Last Thursday, Rami Levy started selling smartphones through an online store. Levy's entry into the market has prompted powerful responses in the mobile telephony industry. One reason for that is his low prices. For example, a 16 giga iPhone 5 is offered for NIS 3,190, compare with NIS 3,850 at Orange (Partner Communications Ltd. (Nasdaq: PTNR; TASE: PTNR)) or NIS 3,690 at Hot Mobile. The low pricing made the chiefs of the veteran mobile carriers very angry indeed; they realized that if, up to now, their prices looked high in comparison with those of the electronics chain stores and independent stores, they were now completely irrelevant.
"My motto is to sell a lot and make a little," Rami Levy told "Globes" today. Levy has already used this strategy in selling food products and mobile communications packages. Now he wants to do the same thing with smartphones. "My aim is that there should be competition in the smartphone category, and that these handsets should be at affordable prices for consumers."
Levy's profit on each smartphone is about 5%, whereas his biggest competitors make 10%, and even as much as 35%. At prices like these, it's no wonder that people preferred to buy their smartphones overseas.
Apple versus Partner
After Levy published his prices, there were press reports that Apple Inc. had asked the Tax Authority to examine how Levy was managing to sell his iPhone so cheaply, and whether these were contraband devices.
"Globes'" investigations have found that there was no such approach by Apple to the Tax Authority. The Tax Authority did however decide this morning to examine Levy's importing procedures, and officials went to the company's offices. Levy says that the Tax Authority carried out its examination and at the end of it pronounced his import procedures correct.
Apple representatives reportedly plan to meet Rami Levy next week to examine the possibility of cooperation. Apparently one of the reasons that Rami Levy decided not to work directly with Apple was the latter's demand for a commitment to sell a large quantity of its telephones. Since, by this morning, Levy's sales figures were close to 1,000 units (not just of iPhones), he will probably have no problem committing to the kind of quantity Apple wants.
This is not the first time that Apple has become involved in the Israeli mobile market. A few months ago, Partner decided to buy Apple iPad tablet computers from the Israeli importer, and not directly through Apple. Partner does buy iPhones directly from Apple, and it has to commit to a certain quantity. Apple didn't like Partner's maneuver. The move didn't succeed, and a few weeks ago Partner decided to come into line with Apple and to expand the partnership between the two companies. It now sells the Apple TV streamer.
Unlike Partner, which has to maintain an orderly relationship with Apple, Rami Levy decided that a low price was more important than ties with the US company. It really makes no difference to the consumer where the iPhone comes from, whether from an official or unofficial importer. The mobile carriers are forbidden to open the iPhone packages, and they install nothing on the devices. The Hebrew and updates come directly from Apple, to each customer, regardless of where the telephones was purchased. Nor are the warranties offered by the mobile carriers of any interest to the customer. In any case, a large number of labs offer repair services for iPhones, and the customer can get his telephone repaired anywhere.
The Customs division of the Tax Authority stated in response: "Customs has been enforcing tax rules on the import of cell phones intensively over the past year. We are prevented from commenting on the specific case."
Published by Globes [online], Israel business news - www.globes-online.com - on April 28, 2013
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