Wanted: Kahlons for banking, aviation, electricity
There's no reason why the cell phone revolution can't be repeated in other monopoly-ridden sectors of the economy.
The cellular market went wild this week. After years of milking us, stealing from us, sending us monthly bills of hundreds of shekels and more, suddenly a young French Jew by the name of Michael Golan appears who offers us a package of attractive services that includes calls and SMS without limit as well as Internet for just NIS 100 a month.
We hadn't even gotten used to the idea when a second French Jew, Patrick Darhi, appears as a competitor and offers the same package for just NIS 89. Competition, as it is supposed to do, spurs the veteran cellular operators - Cellcom, Pelephone and Partner - to match them and cut the price of their service packages by tens of percent. Their offerings aren't as attractive as the new providers, but it's a start.
No doubt about it, the cellular market has undergone a dramatic change: From a market of monopoly players, in which three companies lived peacefully with one another, to a competitive and dynamic industry where the consumer is king.
Everyone - those who moved over to one of the new providers and those who didn't - can save money, lots of the money, that their cell phones were costing them from this week on. It is a major victory in the struggle to bring down the cost of living in Israel and will only encourage consumers to demand the same from other monopolized sectors of the economy - to cut costs, let new players enter the market, let market forces play out and turn Israel into a consumer paradise. Is somewhere here over-excited?
To discuss the opening up of additional sectors of the economy such as banking, air travel, insurance and pensions, electricity, the ports, food and other fields to competition, we need first to understand what made the opening up of the cellular market possible. A series of unusual conditions did it, conditions that are not readily apparent.
Where to begin? Let's start with the fact that competition in the cellular market could have started a decade ago instead of this week, but there was no ready to make it happen. Before Moshe Kahlon was appointed communications minister, there was no one occupying that post with the determination to defend the consumer. Instead, we had a series of ministers who preferred the cellular companies and their shareholders and had no courage to work for the simple caller. Kahlon had the courage.
When he took over the portfolio, he found the cellular companies cost-ridden, bloated, earning unreasonably high profits - an anti-consumer industry in terms of charges and exclusivity agreements that prevented subscribers from changing providers without paying costly penalties of thousands of shekels.
Kahlon opened up the market, broke down the barricades, published tenders for new players to enter the market (as well as virtual players who piggy-back of others' networks ), all of which led to the explosion of consumer gains this week. Soon, Kahlon will open up the market for imports of handsets, which will bring further savings for users. He did all this despite the powerful forces arrayed against him.
Another reason for the revolution is connected directly to the behavior of the cell phone companies. The market over the past decade had become increasingly anti-competitive. On one side were company executives collecting princely salaries and shareholders enjoying outsized dividends; on the other side were consumers paying outrageous charges both for monthly services and to change providers.
This set-up gave the lie to the free market: It wasn't free to the masses of consumers, just to the executives and shareholders. But this kind of piggishness couldn't go on forever; the public understood it was being taken for a ride. Not for nothing had the cellular providers become among the most hated businesses in the country, even more so than the banks.
The opening of the market to competition is also directly related to the structure of the industry and the determination of those who regulate it. And this is what brings us to several features that characterize the cellular market and differentiate it from others.
The cellular industry is a young one whose origins date back no earlier than the 1980s, and whose rapid growth was connected to the breathtaking pace of technological development. It didn't have to contend with powerful labor unions that can shut down an entire sector of the economy. When you look at other uncompetitive sectors of the economy, such as electricity and the ports, you find powerful works committees that don't let free markets penetrate.
There's no denying it: The opening of the cellular market to competition will come at the cost of people being fired. While the new players are recruiting staff, we are already seeing that the older companies are taking efficiency steps and laying off employees. It is hard to make the case to someone who has just been laid off that reform is good for him, but that doesn't mean it isn't.
The mathematics of the labor market say that lowering the cost of cellular communications by tens of percent will help small businesses and consumers. A business that reduces its costs and increases its profits can grow faster, recruit employees and invest more. Consumers who save hundreds of shekels a month on their cell phones will use the extra cash to buy other goods and services, giving an added impetus to economic growth.
Now we need only imagine how much more improved conditions would be for small businesses and consumers if the banks, pension funds, ports, electricity and aviation were opened to competition. It could change the entire cost structure of business and create new jobs.
If this isn't happening, the blame can't be placed entirely on the works committees preoccupied with their own survival. It must be shared with those who regulate industry and the government, whose job it is to advance the interests of the consumer and competition. But in the insurance and banking sectors, regulators are far more concerned with ensuring stability.
But it is possible to open these sectors to competition and preserve stability at the same time. What's required is for these industries to become more efficient, to reorganize and put an end to cross-subsidies between one sector and another.
Those who are benefiting from the status quo and who have difficulty understanding how they can gain from competition need only open up their cell phone bill next month. They will see the kind of benefits that can emerge in so many other giant sectors of the economy.