Taking Stock / Stupid Market

Remember the wailing?

Monotonous, unceasing, heart-rending keening; howls of agony as the stricken industry staggered toward collapse, sobbing about workers thrown to the dogs, direct harm to customers, morale, foreign investment, faith, the Jewish nation.

The shrillest sniveler of the lot was Partner Communications, given its status as the only publicly traded cellular carrier among them all. Lowering interconnect fees would unleash a holocaust on the cellular sector, it warned.

We at Haaretz felt a little differently, as evinced in this column. We didn't think that slashing interconnect fees would destroy the industry, simply because the industry is a monopolistic and mighty one. We thought it would create a more competitive structure in which it would be harder for the companies to squeeze the consumer.

We felt that cellular has long lost its competitive aspect, mainly insofar as household customers are concerned. Three companies, Partner, Cellcom and Pelephone, share the market and most subscribers are captives because of the costs of incoming calls. This is beautifully demonstrated by the advent of Partner, the youngest of the three: ostensibly it posed new competition, yet prices did nothing but rise.

Size matters

Cellcom's marketing manager, Yossi Lubaton, who arrived at cellular from the cruel, competitive world of hamburgers five months ago, explained the matter in remarkable terms this week: "I have grasped that the real competition here is over who has the biggest."

Aha. Competition, we are to understand, is about the egos of managers who want advancement and headlines, not about customers.

Much like the situation in the banking establishment, the oligopolistic structure in cellular has made the companies flabby. They have hundreds of workers they don't need, who are overpaid to boot.

Officially, the companies deny all, but their top people admit it in private conversation.

Anyway, re the suffering, we'd had our opinion and they'd had theirs, which is legit. And the communications minister had hers: she folded and reduced interconnect fees by a third of the recommended scope.

How did the companies respond?

Naturally, they continued to wail that the public simply didn't understand the magnitude of the disaster. Partner issued an announcement declaring that the Communications Ministry ruling would substantially worsen its business.

At the time, I asked one of the cellular managers whether the cut really was that onerous, and how he explained the fact that Partner's stock hasn't lost ground, it was trading higher than when the cut had been announced. Without blinking an eye, he answered: "The market is stupid." It doesn't understand the magnitude of the problem, he amplified.

Somebody has faith in the company

Three months later, Partner's Israeli shareholders - Shaul Elovitch, Itschak Shrem and Nochi Dankner - decided to divest their shares in the company. One might think it was because of the interconnect fee cuts, which was wreaking havoc in the cellular industry, or as Partner said, which would substantially impair its business results.

But somebody obviously thought the selloff was an opportunity to buy. Who? Partner's management itself! Goodness gracious.

Partner announced that it was buying the shares from the Israeli shareholders at a 15 percent discount below the market price on the date of the announcement, which had been NIS 32 per share.

Wait a sec. Thirty-two shekels was Partner's share price when it announced the anticipated substantial damage to its business because of the interconnect fee cut.

So you tell us whom we should believe: Partner CEO Amikam Cohen when he tells us that lowering the fees will wreak a holocaust on the company, or, Amikam Cohen explaining that the shareholders selling created a fantastic opportunity to buy shares in this excellent company whose business was expected to get better and better.

In short, why would Partner borrow a billion shekels to buy shares in itself if it thought its business was about to substantially worsen?

For our part, we believe cellular will continue to be a cash machine with tremendous power over consumers, which has no trouble imposing rate hikes on the market, because the regulators are spineless and the public has no real alternative. We also believe that the $1.5 billion market capitalization Partner has achieved reflects the market's opinion that it really is an excellent business.

In short, we think they're all doing spectacularly well: Amikam Cohen, Itschak Shrem, Nochi Dankner and Shaul Elovitch. The only one being hurt, not that anybody cares, is the Israeli in the street. Cellular has become part of his life and he will continue to pay his onerous "cellular tax" for many years to come.