New Report into Israeli Market

According to new IDC research, users spent around US$3.97 billion on telecommunications services in Israel in 2003, with the market expected to show an average annual growth rate of 2.3% through 2008. Spending on voice services still represents more than 90% of total expenditure by private and commercial customers.

Competition among cellular operators is not about price but about advanced services. IDC believes that operators should attract revenue from services provided on non-wireless platforms in order to expand the market, rather than create a scenario in which revenue from voice services is transferred to revenue from data services. Average revenue per user (ARPU) from a cellular subscriber in Israel is US$36.36 per month, US$3.36 of which is for data services. Data services are expected to rise 23.8% annually until 2008. In its research IDC includes revenue from SMS services as revenue from data services.

In 2003, almost 1.5 billion SMS messages were sent, an increase of 14.2% compared with 2002. IDC forecasts that MMS messages will rise by 77.9% annually until 2008. In 2003, 31 million MMS messages were sent and in 2004 this number is expected to grow to 69 million.

IDC forecasts that new competitors in the international call market will reduce the market's size and increase the financial pressure on players in the market, which only recently moved into the black. The benefit to the consumer will increase through price reductions expected in such a scenario but the revenue will be divided between a greater number of providers. This is likely to damage the financial stability of all current service providers. Demand for international call minutes will increase but not by enough to compensate for the expected price reduction.

In 2003, 1.06 billion call minutes were made from Israel, an 8.5% decrease compared with 2002. In 2004, IDC forecasts a 1.2% increase in the number of call minutes from Israel, although there will be a 14.8% decline in revenues of international operators from these call minutes.

Competition between Bezeq and cellular telecommunications operators in general, and Cellcom in particular, is shifting gear. Cellcom is competing aggressively with Bezeq in data services to the business market, which Cellcom is targeting with attractive prices. Bezeq is losing market share mainly because it has been slow to react, due to regulatory limitations and its own inflexibility. But Bezeq is changing the way it thinks, from a monopoly to a company operating in a competitive market, and when its liberalization process is complete, it will be able to compete much more effectively.

"The cellular telecommunications market in Israel needs to adopt a mass-market distribution channel approach," said Gideon Lopez, research director for IDC Israel. "Creating partnerships with external content providers and retailers that are not necessarily from the cellular world - fashion companies and brands from other sectors, for example - will help divert spending from other areas into the cellular market." Service providers with the advantage of mobility and location-based services are another significant target for value-added business partnerships, Lopez added. The "walky talky" field, featuring PTT (push-to-talk) over cellular technology, is also seeing higher demand. IDC identifies increasing adoption of these services around the world, a process that is expected to accelerate in Israel too, with implications for MIRS, the Israeli iDEN PTT technology operator."

Posted to the site on 19th February 2004