The data available so far from the past two years show just how much the Israeli consumer has benefited from the new cellphone competition, which began in earnest last year with the entry of new cutrate players into the industry.
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If you exclude revenue for the sale of cellphone equipment, industry revenues dropped from NIS 12. 3 billion in 2011 to NIS 10.4 billion last year. That means Israeli consumers collectively saved NIS 1.8 billion on their cellular service bills. And in 2010, industry revenues were even higher − NIS 15.9 billion.
With some qualifications explained below, the conclusion from these numbers is that the increased competition, along with the government-mandated reduction in interconnect fees for calls between one telecommunications company and another over the past two years, has led to savings of NIS 5.5 billion in charges for telephone talk time, text messages and Internet access via cellphone devices.
The numbers are a little skewed because they don’t account for the additional revenues paid by consumers to the new players, Hot Mobile, Golan Telecom and others such as YouPhone and Rami Levy Communications, data from which is not fully available. Even if the figures were adjusted to account for this, however, the savings for 2011 and 2012 would exceed NIS 5 billion.
And if one looks at sales figures for cellular phones themselves, there has also been a real revolution. In 2011, such sales generated revenues for the cellular companies of NIS 5.3 billion. By last year those numbers had dropped by NIS 1.9 billion, to NIS 3.3 billion. It must be added, however, that it is not clear how much of that drop in revenues is the result of lower prices for cellphones, and how much was offset by the purchase of cellphone equipment from retailers other than the cellular service providers themselves.
Feeling the heat
The three long-time players in the industry, Pelephone, Cellcom and Partner Communications (which does business as Orange), began to feel the full brunt of competition from the new upstarts in May of last year, with the launch of Golan Telecom and Hot Mobile, which offered cellular service at substantially lower rates. The change forced the three veteran firms to lower their rates as well.
During the fourth quarter of last year, the average monthly cellphone bill dropped at Pelephone to NIS 89 from NIS 107 a year earlier. At Partner the average bill was NIS 87 a month compared to NIS 111 a year before and at Cellcom, it was NIS 82 compared to NIS 106 in the last quarter of 2011.
Last year about 200,000 customers abandoned Partner. Another 47,000 left Pelephone and 12,000 cancelled Cellcom accounts. Over the past year, fully 38% of Partner’s customers were lost to the company. Cellcom lost 35% and Pelephone 22%. The industry-wide average was 31.6%. Assuming that the vast majority of customers simply did not cancel service but instead signed up with another company, the figures suggest that roughly a third of all customers switched cellular service providers last year. And when a customer switches companies, it is generally for a lower rate elsewhere. Against the backdrop of the cutthroat competition, many others demanded and got lower rates from the existing mobile service provider without jumping ship.
In 2012, revenues at Pelephone, a Bezeq subsidiary, dropped by a billion shekels compared to the year before. Cellcom’s revenues sank by NIS 1.3 billion and Partner’s by NIS 1.5 billion. HOT Telecommunications will only disclose its full results for 2012 on March 24. Although its shares are no longer publicly traded, it still must report its financial results because it has publicly traded bonds outstanding.
The veteran cellular firms instituted major streamlining measures to meet the new business environment. Pelephone cut its staff from 4,041 in 2011 to 3,187 last year, for example. Partner and Cellcom have larger staffs because of their ownership of Internet firms. The industry as a whole pared the workforce by about 5,200 employees.
The situation was not all bleak for the industry’s long-time companies themselves, however. A number of the new upstarts are mobile virtual network operators (MVNOs) that lease transmission facilities hosted by existing cellular firms.