Xphone Poised to Become Israel's Sixth Mobile Network Operator

Firm set to close partner deal with Pelephone and offer service six months later.

Ofer Vaknin

Israel may be about to get a sixth cellular service provider - Hezi Bezalel’s Xphone is as close as it ever has been to entering the market. The company is in its final negotiations with established cellular company Pelephone in order to establish a joint network, much as competitor Partner (Orange) is partnered with HOT Mobile.

Xphone already has a cellular frequency, management and a planned service package.

Once it signs with Pelephone, the company will need only six months in order to start offering service to customers.

The company may face other obstacles, including Pelephone’s labor union and financing issues. But if it manages to surmount these, then it will become Israel’s sixth cellular service provider.

Xphone currently offers international call service and Internet. The company was bought by Bezalel in August 2010, via his company Marathon Telecom. At the time, Xphone 018 was a small company providing international phone calls. Bezalel, who had done business primarily in Africa up until that point, bought the company with the goal of turning it into a communications conglomerate and making Israel his main market.

Bezalel had tried to launch a cellular service provider back in 2011, and won a tender for a 3G frequency license, but failed to secure the necessary bank guarantee. He was fined 3.25 million shekels in that affair. The license passed to Michael Golan, who launched Golan Telecom, the company that introduced actual competition into Israel’s cellular market.

In the meanwhile, Xphone continued its international call operations and became an aggressive competitor in the ISP market as well. The company has some 70,000 Internet service customers.

In January, the Communications Ministry publicized another network tender, this time for 4G cellular networks. Xphone bid again, and won the rights to 5 megahertz of 4G bandwidth, paying 16 million shekels and posting an 80 million shekel bank guarantee.

However, this is not enough bandwidth to actually launch cellular operations, which is why Xphone is looking to partner with another company.

Partner is working with HOT Mobile to build a joint 4G network, while Cellcom is partnered with Golan Telecom.

If Xphone enters Israel’s market, it will be joining one of the most crowded cellular markets in the world. Xphone intends to compete by offering a simple package - a fixed 59 shekels a month for calls, SMSs and Internet, without introductory deals or price changes.

The company also seeks to appeal to customers via straightforward digital interfaces, drawing on technical knowhow from its British subsidiary Marathon Telecom, which offers IT and roaming services to virtual cellular service providers.

Xphone will have an advantage over Golan Telecom, which will be maintaining both 3G and 4G networks — Xphone will have only a 4G network. Furthermore, equipment costs are constantly dropping, so Xphone can expect to pay less than Golan or HOT did when they built their networks.

Xphone's entry could further impact Israel’s cellular market: It may make regulators more inclined to approve a pending merger between Golan and Cellcom. Regulators have expressed opposition to that move, saying they fear it could kill competition in Israel’s cellular market.

Xphone did not respond to a request for comment.