Cellular phones are displayed in a store 370 (R).
(photo credit: Erik de Castro / Reuters)
We have entered into a promising era of more reasonable cellular phone costs. On
Monday, two additional cellphone operators – Golan Telecom and HOT Mobile (the
result of a merger with the former Mirs) – launched their
Targeting the heaviest cellphone users – the bread and butter
of the cellphone business – the two companies offered unlimited calling packages
at surprisingly low prices. Golan Telecom’s package of unlimited calls, SMS and
Internet costs NIS 99 a month, while HOT Mobile’s package is slightly cheaper at
NIS 89 a month.
Comparable packages at Orange, Pelephone and Cellcom cost
between NIS 179 and NIS 289.
What took so long for real competition to
take hold? For years Israelis have paid a premium to use cellphones. Of 34 OECD
countries, Israel was ranked either fourth or fifth highest in cellphone costs
depending on the category. Light users – those who made just 30 calls and sent
100 text messages a month – paid on average $23 compared to an OECD average of
$16 a month; moderate users – 300 calls, 225 text messages – paid $100 a month
compared to an OECD average of $64; and heavy users – 900 calls, 350 text
messages – paid $180 a month compared to an OECD average of $122. The data were
collected in August 2010, before a series of reforms was implemented by the
Limited competition and regulatory oversight
allowed the big three cellphone network operators – Pelephone, Cellcom and
Partner – to enjoy huge profits at the expense of the consumer. In 2010, for
instance, the three companies had combined net profits of NIS 3.6 billion. One
year later, after the implementation of various Communication Ministry reforms,
aggregate profits fell to NIS 2.3b. and this trend is expected to continue. It
should come as no surprise that the stocks of Bezeq (which owns Pelephone),
Cellcom and Partner have fallen between 22 percent and 34 percent since the
beginning of the year.
So what happened after more than 20 years during
which first Pelephone and later Cellcom and Partner charged exorbitantly for
their service and nothing was done to stop them? A number of factors came
together. But the driving force behind the reforms that led to increased
competition and lower bills was Communication Minister Moshe
First, Kahlon forced the companies to slash their interconnection
fees – the charge they deduct for connecting subscribers to a different network.
Next, he forced them to do away with the “exit fine” operators charge
subscribers for switching to a competitor.
These reforms made it easier
for additional cellphone operators to compete with the big three. Previous
communication ministers attempted such reforms, but backed down to pressure from
the powerful and rich companies and their numerous lobbyists in the
In parallel, the idea was floated in the Communication Ministry
with Kahlon’s encouragement to allow “virtual” operators to use existing
cellphone networks to offer competitively priced services. Earlier this year,
You, Home Cellular and Rami Levy Communications became the first “virtual”
Now Golan and HOT, which have set up actual physical
mobile networks, have entered the market.
The big winners of the
increased competition will be the consumer.
The big losers will be the
big three cellcom companies.
Kahlon proved that under the right
circumstances and with the ample doses of courage and resolve, a government
minister can make a real impact.
Unfortunately, there is also a downside
to the increased competition. Each of the big three mobile phone operators
employs between 6,000 and 7,000 salespeople, customer service personnel and
Sabina Podval, an analyst at Leader Capital Markets, estimates
that as many as half of them might be laid off if Golan and HOT manage to
maintain their low prices over time. But that is the price of competition.