Commentorial: How to Make Carriers Not Unbearable
So I realized that with all of the Israeli tendency to complain about not being a friar (Hebrew slang for sucker), Israel has it pretty good for the mobile communications sector. Yes, we are essentially a capitalistic nation, however we have a very socialistic approach.
Our communications (and welfare) minister, Moshe Kahalon, decided there needs to be more competition in the mobile communications sector in Israel. Just to give you perspective as to how "uncompetitive" it is around here: 3 carriers for 7 million citizens. Yeah. That’s 2.3 million PSpC (Potential Subscribers per Carrier). In the USA, it stands at 62.4 million PSpC (if you generously count all the regional carriers as one whole nation-wide carrier).
So, in order to make it more competitive he realized that the best way to do so was making sure people can switch between them easily. If you think about it, that's absolutely essential for making competition possible. If your competitors' customers are on a 3 year contract, there's nothing - absolutely nothing - you can do to seduce them over.
The obstacles of switching carriers
Kahalon recognized five obstacles when switching carriers. All of these either make it inconvenient, costly, or impossible to switch carrier. Let’s break these down.
- Plans with long term commitments (costly ETFs included)
This first issue makes it simply expensive to quit. It’s usally very hard to make a plan that much cheaper than the competition after considering ETFs.
- Devices purchased via carriers and their subsidies rely on plans
Virtually all phones in Israel used to be sold directly from carriers to end customers with subsidies if you signed up for a plan. They would sell the phones at twice or three times the street price and pay it back only if you were their customer. So quitting would mean starting to pay up for a phone at three times the price.
- SIM locks
Even if you did go through paying ETFs and paying back for the device at twice the price, devices with a SIM lock would prevent you from using the phone you paid so dearly for on a different network.
- Different radio frequency/communication protocols between devices and networks
In Israel, all networks use the same protocols and frequencies (that play nice with the rest of the world *cough* America *cough*), so that's not an issue. Hence, national and international roaming is not an issue either (unless you go to the US). That’s one issue out of five.
- Phone numbers change between networks
When you have to change your phone number to switch networks - that’s just inconvenient - and depending on how important the set of digits in your phone number is to you, you may just decide it’s not worth it.
After recognizing all these issues, our communications minister quickly went along to solving them, one law at a time.
How to regulate in favor of the consumers
Selling SIM locked devices in Israel has been outlawed a few years back, and locked devices sold before this law passed must be unlocked by the carrier free of charge. Recently, another law has passed to make it possible to take your phone number with you across carriers. Compatible networks, SIM unlocking, and portable numbers across networks makes three issues down, two to go.
The latest law-passing in this series take on the most critical issue when switching carriers: removing commercial commitment between customer and carrier. What? How?
As it turns out, it’s possible to make laws against ETFs. Also, since customers were also committed to carriers with their expensive devices’ subsidies, another law has passed to alleviate that issue as well.
Case in point
The new law states that a carrier cannot make plans that span longer than 18 months, and cannot charge more than 8% of your average bill multiplied by the number of months left on your contract if you decide to leave. Even after this, the minister of communications is still pushing for removing such charges altogether, and says he "won’t back down from this" until it passes.
If you decide to leave, the new carrier which wants to sell you an expensive phone with subsidies must give you the same subsidies on the phone you already have (which, as we said, is SIM unlocked).
Since the phone is SIM unlocked, and your number stays if you wish, you can use the same phone with the same number and the only thing that changes is the plan that you want and the bill that you pay.
In fact, you can buy any phone in the world and the carrier must give you subsidies accordingly, as it would with an equally priced phone they want to give you. Since carriers sell phones for two to three times the street price, you can get a phone three times better than what they offer you for the same price and get the same plan and the same subsidies, for your own phone!
Did I mention there is full net neutrality on mobile networks in Israel? No application or protocol is allowed to be throttled or priced differently. The exceptions are for requests by the security authorities (police and military) and by the ministry of communication itself (if they agree it’s "fair" to throttle certain cases), or if the customer explicitly requests for it (for example a company-issued plan for employees).
When reaching 75% and 95% of data caps, an SMS notification must be sent to the customer. Customers need to opt-in to "premium" texting charges. The carrier must provide a version of the contract written on no more than one page long for the customer to be able to understand what he’s signing.
The minister of communication wants to pass another law that will allow the ministry to fine carriers for messing with customers - such as not disconnecting them when they wish, accidentally over-charging them, not notifying a customer of changes to the plan, etc.
More carriers, and introducing MNVO’s
After making it so easy to switch, Kahalon wants to assure people they have what to switch to. So he’s made sure there are more carriers competing for the customers. Two more licenses for full carriers have been granted to two companies, so they can build their own networks. MNVO’s are now getting licenses (one is already in place and selling super cheap minutes, and more are on the way). Counting only the actual networks, you’ll have 1.4 million (!) PSpC.
How to make good networks
Pelephone (third largest carrier) got late in the game with 3G, but they really got it. Although the technology is nothing new (HSPA+), the actual, out-in-the-field network performance is the best in the world, according to speedtest.net (considering the average of many many speed tests - not peak speeds). And that’s not because they have 200MB caps or because they throttle (that’s illegal!). This happens to be a carrier that offers 10GB for the equivalence of roughly 30 USD.
LTE is on the way (the networks here play it safe, they’re waiting for it to become a real standard), but putting out a network on an area the size of New Jersey doesn’t take long.
How to make good pricing
The first new MNVO - Rami Levi - is offering zero-commitment plans for the equivalence of roughly 5 cents per minute and 4 cents per text. 5GB for 14 US dollars and 10GB for about 25 US dollars. This includes no device subsidies - they instead offer cheap Huawei smartphones. But going for bigger plans with device subsidies can give you something bigger and even better on scale.
For example, my monthly bill is currently the equivalence of 50 US dollars, for 1300 minutes and 1300 texts, 3500 minutes within my network (Partner Orange), and 5GB of data. After 5GB my link speed is reduced - I’m not charged for surfing over 5GB. Oh, and there’s none of that paying for incoming calls BS I hear about in the states. Since this plan is on the premium end, I get a 26 USD refund per month for a device, which adds up to 935 USD worth of machine every 3 years. If I get the device straight from them, I can get almost any device for free (for the more expensive ones such as the Galaxy S2 and the iPhone 4S etc. I would have to add the difference which would add up to an extra 200 USD or so over 36 months).
However, if I get the device independently at street price, I can get pretty much any device in the world and get full refunds for it - or I can go for an even cheaper plan and still get a high end device also for free (I’m still waiting for something better than the Galaxy Nexus, hopefully quad-core). I just tested out the network just for fun, and I got 2.1 Mbps down and 0.42 Mbps up, but it usually runs around 1.8 to 2.5 down and 0.4 to 0.8 up. On Pelephone, I’d have gotten much faster speeds.
I’m sure I’m missing a whole bunch of other stuff, but I’d say all this pretty much makes Israel the place to look at when trying to understand how to make the mobile communications sector one that benefits the consumer best. I guess I just wanted the world to know that dealing with carriers doesn’t have to be like dealing with Satan. Or something else you don’t want to deal with. This is all thanks a right-wing minister making state-mandated regulations.
Capitalism and free markets won't generate competition - they will ultimately lead to what's best for the influential companies of the market. You have to get fair people in power to legislate these regulations that ultimately benefit the people voting for those in power.
Let me know what you think.
I’ve had a hard time figuring out if there are any other places around the world that are as pleasant, so please let me know in the comments.