Interconnection fees charged on mobile phone calls will be slashed by 73 percent
from the beginning of next year in a move which will reduce consumer bills and
increase competition, the Communications Ministry announced on
“The reduction in cellular interconnection fees will save the
public about one billion shekels a year, significantly reduce the price of a
call from landlines to mobile phones and boost competition by enabling the entry
of new players into the cellular market, already in the coming months,” said
Communications Minister Moshe Kahlon.
The interconnection fee, which is
charged by mobile phone operators when connecting users between
be lowered from the current 25 agorot per minute to 6.87 agorot before
value-added-tax from January 2011. After that, fees will gradually
6.34 agorot per minute in January 2012, 5.91 agorot in January 2013 and
agorot in 2014.
The reduction plan is based on recommendations from a
report by London-based NERA Economic Consulting, and is supported by the
ministry’s economics departments and by the Finance Ministry.
ministry added that the reduction in the interconnection fee will lower
households and businesses by hundreds of millions of shekels a year in
particular on calls from land lines to mobile phones.
In an initial
assessment report submitted in May this year, NERA recommended the rate
to 4.14 agorot per minute before VAT, which is the actual cost to the
and a fraction of the current charge of 25 agorot per minute. By 2014,
should come down to 2.57 agorot including VAT according to the original
However in light of the fierce opposition and immense pressure
exercised by the three main mobile phone operators in recent months and
expectations that they would take the issue to court, which would have
any decision, the ministry compromised on a gradual reduction in fees.
same time, the ministry did not bend to the cellular companies proposal
merely cut fees to 17 agorot per minute, which they deemed to be a fair
Cellcom, the leading mobile operator by market share said on
Thursday that the reduction is expected to have a material adverse
effect on the
company’s results and that it intends to take measures to mitigate as
possible the expected adverse effects, through revenue enhancement as
“Absent any efforts to mitigate the expected loss of
revenues, these changes are expected to have an annual direct adverse
(based on the company’s current calls and SMS data) of approximately NIS
million on the company’s net income, for the first reduction,” said
“The company will study the Communications Ministry detailed
decision, once received, and will then determine its steps against the
such as filing a petition with the Israeli Supreme Court of
Partner announced earlier that the cuts will have a similar
impact on its operations on an annualized basis. According to Deutsche
absolute potential impact on Partner should be slightly lower than
on Pelephone the impact should be significantly lower.
actual impact on the companies is estimated to be far lower, mitigated
higher tariffs and efficiency measures.
“The mobile operators will not
stand pat,” said Richard Gussow, analyst at Deutsche Bank.
are likely to raise airtime tariffs and cut costs to compensate. This
more difficult now due to a subsequent regulatory measure that prevents
operators from raising tariffs while a customer is still under
Nevertheless, we believe that the impact can be mitigated
through the raising of tariffs as contracts expire.”
Ministry is hoping that reduced interconnect fees will enable other
venture into the cellular marketplace in Israel and boost competition
the entry of retail players called “mobile virtual network operators.”
does not have its own network infrastructure and therefore enters into a
business relationship with a larger mobile network operator, pays
for minutes and then sells the minutes at retail prices under its own
“In our opinion, the real reason behind the cuts is to pave the
way for MVNOs, which are likely to be significantly cheaper,” said
an MVNO will start off with virtually no market share, it has the
disadvantage that nearly all outgoing calls will be out of network, thus
necessitating the addition of an interconnect fee.
“With a sharp initial
tariff cut, this competitive disadvantage is narrowed. We continue to
that an MVNO remains the greatest threat to the profitability of the
operators, as it could lead to lower tariffs, particularly in the
market in about mid-2011.”
In recent months, the Communications Ministry
has received 12 applications for an MVNO, including applications from
Post Office and Hamashbir Lazarchan department store chain. The latter
the first MVNO license in June 2010, and expects to be operational by
the end of
In addition, the Communications Ministry is this month expected to
issue a tender for a new mobile carrier license to boost competition in
cellular market dominated by the three main operators. Mirs
Ltd. announced recently that it intends to bid in the tender.