Communications In Israel

Jezreel Valley

Until 1982, there was no communications market in Israel. The Ministry of Communication alone provided phone service. In 1982, the government set up a government-owned company called "Bezeq" to take over and provide phone and other communication services. The transformation was successful, and the wait to receive a working phone line went down from months to days.

Bezeq was privatized in the 1990s and went on to co-found "Pelephone", Israel’s first wireless telephone provider. For many years, three firms controlled the wireless phone market in Israel: Pelephone, Cellcom, and Orange (which has since been renamed "Partner"). Israel had some of the highest cell phone rates in the world. In 2011, a significant reform took place in the cell phone industry, when customers were given the ability to automatically change between cell providers, forcing companies to compete for customer loyalty. Consequently, prices plunged. As part of the reform, cell providers were compelled to lease their infrastructure to virtual competitors, known as MVNOs. Wherefore, additional competitors, including Golan Telecommunications, Hot Mobile, and Rami Levi, entered the market.

Bezeq maintained a near monopoly on landlines, along with "Hot," which supplied cables TV service to much of Israel providing phone service as well. Other than Bezeq, Hot has also been the only alternative supplier of backbone internet services in Israel. To increase competition, neither Bezeq, nor Hot were allowed to operate ISP’s directly, and instead were required to set up separate companies for that purpose. The main impact of that separation has been to confuse Israeli consumers and force them to pay to different entities.

In 2014, a decision was made by the government to force Bezeq to lease its landlines to competitors, and thus increase competition. Bezeq has fiercely fought the decision, and that is part of the case in which Bezeq and Prime Minister Benjamin Netanyahu have been embroiled. As a result, there has been little additional competition, and internet services have remained static over the last four years, this despite a promise to bring fiber service to all Israeli homes.

"Hot" and the Israeli satellite provider "Yes" (owned by Bezeq) have held a duopoly on TV service until this past year. In 2017, both Partner and Cellcom began to offer cable services over the internet. Partner and Cellcom have been frustrated by their inability to lease parts of Bezeq’s infrastructure (most of Bezeq’s deployment of fiber has remained dark) have begun laying their own fiber lines throughout the country.

Despite the additional competition, due to its strong legacy phone service, Bezeq remains the most profitable company in the telecommunications sector, by far. In 2017, Bezeq garnered 72% of all of the net profits in the telecommunications market. Hot followed with 14% of the profits, and the rest of the companies split the remaining 14%. Bezeq is slowly losing its profitable land business, as its older customers die and young customers do not even consider ordering landlines. Bezeq projecta a slight drop in revenue and profits next year, as demographics continue to impact it slowly.

For the past few years, Bezeq has benefited from a favorable regulatory environment, as a result of the ties between its company Chairman and Prime Minister Netanyahu. Now that the friendship has resulted in a criminal investigation, Bezeq will no doubt have to deal with the more challenging environment. Furthermore, with its competitors slowly deploying their fiber in the most profitable areas of the country, it is reasonable to expect that Bezeq's share of the profits of the telecommunications market will begin to steadily decrease — creating an environment in which some analysts predict Bezeq will not pay any dividend in the coming years.