On May 14, 2012, the biggest upheaval in the history of the Israeli mobile market began. Two new networks launched, up-ending the comfortable three-company monopoly. As prices collapsed, a decade of consumer injustice came to an end.
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In the past year the industry has undergone sweeping changes, especially at the three established companies, where profits have plunged. And the revolution isn't over yet.
the pace at which users switched companies put the industry into shock. Even the newcomers Hot Mobile and Golan Telecom were taken by surprise.
Hot Mobile has already amassed 450,000 subscribers while Golan Telecom announced Sunday it has acquired 257,000 to date, giving it 2.5% of the market.
The number of subscribers is larger than the number of customers who switched from other companies, Golan explained - 30% of its new customers take a new phone number with its 058 prefix.
The Communications Ministry estimated in a report marking one year of competition that a household with three cell phones saved NIS 1,900 in the past year on average. The cost for one minute of calling time fell from 42 agorot to 10 agorot.
In addition, the price of cell phones has dropped by as much as 60%, so that the overall savings on cellular services in the past two years amounts to NIS 5.7 billion.
The ministry said that encouraged by real competition in the market and the ease of switching providers led to customers to switch companies at the rate of nearly 500,000 a quarter.
In 2012 alone, nearly 1.5 million Israelis switched provider. That was 2.5 times the figure for the year before.
Not first upheaval
A similar mass churn erupted 20 years ago, when the international calls market was opened up to competition; and the same again happened when Cellcom became the first rival to Bezeq’s mobile service company Pelephone.
Market share in Israel shifts rapidly when customers discover alternatives. Experts say that between 10% and 15% of all consumers are thought to be “anti-establishment” − ready to abandon the old for the sake of change itself.
Some 60% of all cellular callers have changed their calling plans, some by switching companies while the others simply upgraded from an expensive plan to a cheaper unlimited plan with their existing provider.
The new companies are said to also suffer high attrition rates, but the numbers joining and then leaving are somewhat skewed by the customer win-back strategies used in the industry. Informed that a customer is switching to a competitor, providers will contact the customer and match the same low rates.
Those who accept the offer are registered as joining and abandoning the new company, a practice that tends to inflate figures.
Confounding the veterans
One of the welcome ways Michael Golan of Golan Telecom has changed the industry is by shaking it up with repeated dashes of verve and zest. Confounding industry old-timers, he first announced that his aggressive promotional campaign offering six months of unlimited service at NIS 49 a month would come to a close at the end of March. The other companies ended their promotions as well hoping that prices would start rising again.
Market analysts, along with some reporters, swallowed the bait and declared an end to the era of fiercely competitive pricing. Then, in the second week of April, Golan launched a fresh low-price campaign that opened up a new chasm with the established companies.
Meanwhile, management at Cellcom Israel, Pelephone, and Partner Communications have taken advantage of the industry shake-up to streamline their operations in a way that they couldn’t beforehand.
Cellcom, for instance, slashed its operating expenses by NIS 600 million and hastened the process of merging with Netvision. Partner accelerated its merger with 012 Smile. The three companies together reduced their payrolls by 5,200 in 2012.
The companies were also forced to change their approach to customer service. Whereas with larger staffs they would strive to squeeze another shekel or two out of customers or deny them refunds that were often justified, the new pricing regime and slimmer payroll made it impossible to invest time handling subscribers.
The balance of power between management and ownership also changed. Before competition, the companies were geared towards a single goal of repaying the immense debt run up by the controlling owner in buying the company. Profits were paid out in dividends and balance sheets stretched to the limit. Management neglected long-term goals strategy.
This changed when the controlling shareholders realized they could no longer milk the companies, and management gained more leeway to attend to their companies’ future.
The companies themselves understand that they level of profitability they had become accustomed to will never return. Last year wasn’t a representative year and profitability is expected to continue dropping until at least 2014.
Stopping the decline depends on two things: the companies’ ability to become lean and efficient and to generate new forms of revenue. The future source of revenues is clearly expected to be television, but Cellcom and Partner still aren’t rushing to jump into the market. In the meantime they’re trying to sell packages comprising cellphone service, a landline and Internet. They are experiencing some success, particularly Cellcom with its Cellcom Total plan.