Expanding competition in Israel’s telecommunications market is necessary. In fact, the most important act that the Ministry of Communications can and should do at this time is to ensure the expansion of the country’s communications infrastructure, where investment is seriously lagging, compared with other countries.
Transmission speeds for Israeli consumers are slower, mainly because of the lack of competition in communications infrastructure. As a result, the two infrastructure companies - Bezeq Israel Telecommunications Company Ltd. (TASE:BZEQ) and Hot Cable Systems Media Ltd. (TASE: HOT) - do the absolute minimum necessary in this area.
For example, HOT is still only in the preliminary stages of upgrading its network, and was only compelled to do so because Bezeq preceded it. The new communications networks cost a bundle, and shareholders are trying to save as much as they can on investment, especially during the recession, and particularly when there is no competition.
The Israeli regulator slept the sleep of the just for years as far as development of the country’s fixed-line communications infrastructure is concerned. The lethal combination of Bezeq’s privatization (possibly the greatest mistake in the communications market in the past decade), the severe crisis at HOT, and weak regulation because of outdated perspectives at the Ministry of Communications, have resulted in severe delays in investment, which have harmed competition.
In Israel, especially when Benjamin Netanyahu was finance minister earlier this decade, privatization was the ultimate end. It was thought, and still is, that Bezeq in private hands, would be better run and that it would drive the market forward. However, it was not realized, and is still not grasped, that the privatization of Bezeq mainly benefited its shareholders and executives, and considerations of the good of the country and the development of infrastructure fell by the wayside. That is why Bezeq in government hands was at the forefront of international communications, while Bezeq in private hands is an excellent company for investors and dealers, but upgrades its network for only one reason: so its shareholders can sell it as an improved firm. Bezeq without a new network is worth less than Bezeq with an upgraded network - pure and simple.
Governments worldwide understand that their communications companies are in no hurry to invest in fiber optics. The companies cannot be compelled to invest, and in the absence of competition in infrastructure, the companies let things drag on. That is why the governments in places such as Australia, New Zealand, and Sweden initiated ventures for nationwide fiber optic networks. These governments understand that without intervention and public investment, it was doubtful if the private market would do anything. The governments therefore built the infrastructures and created competition to their telephony and cable companies, because private companies are not really interested in transmission speeds for customers, but only in their own profits.
If Minister of Communications Moshe Kahlon ensures the expansion of competition in telecommunications infrastructure, and Israel Electric Corporation (IEC) (TASE: ELEC.B22) outsources fiber optics to provide communications to all enterprises, Kahlon's place will be ensured, and the market will welcome the move.
Published by Globes [online], Israel business news - www.globes-online.com - on July 2, 2009
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