Report warns that Israel cellular operators may lag on 5G network investment
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Report warns that Israel cellular operators may lag on 5G network investment

Communications Ministry says continued decline in revenues at firms, due to steep competition, may hinder deployment of network upgrades

Illustrative image of an optical fiber connection (alphaspirit; iStock by Getty Images)
Illustrative image of an optical fiber connection (alphaspirit; iStock by Getty Images)

A report by the Communications Ministry warns that continued decline in revenues at Israel’s cellular firms raises “a real concern” that they will desist from upgrading their wireless networks, a necessary step to ensure that Israel’s brodband speeds stay competitive with global developments.

“We deem that in the coming years a new balance must be struck between technological competition and price competition,” the authors of the June 2019 report at the ministry’s economic section said. This is to ensure “that cellular firms will have the incentive to undertake the big investments required of them to upgrade the fourth-generation wireless networks and the transition to fifth generation.”

Countries around the world are gearing up to introducing 5th generation wireless networks, which bring the promise of greatly increased internet speeds and better coverage and responsiveness of wireless networks. In April this year, South Korea claimed to beat the US to become the first country to roll out a super-fast 5G mobile network, which allows users to download entire movies almost instantly. Verizon’s 5G service was launched in parts of Chicago and Minneapolis that month.

According to a July 3 report of the Global Mobile Suppliers Association, 280 operators in 94 countries are investing in 5G networks in the form of tests, trials, pilots, and planned and actual deployments.

Illustrative photo of an Android smartphone (screenshot: YouTube)

Israel, the so-called Start-Up Nation, suffers from slow internet speeds that are increasing more slowly than other countries’. The deployment of 5G networks is one of the ways to help boost speeds, which have been held back in Israel by lack of competition in the internet infrastructure market.

In 2011, the Communications Ministry started a reform in the cellular market, which was dominated by three main players, Pelephone, the cellular operator of Bezeq Israel Telecom; Cellcom Israel Ltd.; and Partner Communications Co. The reform enabled customers to more easily switch from one provider to another, keeping their phone numbers, and, more importantly, allowed new entrants into the game.

This generated fierce competition between the firms and has help cut prices of cellphone calls for Israelis by as much as 90 percent. The cellular providers, however, have seen their revenues and profits plunge in the process.

Revenues at Israeli cellular firms declined 5.6% in 2018, the report said, after falling 4.5% in 2017. The decline is due to increased price competition between the firms, the report said. Average new-subscriber revenue has dropped dramatically to NIS 70 a month, compared to an average of NIS 170 a month in the years 2006-2010, before the reform started.

“These changes are indicative of the drastic change the cellular sector has undergone in the last decade, as a result of the reform,” the June 2019 report by the ministry said.

Israeli cellular firms are meeting their targets regarding the deployment of fourth-generation networks, the report said, but the continued drop in revenues raises concerns that they may refrain from making the necessary investments in the networks.

The ministry is expected to issue a tender to deploy the fifth generation networks in the coming days, Calcalist reported earlier this week.

Revenues for the telecom industry in Israel declined by 4% in 2018 to NIS 18.4 billion ($5.2 billion), the report showed, from NIS 19.2 billion in 2017. This includes revenues from cellular services, internet, fixed line and TV services. Forty-two percent of industry revenues stem from cellular services, the biggest chunk of the industry; 18% from TV services; 17% from fixed line telephony services; and 12% from internet infrastructure services, the report said.

And Israeli citizens may be finally, albeit slowly, getting a long-awaited boost in internet speeds, the report said.

Just 20% of homes have access to high-speed internet

From the start of 2018 to mid-2019, an additional 2% of households got access to high-speed fiber-optic cables — either directly to their homes or to a communication box close to their homes, bringing the number of people with access to higher internet speeds to 20%, the report said.

The data shows that for the first time since the 80s and the early 90s, when the telecommunication firms started deploying their cable networks to provide internet services to households, Israel is now “witnessing the deployment of new networks, at significant scale, by new competitors,” the report said.

“This change is indicative of a jump (which is just in its infancy) of internet infrastructure competition that will also lead to a jump in the quality of telecommunications infrastructure in the nation,” the report said.

This deployment of high speed fiber optic cables was made possible by the implementation of a wholesale market reform which started in May 2015, enabling competitors to deploy their own fiber-optic cables within the infrastructure ducts of Bezeq, which dominates the market.

This reform was, however, allegedly stalled by the director general of the ministry, Shlomo Filber, who is suspected of acting on behalf of then communications minister Benjamin Netanyahu in what is today part of Case 4000, seen as the most serious of three graft cases in which Prime Minister Netanyahu is facing possible prosecution.

The police have recommended Netanyahu be indicted for bribery in a case that centers on the prime minister allegedly ensuring advantageous business conditions for Bezeq owner Shaul Elovitch, a friend of his, in a quid pro quo deal under which Elovitch’s Walla news site would give Netanyahu and his wife, Sara, favorable news coverage.

In the past two years the Communications Ministry has worked to remove the obstacles to the deployment of fiber optic cables with a series of steps including allowing competing firms such as Cellcom and Partner to use subcontractors, and not solely Bezeq workers, to deploy the fibers, and threatening Bezeq with fines for dragging its feet in allowing competitors access to its infrastructure, the report said.

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