Ministry of Communications deputy director general economics Dr. Assaf Cohen is a key figure behind the reduction in inter-network connectivity fees. He is also the man behind the previous reduction in 2005-08, which brought the fees down to their current level of NIS 0.251 per minute, not including VAT. Yesterday, he advised reducing the fees to just NIS 0.0414 per minute, reflecting cost plus a reasonable profit.
The decision means that, in the past two years, the public paid billions of shekels to the wireless carriers, under the auspices of the Ministry of Communications. It is regrettable that the reduction in inter-connectivity fees did not continue in 2009, but better late than never.
"Globes": The main question is why did you decide to cut inter-connectivity fees in a single move, in contrast to the gradual annual reductions in 2005-08?
Cohen: "The best thing is to immediately reach the cost price. In fact, good arguments are needed to make a gradual reduction. The concern is that a one-time reduction might harm the companies and materially affect service to subscribers. I examined the results of the first reduction, which the companies withstood. Although they earned less, it didn’t cause a crisis. We examined the repercussions of a one-time reduction, and found that, relatively speaking, the companies were more ready now. Their profit margins are higher, so we don’t think that there's any justification for a gradual reduction in fees."
You nevertheless decided on a further cut from NIS 0.0414 to NIS 0.0257 in 2014.
"The reduction carried out to date demonstrated that we are aware that the cost is NIS 0.0414. We saw no reason not to cut the fee directly to the cost price. In the coming years, the companies are due to streamline, and their costs should continue to fall. Today, it is NIS 0.0414, and it would be wrong to charge only NIS 0.0257 now. We're changing the fee each year on the basis of the drop in cost."
Are the landline telephony companies expected to be the big beneficiaries of the reduction in inter-connectivity fees?
"Today, there is a high price for a call from a landline phone to a cellphone. The difference in prices does not justify looking at the memory, checking the number, and picking up the landline phone. That's a hassle. But if prices from a landline phone to a mobile phone fall sharply, it's possible that what will happen is that more people will make calls from home on their landlines. I argue that the considerations of which telephone to use will not be affected by price distortions. As for alternatives in general between landline and mobile, we know that, as time goes on, more and more people, especially young people, are foregoing landlines. Nonetheless, it's possible that the reason is that everyone has Internet, so it's possible that some of them will go to VOB (voice over broadband) service. It will be interesting to see what will happen and exactly what will be the affects in the market. People greater than me also find it hard to predict."
Did you examine whether there is surplus profitability at Israeli companies compared with other companies in the world?
"We wanted to examine what happed to the companies' profitability in 2004-09. In order to decide whether to make the reduction in a single move or gradually, this was an important point. I found that in a comparison with Europe and North America, profitability was fairly high. We didn’t try to find out what is or is not surplus profitability. We found that current profitability is very high by international standards, much higher than in 2004. Therefore, a reduction in a single move is possible, and there is no fear that the cellular companies' stability will be affected."
Published by Globes [online], Israel business news - www.globes-online.com - on May 5, 2010
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