Communications Min. gears up for mobile rate reform

The Ministry of Communications may adopt a new European directive that would greatly reduce the price of phone calls between telephone networks, both both landline and mobile.

Since Israel is not a member of the European Union implementation is voluntary, although it could be beneficial for Israel in future European agreements.

The EC directive calls for a gradual reduction of call-completion charges across operators for mobile devices, from the current rate of 0.08 euro down to 0.03-0.015 euro per minute by 2012.

If Communications Minister Moshe Kahlon adopts the directive, call-completion charges would fall from the current rate of NIS 0.22 per minute (before VAT) to NIS 0.08-0.16 per minute.

When a customer of Cellcom, for example, calls a Pelephone customer, again for example, the Cellcom customer is billed only by Cellcom for the call. But because Pelephone is owed a portion of the payment since its network was used in making the call, a call-completion charge is incorporated into the price charged to customers.

The mobile operators offset the minutes used by other networks on an ongoing basis. Because their relative market shares are equal, almost no money actually changes hands between the carriers.

Call-completion charges are meant to reflect the net cost of transfering calls from one operator to another. But studies by the communications and finance ministries have shown that the mobile operators charge consumers more than than the actual cost of the technical operation, and in fact profit nicely from these charges.

After its investigation, the Communications Ministry hired an economic consulting firm to examine the true cost of call completion. That examination is currently underway. Once it knows the true cost the ministry will order call-completion charges to be reduced, albeit probably gradually to avoid excessive damage to mobile company revenues.

Operators won't give in without a fight

The last time a planned reduction of call-completion charges was announced was in 2004, when Ehud Olmert was communications minister. The Analysis consulting firm determined that the charges should be slashed from NIS 0.45 per minute to NIS 0.15.

Mobile operators objected to the reform, claiming it would cost them NIS 80 million in damages. The parties finally compromised on NIS 0.22 per minute, implemented in four stages between 2004 and 2008. The mobile carriers, of course, timed each stage to coincide with a rate increase, to compensate for their loss of revenue. The companies are expected to object this time around as well, only this time it will be more difficult for them to compensate by raising rates, with the new law that prohibits them from doing so during the course of a customer's contract term.

Call-completion rates are a crucial component in competition between mobile operators in Israel. In the event that a fifth carrier is formed, call-completion charges will be one of its most significant costs, since the relatively small customer base in the initial stage of a new company's life means that most of its outgoing calls are to other carriers, and offset by relatively few incoming calls.

The Communications Ministry says that it plans to raise the issue of call-completion charges, including the European position on the matter, with the industry players.