Israel Telecoms Chief Says Mobile Competition Went Too Far

  • Monthly prices are less than half those of developed nations
  • Ministry favors cutting number of providers in sector

Mobile telecommunications prices are too low and there should be fewer operators, the director general of Israel’s Ministry of Communications said. Shares of Cellcom Israel Ltd. and Partner Communications Co. rallied.

“The market has lost its correct balance regarding price,” Shlomo Filber said in an interview with Bloomberg at his office in Tel Aviv. Low profits put at risk “the ability of companies to keep up with technology and maintain and develop infrastructures,” he said.

Filber, appointed in June by Prime Minister Benjamin Netanyahu, who is also the communications minister, is departing from the reforms of Netanyahu’s two previous ministers that increased the number of providers and lowered consumer prices. Israel’s cellular incumbents, including Cellcom and Partner, lost billions of shekels in revenues as the government encouraged new network and virtual operators into the sector, and the newcomers, including Golan Telecom Ltd., partly owned by French entrepreneur Xavier Niel, started a price war to gain market share.

Israeli cellular companies “are selling a monthly line for around 35 shekels. This is a price that is not economical,” Filber said. “OECD prices are around 20 euros (86 shekels).”

Filber later issued a statement saying mobile phone service prices are determined by free competition, and are not set by him.

Consolidation

Cellcom said in August it is considering the acquisition of competitor Golan, a move that would lead to less competition, higher prices and higher profitability, according to analysts at Excellence Nessuah Brokerage and Bank Leumi Le-Israel Ltd. Filber does not object to reducing the five major network operators, including Bezeq Israeli Telecommunication Corp.’s cellular unit, to four. 

“I don’t see a problem with Cellcom, Partner or Bezeq buying Golan if they want,” Filber said. “The market will continue to be competitive even with four main players and other niche players, with rational prices that will enable reasonable profitability and infrastructure investment.”

The ministry is also considering the option of allowing cellular operators to increase profitability by differentiating the packages provided to customers, enabling them to offer regular and premium services, Filber said.

Shares Jump

Cellcom stock has advanced 97 percent and Partner has jumped 125 percent since May 18, when Netanyahu fired the former director general of the ministry, who said he would not allow a consolidation in the cellular market and spearheaded a reform in the fixed line sector. Bezeq shares have gained 28 percent in the same period, on bets of a more conciliatory tone at the ministry.

Cellcom gained 3.6 percent to 30.60 shekels, the highest since Jan. 1, at the close of trading in Tel Aviv. Partner advanced 5 percent to 19.40 shekels, the highest since Aug. 18.

“If conditions in the cellular market will allow a merger of one of the five operators, then we expect to see an additional wave of rises in cellular shares,” Ilanit Sherf, an analyst for Psagot Investment House Ltd. in Tel Aviv, said in an e-mailed note. Citigroup Inc. analyst Michael Klahr said last week that the antitrust authority will be the biggest obstacle to a Cellcom-Golan deal.

Filber, who is working with Bezeq on a compromise regarding the terms of a wholesale market reform, said he will allow the company to merge with its units only once it enables competitors to offer telephony services on its network, in addition to Internet.

“Telephony will be part of the reform,” he said. “I’m not looking at the structural separation issue until we finish the telephony issue.”

Bezeq shares declined 1 percent to 8.20 shekels.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE