It would be a total surprise if the new mobile carriers are able to maintain their opening prices, announced yesterday, for long. It would be fantastic if they can, but the chances are unlikely. The new carriers, such as HOT Mobile Ltd. and a target=new href=http://www.golantelecom.co.il/gt-site/>Golan Telecom Ltd., pay NIS 0.05 per minute for hosting on the networks of veteran carriers Cellcom Israel Ltd. (NYSE:CEL; TASE:CEL) and Pelephone Communications Ltd.
A customer who talks for 600 minutes a month and decides to switch to one of the new carriers will have to pay Cellcom or Pelephone NIS 30 a month. Add payments for SMS and internet access, and the monthly expense rises to NIS 50-60 per subscriber. This is even before mentioning the investment in establishing a new network, customer service, financing and other expenses. How can HOT Mobile make a profit on subscriber plans at NIS 89 per month or Golan Telecom make a profit on subscriber plans, which include international calls, at NIS 99 per month? They have patrons.
We want to stay optimistic, and we've been told that even if there is an upward price adjustment, prices will stabilize at NIS 150 per month. It's not necessary to be pigs, and we must honestly thank the mobile reform which has succeeded beyond expectations.
A day after the shock, the three veteran mobile carriers are recovering and confirmed just one thing - they do not intend to vacate the field to the new players. Within days, we will see their aggressive responses. These will involve painful cutbacks and plummeting profits, but it should be remembered that, ultimately, they are here for the long haul, and the cutbacks are intended for future growth, while the new players will starve for oxygen.
Dangerous liaisons
The offers by Golan Telecom and HOT Mobile show how dangerous the mobile virtual network operators (MVNO) are. These carriers, such as Home Cellular Ltd. and Rami Levy Communications Ltd., will have to decide whether to keep their current prices. The structure of their agreements with the veteran carriers will not let them effectively respond to an all-inclusive plan at NIS 89 a month.
We reiterate this point because the MVNOs are precisely the model for competition in the landline market adopted by the Ministry of Communications - its planned wholesale market. Study what Cellcom and Partner - which can be considered as landline MVNOs using the infrastructures of Bezeq Israeli Telecommunication Co. Ltd. (TASE: BEZQ) and HOT Telecommunication Systems Ltd. (TASE: HOT) - can contribute to competition in the landline market. Their contribution will be limited, just as Rami Levy's contribution to competition in the mobile market is limited. It is welcome, but limited.
If we've learned anything from the dramatic changes in the mobile market, it is that competition based on independent infrastructures is the right way to move the market forward. This leads to one conclusion - Israel Electric Corporation's (IEC) (TASE: ELEC.B22) fiber optic venture must be allowed to enter the market as a full telecommunications company that can compete on the provision of services to consumers, and not just to carriers. It is not too late to correct this.
Published by Globes [online], Israel business news - www.globes-online.com - on May 15, 2012
© Copyright of Globes Publisher Itonut (1983) Ltd. 2012