In the cat and mouse games between the regulatory bodies and the media companies, the companies always had the upper hand. The Ministry of Communications in Israel finds it difficult to stay ahead of the companies and is always busy putting out fires, sometimes after the fire has been burning for many years.
This was the case in the past in the cellular market, when the companies celebrated on the backs of the consumers, and this is still the case today in the wired telephony market (the regulation that will reduce prices will be completed in about a year), in the market for international roaming services, in the market for international calls, and more.
Many times the communication companies go back to the moves that worked for them and reproduce them in another market, with one and another changes that allow them to slip under the regulatory limits. Who remembers that until about a decade ago it was possible to buy cellular services in Israel only as part of a service package that also included a device, a distortion that was only eliminated following the cellular reform and the “severing of the relationship” between the device and the service – and was among the factors for the huge drop in prices and increased competition.
In addition, in the past the cellular companies received a concession from the state to approve any cellular device entering Israel, as part of what was then called “type approval”. This was the regulator’s way of helping the companies rake in billions of shekels at the expense of the public, who could not benefit from a variety of devices and competition, and enabled a terminal equipment market controlled by the operators.
Now, when the fiber optic market is breaking out in full force, the problem is repeating itself and even more strongly. Here too, Bezeq leads, its competitors follow – and they all work in a sophisticated way. Apparently, the market is open, and anyone who wants to purchase a private router – whether it is a router for a fiber network or a copper network – can apparently do so. Actually, in practice things are not that simple, as we will see later.
An exception is Hot, which for decades has not allowed terminal equipment to be introduced into its network, claiming that it is a unique technological network, and therefore only it is allowed to sell or lease the unique terminal equipment. For years the Ministry of Communications has been promising to address the issue, but so far nothing has happened.
change the model
In recent years, a practice similar to what was customary in the cellular market has begun in the landline internet market. For years, the telecommunications companies operating in the field of wired Internet services (Bezeq, Hot, and later other companies) provided the Internet service with a modem or router that allows you to connect to the service.
Initially, the companies provided the terminal equipment as an ancillary part of the service as part of the rate paid by the customer, and later switched to charge-credit models, in which the customer paid for the terminal equipment but received a corresponding credit for the service, a move whose purpose was to reduce abandonment and help retain customers, but still retained, in practice , for supplying terminal equipment free of charge to those who subscribe to the service.
In recent years, companies have discovered a new way to generate profits on the backs of customers. The first to start this was Bezeq, which, in an attempt to compensate for the erosion of its revenues, created a new service – a router rental service. The company stopped offering a basic router included in the payment for the Internet service, and started a router for a rental fee of NIS 19.90 per month.
To support Bezeq’s rebranding of the router it provides, the company named it Be and launched extensive television campaigns. Both the first Be router and the Bfiber router that was launched after it are “middle” routers in terms of their technical characteristics, and offer a reasonable set of characteristics, but certainly not one of the best on the market.
Lahot, Cellcom and Partner did not take long to respond, and today they also offer a router for a similar monthly rental fee of NIS 20-25 per month. In fact, today in Israel it is not possible to get full internet service from any company – you can order an internet line, based on fiber, coax or copper, but you cannot connect to the internet without also renting the router from the telecommunications companies.
It should be said that technically, some companies allow you to connect to the cable with another router as well. When connecting to fiber-based internet services, this requires purchasing a special adapter from them for this purpose. In practice, few customers make use of this complex option, and in the absence of end equipment provided free of charge by the companies, they are forced to rent the router from them.
That is, from a legal point of view the companies defend themselves and claim that they do not block consumers from inserting a router purchased by them, but in practice when they require a customer to purchase an adapter separately (in the case of a Bezeq from a Bezeq Store), they raise the doubt as to whether it will work and whether the performance will not be disrupted – And most of the time he prefers to give up.
Long-term relationships
To calculate how much money the new market created by the companies is worth, let’s start with the cost of a router of the type currently supplied by the companies in Israel, which is NIS 170-250. Some claim that the prices are higher, and stand at around NIS 300 per router, but even the higher price does not really change the picture.
The various companies charge for the service 200-250 shekels per year without VAT, that is, it is a return on investment of about a year or a year and a quarter. This is a “money printer” that over the years has generated hundreds of millions of shekels for companies in the landline market (and Bezeq among them) at the expense of the public, under the auspices of The Ministry of Communications granted them a concession for this.
Liran Avishar Ben Horin – Director General of the Ministry of Communications / Photo: Rafi Kotz
The companies do indeed provide maintenance services on the routers, but usually it is reliable equipment with a low incidence of malfunctions. Bezeq, the only company that provides information on the number of customers, reports more than 700,000 customers renting routers from it, most of them presumably the regular Be type that was launched about five years ago.
To this must be added another 400 thousand customers who rent amplifiers to improve wifi reception and MESH solutions. In total, Bezeq’s revenues from rental services are estimated at approximately NIS 150 million per year just for the routers, and at more than NIS 200 million per year for all equipment rental services.
A customer who joined the service about five years ago has already paid about NIS 1,200 (including VAT) for renting equipment, which costs NIS 200-250 – which means that it is a profit of hundreds of percent for the company. Practically speaking, the same customer can continue to use the router for many years, and pay rent indefinitely, and the router will never be transferred to his ownership.
Persistent market failure
Unsurprisingly, and despite the enormous size of the Internet terminal equipment market, the Ministry of Communications has never examined the market and never intervened in it. The ministry showed laxity with the companies, and in practice gravely buried the issue. This will undoubtedly be one of the main goals of the next Minister of Communications: to open the market to competition, and to make sure that every private router can connect to the network.
The fact that this is a service provided by a monopoly owner (Bezeq), and that the other telecommunications companies also have significant power, has created a deep and continuous market failure in the Israeli Internet market – which cannot be resolved without regulatory intervention.
What is required to be done? oblige the communication companies to offer a basic router whose characteristics will be determined by the regulator, and which will be provided as part of the price of the Internet service. In case the companies want to offer additional routers, they will be able to do so, but only at the same time as a purchase model with a reasonable profit, in addition to the rental model.
Even those who choose a rental model will not pay rent endlessly, but a maximum period will be set after which the router will be owned by the customer. Such a solution would be easy, simple and fair – both for customers and companies.
Bezeq stated in response: “Bezeq’s Internet infrastructure is open, and allows the connection of compatible equipment of any kind, also by other suppliers and manufacturers. It is important to note that Bezeq allows its customers to rent advanced equipment, guarantee and service the equipment, as well as the option of upgrading and replacing, due to a malfunction or – In order to advance technologically to a new generation, this at no additional cost.”
The Ministry of Communications stated in response: “In light of inquiries received by the Ministry regarding the connection or authorization to operate ‘home equipment units’ used by fixed networks, the Ministry plans to distribute a hearing on the matter in the coming days, in which it will be examined, among other things, whether to allow the subscriber to independently purchase and connect the equipment.”
Mahot did not respond.