Market Insight

The Israeli Parliament forces competition in the pay TV market

July 31, 2013

Constantinos Papavassilopoulos Constantinos Papavassilopoulos Principal Research Analyst, Service Providers & Platforms

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The Israeli Parliament (Knesset) is to open up the pay TV market with forced regulated access for competing platforms to a basic pay TV package from cable operator Hot and satellite platform Yes. In major amendments to the Telecommunication Act the Economy Committee of the Knesset has voted in favour of a string of reforms that deal with the regulatory regime of broadcasting in Israel. The amendments formally introduce a 'narrow' pay TV package (a package comprising a basic line-up of channels) that cable operator Hot and satellite operator Yes are obliged to offer to their customers as well as to sell to other companies that might want to enter the pay TV market. Additionally, the reforms give the Minister of Communications the authority to further lower the price of the narrow package as well as to approve the channel line up. A company that wants to enter the pay TV market can, under the new Law, purchase the narrow package from either Hot or Yes at prices approved by the Minister and then sell the package (either alone or by adding its own channels) to its customers.

The amendments also reform the regulatory regime of the digital terrestrial television (DTT) platform in Israel. The DTT Platform (under the name Idan+) will cease to be operated by The Second Television and Radio Authority (a public body regulating commercial FTA broadcasting in the country) and instead a private entity will be nominated by two government Ministers (of Communications and of Finance) to run the service. Furthermore, the number of channels currently carried by the DTT platform will be expanded. New licenses will be awarded by the Council of Cable and Satellite Broadcasting for the transmission of thematic channels in the following genres: sports, children's programmes, movies, TV series, documentaries, culture, natural world and news. The licensee has the right to choose the channel's genre after it has been granted the license by the Council. The Ministry of Communications is expecting that the amendments will be enacted by the begging of August 2013 and that by the end of 2013 or the first quarter of 2014 at the latest, the DTT platform will be offering for free around 18 channels up from the current six. The expanded service will use three multiplexes up from the current one. 

The biggest change in these ammendments is the introduction of more competition in the pay TV market. These reforms have been a long time in the making, but the government claims the reforms will result in a considerable price reduction for customers and a real alternative to cable and satellite broadcasting. However, practice has shown that this outcome is a rather tricky one to achieve.

The debate about high prices for access to multichannel pay TV has been going on for many years in Israel as it surfaced in April 2001. That same year the Cable and Satellite Broadcasting Council (which operates within the Ministry of Communications) started to prepare new regulations for a cable and satellite basic-tier service. More recently, in July 2012, the former Minister of Communications unveiled his intentions to privatise the digital terrestrial television platform Idan+ as a policy instrument in order to force HOT and YES to lower the prices of their packages.

Both pay TV operators then responded to a call by the Cable and Satellite Broadcasting Council to participate in a hearing at the Communications Ministry on 27 July 2012. The purpose of the hearing was to test the waters for a pilot launch of a narrow package which was made available in December 2012. The Ministry, as well as the two companies, revealed publicly that the launch was a pilot in order to test the attractiveness, and therefore the viability, of the package. YES' offer had 15 channels costing 129 shekels (€26) a month while cable operator HOT offered for the same price a package comprising 16 channels. The new narrow packages were not widelymarketed by either operator and by May 2013 that no more than 3,000 subscribers. The minister decided to push ahead with introduction of a regulated narrow package rather than impose regulated pricing on the existing wholesale access to the infrastructures of the two companies. This was despite two mobile operators, Cellcomand Partner, both of which have expressed interest in launching IPTV services using Bezeq's (parent company of YES) and HOT's telecom infrastructure, continuing to lobby for regulated wholesale access.

Any new entrants will be going up against two strong pay TV operators. Both HOT and YES have carved out a considerable market segment (according to IHS data by the end of 2012 the cable operator HOT controlled around 40 per cent of the total TV market while the satellite operator YES controlled around 26 per cent). They are both well-recognized brand names and IHS forecasts that their customer base will remain practically unchanged until 2017. The DTT platform during the same period will experience a sustainable growth rate during the next five years. IHS data shows that around 500,000 DTT set-top boxes and integrated TV sets had been sold by the end of 2012 and that up to 250,000 households are watching DTT. These figures represent 12.6 per cent of the total TV market and our forecasts currently suggest DTT penetration will reach 20 per cent penetration by the year 2017.

Organization
Bezeq Cellcom Hot Partner
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