November 18, 2014 / 2:45 PM / 5 years ago

Israel shakes up telecoms market to lower prices for consumers

* Reform gives smaller rivals access to Bezeq infrastructure

* Will enable other companies to offer full services

* Reform should cut costs for consumers

By Steven Scheer

JERUSALEM, Nov 18 (Reuters) - A move by Israel’s telecoms regulator to create a wholesale market for fixed-line phone and Internet services will hurt Bezeq, the country’s largest telecoms provider, Bezeq said on Tuesday.

After a two-year debate, Communications Minister Gilad Erdan announced late on Monday that Bezeq, one of Israel’s two fixed-line operators, must lease its DSL infrastructure to mobile phone and Internet service providers and other rivals.

The move will simplify Israel’s telecoms market, allow competitors to offer TV services, and is aimed at bringing down costs for consumers.

Bezeq and the HOT cable company are currently the only companies in Israel that offer both fixed line and Internet, mobile phone and TV services. Once the reforms are in place, probably next year, mobile phone operators Cellcom and Partner Communications will also become one-stop shops and smaller rivals will be able to offer expanded services.

“The reform will allow various companies - telecommunications companies, ISPs and others - to purchase Internet infrastructure from Bezeq at a wholesale price, enabling them to offer the public all telecoms services at a discount, including TV broadcasts over the Internet,” the Ministry of Communications said in a statement.

It will also align Israel with most other countries.

HOT is not required to lease out its infrastructure under the reform.

Bezeq’s shares fell 5 percent on Monday in anticipation of the announcement and were down another 1.6 percent on Tuesday.

In a statement released via the Tel Aviv Stock Exchange on Tuesday, Bezeq said the reform “is expected to have an adverse impact on the company’s results, which cannot be quantified at this time.”

But to offset some damage, Bezeq will ultimately be allowed to merge all its units into one company, which it expects to have a positive effect on profit.

Bezeq will be required to lease its lines for Internet and phone service for about 50 shekels ($13) a month per customer, the Ministry of Communications said.

Taking into account a company’s profit margin, competitors would be able to undercut Bezeq - which has 1.3 million customers - by at least 30 shekels a month, analysts estimated. Bezeq, as Israel’s largest telecoms group, has limits imposed on how much it may charge for competition purposes.

“We forecast a combined hit (to Bezeq) from wholesale and falling revenues of 600 million shekels by 2017,” said Citi analyst Michael Klahr.

However, he would retain a “buy” rating on Bezeq because he said it would also reap cost-savings of about 300 million shekels a year from a merger with its ISP and long-distance calling unit, Bezeq International. Bezeq, he added, would gain revenue from finally being allowed to bundle multiple services.

The Ministry of Communications did not give a timetable for implementation of the reform but analysts expect it to take effect in mid-2015 - after Cellcom and Partner sign commercial deals with Bezeq. Bezeq would probably merge all its units 3-6 months after that.

Bezeq was Israel’s telecom monopoly until it was privatised a decade ago.

The new regulations will also give Cellcom and Partner Communications access to new revenue streams as they struggle following a reform in 2012, which opened the cell phone market to new players, hitting existing operators’ revenues as cell rates plunged.

1 US dollar = 3.8385 Israeli shekel Editing by Susan Fenton

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