Towards a revolution in the Internet market: abolition of infrastructure-to-provider separation

Towards a revolution in the Internet market: The Ministry of Communications issued a hearing to examine the abolition of infrastructure-to-provider separation (ISP), which has been practiced in Israel since 2000. As part of the reform, it is proposed ISP to private consumers so that they may be entitled to a unified service.
"The existence of a split model no longer serves the competitive purposes for which it was set and imposes unnecessary costs on the economy and harms consumer welfare," the ministry notes. "The contribution of the ISP segment is small and it is doubtful whether it is beneficial at all. The unified configuration has many benefits in the form of more convenient operation, one responsible factor and service prices."
As part of the regulatory policy pursued in Israel, it has previously been decided to split in two cases. One, the splitting of international calls from the domestic telephony service. Second, separation of infrastructure and provider, so that a customer seeking to connect to the Internet is required to purchase two different services. This policy was mainly due to fears of monopolizing the Internet sector by Bezeq and HOT.
This unique arrangement, which has no equal in the world, has benefited Internet users in Israel by creating price and quality competition in the supplier segment. On the other hand, the arrangement imposes on the consumer a double search cost when joining an Internet service and an ongoing cost of tracking a number of services and invoices. Another major disadvantage is in locating and handling faults because from the subscriber's the division of responsibility is unclear and he may fall "between the chairs", because each supplier claims that the fault is not in the section under his responsibility, which affects both customer service quality and fault repair time.
This arrangement also entails double retail costs, including the issuance of invoices, the existence of two service centers, an increase in the cost of clearing credit, etc., which are based on the Israeli consumer. Also, since the service is not provided by a single system, the network engineering capability and optimization of its performance is reduced, which may directly affect the quality of service the customer receives.
In addition, the Ministry of Communications estimates that there are about 170,000 subscribers who pay to two providers due to non-disconnection during transit. On a rather conservative assumption, the ministry notes that splitting the service causes a direct loss to consumers of about NIS 50 million a year. Therefore, the ministry wants to determine that a mobile-like mobility mechanism will be activated: the operator who receives a customer for an Internet service will send a disconnection order to the abandoned operator.
In light of the consumer difficulty, over the years a practice of a common basket of services (Bendel) has developed that included infrastructure and provider service in two separate invoices, offered by the providers. Thanks to the wholesale market policy from 2015, which stipulates that infrastructure-free providers will be able to purchase services from the infrastructure owner, the providers began to offer a unified service in one invoice. Over the years, Bezeq and HOT have also been approved to market a common basket of services (reverse bundle) in a single invoice, so that they are obligated to offer the entire supplier a choice of the customer.
A document released by the Ministry of Communications in January stated that although these are more expensive Internet packages, 42% of the 2.5 million Internet subscribers in the country still purchase Internet in a split configuration. Also, 27% purchase Internet in a semi-unified configuration (bundle or reverse bundle) and 31% in a unified configuration (wholesale market or fiber optics).
In the proposed policy, the Internet for new private consumers in Israel will be provided as a single product only, whether by the infrastructure companies or by the providers through the wholesale market. Infrastructure companies will be prohibited from offering infrastructure-only service or infrastructure-provider service in a reverse bundle configuration, except for existing customers, but the firm believes that these configurations will diminish over time to the point of eliminating them.
Along with correcting the historical distortion, the abolition of the separation raises concerns about harm to the small suppliers and the strengthening of Bezeq and HOT. Companies that currently provide ISP service through reverse bandwidth only will be required to invest marketing efforts in transferring customers to the wholesale configuration, but at the same time will become independent and independent players. "There is no doubt that this world situation is in their eyes inferior to the existing situation," the ministry notes. "The policy has implications for the ISP domain, which is expected to fade as a stand-alone domain." However, the ministry estimates that this concern is relatively limited, due to the decline in the value of the ISP service as a segregated segment (its relative share in the reverse bundle configuration is about 15% of the total service price), the existence of semi-unified marketing arrangements and the functioning of a functioning wholesale market.

Despite the proposed policy, the firm recommends not eliminating the structural separation between Bezeq and Bezeq International and HOT and the HOT Net provider, so that the suppliers can continue their activities within the wholesale market. According to the ministry, the change does not harm the essence of structural separation, since it is a relatively inexpensive service compared to other services provided by Bezeq and HOT, such as cellular and television. The policy actually creates an internal struggle within Bezeq and HOT groups, so that over the years the activities of the subsidiaries will become worthless.