Yes, dear reader, don't use the misnomer "interconnection fees," or "charge for incoming calls airtime" any more. Use a far more accurate term that truly sheds light on the nature of this money that the cellular takes from us: ambushes.
Let us explain with a simple example. In recent years major employment organizations, such as civil servants, teachers, defense establishment employees and the like have been inundated with tempting offers for cellular service.
The cellular providers offer them enviable terms - negligible fixed fees, subsidized phones and mainly ridiculously low-priced charges for outgoing calls.
Their solicitations generate the impression that the cellular industry is fiercely competitive and that the price war is practically out of control, that prices are constantly dropping and that the companies are constantly becoming more efficient.
But when you closely examine the cellular carriers' business model, which they developed with the selfless assistance of the Communications Ministry, which is supposed to regulate them, you understand that the massive give-away of phones and almost-zero charges for outgoing calls are actually the companies laying their trap.
What is this trap? It is the charge the companies impose on airtime for incoming calls, the charge the caller to a cellular user pays for making a call to a cellular network. That so-called "interconnection " fee is the same at all the companies, 52 agorot a minute. It contributes about a third of the cellular companies' revenues.
The system is perfectly simple. The more "interconnection ambushes" the cellular companies disperse, the greater the chance that some Israeli trying to communicate with his friends will get caught. Israel has almost 7 million people and more than 6 million cellphones: barely anybody can get through a day without getting snared in an interconnection trap, and pay his daily fee to the cellular triumvirate.
The interconnection fee has created a unique anomaly. The bigger the cellular supplier's share of the market, the more it can exploit its economies of scale by expanding its pool of subscribers, mainly among organized workers. The unions can't refuse the offers - free handsets! Rock-bottom prices for outgoing calls! But worry not for the generous cellular carrier, which makes its money from the rest of the world knocking on the door to call its subscribers, with the blessing of the regulator.
The bigger its pool of users, the greater a company's power to pump in income from those outsiders. The interconnection ambushes actually create a bizarre alliance between the cellular carrier and its users: the willingness of the big organizations to receive extraordinary benefits creates the suppliers "captive income" from outsiders. It is a win-win situation for the supplier and its customers.
Sex and smokescreens
Meanwhile, on Monday the press happily reported that Partner, Pelephone and MIRS face fines for failing to block access to erotic calls, meaning minors can freely phone in. Cellular sources say the Communications Ministry suddenly leaped into action, possibly with an eye on the religious community.
How much are the companies being fined? NIS 322,000. That is a nice amount. For the benefit of our readers, we did the math and discovered that the fine is equivalent to about one hour's (yes, one hour's) income of the companies from interconnection fees (NIS 3 billion divided by 365 divided by 24).
And that sums up Israeli regulation, doesn't it? It gets all fired up about sex, politics and defense while behind the flames and smoke, lies a mechanism pumping billions from the citizenry.
This interconnection ambush is nothing new. Five years ago the Communications Ministry received a memo detailing the mechanism precisely. The memo, from which we quoted extensively yesterday, had been written by David Boaz, formerly a budgets director at the Finance Ministry. His report had been commissioned by none other than Partner, which was at the time suffering mightily from the interconnection ambushes of its rivals, Pelephone Communications and Cellcom.
What did the Communications Ministry do with the information it received? It waited, then dawdled, then delayed, then hung around, and consulted, and dawdled some more.
Three years later the assistant director for economic affairs at the Communications Ministry, Alex Weissman, wrote a report, also warning that the interconnection ambushes were gravely distorting the marketplace.
What did the Communications Ministry do with the information it received? You guessed it. It waited, then dawdled, then delayed, then hung around, and consulted, and dawdled some more.
After the protracted wait, a year ago communications minister Ehud Olmert decided to ask Analysys, a British consultancy, for its opinion too. Its findings were preordained, yet thorough inspection was obligatory. And another seven months passed.
What is the Communications Ministry doing now that a decision has been made? It is, of course, waiting. Interconnection fees will be reduced in stages, the Communications Ministry announced: a third will drop in January 2005, then another third in January 2006. Meanwhile, the cellular companies are raking in NIS 3 billion to NIS 4 billion a year from their ambushes.
Communications is one of the smaller ministries, and it has one of the smallest budgets. Most of its duty is regulation. But from our experience with the interconnection ambushes, we know that even a small, very small, ministry can be very costly - to us that is. Judging by the price the nation is paying for the tiny ministry's failure to understand the market it regulates, the Communications Ministry is a very expensive body indeed.
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