Pay less now, get less later

05 July 2021 | Liran Weiss

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Liran Weiss

Blog Author | Data Economy/ Capacity

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Liran Weiss, COO of mce Systems, explains why low mobile costs will hurt Israel’s telcos in the long run

Everyone wants to pay less, but nobody is willing to receive fewer benefits.

In 2011, Israeli minister of communications Moshe Kahlon famously created new reforms that broke the monopolies of the three major carriers in Israel and opened up competition, which ultimately reduced plan prices for customers. Israelis rejoiced. But will they be rejoicing in 10 years?

The cost of the average cell phone plan in Israel ranges between 30 and 90 shekels, depending on the provider. Players like Orange and Golan offer competitive prices that fall within the same range, so remain relatively cheap. Before Kahlon’s well-received initiatives, Israelis paid in the area of 200 shekels per phone plan between the three main competitors: Pelephone, Partner and Cellcom.

Currently, Israelis pay some of the lowest cell phone bills across the OECD countries, including the lowest per 1GB of data, according to Cable. But the results show. Compared to other Western nations with high-quality broadband, Speedtest ranks Israel 62nd in the world in mobile broadband speeds, and it still carries an alarming number of dead zones for a small nation.

Lavi Shiffman, a board member of the Israel Internet Association, told Times of Israel in 2018: “There is a lack of investment in infrastructure. If you don’t march forward you go backward... It is clear that we are not in a good place.”

Shiffman was right, but only to a degree. The government cannot be the crux of a lack of investment in broadband infrastructure alone. Cell phone companies must carry a large part of the burden to ensure that mobile broadband towers and fixed broadband are up-to-date and can sustain mass usage – especially with the arrival of 5G. That is where the true cost will become clearer.

Each year, mobile operators spend hundreds of millions of dollars to sustain and improve the existing infrastructure, customer service operations and IT support. As a result of the changes brought about in 2011, where average revenue per user dropped resultantly, the three main telecoms companies in Israel cut a combined $1.1 billion in operating costs over a four-year period, which has long-term implications.

As the telecom industry embraces innovation to offer better service, customers take notice and start demanding the novelties, setting off a hectic race between rival companies to keep up – and pick up the tab, which is no chump change.

The shift to 5G networks will also come with a hefty price. As an International Telecommunication Union report from October 2020 effectively describes: “Operators will be expected to pay a total of €20 million per year for the use of the new frequencies – in addition to the €79.8 million they currently fork out for 4G and 3G services... The total cost of the deployment is estimated at €448.6 million.”

As of January 2021, 34 countries have already integrated 5G networks, and many more will soon follow. Israelis, who love to globetrot, will eventually look homeward and ask why they aren’t getting the same provisions from their mobile operators. They will surely be disappointed; but in hindsight they got what they paid for.

Canada, for example, is sixth in the world in 5G roll-out, featuring it in 49 cities, according to Statista. Yet for cost per data, according to Cable, it is ranked 187th out of 230 countries, at $5.72 per GB. Similarly, the US, ranked 153rd in data costs, is second in the world in 5G roll-out.

As for the telecoms in Israel, who will need to play catch-up on the roll-out, they will find themselves between a rock and a hard place, strapped for cash to fund such an endeavour. Ultimately, telecoms will have to find avenues to make cutbacks to be able to afford proper upgrades, which will translate into less budget for customer service, IT support and other infrastructural necessities. With current phone plan prices, Israelis can expect a drop in customer satisfaction in the coming years.

In the eyes of Israeli consumers, the cost per cell plan might be worth it right now, but in the end there’s always a price to pay. By the time Israelis realise it, the train may already have left the station.