Battle Lines Over Bezeq Reform Are Drawn at Knesset

Antitrust, treasury officials say Israel’s biggest telecoms company is blocking reform, shouldn’t be rewarded.

Ahikam Seri/Bloomberg

Battle lines were drawn in the Knesset on Monday as Antitrust Authority and treasury officials slammed a provisional plan by the Communications Ministry to ease the structural separation rules Bezeq must adhere to between its businesses.

At a stormy hearing of the Knesset economics and control committees, Antitrust Commissioner Michal Halperin and Amir Levy, the treasury’s budget director, both came out strongly against allowing Bezeq to end structural separation until Israel’s landline and Internet markets were more competitive.

They accused Bezeq of erecting stumbling blocks to reform and said it should not be rewarded by easing the rules on structural separation.

Halperin said the market for landline phones and Internet services should be as competitive as the cellular market, where 2012 reforms opened up the sector to more players and rates tumbled. “The Antitrust Authority is concerned about developments in the wholesale market,” she said.

Regarding Internet, Halperin said the pace of Bezeq subscribers leaving for rival companies had slowed from 100,000 subscribers in second-quarter 2016 to a rate now of just 20,000 a quarter. Landline telephones and access to Bezeq’s physical infrastructure by competitors “has been stuck because of the obstacles Bezeq has piled up along the way,” she said.

At issue is whether regulators will let Bezeq take down the Chinese wall that keep its various operating units in Internet, television, cellular and landline telephony. Even though under the plan being considered now the units would still have separate management and marketing, removing the legal and financial barriers alone could save Bezeq hundreds of millions of shekels in taxes.

The decision on structural separation is conditional on public hearings, which are likely to see strong opposition to the plan, not just from officials but from Bezeq’s rivals. Bezeq shares dropped 2.3% 7.13 shekels ($1.85) on Monday in Tel Aviv Stock Exchange trading.

But Communications Ministry Director General Shlomo Filber – who set off the storm last month, when it was revealed he had told Israel’s biggest telecommunications company the ministry looked favorably on a plan to lower the walls between Bezeq’s businesses – stuck to his position.

Structural separation, he said, is out of date and was relevant 20 years ago when Bezeq was a monopoly. Instead, he pointed to Bezeq’s promises to speed development of its fiber optic network as a condition for ending it. “The Olympic broadcasts from Tokyo in 2020 will be higher quality and the Israeli network right now won’t be able to handle it,” he said.

Levy of the Finance Ministry fired back that it wasn’t the issue of separation itself but whether Bezeq had done enough to allow competitors into the landline market it dominates. “The answer is categorically ‘not enough,’” he answered.

He pointed to earnings, taxes, depreciation and amortization at Bezeq that ran at 60% to 65% for its landline businesses, versus 20% to 25% in its cellular business where it faces competition.