Savvy consumers lift local telcom business

"The telecom market is one of the most interesting and fast-developing markets in Israel and around the world."

cell phone 88 (photo credit: )
cell phone 88
(photo credit: )
The conventional wisdom in Israeli commerce is that to succeed financially, a firm must have its focus clearly on its international business, with the understanding that there is little money to be made from the country's mere seven million residents. But with the telecommunications sector's thriving growth here over the past years, it may be time to overturn some of those assumptions. A supportive regulations environment and a technically-savvy consumer base are two of the factors that have brought Israel to the forefront of telecommunications not only when it comes to invention and engineering, but even in regards to consumerism. The first factor to consider is the governmental push to open a market that for many years was monopolized first by the government itself and, beginning in 1984, by state-owned Bezeq. In 2005 the government sold its last stake in the company, which has transformed itself from a socialist-era bureaucracy into a modern, competitive corporation. That transformation has been brought about by aggressive competition from local telcom players who have taken advantage of government liberalization in the sector. The shift in the industry, and, an important step in Israel's development as a modern capitalist economy came from a small, pocket-sized device - the mobile phone. The Israeli cell-phone craze began in the mid-1990s, when the device began to spread from the elite to all sectors of society. Today, four companies compete for the business of teenagers the elderly, and everyone in between. In fact, there is more than one cell-phone per citizen in Israel, as many own more than one. "The telecom market is one of the most interesting and fast-developing markets in Israel and around the world," said Isaac Benbenisti, CEO of Bezeq International. The company, which deals with long-distance phone calls, internet access, and telecom solutions for businesses, is a subsidiary of Bezeq. "We see development in the realms of Internet bandwidth, the types of content available online, and the convergence of different aspects of telecom. For instance, companies will not purchase a free-standing telephone system anymore, it will have to be integrated into the computer system." Eran Ya'akovi, an analyst with Leader Capital Markets, thinks that Israeli telecommunications companies have what it takes to weather an economic downturn. "Israelis currently spend some 4.4% of household income on telecommunications. It's hard to imagine a sharp drop in spending on cell phones, Internet or cable/satellite television." Benbenisti agreed that he didn't see the global crisis as having a significant on telecom spending, whether residential or commercial. "Whether it's Internet for residential users or servers for a company, those aren't the things you cut back on to save money. Consumers will cut back on luxury items, but not their cell phones." In July, Ya'akovi wrote an article encouraging "defensive" investment in telecommunications during these risky economic times. Now, he told The Jerusalem Post, his analysis seems especially prescient. "Everything I wrote then is relevant today - just more so," said Ya'akovi. Ya'akovi is of the opinion that these companies have strong economic fundamentals, citing yearly "immense" cash flows and generous dividends (averaging eight percent per year). He sees the companies becoming more efficient and predicts that intensive marketing will lead to additional users adopting advanced mobile Internet technologies. "The one caveat that I would add to my earlier recommendations is that in these times of tight credit, it is a good idea to stick with the larger telcom companies, i.e., Bezeq, Partner and Cellcom, rather than the small companies, which may suffer from the lack of liquidity," said Ya'akovi.