, 10% of cardholders select the simplest combination, said Data Genetics based on 3.4 million credit card combinations leaked out by hackers earlier. Analyzing the first 20 most popular codes, the favorites are based on the repetition of one or twodigit numbers. The least popular PIN is 8068: out of 10,000 cardholders, only eight choose it.

Even if not represented in the Top 20, many PIN codes are based on the date of birth of the holder. “If all the codes started with 19 were combined, it would give the fifth most popular code group,” pointed out Balázs Kárpáti, CEO of Brink’s Magyarország, a leading market player in cash logistics in Hungary. “That indicates clearly the utilization of birth dates as PIN codes, further increasing the security risk to the bank account. If choosing this particular PIN code, it’s worth keeping ID cards and bank cards separate, to prevent unauthorized use.”

While the usage of longer (6-8 digits long) PIN codes are technically possible, it’s not really necessary, the expert said: “Most of the cash machines suck in the bank cards after three false attempts, so it’s basically a three in 10,000 chance that an unauthorized person can reach your bank account simply by trial. Also, thieves prefer to steal bank card data or hijack the ATMs then less lucrative bank card theft.” KK

Toplist of credit card PIN codes

1

1234

10.713%

2

1111

6.016%

3

0000

1.881%

4

1212

1.197%

Source: Data Genetics

5%

GKI-ERSTE ECONOMIC SENTIMENT INDEX FOR NOVEMBER

The GKI-Erste economic confidence index adjusted for seasonal effects has been essentially unchanged since May. Though business and consumer expectations slightly improved in November, they did not reach their level of April, which was very low anyway.

In November pessimism eased in all sectors of the business sphere with the exception of industry.

The deterioration of industrial expectations is primarily the consequence of increasing stock levels previously considered very low.

The assessment of production, as well as the total stock of orders and export orders, improved. The value of the construction confidence index has not been so “high” since the middle of 2011. However, construction continues to remain the most pessimistic sector.

The assessment of the production level and the stock of orders of the previous three months remained unchanged. In trade the confidence index reached its peak this year.

In the service sector the evaluation of the general business climate and sales improved.

Employment expectations became better in all sectors, especially in construction and fear of unemployment dropped among households, too.

After a huge decline, the assessment of the perspectives of the Hungarian economy improved in November in all sectors and among consumers as well. However, the general assessment is still very pessimistic.

The majority of respondents expect further deterioration, and the share of those anticipating an improvement is marginal.

GKI’s consumer confidence index increased in November, though to a lesser extent than its fall in the previous month.

Households evaluated their financial situation and savings possibilities in the next 12 months better than they had in October.

They considered the conditions of purchasing high-value durables to be unchanged in 2012; however, those for the next year were perceived as slightly deteriorating. PF

Change in economic sentiment index (2008-2012)

Nov 2008 Nov 2009 Nov 2010 Nov 2011 Nov 2012

Source: GKI-Erste

-33,2 -27,6 -7,7 -23,2 -22,4

OF RETAILERS PLANS TO EXPAND IN HUNGARY IN 2013

Global retailers will continue to expand store networks in 2013 alongside the development of multichannel strategies, with 20% aiming to open 30 stores or more in the Europe, Middle East and Africa (EMEA) region by the end of the year – and nearly three quarters aiming to open five or more stores – according to new research from CBRE. In the meantime, retailer demand for opening shops in Hungary has declined significantly: in 2013, only 5% of retailers plan expansion in Hungary, down from 14% in 2012.

The most important target for retailers in 2013 is Germany (54% of retailers), reflecting its strong economy within the eurozone area.

As for Hungary, Anita Csörgő, head of retail at CBRE Budapest says that she has never seen such negative sentiment regarding the Hungarian retail market in her 15 years in the market, a fact she credits mostly to the general negative international image of Hungary, in addition to economic and legislative uncertainty.

“Actual trading results for most retailers have not been poor for their Budapest stores in 2012, especially in comparison to other CEE countries. Most retailers report stagnant turnover results and in some segments have actually seen increases in the past 12 months. Profit margins have, however, declined as the decreased spending power of the local population is not allowing retailers to raise prices, although costs and VAT have increased.”

Csörgő sees an opportunity to contradict this negative attitude by encouraging retailers to focus on the much stronger greater Budapest retail market, which compares quite favorably to other regional capitals in terms of demographic trends. It will take several years of positive GDP growth, though, to increase the trading results and general attractiveness of Hungarian regional cities, which have far smaller markets. PF

Retailers’ target countries for expansion in 2013 Germany Poland France UK Czech Republic Russia Hungary Romania Slovakia

Source: CBRE

over 50% 20%-49% 20%-49% 20%-49% 10%-19% 10%-19% below 10% below 10% below 10%

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Budapest Business Journal | Nov 29 – Dec 13

Message with a price tag The communication budget of the Prime Minister’s office for 2013 was increased by HUF 700 million by an amendment of the organization’s budget document published on November 22.

The rise seems both surprising and slightly unfounded in the era of repeated austerities (there were three packages of austerity measures introduced by the government in the excess of some HUF 800 billion over the last two months), especially considering that the amount could go somewhat higher.

Well, twice as much, actually.

According to a brief government statement given to state news agency MTI, the new tenders are not a result of clearly defined, specific goals, but are of a more general nature. After reviewing the 2010 – 2012 time period, with a special focus on similar assignments, the office felt the need to increase the available budget for upcoming, future communication tasks.

The opposition fears that the newly approved budget will be spent on the governing party’s general election campaign. Socialist spokesman Zsolt Török said the sum will be spent on party propaganda, and demanded that Fidesz name the source of the money, and give an accurate account on its plans of spending it. He said it was unacceptable that the government was spending on self-praise in a time when “universities need to introduce winter holidays, because they can’t afford heating in their buildings, or when pensioners fear that their pensions will be taxed”.

Government communication becoming the subBBJ ZSOLT BALLA ject of controversies and heated conversations is not, Two new procurements by any means, a new elewill be put out by the ment in Hungarian poliPrime Minister’s Office tics. Lacking the approprinext year, notes a one- ate regulations on campaign page amendment to financing, it has been usual the institution’s budget for the opposition over the published on November last two decades to accuse 22. The two tenders will the incumbent government consist of completing of spending state money creative tasks related to the on self-advertising. What organization worth HUF is more, these accusations 150 million, and acquiring were usually well founded, media to the value of some or at least not completely out HUF 550 million over the of thin air. But now it seems next year. Both sums are that the freedom-fighter considered target numbers lingo of the second Orbán and a plus 90% discrepancy government requires comis tolerated in each case, the munication experts to go yet document says. The tenders another step further in the will be put out briefly after war of words. the publication of the amendment, and the scope UNORTHODOX of the assignments will be MEASURES the yearly communication For a government echotasks of the office from ing the importance and the 2013 to the next general greatness of unorthodox ecoelections (the official end nomic policies, it is not pecudate is marked as May liar to implement new, and 31, 2014). Interestingly, previously unused strategies the justification of the in other areas as well, such additional and unforeseen as the field of communicacosts, simply notes it as tion. Pushing through comthe “appearance of new pletely new messages costs, of course, a lot of money, and requirements”.

requires a new tone as well as new techniques.

Browsing through the “normal” communication costs of a non-election year, we might find the sums a little high, but there seems nothing extraordinary in the budget items themselves.

According to a list of ongoing and renewable contracts, published by the Prime Minister’s Office in September 2012, the two biggest communication partners of the government were Inter Media Group (IMG) and the company led by Fidesz’s former cabinet secretary, Young & Partners. The first company won its procurement (without a competitor) worth HUF 630 million to acquire media for the government, while the latter won a tender to manage PR activities worth HUF 400 million. Both companies were assigned in March 2012. On top of these, the PM’s Office contracted Medúza Event and Waldorf Catering to organize protocol events at a cost of HUF 44 million, hired Mega Film Publishing House to manage PM Viktor Orbán’s presence on social media sites for HUF 2 million, and Vármegye Publishing House to run the premier’s website at Orbanviktor.hu for HUF 3.2 million. Photographer Barna Burger is paid HUF 9 million to cover Orbán’s everyday work, publisher

Orbán government also frequently uses BTL communication tools to get its messages through (or as they like to call it, to discuss important matters with the citizens). These so-called “consultations” usually consist of mass mails sent out with or without forms and envelopes to answer certain questions, or to write down one’s view on the matters under discussion. These initiatives were always communicated as broad-based social conversations, however, in most cases the decisions were made well before the answers could have been received and processed by government officials.

The “Economic Consultation” in May 2012 was one of these famous mistimed actions: some 698,000 forms were filled out and collected on the subject of creating new jobs and improving the economic environment in Hungary, despite the fact that the decisions were already made by the time the questions were delivered. The action cost taxpayers some HUF 976 million. Similarly, the “Social Consultation” in July 2011 asked ten questions from some 3 million people and received more than 1.1 million answers.

JUST BETWEEN US Too bad, that nine of the While billboards and full- ten subjects were already page newspaper ads are decided by the Parliament very spectacular, the second by the time the governSzépirodalmi Könyvkiadó, and copywriter Gábor Kránicz are paid HUF 4.5 million and HUF 2.1 million respectively.

On top of these “normal” expenditures, set by the Prime Minister’s Office’s 2012 budget, another HUF 200 million was spent on the now-infamous anti-IMF campaign, which the government ran through various media outlets in October and November. While the campaign stirred a considerable diplomatic storm, and it is believed to have worsened Hungary’s position in its ongoing talks with IMF (the campaign was launched on the very same day that the Hungarian negotiator Mihály Varga, allegedly unaware of the domestic communication strategy, was set to meet IMF officials in Tokyo), according to a government document, the campaign was run “in order to inform the people of Hungary, due to an unforeseen reason, and with extreme urgency”. As a result of the ad-hoc nature of this campaign, the extra HUF 200 million assignment was handed to IMG without any tenders or procurements being put out beforehand.

ment heard back from the citizens. The consultation’s price tag: HUF 800 million.

Other consultations included one with pensioners (HUF 222 million), one on the government’s position related to the private pension funds (HUF 236 million), and another on the rewritten constitution (HUF 500 million).

The governing Fidesz party, and particularly Prime Minister Viktor Orbán, have always had the reputation of being aficionados of bold and controversial communication tools.

Such as the one now spreading the streets, showing former socialist prime ministers Gordon Bajnai and Ferenc Gyurcsány with the slogan: “They destroyed the country together”. While it is unclear who paid for this specific campaign, the URL on the posters (www.bekemenet.hu) suggests that whoever it was, he is closely tied to the governing Fidesz party. And although it is not known what the additional HUF 700 million will be spent on by the Prime Minister’s Office, now that an election year is approaching, and Orbán’s most likely main opponent, former premier Gordon Bajnai has reappeared in Hungarian political life, we can definitely predict that we will be hearing from it in the not too remote future. ■

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Ryanair announces drastic downscale to Budapest operation Irish low-cost carrier Ryanair has announced it is planning to reduce the number of its flights to Budapest, citing the high expenses charged by the Liszt Ferenc International Airport.

BBJ GERGŐ RÁCZ

Ryanair chief executive Michael O’Leary told reporters in Budapest that unless more favorable terms can be agreed upon in terms of costs for operations, it would terminate 10 of its 30 flights to the Hungarian capital from January.

The decision to reduce the significance of Hungary in Ryanair’s flight plans comes just months after a move to significantly expand operations, aiming to capitalize on the sizeable market gap left by the collapse

of national carrier Malév in February. Ryanair was one of the companies to pounce on the opportunity in the most sweeping fashion and just a week later announced the launch of 32 new flights to Budapest, the expansion of its base in the city with further new departures added to the timetables later on.

O’Leary said the reason to undo all this is the immense cost of operating in Budapest because of the airport’s charges. He also criticized standing conditions at Liszt Ference airport with departing passengers having to wait for their flights in tents that he compared to a “refugee camp”.

Germany’s Hochtief, the biggest owner of Budapest Airport (BA) Zrt said O’Leary should take the matter up with the authorities, since the biggest cause of rising charges in Budapest is the increase of taxes that the airport has to pay. Chief executive Jost Lammers said in September that a boosted tax on the land area

used by the airport means a 230% “penal tax”.

CLIPPED WINGS BA and consequently the entire Hungarian aviation business have been struggling since the massive debts accumulated by Malév caused the firm to fold.

The airport operator earlier closed down Terminal 1, mostly reserved for lowcost carriers, leaving only the recently upgraded and expanded Terminal 2 in operation. It also announced plans to lay off up to 25% of its aggregate workforce given the changed conditions in the wake of Malév’s demise.

While Ryanair and its closest rival Wizz Air decided on major increases to their assets committed to Budapest and other airlines followed suit with additions of their own, the Hungarian capital often remains difficult to access, while other cities are sometimes impossible to reach.

If passengers had to fly to a city as relatively close

as Bucharest at short notice, they would find it difficult with only three direct flights from Hungary a day, all the rest taking a roundabout in the region before landing in Romania. Without the regular availability of a lowcost direct route, tickets are naturally more expensive.

Save for a slump in February when Malév folded, the Central Statistics Office (KSH) found that all other months of the year generated a year-on-year surplus for commercial accommodation providers in terms of both gross revenue and occupancy.

BA’s projections from TOURISTS STILL FLOCKING September show a 10% to However detrimental the 13% drop in the airport’s lack of a national airline passenger numbers this and the related global year compared to 2011, a coverage has proven for 20.2% slump in the overBA and several sectors all number of landings and of the economy, the most departures with essentially obvious candidate, tour- the entirety (99%) of tranism, does not seem to be sit traffic from Budapest one of them. with Malév being no more.

Still, the gross revenues in the hotelier business keep rising, with the record month so far being August showing a 13.7% year-on-year leap with April and July both generating annual increases upwards of 12%. The latest figures published by KSH in November saw a 4.9% annual increase in the aggregate earnings of commercial accommodation providers in September with a 4.8% annual increase in hotels’ occupancy rate.

Ever since Malév’s exit from the scene, the government has repeatedly stated that it remains committed to reestablishing a national airline based on solid business considerations. So far, save from a few exploratory talks with potential investors, most notably China’s Hainan Airlines, no advances have been made.

Although airlines based in Budapest are having difficulties, the tourism industry and consequently the government do not seem to mind the conditions and are in no hurry to intervene. ■

[ EXPERT OPINION ]

Born to be luxurious Infiniti, the world’s newest luxury automotive brand, squares up to Europe’s traditional executive car hierarchy for the first time with the M – a powerful, finely crafted, passionately designed alternative to tradition in the performance sedan market.

Petrol or diesel powered, or a hybrid, this latest example of Inspired Performance takes the brand’s unswerving commitment to soulstirring looks and driving ability up a level, while offering technology unavailable in rivals. New features include Active Noise Control, a worldfirst side collision avoidance system and stateof-the-art “Forest Air™” climate control. There’s even a smart accelerator pedal that assists the driver in saving fuel. They join a host of proven Infiniti innovations in this, the first M ever to be made available in Europe.

An all-new car, the third-generation M has been designed and engineered from the beginning to compete in Europe, with European levels of ride and handling and high performance engines. These include a 3.0-liter diesel V6 for the M30d, which boasts exceptional refinement with 550Nm of torque to rival the class best. The M is also available with an innovative hybrid drivetrain.

Petrol, diesel or hybrid, every new M showcases all that is central to Infiniti’s individualistic approach to building cars. The four-door body, 4945mm long, brings a sense of intrigue to Infiniti design

DNA with its characteristically seductive lines and sophisticated new take on familiar design cues, many of which draw their inspiration from traditional Japanese arts and crafts.

Classic sports saloon proportions, so clearly at home here on this front engine/rear-wheel drive car, are fully exploited by a body of athletic elegance. Drawing inspiration from the stunning Essence concept sports coupé that made its debut at the Geneva Motor Show one year ago, the M design combines vibrancy with presence; like all Infinitis, it is a design that cannot fail to elicit an emotional response.

The design is also notably aerodynamically efficient, both in terms of low drag (Cd: 0.27) and zero lift at high speeds, thanks in part to the distinctive “ducktail” design of the boot lid.

The new M is among the most spacious five-seaters in the class, as well as possibly the most alluring on the inside thanks to an even higher new standard of interior design and finish. This is Infiniti’s best-ever cabin, which is saying something for a company known for its sumptuously sporting interiors and emphasis on the best natural materials.

The choice of leather includes a sensual semianiline. It is capped by new White Ash wood trim with silver-power finish. Used here for the first time in an automotive application, the resultant real wood grains inside the M are more akin to those of luxury furniture or a premium quality musical instrument than a car.

www.infiniti.hu

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Taxing food is not a proven way to make the population healthier Neither the effectiveness of the public health product tax nor a shift towards the tax’s desired goal have been proven yet, says László Deák, director at PwC Hungary’s tax department.

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Deák stressed that the government is fully within its rights to impose taxes on handpicked food products. It enjoys the backing of a European Commission decision that a standing levy imposed on food products lumped in the unhealthy category, commonly referred to as the “chips tax,” is in no way discriminatory and does not violate European Union law.

However, the secondary effects of the levy are proving detrimental to the overall economy.

“It’s having a negative impact on the industry and is also leading to investments being scrapped or put on hold,” Deák said, citing sweets maker Bonbonetti, which shelved expansion plans as a direct result of the increased burdens on its operation.

He pointed to secondwave effects of the levy that may also be counterproductive to the government’s plans on a social level.

“If people want to buy chips, then that’s what they’ll do, and they will adjust their preferences to their price range,” Deák said.

What this means in practice is that consumers who can no longer afford to buy the products that are more expensive as a result of the chips tax will simply look for alternatives. But the cheaper substitutes are cheaper for

a reason: they’re usually poorer in nutriments and consequently may even be worse for a person’s health then their more expensive counterparts.

Then there’s also the distorting nature of the levy that has not been resolved since it was first introduced.

It covers prepackaged goods, whereas something freshly made could contain the same ingredients and remain untaxed.

“If I were to drop by at the shop on the corner to eat a Dobos cake, there would be no cost implications from the extra tax while such products, if prepackaged and sold in a supermarket, are taxed,” Deák said.

The issue should essentially be a question of regulation, namely applying the regulations for what is and what isn’t acceptable as a product sold in retail, Deák said. “If the government says something is explicitly unhealthy, then it simply cannot be allowed to be commercially available.” It is clearly not the case for the taxed products, as they are marketed legally.

Nonetheless, the government, now having the comfort of decidedly not discriminating in its taxing practices when it comes to food it considers to be “unhealthy” – since the tax applies to all products fitting the measure regardless of where they were made – is looking at further options to expand the range of the tax.

Trans-fats, which are scientifically seen as a key cause of circulatory conditions, one of the main inducers of premature deaths in Hungary, are the next targets of the government.

Without any specifics currently available about how the new restrictions would apply, the drive to reduce the consumption of transfats is definitely an aim in how the government is thinking, Deák said.

In general, Deák stressed that the principle of pushing back certain food products through taxation is globally something that is still in the making. He cited Denmark, where a similar levy is being revoked, having proven unsuccessful, and France where a new tax is being introduced based on the fat content of certain food products.

While the aim of such a tax may even be debatable, in practice, especially when it comes to admin-

istrative matters, it is also prone to backfire.

“A retailer has to basically do an item-by-item review of its stock to see whether a product lives up to the regulations based on its contents,” Deák said. This operation in itself takes excessive work hours with potentially thousands of products involved, not to mention the prospect of administrative errors resulting in penalties from the authorities if one product is miss-categorized.

And all this is a sizeable burden not just for businesses but also for the tax authorities inspecting them. With NAV already stretched thin in terms of workforce and the central demands of heightened efficiency in tax control, the task of scrupulously surveying the product list piece by piece at every retailer and making sure that all are priced according to the tax standards seems daunting.

The chips tax is just another uncertainty that

companies operating in Hungary have to accept as a variable likely to affect their businesses and as a result hold back the economy, Deák added “Whether taxes are high or low is always up for debate among economists,” he said. “Knowing what they are and where they’ll be in the future is what allows businesses to crunch their own numbers and decide whether they will invest or if they’ll stay,” he said. ■

2 Business

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Alternative ways to call in Hungary Virtually mobile

22 23

SpecialReport//Telco

Your call could not be connected Mobile phones represent a blooming business in Hungary. According to marketresearch.com, mobile subscriber penetration will reach 120% in 2016 and already two million Hungarians have smartphones. So it’s no surprise that we already have three mobile providers and a forth one was announced in 2012 January – and this time it was planned to be a state-owned one. But now it seems this project may have been disconnected already.

It started as a very ambitious plan. The consortium behind the fourth mobile provider was MVPI

Zrt, formed from three companies: Magyar Posta Zrt, Hungarian electricity works Magyar Villamos

Művek Zrt, and investment and asset management company MFB Invest Zrt. MVPI won the frequency

auction run by the National Media and Infocommunications Authority (NMHH) on January 31, 2012. However, now it seems that there will not actually be a fourth mobile provider at all. What happened?

DIFFERENT PRICING The fee for winning the auction would cost MVPI the hefty amount of HUF 10 billion (actually the minimum price set by NMHH). This was not, however, that much compared to what the existing companies paid for their own frequencies for the next 15 years: Vodafone paid HUF 15.7 billion, Magyar Telecom HUF 10.9 billion, and Telenor HUF 7.3 billion.

“You cannot ask the same price from a new company which doesn’t have a network and clients yet as from companies which have already been on the market for a long time,” said Péter Kollar, NMHH’s regulatory deputy director-general, at a press conference. “When we decided to green light the appearance of the fourth provider, we also had to give it incentives.”

It should be noted, however, that the two other bidders, RCS&RDS, the largest Romanian cable and internet provider, and Viettel, a major Vietnamese mobile network operator, didn’t received any “incentives” at all, since they were quickly excluded from the auction based on “administrative reasons”, meaning that

in the end the state-owned consortium didn’t have any rivals at all. MVPI had one year to actually start its service so, if everything had gone to plan, we would have had the fourth mobile provider up and running in January 31, 2013.

BAD RECEPTION But things didn’t go according to plan; according to the Municipal Court’s decision of September 17, MVPI was unlawfully obtained the authorization to build a fourth mobile network.

So was this a victory for the three existing mobile? Not exactly as, unfortunately for them, the Municipal Court decided that they too had obtained their new blocks on the 900 MHz frequency band unlawfully, as a result of the same unlawful decision made by the NMHH at its auction back in January 2012.

Ironically the whole trial started because the three mobile providers challenged the very first decision of the auction over its “roaming rules”. In this case the three companies would have had to make their own expensively built networks available for the newcomer to use. The three mobile firms had wanted the decision referred to the European Court of Justice (ECJ). This was rejected by the Municipal Court, which used the relevant EU and Hungarian law itself. The final decision on this issue was that the question of the mandatory unbundling of expensive mobile networks to the fourth provider would be discussed at another trial.

UNTENABLE FEES “We will appeal the Court’s decision and we will do everything to ensure that our service will start at the fixed date according to the decision of the NMHH auc-

tion,” said the spokesperson for MVPI back on September 17. “It’s intolerable and untenable that telecommunications companies ask such high fees from Hungarians, when the labor wages are so low, so we continue to encourage new entrants to the telecommunications market,” said the Government Spokesman’s Office on October 10 in an official statement to Index. hu. That statement conveniently forgot to mention that the fees were raised when the government decided to tax phone calls back in May 2012.

NOT SO HOT IN NOVEMBER On November 12, daily newspaper Népszabadság reported that an “unnamed market source” had told the paper that the three founding companies of MVPI were “not so hot anymore in providing the hundreds of billions forints for the investment.”

This source also said that the “government itself has already forgone the whole idea of the fourth mobile provider business, but neither the MVPI staff nor the lawyers – who are still working at full speed on the appeal – have been informed about this”.

Népszabadság cited other unnamed sources saying that one of the founding companies of MVPI, MVM Zrt, had constantly expressed serious doubts about the project’s financial sustainability, and it has already shifted its attention to the GSM-R (railway communication) network. So has the line to the fourth mobile provider been cut already?

For the time being, it seems that the fourth mobile service provider is still waiting for a connection…

Gergely Herpai (BadSector)

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IT-clouds: plan today, realize tomorrow All you need is a cloud – that could have been the motto of a recently held IT-symposium organized by T-Systems.

However, the question of what to put in the cloud, and to what extent, could be a real mind-breaker.

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If a company would like to build up its core IT infrastructure or part of it, wants to use software solutions without much investment, or outsource some business processes, cloud-based services are a solution to consider.

By 2020, the info-communication technology (ICT) industry will be $5 trillion, some $1.7 tln more than today, said Steven Frantzen, senior

vice president of IDC, a market research, analysis and advisory firm specializing in IT and telecommunications, presenting his company’s analysis at the symposium.

“By the end of the decade, four huge paradigm shifts will reshape ICT as we know it: mobile broadband, big data analysis, social businesses and, of course, cloud services,” he said.

In Central and Eastern Europe, the fame of the cloud is growing fast, as is demand for cloud services. According to IDC market analysis, 63% of the participating companies have no IT assets in public or private clouds, however only 39% thinks that this won’t change in the next 12 months.

Hungarian firms are in the early maturity stage in accepting cloud services and are often not aware of how their IT-needs could be served in the cloud.

However, cost-effectiveness and cost reduction opportunities are currently among the

[ EXPERT OPINION ]

NOTE: ALL ARTICLES MARKED EXPERT OPINIONS ARE PAID PROMOTIONAL CONTENT FOR WHICH THE BUDAPEST BUSINESS JOURNAL DOES NOT TAKE RESPONSIBILITY

How does terminology interoperability fare in real life?

MIKLÓS BÁN ceo espell translation and localization

With all the terminology talk in the language industry on best practices, database creation and concepts, there is an issue not explored in depth.

The subject of terminology interoperability is not hitting the charts; still, it is a key issue for integrated, flexible solutions.

All translation software on the market that is worth mentioning support LISA-standard file formats to exchange data. In practice, strict conformity to the specifications are usually not enforced at all, or only partially implemented; what is more, certain tools prefer proprietary formats, triumphantly preventing effortless and straightforward information exchange. The business rationale behind the latter approach is understandable, albeit not commendable, and artificial barriers usually can happily be circumvented. As for LISA standards, divergence can be seen even in cases of commonly supported features. Because of the diversity and inconsistency of implementations, built-in support for the formats of

other tools has only been a bit more than a checkbox feature in most cases.

A usable terminology management solution provides a bridge between partner validators, terminologists, language engineers, translators and project managers, supporting fine-grained permission management, custom data structures and collaboration options. As opposed to using a wide range of tools internally, relying on a robust and modular translation ecosystem has overbearing benefits for every party involved, and in many cases warrants conversion between other formats and localization software.

Typically, conversion problems originate in two sources: either the initial collection is not a structured set, or the database definitions differ between the tools. While doctoring a structured output is not a complex task if the differences are documented, foraying into the reconstruction of a pile of unrelated data can be a challenging IT endeavour.

As one of our philosophically inclined colleagues put it, every question of importance in life can be solved with regular expressions, and those that cannot be, are not worth solving. Unfortunately for him, termbase structuring is a problem defying this otherwise universally applicable rule.

If this article managed to spark your interest in the subject, visit labsblog.espell.com to read about interoperability and lifecycle management this week.

www.espell.com

main drivers for Hungarian companies to buy and apply cloud services. Especially in the case of SMEs, where costeffective operation has a crucial role, cloud services could replace a lot of expensive investments and tasks, a presentation of T-Systems showed.

It is clear that the direction of development is to widen the business operation process portfolio that cloudbased solutions support. This, of course, depends on company size and industry as well.

Medium-sized enterprises might operate mostly and directly from the cloud within a few years. Larger companies typically would choose hybrid solutions, as a combination of traditional on-premise solutions, private clouds and public services will make up their business support. That means the use of complex and integrated solutions, which are not currently available in the market.

Besides classic infrastructure (IaaS) services, application or software (SaaS) clouds are available to clients, like cloud communications and collaboration services. On the infrastructure side, most clients are looking for virtual data center services. Among software services in the cloud, interest in CRM software and business management solutions (ERP) has grown considerably in recent years.

According to a recent survey made by Cisco involving 6,000 IT leaders, companies prioritize their tasks for uploading to the cloud thus: web conferences, web site infrastructure, e-commerce, IT helpdesk, backup and recovery. “Cloud services will grow six-fold by 2020,” László György, managing director of Cisco Magyarország said.

While cloud services seem to be an inevitable part of the future for most of companies, it is not a goal that has to be reached at all costs.

“The cloud is a tool, not a target, even if the trend seems to turn that around lately,” Csaba Reményi, managing director of Oracle Hungary said. But the dream of Oracle is simple: if IT should be easy, so too should cloud services.

“A company doesn’t need to prepare for a good cloud service; no new software needs to be written or bought and clients could install their boxed applications into a public cloud,” he added.

The question of security is unavoidable, but sometimes overestimated. “Before entering the cloud, we should ask a few questions of ourselves: how much do we trust in cloud services, what do we want to put in the cloud and how sensitive is the information stored in the cloud,” said Róbert Budafoki, CEO of T-Systems Magyarország.

“Costumers have an aver-

sion towards cloud services, even if they have used them for years on a regular basis.

Most people forget that they have already been using cloud services for a long time - like mobile phones. No one has his own private mobile network, and yet confidential and sensitive information doesn’t leak out,” he added.

“In the world of cloud, the first step is standardization.

The application in the cloud is the same as the application in the box. The more flexible the system is, the more it can react to clients’ expectations,” Reményi pointed out.

“Oracle offers to put all the built up cloud behind the client’s own firewall to increase the comfort level and the sense of security.”

According to the participants of the symposium, moving toward the cloud represents the optimal direction. “Cloud services are economical, cheaper and available to everyone. Also a very important point of view that they are environment-friendly: using them results in a much smaller ecological footprint,” said István Papp, CEO of Microsoft Magyarország.

“Everyone will join this ride, whether you want it or not. I think IT leaders have to make a cloud-plan today and realize it tomorrow,” Budafoki said in summarizing the conference. ■

2 BusinessPartnerWatch 21

BBJ

WWW.BBJ.HU

Budapest Business Journal | Nov 29 – Dec 13

Telecom service providers

162,645

3,600,000

–

–

–

–

–

–

–

–

3G

–

–

–

–

–

–

COMPANY PACKAGE(S)

QUADRUPLE PLAY (INTERNET, TV, LANDLINE PHONE, MOBILE)

TRIPLE PLAY (INTERNET, TV, LANDLINE PHONE)

OTHER

ISDN

ANALOG WIRE NETWORK

ANALOG CABLE NETWORK

OPTICAL CABLE NETWORK

MOBILE NETWORK

IP TV, SAT TV

MAJOR CLIENTS IN 2011

»

»

www.telenor.hu

3

VODAFONE HUNGARY ZRT

123,982

»

–

–

–

–

–

–

–

–

–

–

–

–

3G

–

4

5

www.upc.hu

INVITEL TÁVKÖZLÉSI ZRT

55,514

51,048

754,300

670,000

–

–

–

–

–

–

–

–

–

–

–

6

33,366

»

» »

»

» » » »

»

–

1991 10,006

Free float (40.79) Magyarcom Holding GmbH (59.21)

Christopher Mattheisen Thilo Kusch István Király

1013 Budapest, Krisztina körút 55.

(1) 458-0000 (1) 458-7176 –

Telenor Hungary Szolgáltató Kft (25.01) Telenor Mobil Communications AS (74.96), NYE Telenor Mobil Communications III AS (0.03)

Christopher Adam Laska Anders Bade Sigvart Voss Eriksen

2045 Törökbálint, Pannon út 1.

(20) 2000-000 (1) 464-6100 sajto@telenor.hu

Diego Massidda David Garcia Béla Szabó

1096 Budapest, Lechner Ödön fasor 6.

(1) 288-1270 (1) 288-3100 sajto@vodafone.hu

1993

»

»

1999 1,386

TNS Hungary Kft, Bonbonetti Choco Kft, Pest Megye Önkormányzata, Penny Market Kft, Edenred Magyarország Kft, Best Reisen Utazási Iroda, Díjbeszedő Holding Zrt, Rimi Magyarország Kft

1994 861

– Libery Global (100)

Betzalel Kenigsztein Zoltán Bodnár Zsolt Záprel

1092 Budapest, Kinizsi utca 30–36.

(1) 456-2600 (1) 216-0058 –

– Mid Europa Partners (100)

David McGowan David Blunck Gabriella Liptay, Marianne Langsteiner, Ágnes Diószegi, András Béres

2040 Budaörs, Puskás Tivadar utca 8–10.

(1) 801-1500 (1) 801-1501 info@invitel.co.hu

»

www.invitel.hu

DIGI TÁVKÖZLÉSI ÉS SZOLGÁLTATÓ KFT

ADDRESS PHONE FAX EMAIL

– Vodafone Europe B.V (100)

www.vodafone.hu

UPC HUNGARY KFT

TOP LOCAL EXECUTIVE CFO MARKETING DIRECTOR

2

TELENOR HUNGARY ZRT

OTHER

SATELLITE TV

VOIP

LEASED LINE

CABLE TV

IPTV

CABLE INTERNET

MOBILE INTERNET

XDSL

MOBILE VOICE TRANSMISSON

www.telekom.hu

4G, SAT TV

PACKAGE TYPES SOLD

OWNERSHIP (%) HUNGARIAN NON-HUNGARIAN

5,271,998

INFRASTRUCTURE TYPES

YEAR ESTABLISHED NO. OF FULL-TIME EMPLOYEES ON MARCH 1, 2012

597,617

LANDLINE TRANSMISSION

1

MAGYAR TELEKOM NYRT[2][3]

SERVICES NO. OF ACTIVE SUBSCRIBERS

COMPANY WEBSITE

TOTAL NET REVENUE (HUF MLN) 2011

RANK

Ranked by total net revenue

»

1995 1,337

2000

»

www.digi.hu

7

GTS HUNGARY TÁVKÖZLÉSI KFT

12,608

»

–

–

–

–

–

–

–

»

–

»

»

BUSINESS TELECOM NYRT

1,813

43,000

–

–

–

–

–

–

–

Satellite data transmission

9

1,646

»

–

–

–

–

–

–

–

–

–

»

www.hdt.hu

NETFONE 10 TÁVKÖZLÉSI KFT

670

»

–

–

–

–

–

–

Satellite data transmission

–

–

–

–

–

» » » » »

–

–

–

–

–

369

»

» » » –

»

–

» » » » »

www.hucom.hu

NOTES: (1) Data of business year Apr. 1, 2011 - March 31, 2012. (2) No. of mobile customers (3) Consolidated total net revenue

–

–

–

Gergely Laczkó Tóth – –

Krisztián 6000 Kecskemét, Takács Mindszenti körút 27.

Tamásné (76) 585-027 Kurdik (1) 999-5012 Gábor Takács info@btel.hu

Pest Megyei Kormányhivatal, Tatabánya város önkormányzata és intézményei, Borsodchem Zrt, Tatabánya város önkormányzata és intézményei, Samsung SDI Magyarország Zrt

2006 55

Individuals (100) –

»

» »

Antenna Hungária (55.38) PT Participações SGPS (44.62)

António Felizardo – –

2310 Szigetszentmiklós-Lakihegy, Komp utca 2.

(1) 488-8500 (1) 488-8501 info@hdt.hu

Individuals (77) Scanwinavia AB (23)

Zsolt Wilhelm – –

1026 Budapest, Gárdonyi Géza utca 62.

(1) 878-1814 (1) 325-5675 info@netfone.hu

– Mid Europe invest Limited (100)

Gábor Percze – –

1117 Budapest, Petzvál József utca 31–33.

(1) 696-0900 (1) 696-0901 info@hucom.hu

»

www.netfone.hu

HUCOM 11 TELECOM KFT

2040 Budaörs, Ipartelep utca 13–15.

(1) 814-4444 (1) 814-4047 info@gts.hu

– GTS Central European Holding B.V (100)

»

www.btel.hu

HUNGARO DIGITEL KFT[1]

» »

1134 Budapest, Váci út 35..

(1) 707-1000, 1272 (1) 707-6700, (1) 707-0009 ugyfelszolgalat@ digi.tv

»

www.gts.hu

8

1993

– RCS&RDS S.A. (100)

Ungureanu Florin

»

»

2007

»

2009

»

22 2 BusinessSpecialReport//Telco BBJ

WWW.BBJ.HU

Budapest Business Journal | Nov 29 – Dec 13

Call smarter! – Alternative ways to call in Hungary Calling mobiles in Hungary is not a cheap affair, and costs have been even higher since the government levied a tax on calls.

It just makes sense to use other, cheaper ways to call people: Skype, Google talk, even Facebook – the list goes on. So why are we still using good old mobile telephony when we have the option to call our contacts for free?

BBJ GERGELY HERPAI

Phone bills must be one of the most annoying we have to pay: when we receive the detailed breakdown at the end of the month, we almost get a heart attack over how much money was spent just talking to our friends, family, loved ones or colleagues.

So we make a solemn oath to not call so often and speak so much, which we of course tend to forget the next time we pick up the phone. So what if we want to talk, but want to do so for free? There are always possibilities…

LET’S CHITCHAT! At the time the internet was born, various chat systems almost instantly became a must for everyone using the net. Seeing and hearing each other via web cameras was another technological advancement, so it was just a matter of time before, with the advent of better and better smartphones, this kind of technology slipped on to our phones as well: there are already iPhone and Android versions of Skype. To make things even more exciting Skype, can use not only your phone speaker, but your camera as well, so while video talk was once a thing only seen in science-fiction movies, today

it is almost a common possibility. The question is, while having our smartphones with us, why don’t we use it?

FREE WI-FI? You can see this proclaimed in ever more places in Budapest nowadays: at fast food restaurants, cafés, universities, airports, etc. The reality is that when we actually try to connect to the Wi-Fi at some of those places, it is only limited access, via a webpage login that is such a hassle to navigate that some people give up instead. Also, some Wi-Fi connections have such low bandwidth that using Skype as a form of spoken communication is more of an annoyance then a real alternative. And let’s not forget that many Hungarians are not on Skype either, and of those who are online, even fewer people are ready to take calls – this is common even in the younger generation – and this might discourage people from using Skype or other communication systems of this kind. Of course, we can simply use Skype to call land lines and mobile phone lines, but – surprise, surprise – it costs money, and calling a mobile with our default phone is simpler and sometimes even cheaper.

Keep in mind that with a low-bandwidth Wi-Fi connection, your voice quality can be a horrific experience for your communication partner. So Skype essentially is for those friends know you well and who are ready to take your call. Still there is hope in the “air”: you can use the latest versions of Skype via 3G as well.

GOOD “VIBRATIONS” WITH 3G? There is one piece of software which can be used for calls via mobiles, and which is getting extremely popular in Hungary: it’s called Viber. While with Skype it is still a hassle to find out if your friend or contact is actually on Skype or not, with Viber it is a lot simpler: you can see a Viber icon in your contact list with

those who are using this free service. Also, while having Skype constantly online uses more of the precious battery life of your smartphone, Viber is simply installed on your phone’s contact list and does not need to run in the background, which means that it drains no more energy than typical phone use.

To say that Hungarian mobile companies are not exactly fond of Viber would be an understatement.

According to their websites, using free internet-based calling software like Viber and Skype is not only strictly forbidden but also technically impossible with several of their subscriptions packages using 3G broadband. The plus side is that you can still use it with Wi-Fi, but with restricted Wi-Fi coverage in Hungary it’s still somewhat disappointing. The other problem with Viber is the same as with Skype: 3G voice quality is pretty bad sometimes even with a mobile subscription that actually lets you use Viber.

“SKYPE MORE AND GET FIRED!” Besides mobile providers, other companies also hate when their employees are chatting on Skype, Facebook or Google Chat, which is why these are blocked in many offices, especially at big MNCs. Still, some companies find it useful to have their senior employees (especially those who have to talk a lot during work) use Skype or an in-house chat system, because it is cheaper and simpler than using a mobile.

“It has it uses. It’s cheap, and we can see instantly if a colleague is online on Skype,” says a call center team leader and marketing manager at a Hungarian offshore bank, who did not wish to reveal his or his firm’s identity. “But we don’t like it when our employees are talking too much with their family members and friends on Skype either! We are monitoring each call and we warn our employees if

they spend too much time on Facebook or Skype.”

“Having a Google email window wide open as a call center employee is also a wrong move, so Google talking with a microphone is absolutely impossible at Avis,” says a customer service team leader at the company. Skype and Facebook are blocked on all office PCs at Avis, and it is the same situation at HP, IBM or BT. Of course, being a marketing manager is a rather

different job, so for Arnaud Vezin at Gameloft Hungary (a firm specializing in mobile games), using Skype is part of his everyday job. “We are using Skype all the time. It’s a lot easier to reach colleagues than to call them on phone.

Also, we can see them on camera. We are using regular phone lines to reach outside clients though,” says Vezin.

THE WAY OF THE FUTURE? While it is a good idea to call for free instead of pay-

ing a large bill every month, it still has its drawbacks as we can see. Lack of free Wi-Fi coverage, poor 3G bandwidth and the reluctance of mobile companies to let users call for free are the main limitations, but Hungarians are also slow to change when it comes to technological advancements. Still, the future cannot be stopped and when it comes to money, nobody likes to pay for things that can be had for free. ■

2 BusinessSpecialReport//Telco 23

BBJ

WWW.BBJ.HU

Budapest Business Journal | Nov 29 – Dec 13

Virtually mobile While there is only one mobile virtual network operator in Hungary as of now, that number could easily increase, despite the ongoing crisis and deteriorating market.

Brand reselling might be lucrative for companies with a huge clientele.

BBJ KRISZTIÁN KUMMER

A mobile virtual network operator (MVNO) is a wireless communications services provider that does not own the radio spectrum or wireless network infrastructure over which it provides services to its customers. In Europe, over the more than 100 “regular” mobile network operators (MNOs), almost 500 MVNOs are operating and offering different pricing plans. And there are 200 separated brands on the market operated by the MNOs themselves.

In Hungary, there is no independent MVNO in the classical sense, as the only such company, Tesco Mobile – started in March – is not 100% owned by Tesco: Hungary’s third mobile operator, Vodafone, also has a share. Nonetheless, in this case, subscribers contract with Tesco Mobile, not with Vodafone, and the prefix (+31) also distinguishes the service provider from the network operator.

Since launch, tens of thousands of clients have signed up to Tesco Mobile proving the viability of the idea.

Western European examples have shown that retail chains with huge traffic, financial service providers and alternative telecommunication service providers could all successfully operate an MVNO. The idea is easy to understand: these companies have a clientele of hundreds of thousands, making marketing and sales cheaper and easier.

“As with our competitionour clientele represents the whole population as the various advantages included within our services attract different target audiences,” Tesco Mobile marketing director László Kiszely said.

“However, due to the discounts and seasonal offers available only to Tesco Clubcard holders, regular clients of Tesco stores are overrepresented. Tesco Mobile was founded with the intention of starting the most competitive company on the mobile operators market,” he explained.

“To achieve our goal, independent decision-making, a quick response time to market issues, and low costs are absolutely necessary. So in

order to exploit the strengths of our strategy, the foundation of a virtual network independent from a network operator was and is the most supportive business model,” Kiszely added.

While some time ago mobile network operators disliked the idea of independently operating MVNOs, they have now realized that, as a wholesale business partner, an MVNO generates revenue without much investment, if it is able to handle the technical, customer service and billing tasks on their own.

Although MVNOs are still not widespread in Hungary, brand resellers (BR) very much are. Brand resell-

ing is the lightest form of providing services, as companies own only the marketing, and sometimes the billing and provisioning functions, and the clients contract directly with the MNOs. As MNOs hadn’t previously wanted to let control out of their hands, previous attempts to collaborate have usually ended up in branded reseller contracts.

Most of the Hungarian BRs provide only a mobile internet connection through network operators, like telecommunication companies UPC and Digi; however some, like Lidl, also provide their own voice and SMS services as well. The retail chain – based on hundreds of thousands of customers –

can relatively easily build up a satisfactory clientele for its mobile business.

“Our clients usually choose us for our low voice and SMS charges, our simplicity and our phone packages representing a good price/ value,” said PR director Judit Tőzsér. “The backbone of our mobile service, Blue Mobile consists of our daily [supermarket] customers.”

While the fourth mobile operator’s status and future is still unsettled, MNOs are becoming more attracted to the MVNO model. According to market speculation, more telecommunication companies with hundreds of thousands clients are close to entering the MVNO market.

These companies, with their widespread sales network and significant clientele could be very important strategic partners to MNOs – maybe one day against the fourth operator as well. And while the future of existing free frequencies and the fourth MNO is still unclear, service providers (BRs and MVNOs alike) are all very optimistic about the future.

“For a challenging and fast growing new company that wants to attract customers looking for good opportunities, the changing environment proves to be a fertile breeding ground on which flexible, fast and cost-efficient operation means at least a temporary competitive advantage,” said Tesco Mobile’s Kiszely. “An example: within weeks of the announcement of the new telecommunication tax, Tesco Mobile found an optimal solution to the challenge in the form of guaranteed minute charges. As this message was announced and targeted properly at potential clients, many customers switched to Tesco Mobile as a direct result,” he said.

“We are seeking inspiration for better and more customer-friendly solutions in all our competitors’ moves and market changes.

A new mobile network operator on an essentially stagnant or slowly declining market will probably continue to sharpen the competition and increase the willingness of mobile customers to make their choice – and this is precisely the environment in which Tesco Mobile is considered to be particularly strong,” he added.

Lidl’s Blue Mobile – started in February – says it has already outperformed its own (non-public) forecasts with tens of thousands of customers. Despite the ongoing crisis and deteriorating market options, Blue Mobile forecasts further growth in client number, as well as in revenue. “More and more people rationalize their mobile spending and our service might be a perfect solution for their expectations,” Tőzsér said. ■

24 2 BusinessPartnerWatch BBJ

WWW.BBJ.HU

Budapest Business Journal | Nov 29 – Dec 13

Telecommunications equipment manufacturers Ranked by total net revenue

ANSWERING MACHINES

FAX MACHINES

BUSINESS PHONE SYSTEM/PBX

CALL/CONTACT CENTER

VSAT SYSTEM

VOIP

CTI/CRM SOLUTIONS

MESSAGE HANDLING SYSTEMS

INDUSTRY-SPECIFIC SOLUTIONS

793,563

ISDN PHONES

SAMSUNG ELECTRONICS MAGYAR ZRT

ANALOG PHONES

1

TOTAL NET REVENUE (HUF MLN) 2011

TRI-BAND MOBILE PHONES

COMPANY WEBSITE

DUAL-BAND MOBILE PHONES (900/1800 MHZ)

RANK

TYPES OF EQUIPMENT

–

–

–

–

–

–

–

–

–

–

–

OTHER TELECOM AND NETWORK EQUIPMENT

YEAR ESTABLISHED

OWNERSHIP (%) HUNGARIAN NONHUNGARIAN

TOP LOCAL EXECUTIVE CFO MARKETING DIRECTOR

ADDRESS PHONE FAX EMAIL

–

1989

– Samsung, South Korea (100)

Oh-Hyun Kwon – –

1037 Budapest, Szépvölgyi út 35–37.

(80) 726-7864 (57) 522-300 –

1999

– Nokia Corporation (100)

Yrjö Eskola – –

2900 Komárom, Nokia utca 1.

(34) 542-000 (34) 542-099 hr.komarom@ nokia.com

2007

– Foxteq Holding (100)

Péter Tálos – –

2900 Komárom, Bánki Donát utca 1.

(22) 539-200 (22) 539-369 szekesfehervar@emea. foxconn.com

1992

– LG Electronics Europe Holding B.V (99.99), LG Electronics Inc (0.01)

Lee Young Woong Byung Kuk Choi –

1097 Budapest, Könyves Kálmán körút 3.A (1) 455-6060 (1) 455-6066 bferenc@lge.com

1990

– Telefonaktiebolaget LM Ericsson (100)

Ali Shah – Roland Jakab

1097 Budapest, Könyves Kálmán körút 11/B (1) 437-7100 (1) 437-7467 valaszolunk@ ericsson.com

1994

– Panasonic Europe Limited (100)

István Stark – –

1117 Budapest, Neumann János utca 1.

(1) 382-6060 (1) 382-6080 reception.psee@ eu.panasonic.com

2006

– Nokia Siemens Networks B.V (100)

Róbert Ésik – –

1092 Budapest, Köztelek utca 6.

(1) 455-7100 (1) 216-9715 –

www.samsung.hu

2

3

NOKIA KOMÁROM KFT www.nokia.com

PCE PARAGON SOLUTIONS KFT (FOXCONN)

702,387

352,930

–

–

–

–

–

–

–

–

–

–

»

–

»

–

»

–

»

–

»

–

»

–

»

–

Repeating systems

paragon.foxconn.com

4

5

6

LG ELECTRONICS MAGYAR KFT www.lg.hu

ERICSSON HUNGARY KFT www.ericsson.com

PANASONIC MARKETING EUROPE GMBH SOUTH-EAST EUROPE BRANCH OFFICE[3]

54,112

38,038

23,692

»

»

–

»

–

»

–

–

»

–

»

–

»

–

»

–

–

»

–

–

»

–

»

–

»

–

–

»

2G, 3G, 4G mobile network equipment, data transmission and optical networks, IPTV, OSS and billing systems.

–

www.panasonic.hu

7

NOKIA SIEMENS NETWORKS KFT www.nokiasiemensnetworks.com

13,955

–

–

–

–

–

–

–

–

–

–

–

–

2 BusinessPartnerWatch 25

BBJ

WWW.BBJ.HU

Budapest Business Journal | Nov 29 – Dec 13

8

9

NEC EASTERN EUROPE KFT[3] www.nec.hu

ALCATEL-LUCENT HUNGARY KFT www.alcatel-lucent.hu

AVAYA HUNGARY KFT[2] 10

SAGEMCOM HUNGARY KFT 11 www.sagemcom.hu

CISCO SYSTEMS 12 MAGYARORSZÁG KFT[1]

www.sonyericsson.com/hu

MOHANET MOBILSYSTEMS MŰSZAKI-FEJLESZTŐ 14 KERESKEDELMI ÉS SZOLGÁLTATÓ ZRT

INDUSTRY-SPECIFIC SOLUTIONS

MESSAGE HANDLING SYSTEMS

CTI/CRM SOLUTIONS

VOIP

VSAT SYSTEM

CALL/CONTACT CENTER

BUSINESS PHONE SYSTEM/PBX

FAX MACHINES

ANSWERING MACHINES

ISDN PHONES

ANALOG PHONES

OWNERSHIP (%) HUNGARIAN NONHUNGARIAN

TOP LOCAL EXECUTIVE CFO MARKETING DIRECTOR

ADDRESS PHONE FAX EMAIL

2002

– NEC Europe Ltd (100)

Nicolae Varvara Edit Hontiné Cserháti –

1142 Budapest, Ungvár utca 64–66.

(1) 814-6424 (1) 321-8202 telecom.info@nec.hu

1990

– Acatel-Lucent Service International B.V (100)

Claudia Kafka, Tamás Matusek – –

1116 Budapest, Kondorfa utca 10.

(1) 209-9500 (1) 209-9599 info@alcatel-lucent.hu

1990

– Sierra Communications Internationa LLC (99.99), AVAYA Emea (0.01)

Gábor Rohály, Maike Christina Ratzke, Bátonyi Szvetlána – –

1062 Budapest, Váci út 1–3/B (1) 238-8200 (1) 359-0583 ikovari@avaya.com

Zoltán Dubi Zsuzsanna Bényei Zsuzsanna Bényei

1037 Budapest, Montevideo utca 16/A (1) 399-1020 (1) 399-1021 info@sagemcom.hu

–

–

–

–

–

–

–

–

–

–

4,406

–

–

–

–

–

–

–

4,038

3,673

SONY ERICSSON HUNGARY LTD

YEAR ESTABLISHED

8,412

»

–

–

»

–

–

»

–

–

»

–

–

»

–

»

–

»

–

–

–

–

»

–

»

–

–

»

–

»

740

314

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

System phone

–

1991

– Sagemcom Energy and Télécom (100)

LAN, WAN, wireless, router, switch, IP telephon, videoconference, data center net, network management, UC, optical networks, service networks

1995

– Cisco Systems Inc (100)

László György – Attila Mészáros

1123 Budapest, Csörsz utca 45.

(1) 225-4600 (1) 225-4611 –

2002

– Sony Ericsson Mobile Communications AB (96.67), Sony Ericsson Mobile Communications International AB (3.33)

Tibor Wágner – Viktor György Németh

1139 Budapest, Váci út 91.

(1) 886-2800 (1) 437-7464 –

2006

Zoltán Havasi (90), Zsolt Mozgó (10) –

Zoltán Havasi, Norbert Szabó – –

1154 Budapest, Tompa Mihály utca 13.

(1) 271-1141 (1) 271-1142 info@mohanet.com

1995

– Motorola International Development Corporation (99.05), Motorola International Capital Corporation (0.95)

Imre Bogdán – –

1023 Budapest, Árpád fejedelem útja 26–28.

(1) 888-0500 (1) 888-0501 info@motorola.hu

www.cisco.hu

13

OTHER TELECOM AND NETWORK EQUIPMENT

Digital TV transmitters, microwave and optical devices, cloud solutions, network virtualization, intelligent advertising space, video surveillance systems: behavioral detection, face recognition systems, biometric access control system

4,124

www.avaya.com

TRI-BAND MOBILE PHONES

TOTAL NET REVENUE (HUF MLN) 2011

COMPANY WEBSITE

DUAL-BAND MOBILE PHONES (900/1800 MHZ)

RANK

TYPES OF EQUIPMENT

–

–

Remote monitoring applications

www.mohanet.com

MOTOROLA SOLUTIONS LTD 15 www.motorola.com

167

–

–

–

–

–

–

–

–

–

–

–

NOTES: (1) Data of business year Aug. 1, 2010 - July 31, 2011. (2) Data of business year Oct. 1, 2010 - Sept. 30, 2011. (3) Data of business year Apr. 1, 2010 - March 31, 2011.

»= would not disclose, NR = not ranked, NA = not applicable

This list was compiled from responses to questionnaires received by November 26, 2012 and publicly available data. To the best of the Budapest Business Journal’s knowledge, the information is accurate as of press time. While every effort is made to ensure accuracy and thoroughness, omissions and typographical errors may occur. Additions or corrections to the list should be sent on letterhead to the research department, Budapest Business Journal, 1075 Budapest, Madách Imre út 13–14., or faxed to (1) 398-0345. The research department can be contacted at research@bbj.hu

3 Socialite

BBJ

Music to our wallets Book review: Free Ride by Robert Levine

28-29 31

Striving for balance The need to be multifunctional and have various different skills is a cultural necessity, and it is an ongoing struggle to find appropriate balance among the various aspects of professional life, the women shortlisted for this year’s Women of Excellence Award agree. The young and successful women were selected from some 50 nominees, and this year’s award went to Szilvia Gyurkó, advocacy director of UNICEF Hungary.

The BBJ asked the women on the shortlist about their careers, goals, values and priorities.

“I don’t really know of any successful people who are great in one single profession only, and who are focused on one single area only,” says Szilvia Gyurkó, this year’s winner of the AmCham Women of Excellence award, talking about the many roles a successful women is expected to excel in, and especially the various aspects of one’s professional success.”

“It may be because of the limits of the country or the size of the market we work on, but clearly, young professionals need to have a holistic, almost Renaissancelike approach in that they have know a bit of every-

thing,” she says. Others in the room agree. The women we are talking to are all aged between 25 and 35, and were shortlisted for the 2012 award. Although the winner was Gyurkó, none of them seems disappointed. In fact, there does not appear to be any ranking among them whatsoever. They are all successful in what they do, they all chose professions, or missions, rather, that require an extremely high level of social responsibility and sensitivity, and the quality that most spectacularly binds them together is the passion in their eyes when they talk about their jobs. They may

struggle at times, but they keep the balance between staying committed to their non-profit causes and finding their way in a highly competitive environment regulated by profit and other ruthless market mechanisms.

“Finding this balance is not a real added value,” Gyurkó notes, “it is more of a pre-requisite, or a basic condition to be successful. No matter what you do exactly, you have to step back, and see the bigger picture of how the world is put together. It is like a ball of yarn: no matter where you pull the thread, it will affect the whole construction somehow. And the

same goes with passion. No matter how hopeless it seems at times, we all believe that, sooner or later we will reach the critical mass, and make a difference. This is what keeps us going even at the hardest times,” she says.

Borbála Fellegi, Criminologist, mediator, founder and CEO of the Foresee Research Group, an interdisciplinary think tank of social scientists focusing on promoting principles and practices of alternative dispute resolution, restorative justice, crime prevention and helping the integration of marginalized groups in the society. She has been working for the European Forum for Restorative Justice and did consultation work for international organisations, such as the UNODC and the Council of Europe.

She is also lecturing at several universities.

“It is a really difficult balance to find,” says Katalin Bársony, sociologist, filmmaker and CEO at the Budapest-based Roma NGO Romedia Foundation. “It is an ongoing struggle in which we have to be focused on the artistic part of our work, but also need to be deeply involved in the financial

background. At most times we find solutions that do not exactly seem rational, but this is how we work, and we think that it is the only way to keep ourselves motivated on a daily basis.”

Barbara Baska, designer, artist and film director, says,

“We keep hearing that people should mind their own business, and if they want to be successful they have to ‘make themselves’. But the truth is that if we all do everything for ourselves, our life will become lonely and weird. It takes courage and dedication

Henriett Dinók, Barbara Baska, Katalin Bársony, Sz

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Budapest Business Journal | Nov 29 – Dec 13

to realize that I will become more by helping others, even when it means giving away something that is uniquely mine. Teaching is a good example: we have all seen teachers who have held back a piece of their knowledge just to make sure that they will always remain the authority, and will know more than their students. I think its a twisted way of seeing things: teaching or in other ways, you have to help others, do it fully, and this will become the real source of your self-fulfillment, too,” she adds.

Not only have these women found success in their professions, but they have also found this success at home. They might be highly educated, speak

and I was seriously considering going abroad. But in an environment like this, even very minor changes or feedback can go a long way.

And these minor changes become apparent every now and then. Changing attitudes is never easy, so we have to appreciate every little sign we discover.”

“When you work in a prison,” explains Fellegi, “you will see that there is a bigger chance to change things where there is nothing left to lose. Similarly, in Hungary, it is a lot easier to do something good – and a lot more difficult at the same time. As criminologists, we don’t aim to create ‘good’ people from ‘bad’ people; our goal is simply to change

WOMEN ON THE SHORTLIST KATALIN BÁRSONY is an award-winning filmmaker and executive director of the Budapest-based Roma media organization Romedia Foundation. She directed the Mundi Romani – the World through Roma Eyes documentary series, the first-ever documentary series on Roma communities around the world to be broadcast on a mainstream television channel (Duna Television Hungary).

BARBARA BASKA Designer, artist, filmmaker. At 14 she designed the image for a European Council project called Democracy for School. Her diploma film at the University of Theatre and Film, Kelen, was showed in the Urania cinema, and was invited to the Hungarian Film festival (Filmszemle) in 2012. As a designer she has won various international awards including the Ferrari's Award in Turin, Italy.

HENRIETT DINÓK Lawyer, a former researcher at the University of Chicago, at present a researcher at the Hungarian Academy of Science’s Social Science Researcher Center of the Institution of Law. She is involved with civil organizations such as the European Roma Rights Center and the Helsinki Commission. She is also the member of the curatorium of the Chance for Children with Disadvantaged Backgrounds Foundation, and a volunteer worker at the Romaversitas Foundation.

BORBÁLA FELLEGI Criminologist, founder and CEO of the Foresee Research Group, the only NGO in Hungary dedicated to giving scientific answers to the complex questions of preventing and reducing social inequality.

SZILVIA GYURKÓ Advocacy director of UNICEF Hungary. After graduating from law, as a teacher at ELTE Science University, she became the professional leader of a program called law clinic. For years she has been a staff member of the National Institute of Criminology. She was a leader of the Family, Child, Youth Association (Család, Gyerek, Ifjúság Egyesület), and has been the legal advisor to several important organizations.

ny, Szilvia Gyurkó, Borbála Fellegi numerous languages, travel a lot, but they also deem it important to remain connected to their roots, and stay in Hungary.

“We try to bring home a piece of each of the countries we visit and the cultures we see,” says Bársony. “Our work is received very well abroad, and this feedback is of great importance, because it gives us the strength we need to soldier on with the daily work.”

Gyurkó agrees. “Whenever we are abroad, our main motivation is to bring the knowledge home. A few years ago there was a point in my life when I thought I was doing something that is not at all timely in Hungary.

It was a very lonely feeling,

these people for the better. It can be a big change to someone, and something much smaller, or even nothing, to someone else, and I think the same goes for the country. We have to value every inch of progress we make,” she concludes.

AmCham’s Women of Excellence award is deliberately not a career award, but a prize that celebrates women who are successful in many different walks of life. Consequently, it is impossible to ignore the question of worklife balance.

“I miss a clone,” Baska exclaims. “At first I thought I was missing a twin sister, but no, what I really need is a clone. Of course I want a fam-

ily, but currently I have way too much on my plate even without children.” Bársony is also planning to settle down, but not just yet. “According to Roma traditions, I am definitely considered as an old maid, as all my cousins I grew up with have children by now,” she says. “When you spend 16 hours a day in a studio, that will challenge any relationship.

And I don’t subscribe to the traditional model anyway. I think it all depends on finding the right person, with whom you have the same values and priorities. But before thinking about a family, I strongly believe that we will have to raise a second generation of professionals within our organization,” she says.

“It is definitely difficult,” adds Fellegi, a mother of two, “but the truth is that the birth of my daughters turned out to be when my career gained the biggest momentum. In fact Foresee became an organization from a one-woman show, simply because I was forced to delegate tasks, and teach people how to do them well. I once had a dream, where my daughters and I were sitting in the middle of circle formed by my mother, my grandmother, and all our female ancestors.

The message was, I figured, that regardless of work and career, our biggest task in life is to take care of our family,” she concludes. ZsB

28 3 Socialite BBJ

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Music to our wallets Around the globe, the music industry is having a hard time selling anything, and this is even more so in Hungary. While sales via digital stores like Apple’s iTunes may be the best solution worldwide, the Hungarian music industry is still struggling to move its music through such channels.

BBJ GERGELY HERPAI

It was pretty hard for the biggest companies in the music industry to realize that distribution via physical means is kind of finished. Piracy does not mean copying CDs or DVDs anymore: when one can store several terabytes of digital data cheaply on hard drives or one can just load digital music on mp3 players or even smartphones or portable gaming devices, then we can all agree that buying music on CDs is not only expensive but has became obsolete, even out of fashion.

You can read it in the book about Steve Jobs' life how hard it was for him back in the early 2000s to convince the big music industry moguls to invest in his Apple iTunes store, where you can buy and download music digitally, but he since April 28, 2003 iTunes has been a growing business – mainly in well-developed western countries. Of course there are still other means to listen to music, as one can just as easily upload mp3 music to any kind of portable devices other than Apple products: mp3 players (which are falling out of fashion somewhat), Android smartphones, small tablet PCs, etc. The most common means of uploading music for free listening on the go is to connect the Android smartphone to a PC and simply copy the digital music downloaded from torrent sites such as The Pirate Bay. Still, people ARE buying music, that much was proved by the success of iTunes. But what about Hungary?

› AS FAR AS

MUSIC LISTENING ON THE GO CONCERNED, SMARTPHONES AND EVEN PLAIN MOBILE PHONES ARE ALREADY LEAVING BEHIND MP3 PLAYERS

PAYING FOR QUALITY? Of course it is difficult to standardize what is “quality music” and what is simply cheap, bad music since everybody has different tastes, but it is still possible to say that Hungarian pop music that is worth even listening to, let alone paying for, is few and far between. This is one of the reasons that have led to a decline in the sales of Hungarian music CDs. Of course, there is also the question of old-fashioned technology and the economic state of the country in general, with

about 40% unemployment for the generation under 25.

Those factors have led to the fact that the physical product market has worsened these last few years – for any kind of music from any country.

“It is crystal clear that the physical product market is shrinking. I cannot yet say exactly how much it decreased compared to last year, but I would not be surprised if it were around 30%,” says József Szarka, managing director of Sony Music Hungary. “In this segment, the only company who has been

able to increase its profit is shopline.hu.” We went to the said site and checked the prices here: the latest CD+DVD album from Ákos (one of the most popular singers in Hungary) costs HUF 5,311 – recently marked down from HUF 5,500.

ARTISJUS: IS IT “JUST”?

So music is expensive, there is an extreme amount of piracy in our country, and CD technology is undeniably out of fashion; so what kind of solutions have legislators tried to use to counter those

problems? The Hungarian Association for Copyright Protection Bureau, also known as Artisjus, is still using the so-called “blank tape levy”. Why it is called that, rather than the blank CD or DVD royalty? Péter Benjámin Tóth, director of strategy and communications, says the system has actually been in place for 30 years, and in 1982 everybody used cassette tapes – CDs were not even around back then.

But let’s get back to the present: how does the system work?

Blank tape royalty basically

means that when you buy a CD or DVD in the stores, a levy is included in the price that is paid directly into the Artisjus bank account. Part of the money is then distributed among musicians, music labels and producers. A few years ago, there were even stamps included in the cases of blank CDs and DVDs, which in theory you had to put on each of your CD and DVD boxes to prove that you had bought your product “Artisjus certified”. An interesting idea, but as far as the public was concerned hardly anybody bothered to actually use the stamps

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Budapest Business Journal | Nov 29 – Dec 13

in Hungary: it caused derision, disinterest, even anger among people who did not want to pay more for this “service”. Others were skeptical about whether the musicians received anything at all.

“There is an 18% administrative cost which we receive and about 82% is paid to the

authors,” Tóth stated. Other forms of media, such as movies, video games etc, also have their similar systems. Still, one question remains: what if I don’t put any kind of copyrighted material on my CD or DVD? What if I just use it to store my own private movies about family birthday par-

ties or holyday trips? Why do I have to pay this kind of royalty then? “That’s understandable, but the legislator had to make a compromise to provide the best solution possible. Also, you must know that according to the research of GFK [Hungary’s biggest research institute], 90% of the population

is using CDs and DVDs to store copyrighted material. So I think that it’s a fair solution for everyone.”

LET’S GET DIGITAL! Artisjus stresses that due to this levy, it is not illegal to own CDs and DVDs with copyrighted mate-

rial on them. What is more important however is that CDs and even DVDs are old technology and people are using and buying less of them every year. The music – legal or illegal – is less often stored on those discs, instead it is simply kept on hard drives, memory cards or even private servers like Skydrive, or Google Drive.

What is the answer of the Hungarian music industry to this? One would think that at some point after 2003, we jumped on the iTunes bandwagon. “While iTunes and its kind are functioning very well abroad, unfortunately it’s not the same in Hungary. Hungary is too small a market for the music industry as a whole to put money in advertising in this kind of technology,” says Tóth. Maybe that is why the iTunes Music Store has only been in Hungary since September 2011, so it is hardly surprising that it did not made much profit.

Besides iTunes, there is also an interesting initiative from Sony Music Hungary, who put full albums uploaded from “quality Hungarian musicians” on their Walkman mp3 player. The rock group Leander Rising, Gergely Bar-

icz and Péter Kálloy Molnár are just some of the musicians actively taking part in this initiative with their music distributed this way.

“It would be a serious exaggeration to say that Sony Music’s initiative would be significant in the music industry as a whole, but for both Sony and the authors, participating in this campaign is a major milestone.

The mere fact that close to half a million songs will be distributed this way to users during the six-month deal is a good indication of the magnitude of the initiative, as there are currently no legal music distribution facilities in Hungary that can provide distribution of this size,” says Sony’s Szarka.

Will this pave the way for the future of the music industry? It is an interesting initiative, but as far as music listening on the go is concerned, smartphones and even plain mobile phones are already leaving behind mp3 players. Every major actor in the Hungarian music industry has to think hard of the best solution for how to reach buyers in Hungary, and sticking to old technologies will certainly not help in the long-term. ■

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WHO'S NEWS

Name Péter Csernitzky Current company/position KPMG/head of transaction services group

Do you know someone on the move?

Send information to research@bbj.hu

An economist and a transport engineer, Csernitzky is a Hungarian Registered Auditor and member of the Chamber of Hungarian Auditors and the Association of Chartered Certified Accountants. He started his career in 1997 at KPMG in Hungary, working as an auditor for seven years.

From 2004, he spent two-anda-half years at GTS CE Group as regional finance and controlling manager, later rejoining KPMG, working as a financial due diligence advisor.

Name Norbert Malejkó Current company/position Indotek Group/regional director

Malejkó has been appointed regional director responsible for the northeast Hungarian region. Before his new assignment, he was managing director of Miskolc-based MV Profil Kft. He started his career at DIMAG Rt in 1991 as a plant engineer, and later held management positions at Ford Autotop Kft and MATÁV.

Name Nikoletta Kovács Current company/position LeasePlan Hungária/ supply director

Kovács joined LeasePlan in November. Previously, she was managing director of the Hungarian subsidiary of Erste Group Procurement, Procurement HU Kft. She joined Erste Bank in 2004 as a supply specialist. Before that, Kovács was with Postabank and Axelero.

DEC 3

DEC 6

DEC 12

DEC 18

AmCham Communications School with László Szily, Editor, Index.hu LOCATION AmCham Conference Room, 1051 Budapest, Szent István tér 11. 6th floor REGISTRATION 6-6:30PM TIME 6:30-8PM FEE AmCham members in good standing: HUF 38,100/person; non-members: HUF 57,150/person CONTACT www.amcham.hu

Forum and Gala Dinner with Dr. Mihály Varga, Minister without portfolio LOCATION Kempinski Hotel Corvinus, 1051 Budapest, Erzsébet tér 7-8.

REGISTRATION 5:20-6PM TIME 6-9PM ORGANIZER BCCH, Joint Venture Association FEE BCCH members: HUF 15,000 + VAT; HABA members: 17,500 + VAT; non-members: HUF 20,000 + VAT CONTACT www.bcch.com; www.jvsz.hu

Tax Law Changes 2013 - Seminar & Cocktail sponsored by KPMG LOCATION Kempinski Hotel Corvinus Budapest, 1051 Bp, Erzsébet tér 7.

TIME 4:30-7PM ORGANIZER American Chamber of Commerce in Hungary FEE No participation fee for members; non-members: HUF 19,050 CONTACT www.amcham.hu

Christmas Cocktail Party of the British Chamber of Commerce in Hungary, the British Embassy, and the Hungarian Association of British Alumni LOCATION Old Banking Hall of the British Embassy, 1051 Bp. Harmincad u. 6.

TIME 6-9PM FEE Free of charge for BCCH members and invitees of the organizing partners; for non-members HUF 5,000 + VAT. CONTACT www.bcch.com

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Free ride

by Robert Levine Do you read newspapers online? Own a Kindle?

Download television programs so you can skip the adverts? In Free Ride, Robert Levine explores the implications that these activities have for modern culture, and asks how businesses can fight back against the expectation that everything we value should be available free of charge.

BBJ BBJ

“Information wants to be free”, said influential technologist Stewart Brand at a 1984 hacker conven-

tion. These words became the mantra that shaped the Internet, and the conflict he predicted has led to a revolution in the way our culture is funded and consumed. We have come to demand free content online, assuming that in the past we were simply paying for the packaging of physical products. Newspapers are being pressured to give their content away for free, music sales have plummeted due to piracy, and Amazon is using its market power to drive down the price of e-books.

Of course, what we were paying for in the past was not just packaging. We were paying for the creative content. Now technology companies are making millions from content created and funded by others and, Levine argues, reducing the value of culture in the process. How did the media

industry lose control over its destiny? What are the consequences? And are we headed for cultural meltdown if the media cannot stop the free ride?

“The real conflict online,” Levine writes, “is between the media companies that fund much of the entertainment we read, see and hear and the technology firms that want to distribute their content – legally or otherwise.” By providing consumers with content they do not pay for, or selling content far below the price it costs to create it, these entertainment distributors become “parasites” on the media companies that invest in journalists, musicians, actors and authors.

They drive prices down, making original content creation less economically viable, both for those who finance it, and for the authors and artists themselves. Levine argues that this process removes the economic incentive to create the kinds of entertainment that consumers want and are, in fact, quite willing to pay for.

As well as examining how the culture business is being destroyed,

Levine provides his vision for how it can “fight back”.

He uses Europe as a model, where, rather than filing lawsuits against individuals who upload pirated material, European regulators focus their attention on major violations committed by commercial distributors. He also cites France’s rekindling of a 19th century business model, whereby a collective licensing fee is added to Internet connections to allow for the convenient downloading of music, and is used to compensate producers and artists.

Regardless of your position on the business of culture, Free Ride makes for thought-provoking reading, and encourages us to think about the potential consequences of “free culture”.

While consumers may benefit in the short-term, in the long-term, will we get what we pay for? ■

FREE RIDE

by Robert Levine Vintage Publishing ISBN 9780099549284 Available to order through www.hungaropress.hu