Regulation - the Corridor to Liberalization: The Experience of the Israeli Phone Market 1984-2005

An important part of the literature on regulatory economics is based on the US experience, where a well-established regulator faces a privately owned monopoly. It is sometimes forgotten that this model does not apply in many places where a newly established regulator faces a government owned, or a newly privatized, company. It definitely does not apply to the case of the Israeli communication industry where the government serves as regulator and at the same time is the owner of the wireline monopolist. The paper follows the regulatory experience of the Israeli communication industry over the last 20 years, analyzing its impact on consumers' welfare, the monopoly's profitability and its productivity. Though the Israeli institutions may look to a Western observer today as unique they were quite common in most of the developed economies prior to the wave of privatizations and deregulation in the 90s. The lessons learned from the Israeli experience have, however, more than a historic interest, and may be relevant for the regulatory process in general.