Israel's Telecom Rates to Fall After Minister Erdan Approves Reform

Reform will force Bezeq to lease lines to rivals for phone and Internet, creating new competition.

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

Communications Minister Gilad Erdan used his last day in office, on Monday, to sign off on a long-awaited reform of Israel's telecommunication market that will allow companies to rent space on Bezeq’s network in order to offer telephone, Internet and television services to private and business customers.

The ministry expects the reform of the industry’s wholesale segment, which will end the duopoly of Bezeq and Hot Telecom over land line networks, to lead to a decline of around 20% in the prices paid by customers.

“The undertaking led by the communications minister will enable other companies to supply the full range of telecommunications services under one roof. It will enable other groups, which lack the [network] infrastructure, to compete and offer lower prices for a complete basket of services,” the ministry said.

Bezeq is likely to fight the initiative, which will certainly cause it to lose customers even if it gains revenue from leasing its lines, both because it dispute the ministry’s estimates for how much business it stands to lose from the reforms and what it called irregularities in the decision-making process.

Bezeq has already turned to the High Court of Justice, which six months ago ordered the Communications Ministry to respond to the company’s demand for clarifications on how it was making its decisions and estimating their market impact.

“The company has never opposed the idea of a wholesale market but we are certainly against the way decisions have been made, especially given the surprise attack launched today,” said a figure at Bezeq who asked not be identified. “Nevertheless, Bezeq will be able to cope with all regulatory changes,” he said

Shares of Bezeq plunged 5.1% to 6.26 shekels ($1.64) in Tel Aviv Stock Exchange trading on Sunday. The ministry expects it to lose some 600,000 subscribers by the end of 2017, losing it some 1.3 billion shekels in land line revenues.

Under the plan, Bezeq will be required to lease space on its network to companies at a rate of 42 shekels a month, exclusive of value-added tax, for Internet service with transmission speeds of 20 megabits per second. Faster transmission rates and other factors can increase this price.

The reform promises to shake up the Israeli communications market, much like then-Communications Minister Moshe Kahlon’s 2012 decision to allow new players to enter Israel’s market for mobile service providers.

It will allow companies such as Cellcom Israel and Partner Communications (Orange) to lease lines to households at rates that will be supervised by regulators and to sell end-to-end communications packages that include wired phone service, Internet and multichannel television. The entry of these two companies would double the number of players in the market.

To consumers, the reform will also spell the end of the artificial division between Internet service providers and companies that provide web infrastructure, allowing customers to have a single provider for both.

As the Communications Ministry itself explained: “The initiative will make life easier for the consumer, creating a single address to turn to and put an end to the annoying where the infrastructure providers and the service provider blame each other when there’s a connectivity problem.”

Israel’s land-line sector was largely ignored for a number of years, as Kahlon aggressively pursued reforms to the mobile segment. Bezeq and Hot’s duopoly allowed them to charge more for Internet than in much of Europe, for relatively slow transmission speeds, while reaping hefty profits.