Israel's Internet Revolution Gets Underway With Launch of Wholesale Market

The Bezeq-Hot landline duopoly and Yes-Hot television duopoly will soon be history.

Bezeq Israeli Telecommunication Corp. headquarters in Tel Aviv, Israel.
Bloomberg

It may not match the scale of the great cellphone shake-up three years ago, but Israel’s landline Internet market began its own revolution on Tuesday with the promise of lower prices, simpler billing and greater choice.

Known as the “wholesale market reform,” the shake-up allows Internet service providers to lease phone lines from Bezeq running to a customer’s home and offer a complete range of services, including phone, Internet and television. Bezeq has to provide the infrastructure at a government-controlled price of about 50 shekels ($12.90) a month.

Gilad Erdan, who led the reform plan while he was communications minister in the last government, said it aims to do away with the duopoly of Bezeq and Hot Telecom over the lines that carry phone and Internet traffic. The reforms will also break the duopoly of Hot and Yes, a unit of Bezeq, over television broadcast services.

The ultimate goal is to have four telecoms companies – Bezeq, Hot, Partner Communications and Cellcom Israel – competing against each other in every segment of the market.

Not only are monthly charges expected to fall by about 30% for broadband Internet and 20% for landline telephone services, the reforms do away with the system, perhaps unique to Israel, under which one company provided the infrastructure and another Internet service. From now on there will be a single supplier for both.

Two companies have already taken advantage of the reforms and begun offering services at lower rates.

The biggest and most important is from Smile 012, an ISP subsidiary of Partner that already counts 600,000 customers. Its “Internet One” package provides 100 megabits at 100 shekels a month, a rate that then goes up a year from now to 120 shekels. It will add in a router for the first year at no charge and for 9.90 shekels a month thereafter. Customers can also opt for 40 megabits at 89 shekels a month. On its website, Partner is promising landline phone service and other services in the future at a single price.

The second offering to take advantage of the reform is from 018 Xphone, which is offering Internet services for 99 shekels a month for the same 100 megabits. Unlike 012, Xphone isn’t raising its rates a year from now. It is also offering slower packages of 40 megabits for 89 shekels a month and 15 megabits for 79 shekels.

In the coming days other providers are expected to begin offering packages, among them 013 Netvision, which is part of Cellcom, and smaller providers like Triple C.

Bezeq is not enthusiastic about the reforms to say the least, but is cooperating with the new providers. Bezeq is also competing with them, offering 100 megabits for 122 shekels a month. Hot, meanwhile, is offering the same bandwidth for 130 shekels.

“Bezeq has invested over many years in its infrastructure, which is among the best in the world,” said its CEO, Stella Handler, on Tuesday. “I’m certain that this investment, together with the principles of fairness and transparency guiding Bezeq, will enable us to compete successfully in the new era of increased competition.”

Nevertheless, for Bezeq it will mean a reduction on a rate of profitability that reaches some 60% of its revenue. The company, according to a Communications Ministry estimate, will lose about 600,000 landline telephone/broadband customers over the next four years and 1.3 billion shekels of revenue annually.

In return, Bezeq won some concessions. The structural division between the company and its subsidiaries demanded by the government is being done away with, enabling Bezeq to cut costs and better compete. It will no longer be subject to controls on phone rates and can offer the same phone, TV and Internet package as other providers, although with some limitations.

All these, however, await the opening of the wholesale market and proof that it is indeed increasing competition. The government has not set a deadline for making a decision and is only now setting benchmarks for judging whether the reforms are working.