Composite image of Prime Minister Benjamin Netanyahu ( (AP Photo/Sebastian Scheiner, Pool and metamorworks; iStock by Getty Images) )
AP Photo/Sebastian Scheiner and iStock by Getty Images
Case 4000 investigatedCommunications Ministry: It's bad and it will get worse

Slowed-down nation: How Netanyahu’s alleged Bezeq graft stalled Israeli internet

In 2015, a vital telecom infrastructure reform was gathering pace. Then the PM fired the official in charge, the reform was derailed, and now the country is lagging years behind

Shoshanna Solomon was The Times of Israel's Startups and Business reporter

AP Photo/Sebastian Scheiner and iStock by Getty Images

On a Sunday evening in May 2015 just a few days after his new government was sworn in, Prime Minister Benjamin Netanyahu, who had appointed himself communications minister six months earlier, called up Avi Berger, the director general of the ministry, and booted him out of the job. In Berger’s place, Netanyahu brought in his confidant Shlomo Filber, his former chief of staff at the Prime Minister’s Office.

The arrival of Filber was not just an ordinary changing of the guard at the ministry, however. Under the leadership of the new director general, an overhaul of Israel’s internet infrastructure, which Berger had begun three months earlier and which was crucial for ensuring quality and speed, was stalled and set back by years.

Allegedly at the behest of Netanyahu, Filber, appointed to the post in June 2015, started hindering the rollout of the so-called Wholesale Market Reform, which would have introduced serious competition for the nation’s largest telecom provider, Bezeq Israel Telecom. In the new, Filber era, unlike that of his predecessor Berger, Bezeq was no longer threatened with fines for not adhering to the timetable for this reform. And neither did Filber approve the administrative orders — such as setting out the procedures by which the various telecom operators should interact with each other in sharing infrastructure — necessary to advance the process.

As a result, the deployment of high-speed fiber optic cables that would have given millions of Israelis infrastructure for cheaper and faster internet and ensured Israel’s capacity to maintain a global competitive edge, was significantly slowed. The so-called Startup Nation was set on course to become the Slowdown Nation.

Prime Minister Benjamin Netanyahu (L) sitting with then-PMO chief of staff Shlomo Filber; Filber signed an agreement to act as a state’s witness, apparently to testify against Netanyahu, on February 21, 2018 (Screenshot/Hadashot news)

Four years later, internet speeds in Israel are below global averages and among the lowest for European countries. The nation ranks 70th in surfing speeds among 200 countries, according to one survey published last summer. Experts say the nation’s internet is literally not up to speed — emphatically not where it should be, and needs to be, considering Israel’s global technology reputation and the centrality of cutting-edge tech to the Israeli economy.

Small businesses and home users have been, and still are, particularly affected by the failure to swiftly and efficiently roll out fiber optic infrastructure for use nationwide, as the reform had envisaged. Meanwhile, according to the Israel Internet Association, Bezeq and Hot Telecommunications Systems Ltd. (Bezeq’s key but minor competitor) retain a 95 percent share of what was meant by now to have been a far more competitive and advanced internet market, and Bezeq maintains a 70% stake in broadband lines (the channels that are used to provide internet to consumers) nationwide.

Case 4000 — seen as the most serious of the three graft cases on which Netanyahu is facing possible prosecution, with the police having recommended he be indicted for bribery and the attorney general reportedly inclined to agree — is widely understood as centering 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.

A composite image of Prime Minister Benjamin Netanyahu (R) and Bezeq controlling shareholder Shaul Elovitch. (Flash90; Ohad Zwigenberg/POOL)

But the derailing of the long-planned, vital government reform that aimed to swiftly and efficiently upgrade Israel’s internet infrastructure, and open that infrastructure to greater competition, is an immensely significant byproduct of the case. Indeed, the stalling of the Wholesale Market Reform is a deeply damaging consequence of the alleged conflicts of interest and allegedly illicit mutual backscratching that affects millions of Israelis, with profound and ongoing implications for the nation and its economy as a whole.

Stalling the reform

Berger, the ousted ministry director general, had since early 2015 been spearheading a telecom reform that aimed to bring more competition to the nation’s fixed-line telephony and broadband internet market. It was intended to allow competitors to piggyback on the networks of incumbents Bezeq and Hot and, crucially, to ensure the rollout of fiber optic cable nationwide — with competition between rivals spurring the speed and efficiency of this process.

Then director general of the Communications Ministry Avi Berger. January 06, 2014. (Miriam Alster/FLASH90)

In the first stage, Bezeq and Hot were to lease out their infrastructure at predetermined prices so as to provide customers with competing internet and TV services. That reform has been going ahead, and cellular companies like Cellcom Israel Ltd. and Partner Communications Co. today provide bundled cellular, internet and TV services to customers, riding on the infrastructures of Bezeq (mainly) and Hot. According to Communication Ministry data, some 500,000 subscribers now receive internet services from competitors using Bezeq’s wholesale infrastructure.

The second stage of the reform, initiated that May, however, would have obliged Bezeq to open up the fixed line telephony market to competitors, and allowed rivals such as Cellcom and Partner to deploy their own fiber optic cables within the infrastructure ducts of the two bigger telecom firms. It is that reform that was derailed when Netanyahu’s appointee Filber took over. The process was not halted altogether — many big businesses, large office buildings and industrial estates now have access to fast internet via fiber optic cables — but only a spectacularly low 6% of Israeli consumers have such access.

Only now, four years after the start of the original intended Wholesale Market Reform, is the ministry, headed by minister Ayoub Kara and director general Netanel Cohen, again setting out strategic plans to boost the deployment of fiber optic cables nationwide — a process that could take several more years.

Berger was very aggressive in his stance against an unsurprisingly reluctant Bezeq, and strict about enforcing the conditions of the reform. In the weeks before he was ousted, he met almost daily with the various telecom operators to make sure the matter was progressing. Just a few days before he was fired by Netanyahu, indeed, Berger had threatened Bezeq with millions of shekels in fines for dragging its feet on the reform, and promised more fines to come if the telecom behemoth didn’t toe the line.

When Berger was fired, analyst Ilanit Sherf, head of research at Psagot Brokerage, noted with dismay that “the dismissal, carried out quickly and decisively, raises a lot of questions about why it was done,” Haaretz reported.

Once Filber became the director general of the ministry, he effectively blocked the efficient implementation of the second stage of the Wholesale Market Reform, a former Communications Ministry official said earlier this month in a phone interview with The Times of Israel.

Filber allegedly coordinated policies with Bezeq and transferred sensitive information to the firm, according to court papers filed by the Israel Securities Authority.

Oleg Brodt, R&D Director, Deutsche Telekom Innovation Labs Israel; and Chief Innovation Officer, Cyber@BGU (Courtesy)

“The role of the regulator” — in this case, the Communications Ministry — “is to oversee various players and set out regulations that are beneficial for the market,” Oleg Brodt, chief innovation officer of the cybersecurity unit at Ben-Gurion University of the Negev and the R&D director for Deutsche Telecom Innovation Labs Israel, said in a recent phone interview. “If, according to suspicions, the Communications Ministry leaked classified information to the company it is meant to supervise, this undermines the rationale of its existence and the public interest is hurt.”

Filber also reportedly approved the cancellation of the fines threatened by Berger, and stalled on the decisions necessary to implement the reform. Unlike his predecessor, Filber did not address complaints by impatient and frustrated competitor operators, such as Cellcom and Partner, who wanted to roll out their infrastructure within that of Bezeq, as the reform envisaged.

All these alleged moves “gave Bezeq an advantage,” the former ministry official said, “because it leaves the monopoly with Bezeq, as it controls the only assets that reach the homes of the users. Once competitors deploy their fibers within the Bezeq ducts, they can offer consumers higher speeds and a better quality of products, which would force Bezeq to do the same. But this never happened. And that was detrimental to consumers. It harmed their interests and their ability to gain faster internet speeds.”

The official estimated that the stalling of the process gave Bezeq “two extra years in which they froze the Wholesale Market Reform.”

As a result, he added, “Today Israel is lagging behind developed countries in the deployment of fiber to the home installation. We are lagging behind in the jump to the next generation of internet speeds.”

While big businesses are “fairly well served” by both Bezeq and its competitors, the former Communications Ministry official said, homes and small businesses are suffering.

In a related move, Filber also allegedly approved the merger of Bezeq with its Yes satellite TV subsidiary without the backing of career officials at the Communications and Finance ministries, which wanted to condition any eventual merger on the implementation of the wholesale telecommunication reform.

State Comptroller Yosef Shapira, November 22, 2016. (Yonatan Sindel/Flash90)

In a damning report in July 2017, State Comptroller Yosef Shapira said that under Filber a series of decisions made by the ministry, along with a failure to make “significant other decisions,” had resulted in “significant delay” in the implementation of the fixed line market reform and the development of competition.

“The promotion of Bezeq’s interests, without a professional examination of the implications, was likely to cause real damage to competition and the public interest,” the report charged.

Police recommendations

The Israel Police in December said it was recommending bribery charges against both Netanyahu and his wife, Sara Netanyahu, in Case 4000, the Bezeq-Walla corruption probe. Avichai Mandelblit, the attorney general, is now weighing whether to indict in this case and the two others in which Netanyahu is embroiled, with many reports suggesting he will announce in the next two or three weeks that he intends to press charges, subject to a hearing at which Netanyahu and his lawyers could try one last time to convince Mandelblit otherwise.

The police investigators concluded that in the years 2012-2017, Netanyahu advanced regulatory decisions benefiting Elovitch, the controlling shareholder in Bezeq — and that he did so despite opposition from the Communication Ministry’s career officials — in exchange for positive coverage from Elovitch’s Walla news site.

“The prime minister and his associates intervened in a blatant and ongoing manner, and sometimes even daily, in the content published by the Walla news website, and also sought to influence the appointment of senior officials (editors and reporters) via their contacts with Shaul and Iris Elovitch,” the Bezeq owner’s wife, the police said.

Attorney General Avichai Mandelblit at a Channel 12 News conference in Jerusalem on September 3, 2018. (Yonatan Sindel/Flash90)

“The main suspicion is that the prime minister took bribes and acted in a conflict of interest by intervening and acting in regulatory decisions that favor Shaul Elovitch and the Bezeq Group, while at the same time directly and indirectly demanded interference with the content of the Walla site in a way that would benefit him,” police said in a joint statement with the Israel Securities Authority (ISA), which also took part in the nine-month investigation.

The investigators said they believed there was enough evidence to bring Netanyahu to trial in Case 4000 on charges of accepting bribes, fraud and breach of trust and fraudulently accepting benefits. Two of the prime minister’s top confidants – Filber and former Netanyahu family spokesman Nir Hefetz — have been enlisted as state witnesses and are believed to have provided police with incriminating evidence.

The published summary of the police investigation also included a recommendation to charge Sara Netanyahu with bribery, fraud and breach of trust, and for “disruption of investigative and judicial proceedings.”

Police said that the findings showed the prime minister used his office “to promote Shaul Elovitch’s regulatory affairs,” including allowing Bezeq to merge with its Yes satellite TV unit, in exchange for positive coverage.

Stella Handler, Bezeq’s former CEO (Courtesy)

In the statement, the police and the ISA also said there was enough evidence to indict Shaul and Iris Elovitch, as well as Bezeq official Amirak Shorer, on charges of giving bribes, disruption of investigative and judicial proceedings, and breaking money laundering laws. They also recommended charging their son Or Elovitch and former Bezeq CEO Stella Handler with fraud and breach of trust; and Ze’ev Rubenstein, a close friend of the Netanyahu and Elovitch families and vice president of Israel Bonds, with bribery.

The police have recommended Netanyahu be charged with bribery in the two other cases they investigated, but police recommendations have no legal value. The final decision rests with Mandelblit.

In Case 1000, Netanyahu is suspected of receiving benefits and gifts worth about NIS 1 million ($282,000) from billionaire benefactors, including Israeli Hollywood producer Arnon Milchan, in exchange for assistance on various issues. Some reports have suggested that Mandelblit is leaning toward a charge of breach of trust in this case. Case 2000 involves a suspected illicit quid pro quo deal between Netanyahu and Yedioth Ahronoth publisher Arnon Mozes that would have seen the prime minister hobble rival daily Israel Hayom in return for more favorable coverage from Yedioth. Recent reports claim Mandelblit is inclining toward a bribery-related charge in that case.

Netanyahu: Bezeq received nothing from me as minister of communications

Netanyahu denies any wrongdoing, and has claimed the investigations are part of a political vendetta and witch hunt aimed at ousting him, involving the political left, the media and the police, along with a relentless campaign to pressure a “weak” attorney general. The other accused parties also deny any wrongdoing.

In Case 4000, Netanyahu has argued that, as minister of communications, there was not a single instance in which he “did not sign the recommendations of the professionals.” In a bitter response to the police recommendations against him in the case, he declared in a speech at a Likud Hanukkah event in December that reforms he instituted, far from benefiting Elovitch, cost the Bezeq chief a fortune. “As minister of communications, we instituted the Wholesale Market Reform that lowered the prices of the internet and collapsed Bezeq’s share — a reform that seriously hurt Elovitch. In other words, Bezeq received nothing, but lost,” Netanyahu said.

He also derided the notion that he had received positive coverage from Walla. “What did I get?” he asked the crowd. “I’ll tell you: I got terrible coverage at Walla… Walla is a left-wing website that gives and has given me negative coverage for years, especially on the eve of the last elections.”

Netanyahu has said he would not resign during a hearing process, which Mandelblit has confirmed he has no legal obligation to do. Were he to seek to remain in office if indicted, however, he would likely face legal challenges; the law is not definitive, and some legal experts say a prime minister could stay in office through a trial, a conviction and until all appeals had been exhausted.

Bezeq’s dominance in the telecom market

Bezeq is a diversified telecoms operator active in a variety of sectors in the Israeli market: Bezeq Fixed-Line provides internet and telephony services; Bezeq International provides international call services; Pelephone provides cellular services; Yes provides pay satellite TV services; Walla runs an internet news portal service; and there is also an online call center. All of these units are fully owned by Bezeq, but because the firm was historically a monopoly, and because it is still a dominant player in the market, regulatory curbs compel these units to operate as separate businesses, leading to higher costs for Bezeq.

Bezeq logo

Bezeq’s controlling shareholder from April 2010 to October 2018 was communications mogul Elovitch, who was also its chairman until November 2017 as the ISA investigation unfolded. He owned a stake in Bezeq via a pyramidal company structure: the firm he formerly owned, Eurocom Communications Ltd., controls Internet Gold-Golden Lines Ltd., which in turn controls B Communications Ltd; B Communications holds a 26% stake in Bezeq, and the rest of Bezeq, 74%, is held by the public via shares traded on the Tel Aviv Stock Exchange. Creditors have taken over Elovitch’s holdings and are negotiating the sale of the units.

Elovitch, who also held a direct stake in Bezeq, previously held a stake in Yes that he sold to Bezeq in 2015 in the above-mentioned controversial deal. Elovitch also controlled satellite communication provider Space-Communication Ltd., or Spacecom Satellite Communications Ltd.

According to a third quarter 2018 Bezeq investor presentation, at the end of 2017 Bezeq held 53% of the private sector telephony market and 72% of the business sector telephony market, with 1.9 million fixed line customers. Bezeq also held a 70% market share in broadband lines; its Pelephone subsidiary held a 23% stake in the cellular market, with 2.5 million subscribers; and satellite broadcaster Yes’s market share in the pay TV sector was 37%.

Bezeq workers installing fiber optic cables (Photo credit: Courtesy)
Bezeq workers installing fiber optic cables. (Courtesy)

Bezeq’s revenue in 2017 totaled NIS 9.8 billion ($2.7 billion), which represented 46% of the total telecom revenue generated by the key players in the Israeli telecom market, including Bezeq, Cellcom Israel Ltd., Partner Communications Co. and Hot Telecommunication Systems Ltd., the presentation showed.

Broadband networks are channels used to provide internet to users, enabling them to transfer and receive data at fast speeds. These networks can be a combination of copper cables and the more modern and faster fiber optic cables.

As more things become connected to the internet — from smart cars to smart homes and fridges and TVs — and demand grows for artificial reality and virtual reality features, faster internet speeds are increasingly needed for efficient use

Fiber optic networks use light signals beamed along hollow cables — rather than electricity along copper wires, as many of the current systems use — to deliver speedy internet service. Fiber optics can offer download speeds of several gigabits per second, compared to the older systems, which offer speeds measured in tens of megabits per second.

As more things become connected to the internet — from smart cars to smart homes and fridges and TVs — and demand grows for augmented and virtual reality features, faster internet speeds are increasingly needed for efficient use. Research has underlined that an increase in internet speed, through the penetration of fixed broadband, helps boost economic growth.

“Internet today is not a luxury, but a utility. We need it just as we need electricity, gas and water,” said Lavi Shiffman, a member of the board of the Israel Internet Association, a nonprofit organization dedicated to promoting the use of the internet for research and collaboration, in an interview with The Times of Israel published last August.

In 2009, Bezeq launched its Next Generation Network project (NGN), which laid fiber optic cables as close as it could to homes and offices, but the so-called “last mile” — the portion of the network that reaches into consumers’ premises — still consists of copper cables for the vast majority of Israeli consumers. These copper cables slow down the network, and the further the fiber optic cables are from the premises, the slower the speeds.

Today, all of Bezeq’s customers have been connected to the NGN network, which provides speeds of 40 to 100 Mbps, according to company data. In addition, the company has deployed fiber optic cables to the home networks of 60% of its customers, but it has not activated the network, nor has it performed the intensive manual work to connect it to homes and offices.

Meanwhile, Hot boasts it can provide customers with the fastest internet in Israel with speeds of 200 Mbps, but, according to a Channel 10 TV report, this service is not via fiber optic cables, and so even the speeds enjoyed by its 700,000 customers are way below what they could be in a market with wider fiber optic penetration.

A Yes television satellite (Moshe Shai/Flash90)

The alleged deceit

The Israel Securities Authority probe, first made public in June 2017, initially focused on the sale by Elovitch of Eurocom’s stake in Yes to Bezeq in a deal worth up to NIS 1.05 billion (then some $271 million). At the center of the probe were the terms of the deal as well as the decision making process within Bezeq that approved the acquisition in February 2015. As the majority shareholder in Bezeq, Elovitch may have acted with a conflict of interest in the deal, the ISA suspected. The probe then widened to include Yes dealings with Spacecom. And then it spread to the dealings of Bezeq officials, and Elovitch, with the director general of the Communications Ministry, Filber.

According to an ISA document presented to court on July 2017, Filber operated in a “deceitful” manner to promote Bezeq’s interests at the ministry.

“The investigation has revealed a tangible suspicion” that Filber operated in a systematic manner, and by withholding information from professional civil servants and legal advisers at the ministry, to transfer to Bezeq confidential documents and internal position papers and other papers. Bezeq officials, including Elovitch and Handler, the CEO, would give Filber their feedback about the documents, adding adjustments that would help their “strategic, tactical and business needs.” These adjustments were adopted and used as a basis for continued discussions, the document said.

Former Communications Ministry director-general Shlomo Filber arrives for a hearing at the Rishon Lezion Magistrate’s Court on February 18, 2018. (Flash90)

On February 20, 2018 the police revealed that Shaul Elovitch, his wife Iris, and his son Or had been arrested earlier that week as suspects in the Bezeq graft probe. Also held were Filber, Hefetz, Handler and Shorer.

The history of a stalled reform

As the Israeli government has implemented reforms in the telecommunications market to reduce consumer costs — a flagship project of former communications minister Moshe Kahlon, the current finance minister — Bezeq, via its Pelephone cellular unit, and other cellular phone services competitors such as Cellcom and Partner have come under increased pressure to cut prices.

When the cellular market opened to competition in 2010, the advent of newcomers like Golan Telecom and Rami Levy Hashikma Marketing led to a price war that slashed costs for consumers by as much as 90% and reduced market stakes and revenues for the incumbent cellular firms.

Because of the diversified nature of its business, however, Bezeq could count on its other activities to prop up its revenues, and its policy of paying out high dividends over the years made it the darling of many local and foreign investors.

But then the Communications Ministry turned its focus on Bezeq and decided it was time to increase competition in the fixed line market dominated by Bezeq and Hot. The idea was to speed up internet infrastructure development, which would spur economic growth.

The nation has an average download speed of 7.64 megabits per second, below the global average of 9.10 Mbps

The existing duopoly of Bezeq and Hot, the ministry came to conclude, was harmful for the telecommunications market because a lack of competition is a negative incentive for investment in infrastructure. Such an investment requires significant financial investment and is complicated to implement. A lack of competition encourages the owners of this infrastructure to delay or avoid upgrading it.

The fiber optic cables the two firms had deployed to the homes of consumers were “negligible” compared to those in other OECD countries, two panels set up by the ministry to study the matter showed in reports issued in 2008 and 2011.

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

In 2002-2015, investment in communications infrastructure in Israel declined by 36%, a 2017 Knesset study found, whereas investments in transportation, energy and water infrastructure grew 81%, 57% and 165%, respectively.

Opening up the sector to competition – via the establishment of a wholesale market and allowing the entry of a new fiber optics venture, Israel Broadband Company (IBC), into the field – and lowering the price of broadband were thus set as main aims of the Communications Ministry, which is also the telecom regulator.

In 2012, the ministry set out a roadmap for the Wholesale Market Reform, which it began implementing in February 2015. According to the plan, once the market was competitive and the various rivals were ensuring state-of-the-art service with competitive prices for internet, phone and digital TV services, Bezeq would be allowed to merge with its subsidiary units — allowing for the firm, which would inevitably be hurt by the competition, to cut some of its costs.

A 2014 paper by Prof. Reuven Grunau for then communications minister Gilad Erdan and his director general Berger forecast that the reform could reduce Bezeq’s revenues by as much as NIS 1.3 billion (some $350 million) in the first four years of competition.

But then Netanyahu took over from Erdan, fired Berger and appointed Filber.

The damage

Four years after the reform process began, and three-and-a-half years after it was derailed, Israel has been left with internet speeds that are not only slow, but are increasing more slowly than in other countries.

According to a report published in July 2018 by M-Lab and compiled by Cable that looked at internet speeds from June 2017 to May 2018, Israel ranks 70th out of 200 nations surveyed, and is losing pace compared with other nations.

The nation has an average download speed of 7.64 megabits per second, below the global average of 9.10 Mbps, for the period studied. In the same period a year earlier, Israel ranked 60th out of the 189 nations surveyed, with an average download speed of 7.2 Mbps.

And as of August last year, Bezeq and Hot still controlled some 95% of the internet market.

Meanwhile, the Communications Ministry is scrambling to fix the mess. After Filber was barred from the ministry by court order in July 2017, and then arrested in February 2018, the government appointed Netanel Cohen as director general and the ministry started taking steps to bring the reform back on track.

In December, it issued a call for submissions from the public for a policy paper it has set out to ensure that the infrastructure for a fiber optic based broadband network is laid out efficiently in the coming years.

Communications Minister Ayoub Kara, November 12, 2017. (Olivier Fitoussi/Pool/Flash90)

The ministry’s paper makes for deeply disturbing reading — in part, because it lays bare the retrograde state of Israel’s telecom infrastructure, but especially because its critique echoes the very concerns that prompted the ministry to set out on the road to reform four years ago. The numbers may have changed a little, but the root problems remain unresolved: Israel has failed to upgrade, while other nations, its economic competitors, have been striding forward.

Israel lags in surfing speeds compared to developed countries, the ministry acknowledged, and if the gap is not closed, the nation’s competitive edge will be hurt. According to the AKAMAI index cited in the paper, Israel is below the average speeds of OECD countries, at 13.7 Mbps, compared to an average of 15.3 Mbps, as of the first quarter of 2017. And according to OECD figures for 2017, the number of Israeli consumers that have fiber optic network service is a spectacularly low 6%, compared to double-digit figures in most of the OECD nations, which have an average of 23.3%, the paper said.

This gap is due to the significantly low level of deployment of fiber optic cables in Israel, the ministry admitted, adding that the gap looks set to grow, since “it is reasonable to assume” that the rate of infrastructure upgrade in developed countries will be faster than in Israel.

Bezeq is still a monopoly in fixed line telephony and in the field of internet infrastructure, the policy paper said. Its infrastructure of cables and ducts reaches “almost 100% of households,” while that of competitors is “significantly lower.”

Illustrative image of the internet and smart cities in a digital and connected world (metamorworks; iStock by Getty Images)

Worse still, while in the past few years Bezeq has deployed fiber optic cable to reach the homes of some 1.6 million subscribers around the country, it has not activated the network.

“This situation is untenable,” the ministry said. The failure to activate the network is an indication of the lack of competition for Bezeq, it added, “which does not spur it to improve the quality of its services,” and is testimony to the firm’s continued “monopolistic position” in internet infrastructure.

For its part, Bezeq has claimed that it is expensive to activate the fiber optic network and that it is still debating what technology it should use to bring it online. It also says it is waiting for the regulator to set out the service terms for the network’s operation.

On February 14, Bezeq said its board of directors had approved the filing of a High Court petition to require the Communications Ministry to allow it to merge all of its business units into one company. This merger, which the firm says would enable it to cut costs and offer bundled services, has been prevented by the ministry on the grounds that Bezeq is still too dominant a force in the market and could use its position to stifle competition.

Not everybody agrees that increasing competition in the fixed line market is the right course for Israel.

The “guiding principle” of the Communications Ministry “is that competition will drive investment,” as well as reduce prices, Michael Klahr, an analyst at Citi, wrote in a note to investors dated December 24. These are “lofty ideals indeed but advanced nationwide networks cost money and some government commitment to protect investor returns over the long investment period.”

Deploying the fiber optic networks nationwide, along with fifth-generation cellular networks, would require a total investment of some NIS 8 billion ($2.2 billion) over the next seven to 10 years, he wrote.

“The truth of the matter, though, is that after six years of intense (government-induced) mobile and fixed competition, there is little money in the sector to fund investment,” Klahr added. And while governments globally like in France, the UK, Germany and Australia, protect investor returns or subsidize infrastructure investment, Israel’s Communications Ministry “by looking to increase infrastructure competition, is looking to do the exact opposite.”

Prime Minister Benjamin Netanyahu (L) and Avichai Mandelblit at the Prime Minister’s Office in Jerusalem, on December 13, 2015. (Yonatan Sindel/Flash90

The risk is that unless the Communications Ministry works with Bezeq — which is by far the biggest player and generates most of the sector’s profits — “there will only ever be limited fiber and fifth-generation coverage in the center of the country and certainly not in outlying and lower economic-ranking areas.”

This will lead to “third-world networks in a first-world tech dependent economy,” Klahr wrote.

The warning

In a June 2016 letter to Netanyahu, Mandelblit, the attorney general, warned the prime minister — who was then also serving as communications minister — that he should keep out of issues relating to competition between Bezeq and other companies, due to his friendship with Elovitch, “in order to avoid allegations of conflict of interest.” According to a Justice Ministry official, the letter was more than a warning: Netanyahu, this official was quoted saying, would be barred from dealing with matters pertaining to companies under Elovitch’s control.

Nonetheless, Netanyahu stayed on as communications minister for eight more months. Only in February 2017 — as the Case 1000 and Case 2000 criminal investigations gathered pace, and as the High Court considered an opposition petition to force him out — did Netanyahu “temporarily” relinquish the post, naming his Likud colleague Tzachi Hanegbi as his successor. Three months later, Hanegbi was succeeded by Ayoub Kara. By then, Case 4000 was likely already taking shape, with the police and the ISA investigating the entire Netanyahu-Elovitch-Bezeq affair covertly, setting in motion the sequence of events that now sees Mandelblit deliberating over whether to indict the prime minister.

Whatever Mandelblit decides on Case 4000, it is unarguable that a vital reform designed to bring Israel’s internet infrastructure up to speed was held back for years, leaving Israelis falling increasingly far behind in their ability to surf speedily, to hold video conferences, to use interactive multimedia services — in short, to import and develop advanced technologies that require high quality and faster internet speeds.

In almost every speech he gives, Netanyahu extols the achievements of Israel’s tech sector and hails Israel’s “innovative entrepreneurs.” And yet he installed a director general at the Communications Ministry who, allegedly, hobbled them.

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