The four leading investors in Israel's communications industry have lost NIS 353 million over two days after new cell phone companies started business.
The biggest loser has been French businessman Patrick Drahi, the controlling shareholder of the HOT cable TV company, with a NIS 243 million paper loss.
Two newcomers entered the market on Monday - Golan Telecom and HOT Mobile, the latter a subsidiary of Drahi's firm. These two companies are offering prices below what the market had expected. On Sunday, Alon Holdings Blue Square Israel launched its own cellular company, YouPhone.
On Tuesday, stock in Partner Communications, which does business as Orange, dropped 8%. Affiliated companies Scailex and Suny Electronic tumbled 8% and 17% respectively.
The country's largest telecommunications group, Bezeq, lost 4% of its value while B Communications, its parent company, plunged 15%. Internet Gold tumbled 12%. Cellular operator Cellcom's stock dropped more than 9%, and HOT fell nearly 9% despite the launch of HOT Mobile.
Communications tycoons were big losers over the two days; first Drahi and then three Israelis. Ilan Ben-Dov - a shareholder in Partner, Scailex and Suny - suffered a paper loss of NIS 29 million. Shaul Elovitch, the controlling shareholder of Bezeq, B Communications and Internet Gold, suffered a paper loss of NIS 43 million, while Nochi Dankner's Cellcom stake eroded by NIS 39 million.
The Bank of Israel's supervisor of banks, David Zaken, foresaw the threat to communications stocks. In his annual report on Israel's banks last August, he referred to the loans the banks had given for the purchase of controlling stakes in communications firms.
"The risk inherent in exposure to the communications sector is high, particularly as a result of recent regulatory changes in the sector," Zaken wrote. The latest figure from the central bank on these credits is from the end of 2010, when it was estimated at about NIS 4 billion.
The banks' reporting does not provide a full picture of their exposure to the communications sector because the banks do not report the same way, making their disclosures difficult to compare. But sources in the banking industry say the largest exposure regarding leveraged financing involves the funding for the controlling stake in Bezeq.
Communications analysts are divided on the sector's future; some say the newcomers' entry clouds the future of the veteran players.
But Uri Licht of the IBI investment house says it will be hard for the new players to break into the market because of aggressive pricing of cell phones by the long-time players; cell phones can be paid for in monthly installments over three years. Although customers may be free to switch cellular service providers, they will still be obligated to pay their old cellular firm on the equipment they bought.
In any case, some analysts see the drop in stock prices as presenting a long-term opportunity for investors.
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