Telecommunications carriers Cellcom Israel Ltd. (NYSE:CEL; TASE:CEL) and Hot Telecommunication Systems Ltd. (TASE: HOT.B1) told Minister of Communications Gilad Erdan in the hearing for lowering fixed-line connectivity fees. The two carriers presented contrary positions: Cellcom claims that the connectivity rate should be much lower than the 0.99 agora per minute set by the Ministry of Communications; while Hot believes that the rate should be higher, citing errors found in the work by the consultancy firm which calculated the price.
Cellcom showed Erdan a thorough study it carried out, which shows that the cost of building a new network - from which the costs of the network's components are derived and the per-minute and connectivity fees are calculated - results in a connectivity fee of 0.20 agora per minute. The current fixed-line connectivity fee is 4 agora on average, which means that as far as the Ministry of Communications is concerned, this is a reduction that reflects the actual costs of the Bezeq Israeli Telecommunication Co. Ltd. (TASE: BEZQ) network, and greatly lowers the price.
Cellcom's main argument is that Bezeq is an inefficient network because it was built over the years as a telephony company, not as an Internet company. Since traffic on Bezeq's network is now mainly Internet-based, Bezeq's costs should be calculated as if a new fixed-line network for Internet access was being built. This means that Bezeq operates too many communications cabinets, and that half the number of cabinets it currently operates should be enough. Bezeq also has very heavy salary costs. Cellcom says that, under these circumstances, it can be seen that the consultancy firm hired by the Ministry of Communications erred in its assumptions about Bezeq's costs, and calculated a connectivity fee that is too high.
This means that, for Cellcom, the prices of the telecommunications wholesale market will be very high, and effectively prevent competition in the fixed-line market.
Hot counters that the capital price set in the study includes errors that are rectifiable. In the hearing, Hot said that errors, such as the fixed tax rate in Israel are wrong, and must be corrected, and that it was unbelievable that the Ministry of Communications would not correct factual points in its work if mistakes were found in them.
Hot said that a high capital price was good for investment, but it realized that the price could not be too high, because this would result in too high an entry price for competitors, and vice versa - a capital price that is too low encourages competitors to use Bezeq and Hot's fixed-line networks without giving them an incentive to expand their investments.
The ball is now in Erdan's court, and he will have to take a decision on which argument to accept and whether he adopts a position that will support future competition.
Published by Globes [online], Israel business news - www.globes-online.com - on September 10, 2013
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