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Mobile operators face frenzied competition
Gad Perez
Israel's mobile operators will cannibalize each other's business to survive.
13 May 12 18:33, Gad Perez

Buy gasoline or a bread roll and drink and win free airtime on your mobile phone. Israel has never had this before today's new offer from Alon Cellular. Overnight, the offers are flying at consumers and the mobile market appears to have entered a maelstrom. The operators must reinvent themselves, and consumers are celebrating. This is of course much better than what went on before, when the three mobile operators were a triopoly, but the big question now is how to stop the party. In simpler words, who will remain alive when the festival in the Israeli mobile market is over?

That is how it is in Israel - drought or downpour. There is either no competition at all, and then we're flooded with competitors and offers, until consumers don't know what to choose. The entry of Alon Cellular Ltd. into the market is welcome, but it is liable to result in cannibalization. Bezeq Israeli Telecommunication Co. Ltd. (TASE: BEZQ) mobile subsidiary Pelephone Communications Ltd. has already reported lower profits for the first quarter, clearly showing what is ahead for the mobile market in general, and in the upcoming financial reports by its rivals Cellcom Israel Ltd. (NYSE:CEL; TASE:CEL) and Partner Communications Ltd. (Nasdaq: PTNR; TASE: PTNR) in particular. The CEO of one mobile carrier recently said that we haven’t seen nothing yet, and that the entry of HOT Telecommunication Systems Ltd. (TASE: HOT) mobile subsidiary Mirs Communications Ltd. and Golan Telecom Ltd. tomorrow will lower the operators' profits to levels they never dreamed of.

Competition above all else

The results of the expanded competition are welcome, but they carry one big problem: all the veteran mobile operators are firing thousands of employees. There is no other option; it is the immediate result of such an aggressive expansion of competition. None of the veteran mobile operators can maintain the huge customer service networks they've had until now. The chances of receiving the same level of service we've been used to is very low, because the operators continue to keep their current distribution and service networks, when national retail networks sell the same services at the same price.

Simultaneously, the Ministry of Communications decision to allow mobile virtual network operators (MVNO) to enter the market at the same time as operators that must set up nationwide networks at a cost of hundreds of millions of shekels is being felt in full force. Some people warned of the consequences of this decision, which would deal a massive blow to the potential profits of the operators that must make massive investments in physical infrastructures.

Consequently, an MVNO that invests a few million shekels sells exactly the same product as independent mobile operators Mirs and Golan Telecom, which invested hundreds of millions of shekels in the same product. This sounds illogical, but that is the case. Justifiably or not, the Ministry of Communications is unwilling to hear of delaying the entry of MVNOs in favor of the infrastructure companies. The ministry realizes that it gave birth to a monster in the three veteran mobile carriers, which only raised prices and competed on service rather than on price. That is why the ministry used everything it had in its campaign to bring down prices through competition.

This naturally raises the question - where was the ministry during all those years and why was it necessary to wait so long to increase competition? But that is spilt milk, and the government has achieved its goal.

As a bonus, Golan Telecom is due to present its promises tomorrow. It is not clear how it was able to beat Mirs in such a short time in launching its network. Let's enojy the party while we can.