Taking Stock / Who's Going to Shake Up the Telecom Market?

"If I kill myself or die in a traffic accident any time in the next three months, you'll know that the threats were serious, because I am not feeling at all suicidal and I drive very slowly."

Nathan Levy is founder and chief executive of the fledgling Israeli telecommunications company Odyssey. The company revolutionized the entire field of providing Internet access. Now it wants to repeat the act in Israel's cellular sector.

Levy is therefore bracing for any kind of attack, having not forgotten how the manager of one of Israel's biggest telecom companies said to him in 2004, "I'm going to nail you to the wall and kill you."

Maybe Levy is a little paranoid. Actual physical violence isn't the norm in Israeli business circles, even though he means to violently shake up the most profitable industry in the land.

For the last five years Israel's cellular service providers managed to foil any nascent competition. Now the government has decided to introduce competition over their dead bodies, so to speak, and published a tender for a fourth vendor. If Levy's Odyssey wins, he means to burst into the cellular market with the same brand name through which he provides the Internet service - "Free."

His marketing plan is simple. He's going to slash cellular rates in half and let people talk as long as they want for free.

Bank Hapoalim analysts estimate that this strategy will increase Odyssey's operating profit by 50%, and slash profits at the three big cellular companies by 10% to 23%.

Levy points out that the prices Israel's cellular service vendors charge are practically identical, and that their profit margins are about the highest in the world, with Ebitda running at about 40% of turnover. Advanced services such as Blackberry, which does exist in Israel, and iPhone, which doesn't but will any day, are prohibitively expensive.

To block Levy, the cellular trio fielded lobbyists who brandished the populist argument that speaks straight to the hearts of Israel's politicians: If you hurt our profits, we'll have to lay off workers.

Levy is an outsider in Israel's business world. He doesn't belong to that cozy junta of entwined wealth and government. His big breakthrough came when he revolutionized Israel's broadband Internet services market. The Israeli regulator allowed Odyssey to offer the consumer a package of cable television, broadband Internet access at 2 megabytes per second, local phone calls and long-distance, all for NIS 150 a month. Yes - television, Internet and unlimited phone calls for NIS 150 a month. When Odyssey hit the market, Israel's Internet service providers were charging 50% more for a package including just Internet access, at half the speed.

Odyssey's explosion into the markets of Internet, local and long-distance calls forced the competition not only to gradually lower prices, but to innovate.