Israel has world’s lowest rate of wireless investment

According to Merrill Lynch study, Israeli carriers distribute dividends more than they invest in telecommunications infrastructures.

By GAD PEREZ
December 9, 2010 00:50
2 minute read.
cellphone tower 248.88

cellphone tower 248.88. (photo credit: Noam David )

 
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Israel is the country with the lowest investment in mobile infrastructures in the world, according to a study by Merrill Lynch. The study raises a critical question about the economic repercussions of the level of services Israelis receive from their mobile carriers. The repercussions are long-term and drag Israel down to an unflattering position in international comparisons, while consumers receive poorer but more expensive services than consumers in other countries. The lack of investment is most marked in mobile Internet.

According to the Merrill Lynch study, Israel’s Capital expenditure (Capex)/sales ratio, which measures mobile operators investments, shows that Israeli carriers – even allowing for the country’s small size – distribute dividends more than they invest in telecommunications infrastructures.

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Even though it is not possible to draw a direct connection between last week’s breakdown at Cellcom Israel Ltd. and the company’s investment or cutbacks in engineering in recent years, it is also impossible not to wonder whether there is a similar ratio in other countries, or if greater investment by Cellcom in its infrastructures could have prevented such errors.

Merrill Lynch’s table shows that Bezeq Israeli Telecommunication Co. Ltd. invests somewhat more, but the figure is misleading because of the company’s investment in its Next-Generation Network (NGN). In general, its level of investment is still below the global average.

According to Merrill Lynch, the global average capex/sales (revenue from services only) ratio in 2010 was 16 percent, compared with 8.5% in Israel. The ratio is 17% in emerging markets, 12% in Europe, 16% in Latin America and 13% in the United States.

The figures for 2009 are similar: The global average capex/sales ratio was 17%, 18% in emerging markets, 13% in Europe, 14% in the US and 9% in Israel.



“There are several reasons for Israel’s position relative to the world,” Merrill Lynch EMEA deputy research director Haim Israel said in the report. “First, it is a very small country, and it’s easy to network it. Equipment is equipment; when you place a 3G antenna and fully cover a few square kilometers, it’s an absolute value. It doesn’t matter if you’re in Russia or Israel. You still cover the same area.

“Since 70% of Israel’s population is located in three metropolitan areas with a total area equal in size to Moscow, you need a lot less money to network them, and it becomes feasible to network the entire country. The second thing is Israel’s topography, which is mostly flat.”

Migdal Capital Markets analyst Amir Adar cited similar reasons. “It’s one of the features of Israel in terms of network coverage,” he said in a report Wednesday. “We see that the geographical distances help the mobile carriers. It’s reasonable to assume that, as with other items, investment will be affected by the reduction in connectivity fees and the operators will try to cut these items, too.”

Partner Communications Ltd. said in response: “One of the company’s important values is its technological lead, and the company constantly and continually invests in new infrastructures, services and products. Partner just recently announced a $100 million investment to upgrade its network to 4G.”

Cellcom said in response: “We’d be happy to see the study’s results and examine them.”

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