First shots fired in Internet price war

Much like the cellular reform plans that by some estimates brought prices down 90%, the latest reform allows competitors to use infrastructure from existing competitors (at a price).

MAY 13, 2015 20:37

Computer keyboard [illustrative]. (photo credit: ING IMAGE/ASAP) — Computer keyboard [illustrative].

(photo credit: ING IMAGE/ASAP)

Housing and food may still be overpriced in Israel, but the price of telecommunications is coming down as market reforms introduce new competition for Internet providers.

Much like the “Cellular Revolution” that by some estimates brought prices down 90 percent, the latest reform allows providers to use infra - structure from existing competitors (at a price), in this case Bezeq. Companies that once offered just Internet service, separate from the cable or phone line infrastructure, are now able to provide both, breaking the duopoly of HOT and Bezeq in the infrastructure market.

“The price war is already here,” said Ilanit Sherf of the Psagot Investments brokerage.

On Tuesday, Xfone (018) unveiled an offer to provide both infrastructure and Internet service for NIS 70 a month, a 30% reduction from its previous prices.

On Wednesday, Cellcom unveiled a “triple” package of Internet, mobile and television, using the Internet-based Netflix-style system it unveiled in December. The price for all three is NIS 149, though that rises NIS 20 after the first year. That price, Cellcom noted, is less than half the one currently offered by HOT, and switching would save families NIS 3,500 a year.

Golan, which was an early competitor in the cellular market following the reforms, is expected to jump into the market soon with its own triple-play package.

But the price war may not play out as intensely as it did among mobile phone carriers, according to UBS analyst Roni Biron.

“There’s a difference between ‘triple play’ and mobile. It’s much less commoditized than mobile, especially TV, so it’s not all about price. If I like YES content, I might not move just because it’s cheaper,” he said. Other factors weigh in as well, such as the additional cost associated with hooking up more than one television to the Cellcom platform.

Further, unlike in the mobile reform, companies paying Bezeq for use of its infrastructure pay a variable rate. When that goes up, consumer prices are likely to follow.

As prices come down for customers, however, so do profits for companies, an issue the incoming communications minister may have to deal with in the coming year.

“I think that if the current structure and regulation remain the same, continued trends will challenge the financial stability of one of the companies,” said Biron. “If nothing changes, we may see some financial distress kicking in.”

Bezeq, in particular, will be watching closely, as its other business – land line telephones – is expected to be the next to reach the chopping block.