Regulation-the corridor to liberalization: The experience of the Israeli phone market 1984-2005

The paper follows the regulatory experience of the Israeli communications industry over the last 20 years, and specifically the impact of the regulatory regime introduced in 1990. Since its initiation phone rates declined sharply, placing them among the lowest in Europe, the incumbent's profits tripled, and the company's labor force was slashed by 40 percent. What makes the Israeli experience unique is that throughout the period the monopoly was government owned and the regulatory process has been under government control. The Israeli regulator's experience, though often running counter to conventional wisdom, seems relevant to two central themes in the new economics of regulation: the impact of the institutional environment on regulatory outcomes, and the effect of the asymmetry in information on the regulatory regime.