A reason to have more carriers here in the US

[Fire14]

Lack Of Price Wars Aids Israeli Wireless Service Providers

Israelis love to talk -- just ask any of the country's wireless phone companies.


Shares in Israel's two biggest wireless firms, Cellcom CEL and Partner Communications PTNR, have been on a roll. Partner's American Depositary Receipts have more than doubled in the past year to near 16. Cellcom started trading on the New York Stock Exchange in February at 20 and now trades near 25, a 25% rise.

Cellcom and Partner each hold about one-third of Israeli's wireless market. Pelephone, owned by Israel's wireline phone company Bezeq, runs close behind, with a 29% share.

Israelis gab on mobile phones more than cell phone users in Western Europe, Japan and Korea, though not as much as U.S. users, who are tops. Israelis burn up about 320 minutes on average each month, says UBS Research. In the first quarter, Cellcom's customers averaged 350 minutes, an all-time high.

Increased minutes of use is a key metric for Israeli's wireless firms because new customers are hard to come by. Most people in Israel already have mobile phones.

Israel's wireless firms have steered away from price wars, which is a big reason the firms are prospering, says Jonathan Schildkraut, a Jeffries & Co. analyst.

"Competitively it's much different than the U.S.," he said. "(Israel's wireless firms) tend to be more (profit) margin-focused than market-share focused. They tend not to get aggressive on the pricing side. They deliver strong cash flows and net income in an industry that's not really high growth."

Both Cellcom, majority-owned by Israeli holding company Discount Investment, and Partner offer shareholders a perk. Cellcom's stated policy is to pay out 75% of net income each quarter as dividends. Partner doles out 40% of net income as dividends.

Nearly 3 Million Subscribers

Cellcom added 44,000 subscribers in the first quarter, giving it 2.93 million customers. Partner brought in 35,000 subscribers, bringing its total to 2.7 million.

In a country with an official population of some 6.5 million people, there are said to be about 8 million cell phone users. Wireless market penetration, then, would be a hard-to-believe 120% or so. The real number is closer to 85%, analysts say. Some wireless users have multiple SIM -- subscriber identification module -- cards that they can plug into cell phones to use the phones.

Still, 85% is a lot. Israel's wireless market might seem to be saturated, but that's not the case, says Alexander Wright, a UBS analyst. He says the population is growing at about 1.7% each year, aided by immigrants. Israel also attracts many foreign workers who sign up for cell phone services, he says.

Israel's strong economy is giving consumers more money to spend on wireless services. Its gross domestic product rose 5.1% in 2006. UBS forecasts that Israel's GDP will grow 4% to 5% in 2007. By comparison, latest government figures have U.S. GDP growing at less than 1%.

Cellcom's first-quarter subscriber growth and increased minutes of usage surprised analysts. Cellcom's revenue rose 7.3% to $345.7 million, while Partner's sales increased 6.9% to $340.8 million.

UBS' Wright says takeover speculation has fueled Partner's stock run-up. Partner is 52.2% owned by Hong Kong's Hutchison Telecommunications International, which is controlled by Hutchison Whampoa.

Hutchison Telecom has been a willing seller at the right price. It sold a controlling state in India's No. 3 wireless firm, Hutchison Essar, to Vodafone VOD for $11 billion earlier this year. In 1999, Hutchison sold off U.K.-based Orange, now part of France Telecom FTE, to Germany's Mannesmann for $35 billion in cash and stock.

One reason Hutchison might sell Partner is because of politics, analysts speculate. Egypt-based Orascom Telecom Holdings bought a 19% stake in Hutchison Telecom in December 2005. Some Israeli politicians are uneasy about Orascom's indirect stake in Partner, seeing potential security conflicts.

Regulators Want Competition

Cellcom and Partner, on the other hand, would seem to be limited in making their own wireless acquisitions because of regional politics, analysts say.

At Jeffries, Schildkraut says Cellcom might expand into Israel's corporate market with wireline services. That would make it a rival to Bezeq, which is now owned by the Apax-Saban-Arkin investment group.

In the wireless market, Israel's regulators are mulling whether to create more competition. Aside from Cellcom, Partner and Pelephone, the only other player is MIRS. It's a joint venture between Motorola Israel and Ampal American-Israel Corp. MIRS has about 5% market share.

Goldman Sachs analyst Jason Armstrong says Israel's regulators might let a new wireless player buy network airtime from existing carriers and resell minutes to subscribers. Such firms are called MVNOs, for mobile virtual network operators. Incumbents, though, argue that Israel's wireless market is already too crowded.

"We have made our position known that there is no room for MVNO introduction in Israel," David Avner, Partner's chief executive, said during a recent earnings call with analysts. "We believe the market has high penetration, and prices in Israel for outgoing minutes and incoming minutes are low."

Source: Investor's Business Daily

Lack Of Price Wars Aids Israeli Wireless Service Providers

[Andy]

Even small European countries sometimes have as many as 4 or 5 carriers, and dozens and dozens MVNOs underpricing each other...Competition is great!