Cellphone exit fees to be lowered

Akunis: "The cellphone companies are keeping consumers captive through the exit fines. This is absurd and unacceptable."

November 24, 2010 23:29
2 minute read.

Akunis 311. (photo credit: Ariel Jerozolimski)

The Knesset Economics Committee on Wednesday approved a proposal by the Communications Ministry to limit and reduce the fines for canceling cellphone contracts, in an effort to encourage competition in the market and narrow the costs for consumers.

“The exit fines charged by cellphone companies are the main barrier to competition in the market,” Communications Minister Moshe Kahlon said at the Knesset Economics Committee meeting. “Without the ability to switch between companies, there won’t be any competition. By removing the barrier of fines, the consumer’s bargaining power will be increased.”

Currently, cellphone holders who wish to terminate their contract can expect to be charged up to thousands of shekels in penalty fines.

“The cellphone companies are keeping consumers captive through the exit fines,” Knesset Economics Committee chairman Ofir Akunis said.

“This is absurd and unacceptable.

Putting a limit on the fines is an essential step to create the conditions for a consumer revolution in the cellular market that will lead to lower prices.”

The committee approved a proposal to limit cellular exit fines to 8 percent of a customer’s average monthly bill, instead of the 10% originally suggested.

The reduced penalty-fine on the cancellation of cellular agreements will be applied retroactively to current contracts. The new penalty-fee regulation is expected to come into effect in January with the approval of the Economic Arrangements Law for 2011- 12.

The Communications Ministry’s original proposal, which is included in the Economic Arrangements Law for 2011-12, would limit penalty fees to a maximum of less than 10% of the customer’s average monthly bill for air time and content services during the commitment period, multiplied by the number of months remaining in the contract. For example, a cellphone contract holder with an average monthly bill of NIS 500 who wishes to end his contract six months before it runs out would pay a penalty of NIS 300.

At the committee meeting, representatives of cellphone companies expressed opposition to applying the new exit-fee regulation retroactively to current cellular contracts and called for a differentiation between private households and businesses. Kahlon rejected the request, saying business customers had better conditions from cellphone companies.

The Finance Ministry’s Yehuda Saban, who is responsible for the communications sector, presented a survey that showed household spending on cellphones amounts to an annual average of NIS 4,000, representing the second-highest expenditure after electricity costs. The ministry had identified a market failure in the sector that generates very high profits, he said.

“The high profitability in the sector should have encouraged the entry of new competitors,” Saban said. “However, the barriers in the market have for the past nine years prevented a new player from coming into the market and competing for customers.”

Last year the communications sector generated NIS 29.4 billion in revenues, 56% of which belonged to the cellular market.

The three largest cellular companies – Cellcom, Partner and Pelephone – had combined revenues of NIS 18b. in 2009, an increase of 2.8% compared with 2008. Net profit at the three cellular companies was NIS 3.2b. in 2009, up 16% compared with 2008.

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