Landline Telephone Reform to Bring Price Cuts in July

Recent reform means that smaller service providers will be able to sell full communications bundles

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

The reform of Israel’s landline telephone market is moving ahead, after a year and a half in the works. Landline monopoly Bezeq will be required to sell landline access to competitors at reduced cost starting on July 17. These operators are expected to offer landline phone service to customers for 40% to 50% of Bezeq’s current rates.

This comes after the internet market reform, which mandated that Bezeq must sell bandwidth to competitors at a government-regulated price and brought down the cost of internet access by 30% to 40%.

Landline customers (thousands)

The latest reform means that smaller service providers will be able to sell full communications bundles, including internet access, landline telephone service and multichannel television service.

The Communications Ministry stated that Bezeq is being required to supply landlines to competitors at the cost of 16 shekels a month, plus 1.6 agorot per minute of outgoing call time.

“This is another important step in implementing the policy of increasing competition and creating a balanced playing field,” the ministry stated.

The ministry has not finished addressing the issue of landline pricing; small companies are likely to try to reduce the cost, while Bezeq is expected to try to raise.

The ministry explained that the reform will get under way, after which the ministry will conduct a retroactive review of prices. Service providers will be required to offer set prices for 12-month periods.

Bezeq's telephony revenues (billions of shekels)

Israel’s landline phone market is contracting as customers switch over to using their mobile phones exclusively, but most households still have a landline. Bezeq is considered a monopoly, with 70% of the market. As of the first quarter of the year, Bezeq had 2.1 million landline customers and 361 million shekels in revenue for the quarter, a 6% decrease from the first quarter of 2016.

Bezeq’s annual revenue from landline telephones amounts to 1.4 billion shekels a year. Israel’s landline market is worth more than 3 billion shekels. Bezeq’s biggest competitor currently is HOT.

The average Bezeq landline customer pays 67 shekels a month for service. Under the reform, competitors are expected to be able to offer monthly phone packages including talk time for 35 to 40 shekels a month. That would amount to savings of 40% for consumers.

The main impact in terms of competition will be to enable midsize providers such as Partner and Cellcom to offer triple play — combined television, broadband internet and landline telephone service — while enabling smaller providers such as Xphone and Triple C to offer combined telephone service and internet access bundles.

Landline service is Bezeq’s most profitable product. The company fought against the reform for years. The question remains as to whether Bezeq will try to petition the High Court of Justice against the reform or try to undermine it in other ways.

Currently, the Communications Ministry oversees the prices Bezeq offers consumers. With the reform, the ministry will be overseeing the wholesale prices Bezeq offers competitors, and it might end its control over consumer prices.