Harvard Case - Moshe Kahlon: Telecommunications Reform and Competition in Israel's Cellular Market (A)
"Moshe Kahlon: Telecommunications Reform and Competition in Israel's Cellular Market (A)" Harvard business case study is written by Joshua D. Margolis, Amram Migdal, Kerry Herman. It deals with the challenges in the field of Business & Government Relations. The case study is 22 page(s) long and it was first published on : Oct 18, 2016
At Fern Fort University, we recommend that Moshe Kahlon, the Israeli Minister of Finance, implement a comprehensive reform package aimed at increasing competition in the cellular market. This package should include a combination of regulatory changes, deregulation, and incentives for new entrants to foster a more dynamic and consumer-friendly market.
2. Background
This case study focuses on the Israeli cellular market, dominated by three major players: Cellcom, Partner Communications, and Pelephone. The market has been characterized by high prices, limited competition, and a lack of innovation. Moshe Kahlon, the Minister of Finance, is tasked with implementing reforms to address these issues and improve the market's performance.
The main protagonists in this case are:
- Moshe Kahlon: The Minister of Finance, responsible for overseeing the telecommunications sector and implementing reforms.
- The three major cellular operators: Cellcom, Partner Communications, and Pelephone, who hold significant market share and influence.
- Consumers: The end users who are affected by the pricing, quality, and innovation of the cellular services.
- Potential new entrants: Companies interested in entering the market but facing barriers to entry.
3. Analysis of the Case Study
This case study can be analyzed through the lens of competitive strategy and government policy and regulation. The market structure is characterized by oligopoly, where a few dominant players control the majority of the market share. This lack of competition has resulted in high prices, limited innovation, and reduced consumer choice.
Porter's Five Forces framework can be applied to understand the competitive landscape:
- Threat of new entrants: High barriers to entry, including significant capital investment and regulatory hurdles, limit the threat of new entrants.
- Bargaining power of buyers: Moderate, as consumers have limited options and are price-sensitive, but the market is not entirely homogenous.
- Bargaining power of suppliers: Low, as the market for cellular infrastructure and equipment is competitive.
- Threat of substitutes: Moderate, as alternative communication technologies like VoIP and internet-based services are available.
- Rivalry among existing competitors: Limited, as the three major players have established market share and engage in tacit collusion to maintain high prices.
The government's role in this market is crucial. Government policy and regulation have a significant impact on competition, pricing, and innovation. The current regulatory framework has been criticized for its inability to promote competition and protect consumer interests.
4. Recommendations
To address the challenges in the Israeli cellular market, Moshe Kahlon should implement the following recommendations:
1. Regulatory Changes:
- Deregulation: Reduce the burden of regulations on new entrants, including licensing requirements, spectrum allocation, and infrastructure sharing.
- Antitrust Enforcement: Strengthen antitrust laws and enforcement to prevent collusion and price fixing among existing operators.
- Price Regulation: Implement price caps or other mechanisms to control the pricing of essential services, ensuring affordability for consumers.
- Spectrum Allocation: Allocate spectrum more efficiently, encouraging competition and innovation in data services.
2. Incentives for New Entrants:
- Tax Incentives: Offer tax breaks or subsidies to encourage new entrants to invest in infrastructure and compete in the market.
- Infrastructure Sharing: Facilitate infrastructure sharing among operators to reduce costs and lower barriers to entry.
- Government Procurement: Utilize government procurement to create demand for new entrants and foster competition.
3. Fostering Innovation:
- R&D Support: Provide government funding for research and development of innovative cellular technologies.
- Incubator Programs: Establish incubators to support the development of new cellular startups and entrepreneurs.
- Open Access Networks: Encourage the development of open access networks to promote competition and innovation in data services.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core competencies and consistency with mission: The recommendations align with the government's mission to promote economic growth, consumer welfare, and innovation.
- External customers and internal clients: The recommendations aim to benefit consumers by lowering prices, increasing choice, and fostering innovation.
- Competitors: The recommendations aim to create a more competitive market environment by reducing barriers to entry and encouraging new entrants.
- Attractiveness: The recommendations are expected to have a positive impact on the economy, including increased investment, job creation, and improved consumer welfare.
6. Conclusion
By implementing these recommendations, Moshe Kahlon can transform the Israeli cellular market into a more dynamic and competitive environment. This will lead to lower prices, increased innovation, and improved consumer choice, ultimately benefiting both consumers and the economy.
7. Discussion
Alternatives not selected:
- Nationalization: This option would involve the government taking over the cellular operators, which could lead to inefficiencies and a lack of innovation.
- Doing nothing: This option would allow the existing market structure to persist, leading to continued high prices and limited competition.
Risks and key assumptions:
- Implementation challenges: Implementing these reforms will require political will and effective coordination among government agencies.
- Resistance from existing operators: Existing operators may resist changes that threaten their market share and profitability.
- Economic slowdown: A global economic slowdown could impact investment in the cellular market and hinder the implementation of reforms.
8. Next Steps
- Develop a detailed implementation plan: This plan should include specific timelines, responsibilities, and performance indicators.
- Engage with stakeholders: Consult with industry experts, consumer groups, and existing operators to gather feedback and build consensus.
- Monitor progress and make adjustments: Regularly assess the impact of reforms and make necessary adjustments to ensure their effectiveness.
By taking these steps, Moshe Kahlon can effectively implement reforms and transform the Israeli cellular market into a more dynamic and consumer-friendly environment.
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Case Description
The case addresses reforms to regulations in Israel's telecommunications industry initiated and implemented under the leadership of Minister of Communications Moshe Kahlon in 2009-2010. The case highlights the challenges faced by a politician attempting to institute regulatory and legislative reforms in the face of uncertainty and resistance from an incumbent oligopoly. When Kahlon entered office, three cellular companies, Pelephone, Cellcom, and Partner (the Big Three), dominated the market. Against Big Three opposition, Kahlon must decide whether to continue pushing changes to introduce new competitors in the industry, remove contract termination fees, and reduce the payment of inter-connection fees between cellular providers, which advantaged incumbent companies and drove up consumer prices. Kahlon applied a distinct political style that won him support from career civil servants within the ministry of communications and ministry of finance, from the press, and from the public.
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