beyondbrics

Concerns about the growing economic role of the Hungarian government are among the issues holding back the European Union and the International Monetary Fund from rushing to Budapest’s assistance.

But that’s not stopping prime minister Viktor Orbán from pushing even further into the economy, with a consortium of state companies on Tuesday securing entry into the mobile phone market.

Magyar Posta, the post office, power company Magyar Villamos Muvek and the development bank Magyar Fejlesztesi Bank have clubbed together to buy a licence and compete with the three existing mobile companies – the local affiliates of Deutsche Telekom (DTA:DEU), Vodafone (VOD:LSE) and Norway’s Telenor (TEL:OSL).

The state-company consortium offered Ft10bn ($44m) for 5 megahertz of the 900 MHz frequency, NMHH, the media and telecommunications authority, said in Budapest on Tuesday,  in a widely-expected decision.

According to Bloomberg, the three existing companies also won additional frequencies, together offering Ft33.9bn in their bids,  yielding a total of Ft43.9 bn for the state from the entire tender.

While other ex-Communist countries in the region, including Poland and Romania, are still privatising state-owned enterprises, the Orbán government has made no bones about cementing a role for the state in what it calls strategic businesses, including energy, finance and telecoms.

While neither the EU nor the IMF has raised questions about telecoms, both have expressed concerns about other aspects of government encroachment into markets and independent institutions, notably the central bank. Brussels and Washington are also worried about Hungary’s debt levels.

The telecoms tender will raise money for the central government, even if some of the funds are coming from other state-controlled pockets. But the statist policies have also included outright purchases – last year Budapest acquired a 21.2 per cent in Mol, the national energy group, from Russia’s Surgutneftegas’s for $2.65bn.

Brussels was sympathetic to the desire to reduce Russian influence in Hungary’s energy market. But these policies come with heavy costs, which Hungary today may not be able to afford.

Related reading:
Guest post: Orbán’s hazy memory of debts, cuts and economic policy, beyondbrics
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Hungary: Brussels in court threat, beyondbrics
Hungary’s leader ready to back down in EU dispute, FT