How to Save Money With Israel's Landline Reform

Everything you need to know about the regulatory changes that will let you thumb your nose at Bezeq.

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

The reform in landline telephony is slated to go into effect shortly, perhaps as soon as this week. It is expected to increase competition in this service segment, bring down prices and, no less important, could make many of the regulatory restrictions in the market, most of them against Bezeq, obsolete.

The landline telephony reform has been percolating in the Communications Ministry for five years, ever since the Hayek Committee published its recommendations after examining the issue. But pricing changes and numerous hearings repeatedly delayed the finalizing of the reform. The last times hearings were held was in December 2015, and now it appears that the details have been worked out. Who wins, who loses, and how will consumers benefit?

What is the landline telephony reform?

The reform requires Bezeq to lease phone lines to its competitors at a reduced and supervised price. This way, competitors like Cellcom and Partner can sell customers a home phone line and even more important, service packages that include a home phone line.

Most households still have landlines

The firms competing with Bezeq will be able to offer internet and a landline at one price or even a triple package (multichannel television, internet and a landline) to the Israeli consumer, who tends to like package deals. In the future, then, each of the four large communications companies — Bezeq, Hot, Cellcom and Partner — should be able to offer multi-service packages.

The smaller suppliers, like XPhone and Triple C, will be able to offer internet packages without content products, which are more suited to households with Idan Plus or families who don’t have televisions.

The landline reform completes the broadband reform that was launched in February 2015 and is based on the same principle: Bezeq is obligated to sell lines to its competitors at a reduced and supervised rate. The internet reform has been pretty successful, and those who have joined it, some 400,000 Israelis, have saved some 240 million shekels ($65.3 million) to date. The landline reform could yield similar savings.

Who cares about landlines anymore, anyway?

Landline use is indeed dropping gradually, but it’s apparently still relevant to most households and certainly to businesses.

According to reports from the third quarter of 2016, Bezeq had 2.1 million landlines (20,000 fewer than the parallel quarter in 2015), while Hot had another 660,000 lines. Cellcom and Partner also each have some 285,000 landlines, but they use broadband telephony, which is a different technology.

According to the Communications Ministry, the landline market took in 3.5 billion shekels in 2015, and a similar amount in 2014, so while the market has been eroding, the erosion seems to be slowing.

This is still a significant market and the potential for consumer savings is vast. The reform also has far-reaching implications for telecommunications regulation in Israel altogether.

How much is it worth to consumers?

Bezeq reports quarterly earnings of 375 million shekels from telephony, meaning 1.5 billion shekels annually. The average Bezeq customer pays 68 shekels a month, including VAT. It’s clear that this is a ridiculous price when for half that you can buy a cellphone plan with voice calls, text messages and unlimited data. What’s even more absurd is that Bezeq’s telephone prices are supervised, but the regulator hasn’t bothered to update them for many years, and the consumer has suffered.

Under the reform, price supervision will move from the retail segment to the wholesale segment of the supply chain. Bezeq’s competitors will be able to purchase a phone line for a reduced price (16 shekels a month) and provide their customers with an unlimited calling plan for 20 shekels a month. This means the immediate potential savings could be some 50 shekels per line per month.

Multiplying this by the number of Bezeq customers gives you a theoretical economy-wide savings of more than a billion shekels a year. Why only theoretical? Because there will always be Bezeq customers who will remain with it and not take advantage of the potential savings, just as we’ve seen with the internet. Despite the option of saving dozens of shekels a month, most customers haven’t gone over to lower-priced connections.

When will all this happen?

As far as the professional teams are concerned, everything is ready; all the reform needs is the signature of Acting Communications Minister Tzachi Hanegbi. Then the paperwork will go to Finance Minister Moshe Kahlon for his signature, and the reform is officially in place. All this could happen this week. While in Israeli politics there are always surprises, sources say the reform isn’t expected to encounter any obstacles.

The reform will go into effect immediately upon its publication, but at the same time there will be hearings at which all the telecom firms in the market can appeal the price set for the cost of Bezeq’s lines. Naturally, Bezeq will argue that the price is too low, and the other companies will claim it’s too high. If the Communications Ministry accepts some of the claims, the final price per line could change and there will be retroactive offset payments among the companies, but this shouldn’t delay the reform.

How do I sign up?

Once the reform goes into effect, all you need to do to get a cheaper phone plan — the exact same product you have today — is to call your internet service provider. It will be primed to sell you a lower-priced phone and internet plan. If for some reason you don’t know who your ISP is, you can check at whoismyisp.org. One could assume that the various providers will embrace the reform, build new packages and invest in advertising campaigns.

Why is the reform important?

The landline telephony reform has much greater importance than merely increasing competition, which itself is a worthy goal. It is also an important crossroads in the regulation of Bezeq. By moving the price oversight from the retail segment of the supply chain to the wholesale segment, there’s no longer any need to supervise the final consumer price, since all companies can buy services from the monopoly at a supervised price and resell them to end users.

The reform thus paves the way for changing and easing the regulations on the Bezeq group. If the reform indeed goes into effect, without superfluous High Court of Justice challenges or difficulties posed by Bezeq, and the regulator is persuaded that the reform constitutes a solid, viable alternative for consumers, within a few months the regulation of Bezeq can be reduced; for example, all supervision of Bezeq’s retail prices can be lifted, a move already part of the Communication Ministry’s work plan. The government could even consider removing the structural separation between Bezeq and its subsidiaries — Bezeq International, Pelephone and Yes — though only after the state comptroller has finished examining that issue.

Although in the past there has been harsh criticism, including in this newspaper, over the prospect of removing that structural separation, the objections were not against the move in principle but against carrying it out before the wholesale reform was in place and competitors couldn’t really compete.

If the broadband and telephony reforms become established, there won’t be any reason to prevent Bezeq from gradually merging with its subsidiaries. Such a move would lead to substantial savings for the Bezeq group, and in a competitive market, some of that savings would make its way to consumers.

At a later stage it would be possible to allow Bezeq to also sell a triple package, moving the whole market into a modern era of competitive, multi-service telecommunications groups.