The cellular companies label all those calling for the reduction of inter-network cellular connectivity fees as populists. They are mainly referring to the media. But if we now offered the cellular companies the opportunity to reduce fees at less than that recommended today by the Ministry of Communications, they would jump at the chance.
The argument over inter-network connectivity fees is not whether they should be reduced but by how much.
The cellular operators are the only ones who disagree with the premise that they should be cut. This part of the market is a monopoly with the consumer have no control over prices, therefore it is only right that the government intervenes. While it is not based on cost, there is an economic distortion from which the cellular companies profit by hundreds of millions of shekels a year. In other words: if inter-connectivity fees are not supervised, the interest of the companies is to raise prices to the highest level they can. At one point inter-connectivity fees were NIS 0.60 per minute and even more compared with NIS 0.25 today, and NIS 0.04 according to the Ministry of Communications order. Even when the fees were NIS 0.60, the cellular companies were opposed to any price reductions, making similar claims to those heard today.
The fact is that inter-connectivity fees are not a variable that the consumer can decide about. The customer who is hurt is not the subscriber of a particular company but a competitor's customer. This testifies to the failure of the market and so it must be regulated.
For sure the cellular companies will make threats, and may even put up the prices of calls but that's a problematic act. It must be remembered that inter-connectivity fees are not dependent on the behavior of their customers. For the customer of company x, the fees of company y are going down. From this point of view the competitiveness of the market is not high, if a company is able to put up prices without any connection to direct costs used by the consumer.
History proves that the cellular companies know how to compensate themselves. Is the question whether the consumer will profit from the lower connectivity fees? It is reasonable to assume that customers of landline phones will benefit from the lower fees. Communications from landline phones to cellular phones will be significantly cheaper, even though the price is already low.
Minister of Communications Moshe Kahlon should be congratulated for a very brave and needed measure.
Published by Globes [online], Israel business news - www.globes-online.com - on May 4, 2010
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