Coming Full Circle: Will 'New Economics' Require Old Solutions in Cellular Market Regulation? (Hebrew)

Abstract

Regulation of the Israeli cellular market is an ongoing project, in which several governmental institutions are involved. This study focuses on the dual regulation of the Ministry of Communication and the Antitrust Authority, who joined hands in mandating the reduction of access fees (a.k.a. interchange fees) charged when a subscriber to one network calls the subscriber of another.

While studies of platform competition show us the anti-competitive nature of high access fees, regulation aiming to achieve lower consumer prices by mandating lower access fees is overly optimistic, as well as simplistic. The argument made here is that the focus on access prices is a method of 'minimalistic regulation' - the attempt by government agencies to promote consumer welfare and competition while avoiding the pitfalls of traditional regulatory oversight. Minimalistic regulation is a noble goal, though one easier achieved in theory than in practice. The paper outlines the methods by which cellular firms are able to circumvent access fee regulation, as well as highlighting the need for a difficult choice stemming from technological evolution of cellphones and consumer perception of cellular contracts: regulate extensively or forgo regulation altogether. I focus on the literature on two-sided markets to develop the former point, and on behavioral economics to develop the latter. Minimalistic regulation of the type assessed here, is presented as an attempt to hold the stick at both ends, with similar chances of success.

Note: Downloadable document is in Hebrew.

Keywords: antitrust, cellular, mobile phones, wireless, platform competition, telecommunications

JEL Classification: D18, D43, K21, K23, L13, L51, L96