Broadband Reform Could Cost Bezeq Up to 600,000 Customers

Communications Ministry report predicts that users will pay 30% less on landline packages.

Israel’s biggest telecommunications company, Bezeq, stands to lose customers and close to a third of its revenues once a plan to overhaul the country’s broadband communications market gets underway, an official Communications Ministry report warned on Sunday.

Over the next four years, Bezeq stands to lose some of its 600,000 customers who have been receiving combined telephone and broadband Internet service, the report predicted. But for consumers, it said, increased competition in the telecommunications industry will improve Internet speeds and expand the range of services.

“We expect that the drop in prices to the consumer in the broadband market will reach as much as 30%, while the decline in telephone charges will be roughly 20%. Based on this worst-case forecast, the annual revenue loss to Bezeq’s landline business after four years of competition will be about 1.3 billion shekels a year [$372 million], which is about 30% of the company’s 2012 revenues,” it said.

The report comes days after the ministry took a key step in creating a wholesale telecoms market by establishing the prices companies will have to pay to offer services over the telephone and Internet infrastructure of Bezeq and cable company Hot. The government is trying to break the Bezeq-Hot duopoly through reforms and by supporting a super-fast fiber optics network being built by Israel Broadband Company.

Shares of Bezeq fell 3% to 5.34 shekels ($1.53) in Tel Aviv Stock Exchange trading on Monday.

Prepared by Haran Levaot, the ministry’s deputy director general for economics, and Reuben Gronau, an academic who also chaired the government committee that recommended the reform in the wholesale communications market six years ago, the report looked primarily at the effect of the reform on Bezeq’s revenues. Profits, they said, would be much less severely affected, although they did not predict the impact more precisely.

“A switch by 30% of all customers to competitors would permit the company to benefit from substantial savings in operating expenses in the retail sector,” they said. The company would also enjoy savings from the consolidation of Bezeq’s landline operations and Bezeq International, a division that provides international communications and Internet service.

“The experience of recent years has taught Bezeq how to deal with revenue losses without hurting its profitability,” the report said, citing data from the year 2007 through 2012 when its revenues fell 600 million shekels, while operating profits grew to 2 billion shekels from 1.3 billion shekels.

Even with the growing competition it has faced in the landline market in recent years, Bezeq has managed to maintain about a 65% share of the market as well as about 60% of the broadband Internet communications market, the study noted. Bezeq has been investing about 750 million shekels a year in its network, a figure this is not expected to be affected by increased competition, the report said.

Bloomberg