HOT, Bezeq to Be Forced to Let Competitors Use Their Networks

Companies will have to allow other firms to use their land-line infrastructure to offer services, according to draft reform.

HOT and Bezeq will have to allow all Israeli telecoms to use their land-line infrastructure to offer packages including phone, Internet, international calling and even television, under a draft reform released on Wednesday. This would enable more companies to offer complete telecom packages at relatively low prices.

Currently only HOT offers so-called "triple play" including television, phone service and Internet. Bezeq would dearly love to merge with the Yes satellite television company - and would do so if allowed. Such a merger would enable it to offer a triple-play package, too.

Hot TV
Ofer Vaknin

Under the proposed reform, both HOT and Bezeq will be facing fresh competition from other companies offering phone service via HOT and Bezeq's infrastructure. In exchange Bezeq is being offered various regulatory reliefs.

The draft reform requires the two companies to negotiate to lease infrastructure services based on their cost to any telecom without its own infrastructure. Currently Bezeq and HOT let only their own customers - households and businesses - use their infrastructure.

If negotiations with the other companies - cellular operators and Internet service operators - fail, the Communications Ministry under minister Moshe Kahlon will intervene and set prices, the draft says. The ministry has already hired a consulting firm to carry out evaluations. But sources at the finance and communications ministries said they thought the companies would reach an agreement on their own.

At worst the Communications Ministry could prohibit HOT and Bezeq from selling any services to the public at all. That would turn them into wholesalers, selling infrastructure services only to the other phone companies. But that would be an extreme scenario.

Amir Hayek, author of the Hayek telecom industry reform, applauded the draft recommendations. "The vision the [Hayek] committee saw before its eyes was one of total competition - everybody against everybody," he said yesterday. "The document goes in the direction we intended."

It is true that letting other companies use their infrastructure in order to compete with them is not in HOT and Bezeq's favor. But Bezeq is set to receive relief: Once the infrastructure market has established itself, the structural dividers between Bezeq's subsidiaries can be torn down, says the Communications Ministry. At present each of Bezeq's subsidiaries - including Bezeq International, Pelephone, Bezeq Fixed-Line - has its own management, marketing and logistics. Being allowed to consolidate would save Bezeq a lot of money.

As for HOT, the plan to block it from selling discount triple-play packages to new customers would remain in effect only for six to nine months, under the draft recommendations. The ban is intended to help Cellcom and Partner compete over land-line customers even though they cannot offer television along with it. Meanwhile, it would give them a small window of opportunity to start setting up a television service of their own.

At HOT, naturally, the mood is grim. Regarding the proposed ban on marketing discount triple-play packages to new customers, consumers would simply wind up paying more, HOT claims. The Hayek committee did not recommend any such thing, it adds.

A source close to the Hayek committee was also bitingly critical of the idea. "The idea of canceling triple play is like the 'eraser' back in the 1970s, which disrupted color television signals. The decision makers have lost their minds. Instead of letting Bezeq market triple-play packages it's taking the economy 15 years backward."

What the reform means for you

All Internet users in Israel have to buy a phone line from HOT or Bezeq. Separately, they buy Internet service from a provider such as 012 Smile, 013 Netvision or Bezeq International. This is a cumbersome arrangement that should end once the infrastructure reform is in place. Under the reform, customers would be able to contract only with their Internet service provider, which would also be responsible for providing the line to the home - which would in fact belong to Bezeq or HOT, but that isn't the customer's problem.

Since the Internet companies also market other products, the reform would enable them to broaden their bundles of services. Netvision for instance could start selling a package that includes a phone line, Internet and international calling.

Almost certainly, prices would drop. Under the recommendations, the Internet companies would buy lines from Bezeq and HOT at wholesale prices, so would pay less per line than an individual home consumer would, hence the name of the reform - the "wholesale market reform." It is also set to propel small companies like Xfone, which would be able to offer the same service packages as Bezeq and HOT. It would also allow more players to come into the market.

At this stage, though, television isn't part of the package. Maybe Partner or Cellcom will start television operations of their own.