As my esteemed colleague and Facebook master, Zack Miller asked about a month ago, the question is: where is future growth in the Israeli cellular market going to come from, given such high levels of saturation? Current penetration levels are more than 120%.
Amos Shapira, CEO of Cellcom said,
Our continued growth in all parameters is especially significant given the increasing competition in the market and airtime price erosion, due to the additional mandated decline in interconnect tariffs, and the new regulatory regime regarding calls ending in voicemail, implemented in the first quarter this year.
Therein lies the problem. With falling airtime prices, stiff competition, and new Ministry of Communication regulation, it sure seems to me that it’s going to be a tough road to continued growth in the future. How many services can they cram down consumers’ throats?
Another issue: In December, number portability will take effect. This means that customers will be free to take their phone numbers with them to any carrier they choose. I would expect a large jump in marketing expenses from Cellcom, as well as Partner (PTNR), as they will have to fight tooth and nail to 1) retain current customers, and 2) tempt potential customers away from the other carriers.
This all is great news for the Israeli consumer, but doesn’t seem to me like a recipe for investors to profit in the long-run.
Disclosure: The author’s fund has no position in any of the companies mentioned as of August 14, 2007.