Pelephone, the third largest mobile operator in Israel, announced last week that it had returned to profitability in the second quarter of 2002, posting an operating profit of ILS20 million (EUR4 million), up from a loss of ILS26 million in the first quarter and a loss of ILS32 million a year ago. The company attributed its improved performance to a record increase in new subscribers; it added 71,000 new customers in the quarter, taking the total of active subscribers to 1.87 million, up from 1.68 million at the same time in 2002. However, Pelephone still posted a net loss of ILS29.4 million in the second quarter, mainly due to expenses of ILS49.3 million. Revenues grew to ILS984 million, an increase of 4.4% on the previous quarter, but a decline compared to the same period of 2002, when it stood at ILS999 million.
Israel has one of the most competitive mobile markets in the region. It is home to four operators although the market is essentially split between the top three. Bezeq-owned Pelephone is the third largest mobile operator in Israel, behind Cellcom at number one with 2.6 million customers at the end of June, and Partner Communications at number two with 1.94 million. The fourth operator, MIRS, is a relative newcomer having been awarded a full cellular licence in February 2001; previously the company had provided mobile services to the government and the commercial sector. The company has made little impact on the market, largely because it had already reached maturity by the time MIRS launched leaving little room for a new entrant; at the end of June 2003 MIRS claimed around 275,000 customers to its GSM network.
Competition in Israel is exacerbated by the quest for new subscribers, which are few and far between. Furthermore, the potential market is largely made up of low spending users, hence the operators’ focus is now clearly aimed at acquiring high value customers from each other. The cellcos are also keen to seek out new revenue streams as subscriber addition has dwindled and have therefore embraced data services and are ploughing investment into 2.5G technologies. The award of UMTS frequency in late 2001 has sparked controversy in the market. While Partner Communications is compelled to launch 3G services in 2003 according to the rollout timetable of its parent company Hutchison Whampoa, Cellcom and Pelephone have delayed commercial launch until 2005 at the earliest. The operators have come into conflict with the regulator over payment for the UMTS frequencies and are refusing to stump up for frequencies that they are not using. They have said they will not return their licences to the government without a refund. The debate is expected to continue for some time.