New Merger Threatens to Kill Israel's Most Successful Attempt to Reduce Cost of Living

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A Cellcom sales center.Credit: Tali Meyer

Every since Moshe Kahlon began to broaden competition in the cellular market by reducing connectivity fees in 2011, Israeli cell phone users have saved more than 20 billion shekels ($5.15 billion). That’s the equivalent of transferring some 10,000 shekels to the bank account of every Israeli household.

Cellular reform was one of the most worthwhile decisions for consumers ever made by an Israeli government minister. The case of the cellular market proved that the high cost of living is not a heavenly decree, and that household expenditures could be reduced using readily available policy tools. Israel’s small size, geographic isolation and security situation are just weak excuses used by those who fear competition. Reducing Israel’s cost of living is dependent primarily on politicians and regulators understanding that dealing with noncompetitive markets is a major part of their job.

Now, three-and-a-half years after Golan Telecom entered the market and caused price drops of dozens of percentage points almost across the board, the politicians and regulators find themselves facing a critical decision: Will they act for the benefit of consumers and do everything to preserve lively competition, or will they back those seeking a lucrative “exit” and to suppress competition and allow Cellcom to swallow up Golan Telecom?

It’s somewhat surprising that Communications Ministry Director General Shlomo Filber is supporting the merger, although this is not the first time Filber has made a strange decision of this type. Ever since Prime Minister Benjamin Netanyahu took on the communications portfolio, the policy established by predecessors Gilad Erdan and Kahlon has changed markedly. The good of the consumer is no longer the focus, and large companies and tycoons are getting almost everything they want.

The cellular companies claim that current price levels are not sustainable, prevent them from investing in new communications infrastructures and might eventually lead to the companies’ collapse. Yet there are no visible signs of this in the field. All the cellular providers, including the relatively small Golan Telecom, are making money. None of the more veteran companies is in any danger of being unable to pay its debts, and Israel’s cellular infrastructure is still in excellent shape. After they milked consumers for all those years before 2011, there is no reason to believe the companies’ intimidating warnings.

The government should not permit such a large merger, which will remove the main competition stimulator from the market and almost certainly raise prices. If Golan Telecom is indeed facing an existential threat, as owner Michael Golan claims, there are other ways to preserve its competitive role without allowing such an aggressive merger that will clearly be to the detriment of consumers.