Netanyahu's big test
In the next few days Finance Minister Benjamin Netanyahu is to meet with Prime Minister Ariel Sharon to discuss Bezeq. This will be an important test for Netanyahu: Will he be able to persuade the prime minister to support implementation of the Grunau Report on the company's rates?
In the next few days Finance Minister Benjamin Netanyahu is to meet with Prime Minister Ariel Sharon to discuss Bezeq. This will be an important test for Netanyahu: Will he be able to persuade the prime minister to support implementation of the Grunau Report on the company's rates? The meeting's outcome will also send a clear signal to the Electric Corp., Mekorot water company, the Ports Authority and Bank Leumi about whether the finance minister is serious about reducing the power of the big monopolies, privatizing them and making them face competition - thus improving all Israelis' standard of living.
Bezeq's privatization is stuck because implementation of the Grunau Report is stuck. Since no decision has yet been made on the monopoly's rates for the upcoming years, investors have no idea what Bezeq's revenues will be, so it is impossible to evaluate its worth, and therefore, also impossible to sell the company.
Simultaneous with Bezeq's privatization, we are witnessing another important process that will affect the internal communications map's structure in Israel: It has been opened to competition in two stages. In the first stage, which is already under way, the cable companies are providing fast-Internet service to every subscriber everywhere in the country. Bezeq is also offering fast-Internet service with the result that the consumer is benefiting from competition. Once the cable firms merge and the technology becomes fully available, the united company also will be able to provide telephony service to every subscriber, so competition with Bezeq will expand. The second stage will occur in September 2004, when all entrepreneurs will be able to supply telephone and fast-Internet service provided they meet certain minimum conditions. The fact that they will not be required to deploy nationally will generate tougher competition and bring about a further reduction in telephone rates.
Bezeq is going to suffer from this process. As soon as it has competition in the telephone service market, it will cease to be a total monopoly, its share of the market will decrease and it will be forced to improve its service, which will affect its profits. In addition, the Gronau Report recommends a reduction in the current rates, which will slash the company's annual revenues by NIS 286 million. It is not surprising, then, that Bezeq's outgoing CEO, Ilan Biran, and the chairman of its workers committee, Shlomo Kfir, are making a supreme effort to avoid having to implement the Grunau Report recommendations.
The report recommends reducing Bezeq's retes by 5.5 percent nominally and not to compensate the company for inflation, so that the real reduction will be 13 percent. Grunau recommends forcing the company to streamline by 3.5 percent a year and to lower the rates for peak hours, while increasing them for slack hours. The report favors raising the permanent user fee and canceling the minimum rate for a call, which would rectify a great wrong. The situation today is that if you misdial or get an answering machine, or the person you are looking for is not there and the conversation lasts for a second or two, you are nevertheless charged the minimum rate - 22.5 agorot - which is a scandal in itself.
Bezeq was stunned by the Grunau Report recommendations. The company maintains that it has undergone comprehensive streamlining processes in the past few years, including the retirement of 3,000 employees. In response, Bezeq commissioned a report of its own, which says that the company's rates should be increased by up to 19 percent. Bezeq officials disputed the recommendations in a meeting with the cabinet secretary, but Gronua and the commission members were unconvinced: They insist that the report is fully justified and that Bezeq's rates are unwarrantedly high and need to be reduced.
The finance minister and the prime minister will be meeting about this soon. They need to understand that lowering Bezeq's rates is the proper way to encourage the economy, since it would lead to a savings of NIS 286 million a year for telephone users. This will, in effect, be a real devaluation, which will support the business sector and contribute to a higher standard of living for all of us, because we will pay less for using the phone and surfing the Web.
The obstacle to this public interest is Kfir, who is also a central activist for the Histadrut labor federation. Politicians are not always willing to confront thousands of workers, but Netanyahu said not long ago that we are paying too much for the electricity and water we use. It turns out that we are also paying too much for the (non-cellular) phone calls we make. All of these cases involve powerful monopolies that are suffering from surplus personnel and clear inefficiency. So the finance minister and the prime minister will be facing a true test of performance. If they cave in under pressure by Kfir, the Electric Corp. will immediately understand that it can win, too, in the struggle against the attempt to split it, and all the other big workers committees also will draw the same conclusion. In other words, all of Netanyahu's grand reform plans now depend on the implementation of the Grunau Report and the privatization of Bezeq.